Sunday Mail Column - Unlimited deposit bungle

The Rudd government failed to seek appropriate advice from the reserve bank governor over the unlimited deposit guarantee plan.

The Ancient Greeks believed the totality of human existence could be summed up as either comedy or tragedy.

I’ll recount to you the events of recent weeks and you can decide which one applies here.

In the midst of this global financial crisis many countries around the world guaranteed the deposits held within their banks and almost without exception included a limit or cap on that guarantee. These measures were taken to reassure investors and avoid rapid movements of deposits. If a bank was to collapse in these uncertain times, at least investors and depositors could be reassured their savings and investments would still be okay.

Early in the piece the Coalition recognised that foreign banks now had an insurance policy from their respective governments that gave those financial institutions security and an advantage in the market. The Opposition Leader, Malcolm Turnbull, whilst emphasising the strength of our domestic banks, proposed a similar guarantee of up to $100,000 for Australian depositors.

You may recall the high drama that followed. The Prime Minister and his Cabinet, appeared on our Sunday news with rolled up shirt sleaves, working hard to solve our economic crisis.

This weekend meeting resulted in the Australian Government changing their policy – previously saying they would guarantee deposits up to $20,000 – to instead guaranteeing all deposits held in some Australian financial institutions.

To put it simply, whether your deposit is $60 or $60,000,000, so long as it is held within a financial institution included within the Government’s guarantee, your money would be safe.

The Federal Opposition, in good faith, and operating on the understanding that the Government had sought all the appropriate advice and ticked all the boxes, gave the Government bipartisan support.

It would now appear we were wrong to place our trust in the Rudd Government.

It has emerged that when planning the Unlimited Bank Deposit Guarantee plan, our Prime Minister and our Treasurer didn’t deem it necessary to ask the Governor of the Reserve Bank directly and without ambiguity for his thoughts.

The debate in Canberra this week centred on what happened at that Cabinet meeting I mentioned earlier – the one on a Sunday morning when everyone had rolled up shirtsleeves. Kevin Rudd admitted in question time that no one – not one of Kevin Rudd’s Cabinet, or indeed the PM himself – thought to ask the direct advice of the Reserve Bank Governor as this extraordinary plan was agreed to. This is possibly the largest change to monetary policy since the independence of the Reserve Bank – this omission was remarkable.

In this great telecommunications age, I can arrange a conference call on my mobile phone with the touch of a button. With the vast resources of Government at their disposal, Kevin Rudd has no justification for not getting in touch.

However that is only Act One in our Government’s tragi-comedy.

I mentioned before that only some financial institutions were covered by the Rudd Government’s Unlimited Bank Deposit Guarantee.

So what do you do if you have all your life savings within AXA Asia Pacific, Perpetual Investment Management or Australian Unity, investments funds that haven’t been covered by the Rudd Government’s deposit guarantee?

Well, you might decide to pull your money out and invest in one of the banks covered by the guarantee: right? You wouldn’t be alone in thinking that is a good idea.

The real world result is that the deposit guarantee, designed to ensure confidence in the security of our banks and financial funds, has in fact led to a flight of capital from financial institutions that were travelling well until the Government got involved.

Perhaps it would have been a smart move directly consulting the Governor of the Reserve Bank after all.

Okay, so what do you do if you are the Chief Financial Officer of AXA Asia Pacific, Perpetual Investment Management or Australian Unity? With a rapid shift of deposits from their institutions’ funds, their only option has been to freeze withdrawals from their funds.

Now if you have your retirement funds, superannuation, or your life savings held within one of these financial institutions you can’t touch your money because the bank has frozen withdrawals.

At least 180,000 Australians are affected by this extraordinary bungle.

What was the Rudd Government’s response to this huge problem? When asked by journalists on Thursday night what people affected should do, the staggering answer from Treasurer Wayne Swan, was to “go to Centrelink.”

Go directly to Centrelink, do not pass Go, do not withdraw $200.

The Federal Government has abdicated its responsibilities and caused enormous problems. How can anyone still have confidence in the economic abilities of the Rudd Government? At the first sign of trouble they have fumbled and dropped the ball.

This is policy making on the run at its worst. The Rudd Government, over a weekend, created a major policy, used weasel words to imply they had sought appropriate advice when they hadn’t even directly consulted the RBA Chief, and now it has affected the savings of thousands of depositors.

Treasurer Wayne Swan tells us to head to Centrelink.

The third act is yet to occur. We wait with anxiety and trepidation to see how it will conclude. As an overseas financial maelstrom of colossal proportions swirls and spits around us, the Captains of the ship, Messrs Rudd and Swan, have blinked.

Will it end in tears, or tears of laughter and relief? Either way, the mishandling of this matter has shaken confidence, and it will be long remembered after the curtain closes.