Saturday, October 15, 2011

Saturday Morning musings - reporting, analysis & Australian public policy

Here in Australia, Paul Kelly fulminates in the Australian:

JULIA Gillard's tactical triumph in winning a carbon price scheme from minority government with less than 30 per cent of the primary vote testifies to the schism in Australia's public life: the conflict between the parliament and the people.

To my mind, there is a continuing and odd disconnect between reality, current political games and reporting in Australia that that I find somewhat discomfiting. Quite a bit of the commentary such as that proffered by Mr Kelly displays an apparent ignorance of Australia's constitutional structures. I also somewhat resent being told what I should think.

As you might expect, Australian reporting is dominated by the Government's apparent victory on the carbon tax, apparent loss on border processing. The focus is on the words victory and loss. The reality as I see it is that we have two sets of decisions that will now work their way through the system.

The carbon legislation will take time to come into effect. The practical results depend not just on the details, but on the interaction between local and international conditions over the coming period. While I have attempted to at least specify some of the variables and relationships, I don't know what will happen. I don't have a crystal ball. We will just have to wait and see.

In a way, the decisions on border processing are more interesting. The conflicts within the Labor Party on the issue mirror those in the broader community. Beneath the cardboard cut-out presentations by the Party leaders on both sides, there has been a genuine debate. Beneath the questions of tactics and strategy that dominate reporting, there has been a genuine decision. It may not be the desired decision of the party leaderships on either side, but it is still a decision.

As with the carbon legislation, in considering impacts we can specify variables and relationships, but cannot say how these will work themselves out in practice. Politics and policy are interconnected, but not the same.

One of the fascinating things about border protection lies in the way that political interactions delivered a policy result that would have seemed inconceivable a month or so back, a victory for what was a minority view in political terms, on-shore processing. Nobody knows how this might work out in practice. What we can say, I think, is that it's changed the game.

The last Federal election was held on 21 August 2010. Barring a Government implosion or deaths, the next election is still eighteen months away. That gives plenty of time for all sorts of unexpected things to happen.

The Labor Government may or may not be re-elected. While this is a subject of much focus in this country, it's a second order question so far as public policy is concerned. As we have seen with the carbon tax and border protection, policy decisions are being made. To my mind, I accept that this is a minority view, the interesting thing is the nature of future policy decisions.

In the days when I was a professional Government relations practitioner, we maintained a rolling register of prospective policy decisions across portfolios. This proved powerful because it gave us an analytical framework to monitor likely decisions and the relations between them. Often, the really interesting stuff lay in the minutiae, the detail, because of the way it affected things that we were interested in.

Sadly, I no longer have the resources to maintain this type of monitoring. After all, it took two people full time just maintain, let alone those involved in subsequent analysis and action! Still, it goes to the heart of my point, the fact that decisions are being and will be made. We need more analysis that is prospective, not retrospective.

We also need more analysis that is integrative, capable of looking outside outside the often narrow boxes that often dominates political and public policy analysis in this country. I would argue that there is a present vacuum in public policy debate in this country that actually leaves the field to an increasing range of special interests. 


Dear me, I do wonder sometimes.

According to Stephanie Peatling in the Sydney Morning Herald, Opposition Leader Tony Abbott ''pledge in blood'' to repeal the Carbon Tax laws if he becomes prime minister, he describes them as ''socialism dressed up as environmentalism'', could cost the taxpayer up to a billion dollars. Mr Abbott has also made it clear that he would never agree to Government proposals on border protection unless they exactly mirrored his desires.

I am not saying that there is a disconnect between Mr Abbott and community views. I just think that this is silly stuff, very silly stuff.

Leave aside all the in-principle arguments. Perhaps I am out of touch, but I would have thought that Mr Abbott's approach is quite dangerous from a strategic perspective because of the way that he is adding future problems and risks to his own cause.

In the meantime in the real world, the latest Dohar round is in trouble requiring a real response. More on that later.

Postscript 2

According to constitutional lawyer Professor George Williams, Mr Abbott's proposed repeal could cost billions. I quote: 

"Parliament has created carbon units. They are described as property, and no doubt there could be a High Court test case whereby people could argue that if the legislation is repealed they must be given full compensation in return," Professor Williams told Alison Carabine on Radio National.

He said legislation described the carbon units as being "a unit of personal property", making it harder for any future parliament to repeal the laws without compensation.

For the benefit of those not familiar with the Australian constitution, under the constitution the Commonwealth Government is required to pay compensation for the acquisition of property.  


Anonymous said...

Still thinking about your comments Jim, but wanted to note this for further comment:

"The bonds cover a pool of mortgage assets, which is refreshed constantly to maintain the size of the initial principal. The bonds also have a higher credit rating because of the investors' recourse to the underlying assets and the issuer."

- from this article:

And am wondering the hows and wherefores of the difference between the above (supported by both sides of Parliament)and CDOs at their recent extremes?


Jim Belshaw said...

How interesting, kvd. The short answer is that I don't know. I look forward to your further comment.

Anonymous said...

From a 'BusinessInsider 2008 article titled "What the hell is a covered bond?":

Felix Salmon at explains:

Now it's true that covered bonds are, technically, mortgage-backed. But all the mortgages could default and go into foreclosure tomorrow, and so long as the bank remains in operation, the covered bond will pay out as normal. Similarly, if the bank blows up for some non-mortgage-related reason, investors in the bond will still get paid back in full.

Their main risk is that the bank blows up because the mortgages blow up, and they'll be left holding a bag of damaged loans - but because two things have to happen rather than just one, that risk is relatively low.

Read more:

Well Jim, I guess we'll now see the need for some sort of 'insurance' facility - to cover the extreme event that a) the mortgages default in large numbers, and b)the issuing bank also defaults.

There's a crowd in the US well versed in this. Not.


Jim Belshaw said...

I may be dumb, kvd, but all this seems to mean.

A bank takes a set of its mortgages and puts them into a pool. It then issues debt secured against those mortgages. The bank also guarantees payment in the event that there are problems with the mortgages.

Have i got this right?

Anonymous said...

I think so Jim. But I must be missing something because I thought this simple scenario had something to do with the recent American crisis.

Of course they added an extra layer or two, what with insurance companies insuring against loss, and then bundling of such products, and then on-selling future earnings, and then trading in same - on margin of course - which involved further loans to the players.

It's confusing. But seems to almost guarentee a higher return, plus the ability to borrow more, so it must be a good thing, surely?


Anonymous said...

And I forgot about currency fluctuations; and the need to insure against same.

But not to worry; we've only really got four banks and in the end result, if things went bad, 'The Government' will cover their positions.


Jim Belshaw said...

They are different in the sense that, if I understand correctly, they stay on balance sheet. So there are different prudential issues. For example, I am not sure that they affect total bank lending. Capital requirements mean that an increase here means a reduction in borrowing somewhere else. The primary advantage from a bank would appear to lie in the term of the loan combined with some diversification in funding sources.