Saturday salon 9/6

1. Banks behaving badly

When criminal charges were brought against ANZ and investment banks Citi and Deutsche Bank that sounded fair enough to me. Barbora Jedlickova, Lecturer in the School of Law at The University of Queensland says that criminal charges are more effective than fines and:

    Charging high-ranking bank executives will potentially make the deterrent more effective still, because high-ranking executives set the cultural tone for their organisations.

James Thomson in his Chanticleer column at the AFR says that victims are hard to find in this case, but it is a good idea because bankers should behave themselves.

I think Rod Sims at the ACCC is perhaps sending a message that he is going to be an active regulator.

2. Banks ignoring bad behaviour

The Commonwealth Bank was basically guilty of doing nothing at all when crims were stuffing ATMs with thousands of dollars of ill-begotten gains. The CBA has now agreed to pay a whopping $700m fine for anti-money laundering, terror financing law breaches.

It is actually hard to see that anyone inside the bank benefitted from this, but senior staff including the CEO have been given the flick because it happened on their watch. I’m not sure that they knew it was happening, probably not. Internally the bank has spent $400 million on technology and people to try to make sure there is no repeat.

Now here’s a surprise. Sandeep Gopalan, Pro Vice-Chancellor (Academic Innovation) & Professor of Law at Deakin University says:

    the statement of facts agreed by AUSTRAC and CBA state that the bank did not deliberately or intentionally violate its legal obligations under the relevant laws.

Gopalan says:

    The size of CBA’s penalty seems to be more in line with banks that have deliberately flouted money-laundering laws, rather than the smaller punishments handed to banks that did so unintentionally. It is tempting to conclude that this is influenced by the current prevailing mood to “send a message” to financial institutions.

    What’s more, we cannot necessarily assume that the fine will act as a deterrent. The penalty is not paid by the CBA staff who acted wrongly; it is paid by the bank, ultimately by the shareholders.

He says there are also likely to be higher charges to customers to cover the cost of compliance.

I can tell you that my broker has downgraded the earnings per share forecasts, so that the earnings will be basically flat for the next three years.

There was some commentary that the uptick in the share price showed that the penalty, less than 10 per cent of profits, was not enough. That ignores what happened to the share price since the story broke:

CBA lost about 20 per cent of its value since the story broke. The small uptick just means the market anticipated the outcome and got it about right.

By the way, if you look at the whole story the bank is worth no more now than it was six years ago:

and will, if things work out well, be worth about the same in three years time. The banking business is now a bit harder than it looks.

3. Bank routinely harming people

ABC RN’s program Background Briefing did a story Macquarie’d – The advice scandal at Australia’s fifth-largest bank (transcript available).

One example was a couple who sold a property near Swan Hill in northwest Victoria for $2.7 million. It had been built up in the family over three generations, but the farmer was tired and wanted to retire.

Macquarie’s wealth management people actively traded the proceeds, extracting $700,000 in fees while they turned $2.7 million into $450,000 before the couple pulled the plug.

Another, a man called David got $300,000 as compensation for a work injury which was supposed to set him and his family up for life. Sounds not nearly enough to me, but Macquarie leveraged it to borrow $12 million (can’t get my head around that one), and in three years to 2007 turned the net amount into nothing. Amazingly Macquarie did not stop until David blew the whistle.

Then they flew him to Sydney, admitted they had stuffed up and offered $25,000 in compensation. He said, Open the window so I can jump out, refused, got a lawyer and in the end got $175,000.

The program says there are a million people out there who manage their own super, and a pot of money worth in total $700 billion, more than the GDP of Sweden.

My understanding is that the banking inquiry has found that there is a lack of professionalism in the advice industry. Anyone can hang up a shingle. I’d have to say, though, that I was surprised and more than a little shocked at how fast and loose Macquarie has played it, having had a relationship with them for over 20 years. My experience could not be more different.

4. The NDIS: how do you turn a brilliant idea into a working program?

Emma Griffiths has found her niche on local radio in Brisbane in the program Focus. Topics are sometimes local, but sometimes have national interest, I think. Last Thursday the topic was How will the NDIS affect you?

The impression given was that if you got a competent assessor the results could be brilliant. If not they could be simply god-awful. Seems there is an attempt to hire people who have some understanding through life experience of disability. However, there seems to be no dedicated training program for the role.

Another huge problem is that services are meant to be provided competitively by private enterprise. Seems the larger corporates are giving the sector a swerve – too hard and not enough money in it. Smaller providers are popping up and going broke every day.

As an aside Emma Griffiths is one of our beloved ‘giggling females’. They are actually very competent.

5. Elsewhere on the ABC

Elsewhere on ABC Radio I was interested in Tom Switzer’s discussion with Professor Kishore Mahbubani, former Singaporean ambassador to the United Nations, Dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore and author of The Great Convergence: Asia, The West and The Logic of One World. :

    The West’s two-century epoch as global powerhouse is at an end. A new world order, with China and India as the strongest economies, dawns. How will the West react to its new status of superpower in decline?

Mahbubani said the most important international event of 2001 was not the destruction of the Twin Towers on 9 September, it was 11 December when China joined the World Trade Organisation, adding 800 million workers to the world capitalist economy.

Modern civilisation would not have been possible without the European contribution of the Renaissance, the Enlightenment, the rationalism, pragmatism and science of the 19th century. Fukuyama was wrong, however, when he declared history at an end. The West fell asleep while the East woke up.

He said Australia is going to find it hard to adjust – basically we are European, but live and work in an Asian region. We are going to have to maintain our own middle path, he says.

Then there was Alex Haslam – Professor of Psychology and ARC Australian Laureate Fellow, School of Psychology, University of Queensland on The health effect of social contact.

Seriously, he says you will be healthier and live longer if you join a group, or more than one especially when you retire. He says friends and family don’t count, because they don’t stretch us in the same way. He seems to be saying that a modicum of social stress is good for us.

6. The ABC is a political issue

Laura Tingle says:

    Bill Shorten rose in Federal Parliament on Thursday afternoon last week to give a rousing defence of the ABC. An hour later, an email arrived in ABC managing director Michelle Guthrie’s office from Communications Minister Mitch Fifield.

    “The Labor Opposition with me as leader will defend the independence of the ABC, and a Labor government with me as prime minister will defend the independence of the ABC”, Mr Shorten told Parliament.

    Senator Fifield, by comparison, wanted to complain.

    The complaint? That several ABC journalists had retailed “the Labor lie” that the Government may have chosen the dates of five looming federal by-elections for political reasons.

Apparently an article by her was the problem, though the complaint only went to the ABC, not to Fairfax, where it was also published.

So she asked around:

    A Labor person said: “Well, there is the budget cut to the ABC, so that is worth talking about. But, people in regional Australia, for example north-west Tasmania, love the ABC, even if they don’t like Labor. So it doesn’t hurt to say we are on side.”

Against that:

    Asked why the Communications Minister should launch a complaint against not just political editor Andrew Probyn, and me, but Insiders host Barrie Cassidy and implicitly two Insiders panellists who don’t even work for the ABC, Phil Coorey and Mark Kenny, the response from people inside the Coalition was equally pragmatic.

    “You’ve got to play to the base.”

She says the Coalition do not complain about the overt and transparent political antics of News Corp.

She concludes:

    There is plenty for anyone to be irritated about at the ABC, just as you can be irritated by the antics of News Corp.

    The difference, however, is that the ABC still strives to deliver a diversity of information, analysis and opinion to its audiences.

    Not everyone will always like the opinion, or the analysis. But if it is informed, and informative, it is doing its job.

    News Corp has increasingly opted for a marketing strategy that appeals to a narrow political demographic, and one which suits the commercial interests of its owners.

    If the ongoing attack on the ABC is indeed driven by market forces, it is time to consider the case that public broadcasting has never been more important as a public good.

27 thoughts on “Saturday salon 9/6”

  1. the statement of facts agreed by AUSTRAC and CBA state that the bank did not deliberately or intentionally violate its legal obligations under the relevant laws.
    Gopalan says:
    The size of CBA’s penalty seems to be more in line with banks that have deliberately flouted money-laundering laws, rather than the smaller punishments handed to banks that did so unintentionally. It is tempting to conclude that this is influenced by the current prevailing mood to “send a message” to financial institutions.

    Ignorance is not a defense on its own when we are talking about sending a mine manager to jail when someone is killed due to negligence. Managers and directors are supposed to have working systems in place to reduce the risk of accidents, ensure workers get safety training etc. and have procedures in place to ensure these systems are working.
    It doesn’t seem unreasonable to expect the boards of banks to have systems in place to ensure that that the bank is doing all things reasonable to ensure that their bank was not aiding money launderers.
    In terms of financial advice given by the banks and their subsidiaries it does not seem unreasonable for a bank to measure the results of the advice given to bank customers and look for signs of advisers that are giving advice on the basis of what is good for the adviser’s bonus and the banks fee income rather than what is good for the customer.
    “Good for the customer” seems a logical thing for a well run business to be concerned about. However, the rapid turnover of CEO’s has reduced long term to a few years.

  2. There has been rock-solid agreement in every conversation I have had – right across the political and social spectra – in the last several weeks:

    (1) The banks and other financial bodies have committed major felonies – they haven’t just “behaved badly”.

    (2) Their major felonies have destroyed many honest, hard-working people, ruined many viable enterprises and have cost the taxpayers an immense fortune.

    (3) If you or I committed such terrible felonies, we would have been put in jail in a flash.

    (4) Holding a royal commission instead of immediately arresting the criminals and seizing all their computers has given the criminals the leisure time to destroy vital evidence, (hence, most of the criminals will get off through lack of evidence).

    (5) Forget fines. Arrest the criminals then seize and sell off their personal property as Proceeds Of Crime, (which they truly are) with the funds raised being distributed among the victims of these felonies.

    (6) Don’t just arrest the board members, arrest the crowd of lower-level criminals too. Don’t worry about the shortage of facilities: set up mass detention centres and hold mass trials, (and a few suggested even more drastic means of resolving the issue).

    (7). Everybody, absolutely everybody, believes that the excuse of “The Banks Are Too Big To Fail” will be the main one used by the government to let the criminals go free.

    (8). Surprisingly, some said they would rather see their superannuation funds go down the gurgler than see the criminals get off scot-free. “We won’t get any super anyway because the ####s will have stolen the lot before we retire “).

    One thing is very obvious: politicians do not want to hear at all what their constituents really think about it; the news media is too frightened to go “off-message” about the issue too. And when that happens ….

  3. John, yes, what happened at CBA with the money stuffing did not happen at the other three. There is a question why the bank did not act when some branch managers were telling the middle-management staff there was a problem. Those people should in the first instance be identified and punished. They don’t seem to be identified in adversarial actions like those taken by AUSTRAC. I was hoping that the royal commission, where the people lower down in the organisation are questioned under oath may get to the heart of the issue and reveal why the culture at that level is rotten.

    I hasn’t.

    Gopalan comments that the penalties are more appropriate to cases where there is active malfeasance, and that penalties of that kind have been shown to be less effective than than action directed at the people actually at fault, which is what Graham is calling for. From memory I think I made a similar comment in the post at the time last year.

  4. Graham, I think I agree with most of what you say. It’s just that the two high-profile cases last week were not cases where customers were being directly harmed.

    In the third story, about Macquarie, people were being harmed quite egregiously, but the royal commission has not gone there so far.

  5. Graham, just a point about this:

    “We won’t get any super anyway because the ####s will have stolen the lot before we retire “

    The Macquarie example showed that they don’t steal the funds, they just blow them up, taking fees along the way for every transaction, and in some cases a management fee overall. When a company the funds are invested in fails the value is atomised and disappears into thin air.

    The banks do ‘steal’ people’s houses when they are used to guarantee business ventures that go wrong.

  6. I think it was probably 800 million workers, unless those cunning blighters hid most of their workers from the WTO inspectors.

    Workers of Mass Destruction?

    (Brought to you by Pedants Anon.)

  7. …..the ABC still strives to deliver a diversity of information, analysis and opinion to its audiences.

    But only from left wing perspective.
    You can get all the left wing information, analysis and opinion you like, that’s as diverse as the ABC gets.

  8. Brian:
    So far as I know, you are quite right about superannuation funds. Actually, I made a mistake in putting together the comments I had heard on superannuation as Point No. 8, because these doubts were not right across the board. Some people were not overly worried about their own superannuation whereas others were gravely worried.

    Malcolm Fraser’s pre-election warning about having to hide your money under the mattress has crossed my mind a few times recently but so far I haven’t mentioned it in conversation – and, no, it’s not because mentioning it might start a run on the banks. 🙂

    Trust in all the financial institutions is lower than I have ever seen it; it is probably the lack of any reliable and reasonable alternative that is keeping people having their wages deposited into them.

    On a happier note: I really enjoyed ABC FM Classical’s top one hundred (dance) last weekend.

  9. Brian

    The banks do ‘steal’ people’s houses when they are used to guarantee business ventures that go wrong

    No,a mutual contract where security is risked is not ‘ stealing ‘.
    If there is such a thing as irresponsible lending, there is also irresponsible borrowing.

  10. Ambi, of course you are right, it was 800 million workers. Don’t know how I managed to get that wrong.

    Jump, you too are right. I was using poetic licence. In some cases it feels like they are stealing houses.

    We have Mark here for three days. We’ve made an appointment to talk to him on Thursday night before he flies back to Sydney.

    Last night we went to see the re-cut version of Wim Wenders’ Wings of Desire. If you’ve seen it you’ll know about it. If you haven’t and you read the plot summary, it sounds ridiculous. But there is only one Wim Wenders and one Berlin. There are no comparisons for the film.

    Apparently the original visuals were about a sixth generation of the original negative. They’ve used modern technology to sharpen up the visuals and the sound. Superb in theatre.

    I think the theme is It’s good to be alive, even in Berlin in 1987 and especially in Berlin.

  11. Brian, the “re-cut” version of Wings of Desire or the “restored” version? Probably the most beautiful film I have ever experienced (along with Paris, Texas). I can’t imagine it could be improved by editing it.

  12. zoot, I didn’t know how to describe the process. They rebuilt it anew, frame by frame from the original negative, as I understand. So there is nothing new, and watching the film we were not conscious of anything having been done to it. They said the aim was to make it look like Wenders would have wanted it in the first place. Just a magnificent experience, just like we’d seen it years ago, only more so, if that makes sense.

    I noticed that apart from directing the film, Wenders was co-producer as well as having joint-written the script. So nothing happens to the film without him approving.

    Just on the script, Wenders had a series of scenes written by co-writer Peter Handtke, but no complete story line and during the shoot they were having late night meetings deciding what they were going to do next day. So to some extent he made it up as he went.

    The Wikipedia entry describes the film as a ‘romantic fantasy’, a sub-genre of fiction. It was the final film in the German Film Festival playing in Palace Cinemas, already finished in Sydney. So if it’s coming your way it’s worth every cent of the $22 entry fee, and more.

  13. Meinen Herren,
    Greetings, learned gentlemen.

    Your dialogue has led me to read about “Wings of Desire” (angels over Berlin). Peter Handke helped with script suggestions.

    I was impressed by this purported Handke quote: “you have only interpreted and changed the world; what matters is to describe it.”

    A very neat response to Marx/Engels, “Hitherto philosophers have described the world; the point, however, is to change it!”

  14. Wings of Desire (German: Der Himmel über Berlin, lit. ‘The Heavens Over Berlin’)

    I found that reading about it before seeing it again allowed me to relax and enjoy. Having been in Berlin in 2015 helped. Here are the heavens literally over Berlin:

    The place has been scrubbed up a bit. Potsdamer Platz was a wasteland in the film. Look now:

  15. If anyone is there, we’ve had an unintended glitch where the domain name expired. It was supposed to be on automatic update but wasn’t. Also there was some dirty work at the crossroads.

    At present I’m logged on using my wife’s computer, but can’t access the site on my own.

    I want to be able to get on the thing freely before I recommence posting.

  16. Hi Brian

    It was a bit of a worry!!
    Blog Deprivation Affliction is a condition not to be underestimated.

    Willkommen, nun!!

    der Ambi

  17. No problems, Ambi. I still aspire to do some posts about that trip.

    I’ve done a post on what happened during the last few days. It’s a kick in the guts for the blog, and it might be a bit lonely here for a bit. I have to work this afternoon, so no time to email the regulars until tomorrow.

  18. The Aussie team surprised me.
    I’ve never seen such fierce one-to-one encounters in a soccer match before. Sometimes centimetres from the side line.

  19. Elsewhere:

    Roger Federer will be back as world number one in the new rankings next week after coming from behind to beat Nick Kyrgios 6-7(2) 6-2 7-6(5) in the semi-finals of the ATP Mercedes Cup in Stuttgart.

    It’s Federer’s third stint at number one this year. It will be 310 weeks in all, ahead of next best Pete Sampras on 286.

    Kyrgios and Federer have played three times with 8 of the 9 sets going to tie-break.

  20. Ambi, I don’t know much about soccer, but they seemed to have a well-organised structure in defence. I think other teams will be scratching their heads over how to break them, but the article above says both Denmark and Peru concentrate on their own defence, and attack on the break.

    It’s winning games rather than entertaining, but that’s how it is.

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