Nick Champion (Wakefield, Australian Labor Party) Share this | Hansard source

I point out to the previous speaker, the member for Cowan, that nothing undermines confidence like armchair generals, who sit on their hands, who wait for the government to act and who then dispute every feature of the proposals we put forward and the measures we put forward. Nothing undermines confidence like armchair generals. I think they ignore the fact that we face an international set of circumstances, an international crisis, that has not been seen since the 1930s and that fundamentally things have changed. They have changed from what occurred in 2006 or well before that.

As of the end of 2008, some 17 OECD countries were entering recession: the US, Japan, Germany, the United Kingdom, Italy, Spain, the Netherlands, Singapore, Hong Kong, Sweden, Denmark, Finland, Hungary, Portugal, Turkey, Ireland and New Zealand. There are another 10 OECD economies which have had at least one quarter of negative growth: France, Canada, Korea, Norway, Austria, Belgium, Luxembourg, the Czech Republic, the Slovak Republic and Mexico. So we now face a situation where we have an international economic downturn, six of our top 10 trading partners in recession, 27 countries having experienced one negative quarter of growth and 17 being in recession, and we have speakers from the opposition harking back to the good times, as if they could click their fingers and click their heels and get back there.

This crisis has claimed nearly 30 banks that have either collapsed or had to be bailed out or nationalised. Nobody would have foreseen the Royal Bank of Scotland being in state control, which is what has occurred. No-one would have foreseen Northern Rock, in the United Kingdom, being nationalised. No-one would have foreseen the contraction of credit that has occurred.

We have had the most serious economic contraction, the most serious economic crisis, since the 1930s. Really, for opposition speakers to be going down this sort of memory lane journey, as if they can magically transform things, is to do a great disservice, I think, to the Australian people, because what we really need to do is critically examine the economic fundamentals that have governed markets for the last 20 years or so. This has not just been done in this country; it has been done internationally, by people like George Soros, who made a great deal of money as a hedge fund manager in the derivatives markets in the world financial markets. He has written a book called The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. Basically, in that book he disputes the sort of neoliberal concept that markets have a self-correcting equilibrium, a belief that was founded on mathematical models, which is occasionally right but, as the crisis proves, is sometimes spectacularly wrong.

Soros believes—and he has made money out of these ideas, so they must have some basis in reality—that markets are not self-regulating bodies but rather have a prevailing bias which defies the concepts of rational expectations of investors and other players in the market. He believes that that prevailing bias factors in imperfect knowledge that the participants have and perceptions of self-interest. Most importantly, he finds that it actually produces self-perpetuating beliefs. His point is that this prevailing bias often defies reality—that is, prices are often higher or lower than they should be, than the fundamentals govern—and that the market may not be able to self-correct or reach equilibrium. So what happens is that you do not just have these sorts of downturns but occasionally the prevailing bias gets so out of touch with the realistic value of assets that you have an implosion. This is what we saw in the 1930s and it is what we have been seeing in the last year or so. Soros speculates that there may well have been a superbubble that developed that was tested at times like 2001, when the Fed dropped its rates, and the fact that it survived those tests actually perpetuated the belief.

Debate interrupted.

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