ABC NEWS RADIO
THURSDAY, 13 SEPTEMBER 2018
SUBJECTS: Global Financial Crisis, Collapse of Lehman Brothers, Fiscal Stimulus.
HOST: Australia avoided much of the fallout [of the crisis] after Kevin Rudd’s Labor Government guaranteed bank deposits and provided massive economic stimulus to keep consumers spending. Wayne Swan was Treasurer at the time. He spoke to Peter Ryan.
WAYNE SWAN, MEMBER FOR LILLEY: Well I think it really felt like the end of the world when it came to the financial system. It had been ripped apart at the seams. And the thing about the Lehman’s collapse was that it was the beginning of a series of episodes that went on for months and months and months. And what that produced was a freezing in financial markets and an incredible danger to the economy.
So what began to happen, as we went through September, October and November was that global demand fell off a cliff. And in terms of policymakers, we were working in an incredibly fluid and difficult environment. I mean, we barely slept. People stayed in the office for weeks on end. We were constantly talking to people internationally, taking late-night calls, speaking to colleagues in the United States and around the world. It was a time of incredible confusion and panic in financial markets.
PETER RYAN: When you look back at that time ten years ago, there were so many unknowns. Personally, how confident were you that the global financial system was melting down?
SWAN: We were absolutely certain it was melting down; it was happening before our eyes. It wasn’t just Lehman Brothers. AIG went over a couple of days later. A series of financial institutions around the world all collapsed. So essentially, financial markets were frozen, so the need to act quickly and the need to act decisively was very clear. The question was how much, and when.
RYAN: Given what was unfolding around the world – and Australia was caught in the middle of this – what did you have to decide to do, along with the Prime Minister Kevin Rudd to ensure that Australia was insulated from the fallout?
SWAN: Well, Kevin Rudd and I had been working very closely on a possible response. It was very clear to us, particularly from the middle of the year that there were very dark storm clouds on the horizon. So we had begun working with the Treasury and also with our financial regulators on possible responses. We’d even begun to put in place the elements of a possible fiscal stimulus and we had worked with our regulators to ensure that we were strengthening the financial system. For example, we had announced mid-year a bank guarantee – something that the country had been crying out for, for a long time. So we’d been taking steps but we did not understand just how deep and how threatening these events would become.
RYAN: I recall the then Treasury Secretary Ken Henry saying over recent years that he didn’t really understand what was going on, but there was only one thing to do, and it was to go big – as big as you possibly could – with that stimulus.
SWAN: Oh absolutely – a very big fiscal stimulus, which was put on the table in October. But of course, that had to be followed by another bigger stimulus in February of the year after, because essentially, we were staring down the barrel of the Great Depression Mark II and we were absolutely determined that if we could do anything to avoid that in Australia, to protect our people.
HOST: That’s Wayne Swan, Former Treasurer, speaking to senior business correspondent Peter Ryan.
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