Month: October 2018

Business as usual for the banks despite Frydenberg’s faux outrage and finger-wagging.

frydenberg royal commission

Our nation sighs with relief this week. Our banks are safe. Federal Treasurer, former Minister for resources and Northern Australia, energy, environment, serial failure and currently unelected Prime Minister, Scott Morrison’s Deputy, Josh Frydenberg, will not get tough on financial companies just because a Royal Commission uncovers incompetence, theft, forgery, impersonation, fee-gouging, usury amongst other criminal conduct while regulators looked the other way.

“Getting stuck into banks could hurt the economy”, he warns. Ah, yes. The economy – that lonely little petunia which blossoms on the dung-heap of consumption. As Richard Denniss observes, Australians have been told for decades that as long as the amount of stuff bought is growing we must be doing well. Yet it’s clearly never been the case.

The same mentality has the Coalition Monash coal cult calling for us to open new coal mines – if only we could find a single investor. Or even if we have to fund them ourselves in a bizarre hybrid state Liberal/National socialism.  While buying more coal, if we could, would “grow the economy”, (another neoliberal nonsense) buying stuff that harms us and harms the planet is not going to make us any better off. It’s what we buy, not how much we buy that matters.

But you can’t tell our tyro Federal Treasurer. Keenly attuned to the need to provide the right pastoral care to markets, Frydenberg hints darkly to The Financial Review of the perils of layering new rules on trustworthy institutions such as banks and insurance companies which laboured mightily to sell us harmful products, such as mortgages we can’t afford or junk insurance or even charge us for services they don’t even bother to provide.

Either Josh doesn’t know, or he’s wilfully misleading, but Justice Kenneth Hayne QC is not suggesting any new rules. He makes it clear he knows that the banks are bigger than the paper tiger regulators, ASIC and APRA. Why impose new rules that will just be ignored? What’s needed is no new set of rules but the will to impose existing legislation.

At present, all banks have had cosy chats with their corporate regulator. As they break the rules, they get a warm inner glow over putting things right by negotiating “Enforceable Undertakings.” Any tiny fine is factored into business costs.

Banks agree to sign a statement which says the regulator is concerned they have been bad boys, or rarely, girls. In return, our fearless corporate regulators, the “tough cops on the beat”, which Scott Morrison was only recently assuring us were more powerful than a Royal Commission, simply agree the banks have not really done anything wrong and they agree not to prosecute them. Occasionally there’s a token financial “penalty” thrown in for good measure.

Doesn’t this process pre-empt the whole Royal Commission? A get out of jail free card? That’s the whole idea.

As Justice Hayne’s three volume interim report makes clear: Enforceable undertakings have been negotiated and agreed on terms that the entity admits no more than that ASIC has reasonably based ‘concerns’ about the entity’s conduct. ASIC has issued infringement notices. But by paying the infringement notice the entity makes no admission. It is not taken to have engaged in the relevant contravention. Yet, ASIC and the Commonwealth are prevented from starting a civil or criminal proceeding in relation to the contravention that caused ASIC to issue the infringement notice.

But it’s reassuring to learn that Josh won’t rock the boat. He already knows the ropes. It will be business as usual. Just as it was with all six decades of previous inquiries up to the 1997 Wallis Inquiry report – which led to the Australian Securities and Investments Commission (ASIC) and agreement that “light touch regulation” and the magic wand of market competition would best keep light-fingered institutions honest in a dishonest non-competitive system.

At heart was John Howard’s neoliberal fantasy as Bernard Keane describes it, a blueprint for a free market Utopia based on an ideology of competitive forces, rational consumers and information symmetry and the Howard government’s dream of a shareholder democracy (where ) ordinary Australian workers would be transformed into McMansion-owning, private school- and healthcare-using, investor-contractors enjoying the fruits of unfettered (but taxpayer-subsidised) markets and endless asset price growth. But just to be on the safe side, he blew a mining boom on middle-class welfare.

Instead lives were wrecked; ordinary Australians were ripped off; robbed blind, ruined, some even paying fees for services, they never received, plus fees for reviews of their non-existent services long after they themselves had expired.

ASIC’s light touch was lightened even further by funding cuts of $120 million over four years in Tony Abbott’s 2014 budget. Scott Morrison’s recent Federal Budget further cut ASIC’s permanent funding by $26 million to $320 million by 2020-21. Staff at the agency have been cut by 30 investigators. What could possibly go wrong?

Competition? The banks quickly became an oligopoly, colluding rather than competing. So much more profitable.

Oleaginous Josh is a capital chap who sounds in top form as a result of elocution lessons which slow his pace and lower his pitch. The kid gloves are on – no kidding. But have they ever been off? Is our system a world’s best protection racket?

Certainly there’s ample evidence of malpractice. Last week, for example, asthenic Kenny Hayne’s Royal Commission into misconduct in the (monolithic) Banking, Superannuation and Financial Services Industry heard that mug punters who trustingly invest their life savings in cash in AMP’s subsidiary NM actually lose money because the firm charges its clients more in fees than they receive in their accounts from interest, or in bankers’ jargon, return on their investment (ROI).

Why? Because they can – and because this is what the system is designed to do. In Ken Hayne’s words, it puts “profit before people”. Naturally, as they explain their conduct to the commission, the banks or super funds blame the victim.

Above all, the negative return rip-off is all the customer or client’s fault. Caveat emptor. Witness the interaction between counsel assisting Michael Hodge and NM Super chairman, Richard Allert, at the royal commission 16 August:

Hodge: “Your point is why are they foolish enough to invest their superannuation with AMP?”

Allert: “(laughs) … no that’s not what I’m saying at all.”

Hodge: “But isn’t that your point?”

Allert: “You have to ask the client what’s in their mind when they put money into a cash account, and as you’ve pointed out, this person has had a cash account with AMP at least from March 1, 2014 to February 28, 2018. They’ve left the cash there knowing the return they’re getting.”

The exchange is pure Monty Python. If it did not cause such suffering. AMP alone acknowledges to the commission that inappropriate advice by fourteen advisers between 1 January 2009 and 30 June 2015 had resulted in compensation to 1,079 customers.

AMP also acknowledges a licensee continued many times to charge a customer fees for services that were not provided.

Unfair, unjust or just outrageous fraud? The scam is familiar to millions of us who see account balances steadily decline with annotations on statements such as “fee for service” even when there’s been no service. But at least we are alive.

Not content with generously helping themselves to our life savings, banks also charge fees to the deceased while their investment tentacles or subsidiaries cop a blast from Justice Hayne over charging “fees for no service”.

“Fee for no service” is one of many modern euphemisms and weasel-words for bare-faced fraud. ASIC defines it as, “… the failure to deliver ongoing advice services to financial advice clients who were charged fees for those services”.

Even better, it covers an additional fee you may pay for not getting a review – in effect advice about the advice you are not getting. ASIC calls it “failure(s) to deliver an annual (or other periodic) advice review that was promised to a client.”

The consequences of banks’ behaving badly is staggering – apart from the boost it provides to executive salaries. Some clients commit suicide. Others’ lives are ruined. But my, how investors, governments and banksters love it. Happily, we have the right chaps, and the odd lady chap, in Canberra who see the need to crack on with the racketeering.

And Kenneth Hayne’s Royal Commission interim report? It’s a type of post-modern show trial where the guilty pretend to be publicly shamed. Pure performance theatre. Nothing will come of it.  Michael West sums up, “Driven by greed, the banks behave with appalling dishonesty. Secondly, bankers exploit their customers for personal financial gain, often behaving illegally. The Australian Securities and Investments Commission (ASIC), is “captive” to those it regulates.

Captive also is the Coalition. Fabulist Frydenberg whose heroic failures include doing nothing to fix our fee gouging, planet poisoning coal-fired power grid and the laying waste of vast tracts of countryside, helping kill one world heritage reef, in what is archly termed “land-clearing” amongst other triumphs, is solicitous about the need to spare the rod.

Appearing on ABC RN Monday Frydenberg is as quick to posture and wag his finger about the shocking wrong-doing uncovered as he is to find a scapegoat, even if his script does sound like a quick precis of Justice Hayne’s own obiter dicta.

“Reading the 1,000-page interim report is one that shows a pretty frank and scathing assessment of the culture, the compliance, and the conduct in the sector.

And for me, Sabra, there were really two take-outs: firstly, that greed was the motive here and that the banks put profits before people; and secondly, that ASIC (Australian Securities and Investments Commission) as the regulator was too timid, preferring negotiation over litigation, even though they’ve had a greater than 90 per cent success rate in the cases that they’ve taken through the courts.”

Too timid? Frydenberg overlooks the Coalition’s savage cuts to ASIC’s funding. Or is this a case of psychological projection of his own mentality? Oddly Sabra doesn’t ask him about the nearly $150 million or the staffing cuts which have crippled the corporate watchdog to the point where it’s not even able to bark, let alone bite.

Of course it’s not the size of the dog in the fight, but the size of the fight in the dog that matters, but as this section of the ABC transcript shows, Frydenberg is more than happy to lamely let the failed system fix itself. Sabra Lane asks

What have you said to ASIC’s chief James Shipton and APRA’s Wayne Byers about muscling up?

JOSH FRYDENBERG: Well, I’ve said that the public expect them to do better, and we, as the Government, stand ready to provide them with the support that they need.

But let’s not forget — the regulators should be enforcing the law, but we should also see greater compliance from the banks and the financial institutions themselves, and this greed —

SABRA LANE: But it’s clear that the banks and the financial institutions just didn’t fear being… You know, they just didn’t fear any consequences at all, that they regarded these watchdogs as toothless chihuahuas.

Hayne’s final report is due February 2019 and will include his findings on superannuation, insurance. It will also contain his recommendations, which can include recommending criminal prosecution.

What is clear, nevertheless, from the Coalition’s responses to a Royal Commission it vigorously and repeatedly opposed twenty-six times is that this government is happy to proceed with the theatre of its thoroughly post-modern show trial – even comply with a few token prosecution as long as it leaves the rest of the highly profitable and rotten edifice intact.

Above all, it shows itself firmly wedded to John Howard’s neoliberal vision of the past and as much in thrall to the powerful banks as any Coalition government.


Urban will be taking a break to undergo coronary bypass surgery. He looks forward to returning to writing as soon as possible.