January 26th 2019

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Articles from this issue:

COVER STORY The Natural Family as an integrative social force in American history

EDITORIAL The Remnant, resistant, creative minority

ENERGY POLICY Enough hot air about carbon dioxide; let's talk LPG

CANBERRA OBSERVED Federal election: the media have done our duty at the polls for us

NSW ELECTION NSW is just starting to sizzle

NATIONAL AFFAIRS Archbishop Wilson free, but trial was no witchhunt

NATIONAL AFFAIRS Awaiting Hayne: full report sure to shake finance sector

LIFE ISSUES The unvarnished truth about surrogacy

HIGHER EDUCATION Massification: that's the name of the game

SOCIETY Dover Beach: a mordant post-Christmas reflection

IRELAND TODAY Celtic Tiger changed out of all recognition

MUSIC One note does not a monotone make

CINEMA Aquaman: High fantasy in ocean depths

BOOK REVIEW Uninformed consent

BOOK REVIEW A thoroughly modern movement

BOOK REVEW The foundation of a successful society


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Awaiting Hayne: full report sure to shake finance sector

by Dr Mark McGovern

News Weekly, January 26, 2019

The release of the Report of the Financial Services Royal Commission will be an event eagerly awaited by many as we begin 2019.

The only local precedent is the wider-ranging 1935 Banking Royal Commission. That inquiry initiated the establishment of an Australian institutional structure that for half a century not only avoided depression and further reckless lending but also helped secure rising prosperity throughout our society.

To simplify, the 2018 Financial Services Royal Commission (FSRC) has in little more than a year identified and detailed many serious problems. Two dozen case studies have been examined in depth but we can reasonably expect the Report to be informed by thousands of submissions. How this is done, or not, will be interesting to see.

What will be the legacy of the many commendable efforts of Commissioner Kenneth Hayne and his expert legal team?

The Commissioner reported (Draft, pp73–74): “Two themes recurred: dishonesty and greed.

“• Charging for doing what you do not do is dishonest.

“• Giving advice that does not serve the client’s interests but profits the adviser is equally dishonest.

“• No matter whether the motive is called ‘greed’, ‘avarice’ or ‘pursuit of profit’, the conduct ignores basic standards of honesty.

“• Its prevalence and persistence require consideration of the issues of culture, regulation and structure.”

Finding one of the seven deadly sins (or vices) not only directly featured in the FSRC Draft Report as a motive but also bundled with “pursuit of profit” presents us all with an interesting challenge.

Historically, grave matters involving moral breaches (such as “thou shalt not: VII steal, VIII lie and X covet thy neighbours’ property”) would commonly be discussed in terms of charges of crimes of theft, fraud, robbery, larceny and the like legally raised through police inquiry, prosecutor efforts and (when proved) societal sanctions.

Criminal or civil cases are constitutionally the principal responsibility of the states in Australia. Enhanced state resources, along with better national information sharing, are primary needs in effectively dealing with the dishonest.

However, the final bullet point (Its [the conduct’s] prevalence and persistence require consideration of the issues of culture, regulation and structure”) and many commission discussions reveal an alternative position: that seeking to change financial sector culture will improve conduct. Ideal “special” organisational reforms that improve culture – but rarely the central business model – will improve agent conduct. “Corporate enhancements” are the go!

However, such talk involving culture, organisation and systems reform largely led to our current problems and predicaments. Indeed, like the three supposedly wise monkeys, the “light touch” federal institutions responsible apparently heard, saw or spoke of “no evil”.

However, the real choice is not between “thou shalt not …” prohibitions and “they will want to …” expectations. Both need to work together well in ways that are compatible with, and supportive of, wider societal and moral norms. The common and special responses need to be mutually supportive. This is so for both the common person and for special collectives (especially corporations that profess no moral norms but nonetheless have moral impact).

There is a deeper challenge. How do we build a basis for “fair and reasonable” finance that contributes to rejuvenated economies and more inclusive societies supporting lives well lived? Finance and money are human inventions. They are very useful tools, but neither is an end in its own right.

Self-reinforcing systems (such as modern finance) trenchantly resist change. A world failing to respond effectively to the serious imbalances evident in the first phase of the global financial crisis (GFC) is a spectacular example. In the decade since 2008, problems have just compounded as unserviceable debts grew.

Australian holdings of debts that grew unsustainably in the last decade now face a reckoning. Fortunately, there are “orderly” ways to reduce capacity losses and needless wealth destruction. Unfortunately, such ways are little appreciated in Australia. This needs to change lest “disorderly” market workouts wreak needless loss and havoc.

Commissioner Hayne and his team will likely provide a valuable initial discussion of the problem, but an incomplete one. While many recommendations will be worthy, they need not automatic acceptance but evaluation within a wider understanding of how current problems can be well resolved. Commissioner Hayne takes a first step; but the nation needs to determine its journey.

Dr Mark McGovern will explore further the implications of the Hayne Report in the context of the upcoming federal election when he speaks at the NCC National Conference in early February.

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Last Modified:
April 4, 2018, 6:45 pm