Turnbull Turns the Hose on Rudd

In a refreshing resonance with today's Brash Op-Ed piece mentioned earlier, Australia's Opposition Leader Malcom Turnbull excoriates the Australian PM Kevin Rudd for his latest attempt to respond to the global economic turmoil.

Turnbull with typical and apposite bluntness says - doing something is not doing anything.

Rudd has proposed setting up "Ruddbank" - a joint venture between the four Australian trading banks and the Australian Government where the Government takes up the facility extended by foreign lenders on commercial property if the lender wants to exit the loan. Yep - it's as simple as that a - preferred position for Australian commercial property and the Aussie banks. They get to maintain their "value" throuigh the sohistry of the arrangement - explain that to the thousands of equity holders in companies and the superannuation scheme operators who are writing down their investments to market prices. It seems like a mad scheme.

The reality Turnbull points out is to transfer commercial property risk directly from the lenders and building owners to the taxpayer. Simple as that. Why?

The conflicts are enormous. Consider a syndicated loan secured on an Australian office building. Valuations have declined in line with the market and in the normal course of events the lenders are likely to choose to stay with the credit rather than risk forcing a sale and a possible loss on their loans.

However, thanks to Ruddbank, the foreign lender knows that if he demands his money back and threatens to force a sale the Australian lenders will lean on their Government partner to secure a replacement loan from Ruddbank.

After all, the Australian banks don't want a forced sale because they might lose money. Better to get the Government to take out the foreign bank and ensure a lower value for the building is not realised with all of the implications that may have for their other property loans.

In the commercial world in circumstances like these, "new money" has a lot of leverage and can demand priority over existing loans. But in Ruddbank the "new money" of the Government is going to be guided by the conflicting vested interests of the "old money" of the big four banks.

It's a game in which the taxpayer is being set up to lose.

Rudd's Government appears to have learnt nothing from its initial foray into interfering in the market.

After all, it is only a few months ago that Rudd gave an unlimited guarantee of all bank deposits. He did so without discussing the proposal with the Reserve Bank and within days governor Glenn Stevens was pointing out the growing dislocation in financial markets the rash decision had created and begging the Government to impose a cap "the lower the better".

The dislocation was considerable and has not been reversed. Some 250,000 Australians saw their investments in mortgage funds and cash management trusts frozen. Finance companies were unable to raise short term finance with the consequence they could not continue to finance car dealers.

To fix the dislocation and destruction of the retail car industry Rudd said they would set up a finance company to extend loans to car dealers...talk about law of unintended consequences ...however;

And so the Government moved to set up a finance company to provide finance to the vehicle retailers. Nearly two months later it is yet to start financing and car dealers around Australia are struggling to stay in business.

Rudd is keen to be seen to be doing something about the global financial crisis, but that is no excuse for doing anything.

Rudd says it will save 50, 000 jobs. It is difficult to see what jobs will be saved - except maybe Rudd's and that of his erstwhile Treasurer Wayne Swan.

Key Labor Backers Back Nuclear Power

I have posted earlier on the move by Chairman Rudd to re-open uranium mining in Australia by the Labor Government after decades of opposition.

This has begun to get very interesting.

Last week while in Australia I read the front page of The Australian with some bemusement - it carried pleas to begin formal investment in investigating nuclear power as an option for Australia. The astonishing thing... The pleas were from the head of the strongest blue-collar trade union and the former head of a Labour NSW Government.

The Headline.

The head of Australia's biggest blue-collar union, Paul Howes, and former NSW Labor premier Bob Carr have called for Australia and the Rudd Government to purge its prejudices and embrace a nuclear power industry

The source of alarm for Mr Howes is the case mounted for years by former prime minister John Howard: that imposing onerous carbon limits in Australia threatens to send its heavy industry offshore at the cost of jobs for no environmental gain.

This is exactly the same issue for New Zealand.

This year's electricity shortage - broadly brought about because the NZ Labour Government has banned new large scale base load electricity generation - has meant industry has stopped production in key export areas. Witness the shutdowns at PanPac and Tiwai. On the basis their products were exported and had global demand (aluminium and pulp and paper for example) NZ has exported wealth creation and jobs offshore FOR NO GAIN.

The longer the lunacy around the ETS and the moratorium on new thermal power continues New Zealand will track backwards.

Interestingly the Australian labour movement is onto the threat and advocating far reaching change. We need that courage and leadership in New Zealand.

It would be most amusing to see a Rudd Cabinet meeting with what is rapidly becoming a schism between the labour left and the environmental greens within the Labor party- they have mutually exclusive positions.

Another headache for Chairman Rudd.