PAUL BARCLAY: G'day, this is Australia Talks on ABC Radio National, Radio Australia and on the internet and maybe even on your MP3 player. I'm Paul Barclay. Thanks for your company.
The US stock market opens for business in just a few hours' time and American taxpayers will then get a better idea of just what the financial meltdown is likely to cost them. At this stage it looks like being upwards of $US700 billion, maybe even a trillion if you can get your head around that. That's what the US Government's planning to spend to buy out bad debts and try and halt the implosion that started on financial markets last week.
Meanwhile, the Australian stock exchange closed up today after a delay to the start of trade while the market assessed some trading restrictions imposed by ASIC, the Australian Securities and Investments Commission.
Shortly you'll hear from Australia's Finance Minister, Lindsay Tanner, about the US bail out, but what do you make of the meltdown on financial markets? Should the Government now be tightening regulation of the banks and the markets here in Australia, and is the turmoil on the markets likely to affect you, maybe even your super? And should taxpayers, both in the United States and here, be propping up banks that have made some of these dodgy investment decisions?
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LINDSAY TANNER: I think it's good that the American Government over the past month or two has acted promptly to deal with very difficult circumstances. There's a lot the debate about what's the appropriate response and questions about moral hazard, which are legitimate questions, but I think they've taken the right course of action in seeking to buy large numbers of securities that probably in the long term have very good market value, but at the moment, of course, the market is steering well clear of them.
So I can't make predictions about where the United States will be in six to 12 months time, but certainly I've got no dispute with the action being taken by the regulatory authorities and the Government.
PAUL BARCLAY: Is this a risky action, and how does a Government go about raising $700 billion to a trillion dollars at short notice?
LINDSAY TANNER: Well, it's important to bear in mind that the US economy's not far shy of about 20 times the size of Australia, so to get an equivalent figure for Australia it would be like the Australian Government having to invest $35 or $40 billion in equivalent circumstances, which of course don't exist here.
Now that's a very big sum of money in Australian terms, but it's not beyond the balance sheet of the national government to do that when the circumstances require it. And is so I have no doubt that the money's available for them to do these things. I doubt whether they will be able to do it too often, but clearly they've made a judgment that they need to step in and to put their financial clout behind stabilising things.
PAUL BARCLAY: Now I know that the treasurer, Wayne Swan's been critical of Opposition Leader Malcolm Turnbull's suggestion that our government put more cash into the market. What is the proper response from the Australian Government to the implications that we face from this financial meltdown?
LINDSAY TANNER: Well, there's two key responses, both of which are in train. One is tightening regulations, so ASIC with the support of government has moved to have a temporary ban on short selling to ensure that the capacity for people to exploit short term market turmoil that's driven from overseas and generative in greater turmoil is shut off, and also that you have a platform for the Government's reforms on disclosure and transparency in short selling. That's one initiative that's proceeding, and secondly, it's real important that we've got a very strong budget surplus as a buffer against these kinds of events, a buffer against these kinds of circumstances.
PAUL BARCLAY: Just on that issue of short selling, this is the practice of selling stocks you don't own with an expectation of buying them back at a lower price later on. That's now been banned. Some in the market, though, are saying that it's an overreaction, that it will actually take more money out of the market. Will it?
LINDSAY TANNER: There are issues of debate associated with how short selling should be regulated, and in more benign circumstances it plays a positive role because it helps to keep share prices honest, it helps to ensure that you don't get bubbles emerging over particular stocks and that there is, in a sense, pressure coming back the other way when times are strong and when you've got a bull market running.
But the reason ASIC and the Government had to act in this instance, of course, is that you've seen major restrictions on short selling put in place in most of the world key economies like the US and the UK and Canada, and what that means is if we don't follow suit in some form, you will see a substantial increase in the amount of shorting going on in the Australian market because activity that's shut out in one market will tend to switch to another, and we've already had a very high level of shorting over the past six or nine months, and in some cases that's produced some spectacular stock price falls.
So I think it's another illustration of just how globalised the world is now in economic terms, that part of the reason for making this decision is that if we didn't move down this path, we would be very vulnerable to imported instability that is way beyond what we've already seen.
PAUL BARCLAY: So what sort of fall-out is the Government planning for, for the Australian economy?
LINDSAY TANNER: Paul, I can't speculate on the various contingency arrangements that the Government puts in place. In some instances they involve matters that are outside my portfolio, of course, but you can rest assured that Kevin Rudd, Wayne Swan, myself where relevant, and others like Nick Sherry, have been in very regular discussions with key players, not just in Government circles.
I've just received a call from a major player in the financial markets only a little while ago with the aim of just walking through his perspective on what's happening, so obviously we're consulting pretty widely outside government as well, and there are inevitably things that are available to governments when the going gets tough. But I wouldn't speculate on where those things might head, and as I say, it's something that we have tried to emphasise with the Opposition, that too much panic stricken talk can itself become a source of economic instability and economic problems.
So I think it's very important that all the serious political players on both sides act responsibly here because people's livelihoods, people's investments are at stake and just putting around suggestions that something bad's going to happen in itself can become a factor in causing bad things to happen.
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