Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.

 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate


On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.


RSS 2.0

Bankers should not be let off the leash

By Ken McKay - posted Tuesday, 29 September 2009

Saul Eslake’s proposition in the article “The low-interest road to ruin” is that low interest rates encouraged an asset bubble in housing. He indicates that Australia’s position of relative health was because of some interest rate hikes from May 2002. The consumers of credit are to blame.

This is nonsense, the bankers are to blame, and Mr Eslake wants to pass the buck for his profession.

The American and to a degree European financial markets created a system where the lender was no longer responsible for the risk associated with supply of credit.


The individual financial institution could trade hybrid securities two or three steps away from the actual loan. The risk associated with the debt was obfuscated to such an extent that the professional credit agencies were incapable of assessing the real risk of the individual loans that made up the hybrid security.

Bankers and financial institutions gorged themselves in lending practices that could not identify the risk. The financial sector had effectively created its own fiat monetary system. Essentially there was a “private” non-regulated monetary system created at the behest of the bankers and for the bankers.

The economic theory is that low interest rates should encourage long-term low-risk economic activity; and high interest rates drive economic activity to riskier ventures to ensure the activity can recoup the additional cost of money.

What happened instead was the financial sector became greedy: rather than investing in long-term productive investments it went on a flight of fancy with its new found money supply.

Eslake describes his brethrens greed as follows:

Second , the extended period of unusually low interest rates encouraged investors to take on more risk to obtain rates of return that could no longer be provided by relative low-risk investments. This prompted a response from the “supply side” of the financial services sector in the form of an ever-growing range of increasingly risky investment products to cater to the growing demand for them - products the risk characteristics of which neither their creators or regulators fully comprehended.


Taking the eco-jargon out, the punters got greedy and the finance industry sold their shareholders down the drain by gambling their future without sufficient regard to the prudential risk.

Eslake’s solution is because the finance industry cannot be trusted to act prudentially to stop asset bubbles we need to slug everyone for the inadequacies of the financial sector.

Why should the farmer have to pay higher interests to put food on yours and my table because the greed of the finance sector? Why should the owners of Australian manufacturing firms providing jobs for our citizens have to wear the burden of the greed of the finance sector?

  1. Pages:
  2. Page 1
  3. 2
  4. All

Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

24 posts so far.

Share this:
reddit this reddit thisbookmark with Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Ken McKay is a former Queensland Ministerial Policy Adviser now working in the Queensland Union movement. The views expressed in this article are his views and do not represent the views of past or current employers.

Other articles by this Author

All articles by Ken McKay

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Photo of Ken McKay
Article Tools
Comment 24 comments
Print Printable version
Subscribe Subscribe
Email Email a friend

About Us Search Discuss Feedback Legals Privacy