London’s tower fire has raised questions over inadequate safety standards

Contributed by `Ben Wilson

The terrible fire that engulfed a 24-story block of flats in central London (Borough of Kensington and Chelsea) and known as Grenfell Tower, was a terrible tragedy that took at least 12 lives and injured a much larger number injured. Some seriously. Continue reading London’s tower fire has raised questions over inadequate safety standards

Australia’s billionaires and their connection to government

By Joe Montero

An article written by Peter Martin, economics editor of the Age (28 May 2017) is an eye opener for anyone not familiar with the connection between government and Australia’s billionaires in Australia. The practice is so rampant that Australia ranks as one of the worst in the world.

What is left out is the connection that this has with the rise of the finance industry over the last 30 years.

Martin quotes from the work of professor Paul Frijters and economist Gigi Foster, who examined the Rich 200 List for the Australian Economic Review in 2015 and recorded then  in a book coauthored by Frijters and Cameron Murray called Game of Mates.

“over 80 per cent of the wealthiest Australians have made their fortunes in property, mining, banking, superannuation and finance generally – all heavily regulated industries in which fortunes can be made by getting favourable property rezonings, planning law exemptions, mining concessions, labour law exemptions, money creation powers and mandated markets of many stripes”.

The book suggests that seeking “favours, be they planning approvals or the right to build casinos or toll roads, is what makes Australia go round. Certainly, it makes Australia’s job market go round. Local council planners move into positions with developers, state and Commonwealth government ministers take up positions with companies they used to regulate and former Treasury officials sit on the boards of private banks”.

Martin describes this as a particularly Australian way to make money. Unlike people like Larry Page and Sergey Brin did with Google, Steve Jobs did with Apple, and Bill Gates did with Microsoft, who did bring something new to the world, these people do no such thing.

They made their money by doing things that anybody could have done and they were able to do so, he says, because they had the right connections.  Government provides the opportunities.

Peter Martin labels this as “a particularly Australian way to make money”, and “where Australia has more in common with Columbia than with the United states”.

A study by two United states economists Sutirtha Bagchi and Jan Svejnar used the international Forbes Rich List and an extensive search of newspaper reports to estimate the proportion of

Based on the data, they pointed out that four countries stood out and they were Colombia with 85 percent of billionaires being politically connected, followed by India with 66 percent, Australia with 65 percent and Indonesia with 64 percent.

Martin quite rightly points out that this arrangement makes it likely that there is little threat of billionaires being taxed more in Australia, any time soon.

There is another part to this story.  Australia’s billionaires are in partnership with much bigger entities. Those involved in the development game need to raise considerable capital. They do not finance out of their own pocket, but raise the funds from other sources from the banks. This applies even more in the mining industry.

All roads point to the banks. They are where the collective store of investment funds is held and  released for a percentage. The point is that they create debt and this debt gives them enormous power. For instance, you could be a Gina Rinehart raising the capital to start up a new mine. The bank supplying it has the leverage to impose conditions. It can recall the money and this can make life difficult for the borrower. Although the billionaires might be in a better position than the average punter, they remain dependent.

This means  the banks must be implicated, in whatever level of corruption there is. More so, when government itself depends on raising funds from the same banks.

According to a 2012 report by the International Monetary fund, major banks are highly interconnected. Credit Card Compare reported that they not only transfer funds between them, but shared the same four major shareholders. They are nominee companies controlled by the American banks (Citibank and JP Morgan) and a major British bank (HSBC). There is Also National Nominees that acts on behalf of less clearly defined clients, most of which are registered in tax free havens.

The same banks own large parts of most companies registered on the Australian Stock Exchange. This gives a small group much more power than most would ever suspect. A power that has a global dimension. This is critical. Because it is not likely that a connection with government for favourable treatment would exist without their involvement.

Australia is at the top of the charts in something else and that is the most deregulated financial sector of any comparable economy. The assertion being made here is that there is a connection between the giving out of government favours and the deregulation of finance. If you want to get rid of one, you have to get rid of the other.

Among other changes, deregulation meant that government had less capacity to regulate the monetary side of the economy and to use its control to divert funds for its own needs.It has been a major pusher to privatise government concerns to secure funds to balance the books and creating a major potential for generating close business contacts between government and the business sector

Banking became riskier with the loosening of controls over reserve and liquidity ratios, the rise of new financial institutions and greater exposure to the global financial system, which meant a more unstable exchange rate and subjection to the whim of major global investors and institutions.

Reduction of government control meant that credit could no longer be targeted towards priority areas. It quickly became a free for all. Government could no longer issue directives that would compel the banks to behave in a given way.

Deregulation has created a recipe for corruption.

G7 meeting fails to make stand on key issues

By a supporter

Leaders of the Group of Seven (G7) nations completed a two-day meeting at the Italian town of Taormina (Sicily) end of last week. It included the heads of state of the United states, Great Britain, Canada, France, Germany, Italy, Japan, as well as the European Union.

They signed a joint declaration against terrorism that according to the document, signatories will work together manage “the risk posed by foreign fighters as they disperse from theatres of conflict” and to “take action to cut off sources and channels of terrorist financing”.

The statement also said: “Since the lack of social and economic inclusiveness and opportunities may contribute to the rise of terrorism and violent extremism, we commit to address these issues through a comprehensive approach linking together security, social inclusion, and development”.

However, the declaration failed to move past statement, to include concrete obligations to deal with the social and economic issues and the support of foreign governments to various terror groups. Critics suggest that these omissions will make the declaration ineffective.

Environment protection organisations had lobbied for action on climate warming. But progress was stalled by Donald Trump’s intransigence on behalf of the United states, including indications that the coming Climate meeting in Paris will be boycotted. The reason. Denial that the problem exists.

Even though the other participating nations have the opposite view, Trump’s isolation did not mean that he would be unsuccessful in preventing progress on this front.

Italian Prime Minister Paolo Gentiloni, the summit’s host, said separately that there was “no agreement” on the Paris accord.

The final communique merely stated commitment to the Paris Accord ad noted that the United states has not decided yet.

The third big issue concerned the refugee issue. G7 representatives met with African heads of state and government on the weekend to discuss this and development.

Leaders of Kenya, Ethiopia, Nigeria, Niger and Tunisia were invited to join the talks, along with representatives from six African organisations, including the African Union (AU), as the G7 wrapped up its two-day annual summit.

Italian Prime Minister Paolo Gentiloni’s government wanted G7 partners to provide substantial help to crucial African countries in terms of investments and development policies, to stem the endless flows of migrants and refugees fleeing poverty, destitution, and war.

European Commission President Jean-Claude Juncker and European Union (EU) Council Donald Tusk also attended the meeting.

Hundreds of thousands of migrants and refugees have been risking their life crossing the Mediterranean from African coasts to Europe in the past years, and 1,520 people were estimated to have drowned in the attempt as of May 24, according to the United Nations refugee agency UNHCR.

Italy has registered over 50,400 new arrivals so far, this year, and some 181,000 in 2016, which in both cases would represent the large portion of all arrivals to Europe.

Once again, it was the United States that was the spoiler, pushing against measures to resettle refugees and for the emphasis on preventing their arrival in the first place.

Therefore, the final statement failed to go beyond: “The ongoing large-scale movement of migrants and refugees is a global trend that, given its implications for security and human rights, calls for coordinated efforts at the national and international level”.

Documents reveal Banks losing battle in image repair

By Joe Montero

Australia’s major banks are having a rough ride, not in terms of the profit they are making, but in the way they are seen to operate.

Never has the image of banks been so low, regarded by the average Australian as greedy, overcharging, providing poor quality, making too much money and enablers of corporate the tax dodging industry. This is the reason why proposals for an inquiry are so popular.

Evidence shows that the banks are getting extremely worried about this public perception of them. They have spent almost $7 million in a year trying to fix their image and ward off pressure for an inquiry.  The public relations campaign has been a spectacular failure and this is adding considerably to the worry.

The problem is that there is substance to the accusations and no amount of soft sell is going to change this. Only change will.

So serious is the feeling against the banks that politicians are compelled to publicly distance themselves. This is part of what is behind the the $6.2 billion tax on the banks in the May budget, even if it going to be paid by the customers. at heart, the government remains sympathetic to the banks and is working hard to combat pressure in parliament for a Royal Commission. It must also cover itself politically, using diversion and pretending it too is concerned about the excesses of the banks, to respond to  a deep sense of betrayal, by the government’s failure to date to take any significant action.

It is even talking about imposing more regulation and accountability measures.

Leaked documents, which include agenda papers from several Australian Bankers Association meetings and a new battle plan drawn up in April, by the Australian Bankers Association’s (ABA) public relations consultants, Newgate, highlight an acute awareness inside the sector about its image problem and frustration at being unable to combat it.

An ABA council agenda warned in December that there were two scenarios the industry faced in the “coming months and years”.

The first was “death by a thousand cuts from the current government, which has made it clear that, so long as banks remain a political issue, it will continue to make new announcements against the banks, including imposing new regulations and making further demands for banks to fund government initiatives”.

This refers to the extra powers and resources granted to the regulators in 2016 for which the banks were made to pay.

The second scenario was “a royal commission initiated by a Labor government”.

“The ABA’s assessment is that there is an 80 per cent chance of a royal commission into the industry in the next two to three years,” the ABA agenda says.

“The two scenarios are not mutually exclusive and both could play out.”

It says the banking industry’s political problems were being “compounded by a growing reaction in Australia against big business and those seen to profit from a political and economic system that many Australians feel does not benefit them.”

The papers detail that the ABA had already spent $2.6 million on a six-point plan launched in April 2016 designed to protect consumer interests, increase transparency and accountability, and build trust and confidence in banks.

The December agenda  confirms a six-point plan to convince Australians that the banks were taking measures to protect consumer interests, increase transparency and accountability and build public trust and confidence in the banks had fizzled.

So, it was decided in January 2017 to add another three measures and then launch a Better Banking campaign, which, at the cost of a further $3 million, aimed to “educate key stakeholders about industry-led initiatives to deliver better products, services and culture with the banks”.

In April this year the ABA spent another $1.25 million for Newgate to develop a 14-point plan, which was to guide the new ABA chief executive, the former Queensland Labor premier Anna Bligh.

Despite the new measures, Newgate warned that “there is a lot of evidence that political momentum will continue to build against the industry” and for significant remedial action following the conclusion of “numerous parliamentary committees “. The banks have been told to expect hardening political rhetoric against them.

The ABA has also commissioned former ASIC executive general manager Phil Khoury to conduct a review of the Code of Banking Practice, which sets standards of good conduct for banks, and commissioned former Public Service commissioner Stephen Sedgwick, to conduct a review of commissions and payments made to bank staff and third parties. They have also appointed customer advocates to help when things go wrong.

They are worried and have good reason to be. Australia will continue to demand action to clean up the operations of the banks until it becomes a reality.

 

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Uluru Indigenous Convention goes for a treaty

By Jim Hayes

The Uluru Convention of 250 leaders of Australia’s First Nations has ended up rejecting the focus on constitutional recognition, in favour of working to secure a sovereign treaty.

A second proposal taken up, concerning Indigenous voice in parliament was more controversial. Some delegates were concerned that this might compromise sovereignty.

Despite this, the unity was remarkable and it sends a strong message to the rest of Australia.

Delegates and experts had come together after six months of dialogue around Australia and the result marks a significant departure from symbolism that has been put forward by non-Indigenous politicians and a turn towards securing a treaty that will bring about tangible results.

The 2010 bipartisan statement from Canberra that led to towards constitutional recognition has been soundly rejected.

Professor Megan Davis won support, after delivering a powerful statement from the group asserting that sovereignty had never been ceded or extinguished.

“All of the dialogues, including the one-day information session in Canberra, rejected totally outright having some sort of acknowledgment in the constitution,” Davis said. “That was totally rejected by all of the meetings and everybody we’ve spoken to over this six-month period.”

A statement issued at the end of the Convention said that the high rates of incarceration, youth detention and child removal showed the need for a significant practical change, not a symbolic reform. This document is referred to as the statement from the heart of the nation.

“We seek constitutional reforms to empower our people and take a rightful place in our own country. When we have power over our destiny our children will flourish. They will walk in two worlds and their culture will be a gift to their country,” it says.

The statement adds that a makarrata, a Yolgnu word for treaty, was “the culmination of our agenda” hitting the point home with the words, “In 1967 we were counted,” and: “In 2017 we seek to be heard.”

The essence of the argument is that those who were here before white settlement are sovereign peoples and this is what must be acknowledged. Constitutional recognition on its own denies sovereignty and can therefore not be accepted.

“This sovereignty is a spiritual notion … It has never been ceded or extinguished, and co-exists with the sovereignty of the crown,” the statement reads. “With substantive constitutional change and structural reform, we believe this ancient sovereignty can shine through as a fuller expression of Australia’s nationhood.”

The proposed treaty commission would be given the dual task of working towards a treaty and engaging in a public truth-telling process.

Canberra has yet to respond. The unity of purpose at Uluru cannot be ignored. The question now is whether the politicians are prepared to listen. Even if they do not, a game changer has taken place that has shifted the focus of the debate on reconciliation across all parts of the Australian population.

 

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Property crash fears downgrade Australian banks

By Joe Montero

Fears of an Australian crash in property prices have been around for quite a while.  Regardless, property prices have continued to rise.

But in the last month or so, they have stabilised and even gone down a bit in Melbourne and Sydney, the two places that are at the heart of the price bubble. Nevertheless, they are not crashing, as they have in some other countries.

The reason for this is that Australia has some unique factors that makes our housing bubble a special case.

Because of the existence of a generous negative gearing provision, housing stock has been turned into an attractive investment option, not so much for the home buyer, but for the corporate buyer seeking a higher return in a lack lustre investing environment.  Consequently, it is not those buying a home to live in that are keeping up the price. It is the corporate investor, able to do this, thanks to the generous handout of taxpayers’ money,on the basis of recompense for loss of potential rental income. This is guaranteed to keep up the price. And it has gone up by 250 percent since the 1990’s (OECD figures)

A second consequence of negative gearing is that for the corporate investor with a large stock, it is more profitable to take the property out of the rental market. This is why Australia’s two biggest cities have about 80,000 vacant residential properties each. This is replicated proportionally around the country, creating an artificial shortage that pushes rents up. This also buoys up property prices.

corporate investors also enjoy write offs on the Capital Gains Tax.

Buying residential property has become an attractive proposition in its own right and it is useful as a means to transfer funds from other business activities to minimise company and personal tax obligations.

A further factor is the nature of Australia’s financial market. It is heavily dependent on investment from overseas. This means that it reacts to changes in the global financial market and the national financial markets from which this investment comes from. The two main ones are the United States and Great Britain.

If the investment climate in these countries worsens, investment funds will turn up in Australia, which tends to run on opposite short and medium term cycles. Some of it turns up in the housing market. The greatest part of corporate investment in Australian housing property comes via companies registered in Singapore, but using funds that traditionally mostly originate from Great Britain. Some up to date research is needed on this. Nevertheless, enough is known to see the pattern.

Investment in assets that come with the guarantee of government payouts is attractive to foreign investors in an uncertain global market and an Australia that for now is relatively stable.

Without these factors coming into play, it is doubtful that property prices would have kept on rising for so long. It still will not last forever, because there is one inescapable fact. Sooner or later, the price becomes too high for too many people to afford and the market will start to cave in. We are close to this point, and this is why it is starting to get a little shaky.

Enough for the ratings agency Standard and Poores to downgrade Australia’s financial sector, because of a belief that “economic imbalances” caused by soaring private-sector debt and property prices, are leading to a potential precipice.

“Consequently, we believe financial institutions operating in Australia now face an increased risk of a sharp correction in property prices and, if that were to occur, a significant rise in credit losses,” the agency wrote.

High housing costs is the major reason why Australia’s personal debt level is the highest in the world. This is not sustainable. The longer the property bubble continues, the large the level of personal debt and this suggests that a crash could be in the making.

The Standard and Poores downgrade follows a March report by OECD warning that soaring house prices and ever-rising household debt had exposed the Australian economy to “extreme vulnerability”.

The rating downgrades applied to 23 financial institutions, including AMP, Bank of Queensland, and the Bendigo and Adelaide Bank.

The notable exceptions were the ‘Big Four’ (AA-) and Macquarie (AA), which kept their ratings, but only because the agency presumed they would be bailed out by the government in the event of any catastrophe.

The financial institutions are on the one hand heavily exposed to risk with the level of debt tied up to housing loans. They are even more exposed with the level of debt owed overseas.  The collapse of the real estate bubble could place their ongoing survival at risk.

As defaults multiply, This would mean the spread of the crisis through the whole economy.

Bernie Fraser and John Edwards say increase taxes on wealthy

 The following from Elysse Morgan (ABC 17 May 2017) shows just how widespread has become the rejection of increasing the income of those at the top, at the cost of those lower down, as the means to economic recovery has become. When people with backgrounds like Bernie Fraser and John Edwards feel compelled to speak out, there may just be something in it. They go so far as to support increasing taxes for the rich.
Financial heavyweights Bernie Fraser and John Edwards are united in calling on the Government to increase taxes if it wants to balance the budget.

Both believe there are flaws in Treasurer Scott Morrison’s assumptions of a surplus by 2021 and say some radical changes are needed to address future spending.

Taxing the rich more and hitting all Australians with the Medicare levy is the only reliable way the Federal Government will reach its surplus goal, according to Dr Edwards, former Reserve Bank board member and leading economist.

He also welcomed Opposition Leader Bill Shorten’s plan to take the tax rate for those earning more than $180,000 to 49.5 per cent permanently, an idea slammed by Dr Edwards’ former boss Paul Keating, who labelled it a punitive tax gouge.

“I don’t think a change of 2 cents in the dollar on very high incomes is going to make quite that much difference,” Dr Edwards told The Business.

The bank levy does not trouble him and he praised the Government’s “courage to recognise we need tax increases”.

“I think they should scrap the corporate tax cut as well and we’d get to surplus a little more reliably and little more rapidly,” he said.

It is on the bank levy that the two men part.

“It looks like a populist policy based essentially on the unpopularity of the banks and it’s an easy target for the Government to raise revenue,” Mr Fraser, a former RBA governor, said.

“It won’t hurt the economy in any obvious way but it won’t lead to a sustainable society that politicians talk about wanting, a more prosperous and fair society.”

When put to him that the Government believed it was fair the banks should pay a levy particularly given the taxpayer support they receive, Mr Fraser suggested the tax should be across the board.

“If Scott Morrison believes it is OK to chase big profits, then it should also look to pharmaceutical, mining, technology companies to name a few,” he said.

“If there is this kind of capacity there that the Treasurer thinks that there is in the banks [to pay more tax] then it is elsewhere, and a fair tax would not be discriminatory on the unpopularity of the banks but would actually pursue [them all].”

He suggests a progressive company tax, similar to the income tax system, where the more a business earned the more it paid.

“It’s at least worth thinking about, we already have two rates of tax for business based on turnover,” he said.

He backed former Treasury boss and now NAB chairman Ken Henry’s calls for an inquiry into the bank levy, if the reports that the Government did not consult with industry or regulators were true.

“If there hasn’t been appropriate consultation, that’s a no, if the Government wants to make significant changes to taxation, if they don’t consult adequately with all the stakeholders before they determine what they are going to do … that is a serious mistake and governments run a real risk in getting things wrong,” he said.

Mr Fraser dismissed the argument the levy would even up the playing field for smaller banks, saying that would only happen if the big banks increased their lending rates dramatically as a result, which he did not believe would happen.

The temptation for future governments to raise the bank levy to plug budget holes would be too great to resist, Mr Fraser said, because there was nothing to stop them.

“There is no clear coherent framework for determining budgets, for determining government spending and revenue measures, and that’s the problem — everything is ad hoc, in large part driven by ideologies and lobbyists,” he said.

 

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