Perhaps because we're afraid of the Senate
THE government has cast doubt on the effectiveness of the guarantee that it proposes to offer banks undertaking overseas borrowing with the Finance Minister conceding that it would be unable to deliver on it without introducing special legislation.
The government plans to introduce no legislation prior to offering the guarantee to banks later this month, a practice the Attorney General Robert Mclelland told Parliament was constitutional.
Finance Minister Lindsay Tanner said it was the same process the former Prime Minister John Howard had followed when he committed troops to Iraq. "He didn't go to Parliament first and get money for that decision. He made a decision and the government made a decision to go to war without parliamentary authority, which he was entitled to do under the executive authority of the Commonwealth," he told Question Time.
But under questioning from the Opposition Leader Malcolm Turnbull Mr Tanner conceded that the government would need to introduce special legislation to deliver on the guarantee in the unlikely event that it ever had to...
"Should it ever be required that a guarantee of this kind must be delivered upon, then that will need to be appropriated," he said.
He said he was confident the Senate would pass such an appropriation bill.
The US credit rating agency Standard and Poor's has advised its clients not to regard a government guarantee as effective unless it is "unconditional, irrevocable and timely".
Mr Turnbull said that the guarantee offered by the Australian government would not fulfill those criteria and would put Australian banks at a disadvantage in competing for funds with British banks whose borrowings were properly guaranteed.
Friday, November 14, 2008
Why aren't we properly guaranteeing bank borrowings?
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8 comments:
"He said he was confident the Senate would pass such an appropriation bill."
And so should everyone else. I couldn't imagine a situation where either of the major parties would reject such a bill, given both parties support a guarantee. If one of the majors rejected such a bill, they'd be on the receiving end of a considerable voter backlash, something which they all seem to be keen to avoid these days.
Al
Hi Al,
That's how you and I see it, but Turnbull's point is that an investor overseas might regard our "of course we willbe good for the money' guarantee as a bit iffy compared to the leglislated guarantee in the UK.
The investor also might be afraid that the guarantee would not be honoured in a timely fashion. What if it wasn't a parliamentary sitting week when the money was needed?
But then again, the foreign investor might know so little about Australia that these thoughts would never occur.
A ratings agency might raise them, but by now investors have probably learned to pay little attention to ratings agencies.
I love how the media still report what ratings agency's say like its gospel while the rest of the world had moved on, I wonder how long before these guys start asking for government bailouts!
Ok that's a fair point Peter. In that case, maybe they should just legislate it like they've done in the UK just to make sure. Would there be anything that would prevent them from doing so?
Al
Fear of what Senator Fielding would do.
Are you thinking that maybe the Liberals might block such legislation? Otherwise, what would it matter what Senator Fielding might do?
Al
True.
Perhaps it is the prospect of negotiating with Turnbull, who might (would) want to quibble about details - and who would be elevated in importance by the whole thing.
In any event, keeping it from parliament is silly and wrong. Parliament was created to take big decisions such as this one. It is hardly administrative.
And Kevin will have to negotiate with Malcolm one day. He may as well start.
Is it safe to say that this guarantee thing is a complete disaster? We've now seen the Commonwealth Bank issue $2.2bn of 5 year gov. guaranteed bonds at 1.20% over swaps (and that's not counting the guarantee fee of 0.70%). Not surprisingly semi-government bonds have been dumped as investors make the switch. And to top it all off today's AFR has a major article on the relationship between Suncorp, Queensland Inc and the guarantee.
Scary stuff indeed.
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