Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Hansard source

The fallout from the US subprime loans crisis continues, unfortunately, and it continues to impact on the global financial system and exposed US financial institutions. Some have come under a significant stress and a number have collapsed, with significant consequences. The events illustrate what can happen when there is poor regulation and supervision of financial institutions and their lending practices. The base cause of the crisis in the United States was the massive distribution and effectively mis-selling of mortgage products to millions of Americans. In turn these mortgage products were packaged into various securities and passed on through the financial systems of primarily the United States and Europe and, unfortunately, they were given AAA ratings on the way through.

We thought, with Bear Stearns some months ago, that the worst would have passed but unfortunately it had not. In the last couple of days Lehman Brothers, the fourth-largest investment bank, has filed for bankruptcy—that is the largest bankruptcy in US history, over $600 billion—and the 94-year-old investment bank Merrill Lynch has agreed to be purchased by the Bank of America. This morning the American International Group, the largest insurance company in the United States by assets, has effectively been bailed out to the tune of some $85 billion. In a statement issued a few hours ago , the Federal Reserve Board said:

The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group ...

These events follow the takeover of the stricken Bear Stearns by JP Morgan, and the US government’s recent financial lifeline for US mortgage lenders Fannie Mae and Freddie Mac. Obviously these issues have impacted severely in the United States and Europe and have had a major impact around the world. I can say in these circumstances that Australian banks are well-capitalised and well-regulated and that they do not have the same problems as banks in the United States. But, of course, the Australian economy and the financial markets have not been immune—