Translating Rudd’s Seven Point Plan to Save the World

Australia’s own Dear Leader, the Greatly Beloved Chairman Rudd, came up with a seven point plan to solve the global financial crisis yesterday. Which was rather nice of him.

Of course, Chairman Rudd is quite used to solving all the world’s problems. In just the last year he’s established the International Commission on Nuclear Non-proliferation and Disarmament (Australia being a great nuclear power and all) , announced the establishment of a new Asia-Pacific Union to rapidly change the “architecture of our region” (without even consulting other Asian nations! Such leadership), created the Global Institute to change the world when it comes to carbon and so on: which of course would explain why it took Obama over a week after the inauguration to call Rudd -  Obama was just shy in the presence of such a leader on the world stage!

To be honest, my initial reaction was that this was some kind of not-very funny satire.

So what does the pre-election economic conservative turned post-election massive socialist prescribe at this timely juncture (six months after the toxic asset debate got off in the US). Considering Rudd won the election promising to lower interest rates, and loose monetary policy was a major factor in the crisis, I’m sure his global prescriptions are sure to be taken seriously. Those reading the vague ramblings in the Rudd article might be somewhat confused, so I’ve provided this handy translation:

1) “All weak and all systemically significant financial institutions should be subject to a stress test. The public and governments need to know with confidence that the assets on bank balance sheets are sound.” TRANSLATION: Create a pessimistic model of what you think the future will be like (because obviously governments have shown themselves so good at modeling). Force banks to prove they would survive if this model occurs. If not, give them 6 months of effective micromanagement then, if they still use their assets in a way you don’t like, nationalisation. Likely result: People see models are pessimistic, assume that’s what will happen, and start selling shares making this a self-fulfilling prophesy. Banks start being micromanaged by the government. If any bank fails the test , panic – even if undeserved – created. Government would likely use excuse as nationalisation. Note: This visionary idea Rudd’s promoting was proposed last week by the Obama Administration.

2) “All non-viable banks must be closed or nationalised. Keeping insolvent banks alive is itself systemically damaging”. TRANSLATION: Rather than letting the market decide, the government will pick and choose who succeeds and who fails. Then use this as a back door for the greatest socialization of the world economy in history.

3) “Toxic assets on bank balance sheets must be neutralised. This can be achieved by the creation of a “bad bank” or through an insurance mechanism. This needs to be done quickly and comprehensively, and may require compulsion.” TRANSLATION: A combination of corporate welfare with back-door nationalisation. The taxpayer will effectively give billions of dollars to banks through the back door. And, what’s more, this is an expansion of the moral hazard of toxic loans and them dumping them that – through Freddie May and Fannie Mac – was the single biggest contributor to the sub-prime crisis!

4)”The prices of bad assets should be derived from a transparent and simple formula that is consistent across jurisdictions.” TRANSLATION: Who the hell knows what this means? On one hand, it could mean  getting rid of the arbitrarily-restrictive  mark-to-market rules that were instrumental in causing the financial crash by forcing firms to value securities at or near $0 – even if they have a significantly higher value. Of course, it instead probably means even more of the same restrictive regulations that got us into the whole mess in the first place

5) “It is essential that the public and private sectors, and international financial institutions, work closely together. If governments go down the route of nationalisation, it should be temporary. Nevertheless, the details of a future resale to private buyers do not need to be addressed now.” TRANSLATION: We will set up the Public-Private Partnerships that worked so well in Japan in the 1980′s they caused a whole decade of zero-growth in the 1990′s (Maybe if they had Bob Carr managing them?). We will then prepare “temporary” nationalisation – with no exist strategy. Of course, finding an example of a government being given power then returning it in history would be a harder task finding a unicorn.

6) “A critical element of the stress test must be to recapitalise banks, so they have the capital they need to lend and reopen the arteries of credit.” TRANSLATION: More taxpayer money given to banks. Like in part 3, only through the front door this time.

7)“Once banks have been adequately capitalised, they must formally agree to maintain regulated levels of lending in return for government support through sovereign guarantees on deposits and/or interbank lending” TRANSLATION: Government micromanagement of companies – again 1980′s Japanese-style corporatism. Alternatively, could mean forced lending. Just like  the Community Reinvestment Act that was one of the major causes of the crisis. In any event, it is a move to Fascism: State control with some private ownership.

So there you have it. Socialism, Communism and Fascism all in one plan, mixed with the 1980′s Japanese Corporatism that created their 1990′s recession, and, as an extra bonus, the very same policies that created the financial crisis in the first place!  Yay!

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3 Responses to “Translating Rudd’s Seven Point Plan to Save the World”

  1. Sean Says:

    My thoughts on the 7-point plan to save the world:

    1) The models used by the government are not better than what the banks use. Anyway, the government already models the banks’ balance sheets. Rudd is about three decades behind the curve.

    2) Letting a bank fail will increase fear and volatility in the marketplace which will turn a bad situation worse. Nationalise the banks, sell the assets, wipe out shareholders and bondholders (‘there IS a risk in investing ya know?’).

    3) “Bad bank” model was the failed TARP. The insurance scheme is already in force in the UK. The idea of “toxic” assets being insured means that it reduces the risk of a bank failing. It is not a bad idea since people would lose huge amounts of money in the event that a bank fails and the debris will take years and years to clean up.

    4) How does one value a deal? Can Rudd give us a value on the following deal – counterparty A receives 3%+inflation rate from counterparty B (an SPV) which has a £300 million derivative on its book – 80% ABS with corresponding securitised debt that covers mortgages, corporate loans, student loans and 20% CDO squared which contains 6 BBB tranches of six separate CDOs in which counterparty B has a CDS taken with it’s parent (counterparty C) over the ABS while counterparty A pays counterparty C a fee of 3%. Confused? It is worse than this, but my point stands – if the experts can’t value this then how the hell could Heavvie Kevie?

    5) Temporary nationalisation is a piece of spin to not admit that the government failed in the first place.

    6) Banks stress test every day. Regulators stress test the bank at least monthly… does Rudd know anything at all?

    7) The banks already agree to regulated levels of lending, then again the victorian state bank collapsed with billions of losses because of regulated lending. Damn, Kevin is stupid.

  2. Marky Says:

    Mr Political Sh*tstorm speaks with his 7 point plan… rejoice!

    Enjoyed some of the other comments made about this plan… in particular – against #4:

    “the prices of bad assets should be derived from a transparent and simple formula that is consistent across jurisdictions”…and we should develop cold fusion while we’re at it! .

  3. Tim Humphries Says:

    You’re sense of irony is compelling.

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