Podcast of the Day- Lecture 3 Reform and Deregulation

The Boyer lectures by Ian Macfarlene, former governor of Reserve Bank of Australia, continuos;
By the 1970s the world's developed economies were stuck in the worst position they had been in since the Great Depression of the 1930s. Australia shared this experience but, propelled by a program of reform and deregulation, it slowly became competitive again and began to register strong rates of growth. In this environment the corporate sector embarked on an era of heightened activity, driven by massive borrowings, takeovers and mergers. It is now apparent that the implications of sudden financial deregulation were not fully understood, and the dawn of the 1990s would bring with it new challenges for those charged with navigating the twin hazards of boom and bust.

Listen to the podcast. Some excerpts below;

“Let me digress for a moment to discuss another epithet routinely applied by those opposed to economic reasoning, which is to refer to economics as the dismal science. Whenever I hear this term, I wonder how many people who use it know its origin. It was coined by Thomas Carlyle, in 1849, in an essay called, Occasional Discourse on the Negro Question, in which he argued for the reintroduction of slavery into the West Indies. He viewed the former slaves as 'indolent, two-legged cattle, who should be subject to the beneficent whip'. It is extraordinary that the author of these views which were reactionary and racist even by the standards of 1849, should have had the temerity to refer to his opponents, the most prominent of whom was John Stuart Mill, as representing the dismal science, when all they were doing was arguing that freed slaves should have the same rights as other free people. Mill wrote a reply to Carlyle expressing views that would be widely held today, but unfortunately it is Carlyle's throwaway line that has endured, not Mills' sensible reply….
While there had been a long series of steps in the process of financial deregulation, the decisive one that shook up the system was the entry of 15 foreign banks in 1985. They were eager to gain a foothold in Australia, and this meant lending where it was easiest to do so, which was lending to businesses. Foreign banks everywhere have always found it difficult to break into the household lending market.

The existing banks also increased their lending to maintain their market share, even though they had little experience of the credit assessment required in the new deregulated world. One prominent bank chief said that he had 'thirty years experience as a lending banker, but the first 29 were all the same.' As the competition to lend intensified, many borrowers, who had formerly not been able to obtain credit, did so, and in large amounts.

The journalist and financial historian, Trevor Sykes, sums up the period this way: 'Never before in Australian history had so much money been channelled by so many people incompetent to lend it, into the hands of so many incompetent to manage it.'..


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This page contains a single entry by Paul published on November 26, 2006 11:03 AM.

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