WAYNE SWAN MP
MEMBER FOR LILLEY
ABC THE BUSINESS
THURSDAY, 13 SEPTEMBER 2018
SUBJECTS: Global Financial Crisis, Collapse of Lehman Brothers, Fiscal Stimulus.
CARRINGTON CLARKE: The collapse of Lehman Brothers sent shudders down the spines of politicians around the world. Here in Australia, the Labor Government decided to go hard and go early, implementing a huge stimulus package and guaranteeing bank deposits.
Wayne Swan was the Treasurer in 2008, and he says time has proven that the government’s action saved Australia from recession. I spoke to Wayne Swan earlier from Canberra.
Wayne Swan, thank you for joining The Business. Ten years on, do you think the world has learnt the lessons of the collapse of Lehman Brothers?
WAYNE SWAN, MEMBER FOR LILLEY: No I most certainly don’t think the world has learnt the lessons. And the real lessons relate to the role of fiscal policy in supporting living standards and creating jobs. And also I don’t think we’ve learned the lessons of the underlying fault lines that lay beneath the Great Recession, namely the growing inequality of wealth and income distribution in the world. Both of those factors have not been learnt, I think comprehensively.
If you think about where we are now, you can hardly imagine the global players summoning the same political energy and commitment that they had back in 2008/9, through the US, Britain, Canada, countries like that, to coordinate an international response to the Global Financial Crisis and the Great Recession.
CLARKE: Well let’s go back. Do you think Australians recognise how close we were to disaster?
SWAN: Yeah I do actually. I think Australians felt threatened by the events that unfolded from the collapse of Lehman Brothers all the way through to mid-2009. We did some polling on this recently because there’s been a lot of controversy.
Conservatives have attempted to vilify and denigrate the stimulus packages that we put forward to combat recession in Australia and avoid recession. And that polling shows that, overwhelmingly, Australians recognised the need for stimulus to avert recession and supported our measures.
CLARKE: You said that Australia had a choice at that time. The choice was either between a deficit or a recession.
SWAN: That’s right.
CLARKE: Is it fair to say though, now, Australia wouldn’t have that choice if we hit the same obstacle today?
SWAN: No I don’t agree with that; I think Australia has still got plenty of fiscal firepower left. What we don’t have today is the same power in the deployment of monetary policy, because interest rates are at record lows. So we put in place fiscal stimulus – a very large fiscal stimulus – and that was accompanied by a very large monetary policy stimulus. We certainly wouldn’t have monetary policy available to us now in the way we had then.
And yes, we are more constrained now on fiscal policy, but when you look at our debt-to-GDP ratios and so on, we could still certainly provide significant fiscal stimulus. What would be required, however, is the political will and the political courage to do that. And I’m not sure that the Liberal and National Parties in our Parliament would have the wherewithal and the courage to engage in that. They certainly didn’t support it last time, and I couldn’t see them supporting it again.
CLARKE: Part of your policy response was to protect the banks, including a guarantee and to ban short selling. How close did Suncorp and Macquarie Group come to collapse?
SWAN: Well I think all of our banking system was threatened. Not because they were unsustainable or because they were weak; they were threatened by the global circumstances. Now of course, in our system, some financial institutions are stronger than others, and it was no secret that some of our smaller financial institutions felt more threatened by the events that were unfolding in global and national markets.
But we intervened to provide the guarantees through the Financial Claims Scheme. We understood that if one financial institution went over, all financial institutions were threatened. And the truth was the government acted because we couldn’t let one institution go over.
That’s what actually happened in the United States with Lehman Brothers. There had been an expectation, following Bear Stearns in April 2008, that the Americans would intervene and protect Lehman Brothers. When they didn’t, what we saw was basically the banking system in that country implode. We were absolutely determined that we would protect all of our financial system, and we did.
CLARKE: Despite avoiding a recession, ten years on, the Australian public is burdened by record debt. Are you concerned that we are now prone to our own financial crisis?
SWAN: No I’m not; there has been a lot of work done internationally to ensure that our financial institutions have adequate liquidity and adequate capital. So I am confident that all of our financial institutions pass those essential tests of stability and adequacy.
CLARKE: Specifically, though, the GFC was sparked by a housing default crisis in the US. The Australian housing market has now experienced 11 months of declines, and that’s despite no official move in interest rates. Are you concerned that Australia could experience its own mortgage meltdown?
SWAN: Look, the real threat to the housing market lies in the job numbers. I accept the analysis that you see from the Reserve Bank and others, that our housing market and the loans that people have are essentially in pretty good nick, overall – there will be issues at the margins. But the real threat, when it comes to the housing market, is whether the owners of the homes, who have taken the loans, are in sustainable employment. And the employment market here has been in a reasonable state, although there are many people out there who’d like to have more hours of work. But it’s rising unemployment that brings the sort of threat that you’re talking about.
CLARKE: But what about the argument from some investment banks, that this is different, in that we’ve now seen a much greater penetration of investors in the housing market, we’ve seen a lot more people move onto interest-only mortgages which are coming to an end; does that at all worry you that we’ve now got a Royal Commission in place that may look at lending standards, which could see a credit crunch occur, which could have its own impacts on the Australian housing market?
SWAN: Well, what we’ve seen is action from our regulators in those areas, particularly in the area of investor housing. They’ve come down, pretty hard, on lending in those areas, for all of those reasons you’ve just described. So I see that as evidence of being good regulatory activity – that where these problems are arising, these regulators have been active and effective.
CLARKE: Wayne Swan, thanks very much for your insights.
SWAN: Thank you.
MEDIA CONTACT: DANIEL DE VOSS 0403 775 158
Authorised by Noah Carroll, ALP, Canberra.