From: miw@cc.uq.oz.au (Mark I. Williams)
Subject: Re: Will Victorians vote stupid yet again...?
Organization: Prentice Centre, University of Queensland
Distribution: aus
Date: Wed, 7 Oct 1992 02:25:11 GMT

jcollier@ariel.its.unimelb.EDU.AU (John Donald Collier) writes:

>>But mainly because they had no choice. Regulation of banks stopped
>>working sometime in the 1970s, so they had to make it official.
>>Reaganomics, schmeagonomics. The same thing happened at about the same
>>time, all over the world.

>Right, regulation just stopped working. My understanding is that a lot
>of large banks got in way over their heads with third world debt, and
>their asses had to be saved. The simplest way to do this was to lift
>restrictions on covering loans. 

This is not the type of deregulation that got the banks into trouble.
The cause of the problems in Australia was that Keating saw the writing
on the wall and told the Australian banks that the financial markets
were going to be deregulated (i.e. foreign banks could operate in
Australia as commercial banks, Australians could raise loans offshore,
the dollar would float, currency restrictions would be lifted, etc.).
The Australian banks then had to try to get a slice of the action
quickly, before the 'outsiders' could come in and compete. Unfortunately
they didn't have the staff or the expertise to evaluate the loans they
were making, and they took big risks in order to get loans on the books
quickly. In other words, they lost a lot of money learning how to
operate in a deregulated environment.

However, not deregulating wouldn't have solved the problem, since the
forces of increasing world trade, the growing integration of the world
financial markets, technological innovation which was lowering the cost
of financial transactions, etc. were making traditional financial
regulation increasingly ineffective. The third-world debt crisis is
essentially unrelated to these issues.

(incidentally, the third-world debt crisis is nearly over. It didn't
turn out tobe as bad as everyone predicted in 1982)

>those that failed. You know, I suppose, that there are Canadian banks
>among the largest in the world. There was a big move to offshore 
>offices to avoid Canadian regulations.

Exactly. This shows you that, in a global market, regulation doesn't
work.

>I am not sure what you mean by Reagonomics, but I understand it
>as putting money and other resources into your friends' pockets

I don't mean anything by Reaganomics. The term is a meaningless
perjorative, used only by idealogues these days. Once upon a time it was
almost synonymous with "supply-side" economics, which turned out to be
good in theory and bad in practice. However, the only countries that
tried it were the US and the UK so any suggestion that financial
deregulation was "Reaganomics-led" is really just a bit simple. After
all, the French deregulated their banking, but you certainly couldn't
call their system "Reaganomic".

cheers,


--
Mark Williams         The University of Queensland       miw@cc.uq.edu.au
+61 7 36 54012   (w)  Prentice Centre
+61 7 36 54477  (fax) Qld 4072  Australia
Nullum magnum ingenium sine mixtura dementiae fuit.  -- Seneca