An ode to Paul Keating

Paul Keating speaking at a conference in Auckland, 2001. Photo / David White.

I am about to say something heretical in an age when anger at our Australian-owned banks is a new national pastime.

I think everyone with a job who can pay their mortgage and is happy to see their house prices stable should genuflect every morning in front of a picture with the four logos of the banks (ANZ, ASB, National and Westpac) and thank the almighty for these four mighty institutions.

They have kept lending and refrained from calling in home loans through the worst financial crisis since the Great Depression, unlike their hopeless, corrupt, weak and feckless peers in the Northern Hemisphere. The strength and stability of these big four banks, aided by a competent and flexible Reserve Bank, is the reason our economy is having a relatively mild recession and unemployment is still only 6 per cent. It's also the reason house prices have only fallen around 10 per cent.

Actually, the national genuflection should be done before a picture of former Australian Prime Minister Paul Keating.

Let me explain. In my olden days I was a reporter for Reuters in Canberra and covered Australian Federal politics and economics. My colleague and I were responsible for harassing Keating daily about the then large Australian budget deficit. We single-handedly made it the major issue for the 1996 election campaign that saw Keating ejected and replaced by the far less brilliant and dangerous John Howard.

Typically for a wires reporter, I didn't see the wood for the trees. I didn't realise it at the time, but Keating achieved something great during his years in government. He protected Australia's banking system (and therefore New Zealand's) from stupidity and weakness, almost by accident, and he built a vibrant and large savings pool that meant the banks would remain strong when the pressure came on.

Keating formulated the so-called '4 Pillars policy' that stopped the big four banks from buying each other and stopped a foreign bank from buying them.There wasn't much debate about it at the time, but it stopped the likes of Citigroup or Bank of America (both utterly flawed and now controlled by the US government) from buying one or more of our big 4. It also stopped any more concentration of the banks in Australia. I'm sure without that policy, four would have become three. They are already each too big to fail, but this would have concentrated the risk.

Keating also introduced Australia's amazing compulsory superannuation scheme that now forces almost all Australians to save 9 per cent of their income in pension funds. These funds now total well over A$1 trillion. That massive and growing pool of cash helped blunt the impact of the financial crisis on Australia's banks. Not many New Zealanders know this, but Australians have pumped A$20 billion worth of fresh capital into the big 4 banks in the last 12 months to ensure their capital is strong.

So think of Paul Keating when you wonder why New Zealand seems relatively unscathed and house prices have magically remained at unsustainable levels. Keating's actions all those years ago helped save us and Australia.

We should weave him a cloak or something, perhaps in the green colour of the New Zealand $20 note.

 

 

Bernard Hickey

 

 

 

Pictured: Paul Keating speaking to a conference in Auckland, 2001. Photo / David White