A Stubborn Mule’s Perspective

Mark Pesce describes himself as “an inventor, writer, theorist, very minor TV personality” (he’s a regular on the ABC’s New Inventors). He is also a major personality in Australian twitter circles. Yesterday Pesce penned an excellent opinion piece connecting two recent Australian court cases. In one a judge ruled that tasteless sexual depictions of Simpsons cartoon characters should be considered child pornography. In the other case, a man was found guilty of distributing child-abuse materials. What he had actually done was pass on a link to a video of a man swinging a baby. He had nothing to do with the creation of the video, but simply shared a link to a video that thousands around the world had already seen.

Now each of these cases in isolation may well be legitimate interpretations of Australian law, but taken together the implications are rather ridiculous. As Pesce observes:

[It] means that viewing a clip of The Simpsons on YouTube will soon be as illegal as watching it on television. In particular, videos showing the various times Homer has strangled Bart - which exist - would be very illegal, the equivalent of the most severe child abuse materials. And God help you if you should flip a link of that video to one of your friends. That’d be “distributing” child-abuse materials, because, where we are now, distribution has expanded to include link-sharing.

Another Australian twitter luminary, Stilgherrian, is fond of seeking out modern day inheritors of King Canute (not Stil’s preferred spelling) who try to turn back the tide. So it seems that Australian courts are joining the RIAA, television stations and the Australian Government in vying for the Canute mantle and attempting to put Pandora’s internet back in the box. They should face reality and give up. As Pesce says, we have reached the end of the age of the gatekeepers.

Australia’s Prime Minister, Kevin Rudd, triggered waves of protests from environmentalists this week when he annouced that Australia’s target for emissions for 2020 would be a mere 5% reduction from the levels in 2000. With substantial commitments to emission reductions from other countries around the world, this target would be increased to 15%. While the Government was at pains to point out that Australia’s population growth makes this target more ambitious than it sounds. However, by world standards Australia’s emissions are very high, whether measure per capita or by gross domestic product. This means that Australia’s should have more scope for relatively inexpensive emissions reductions than many other countries.

So 5% does seem to be a very unsatisfactory target. If you are a climate-change skeptic, even a 5% target is a needless waste of time and money, while if you take forecasts of climate-change seriously it seems woefully inadequate. However, rather than focusing on the target itself, in this post I will look at the implications that the Government’s plan will have where consumers will see it most directly, on the price of petrol.

In their White Paper on the carbon reduction scheme, the Government proposes a cap on the price of carbon of $40 per tonne for the next 5 years while, for their financial impact modelling, a price of $25 per tonne has been assumed. In an earlier post I calculated the impact of the price of carbon on the price of petrol. Here are the results for a range of carbon prices.

So, if the Government’s assumption is correct that the price of carbon will initially be around $25 per tonne, we can expect an increase in petrol prices of 6 cents per litre. Even if the price of carbon reaches the $40 cap, the impact on petrol prices will only be around 10 cents per litre. I say “only” because that 10 cents is a small compared to extraordinary moves in petrol prices seen over the last year due to movements in the price of crude oil. From July to November, price of petrol in Sydney fell by almost 40 cents per litre, according to prices published by the Australian Automobile Association, and based on my observations has fallen another 20 cents since then. Even compared to the 38 cents per litre fuel excise, 10 cents seems a modest figure. The chart below shows the dramatic moves in petrol prices along with projected prices based on the daily price of Singapore 95 refined oil, based on a regression model I have used in a number of posts in the past.

Introducing an emissions trading scheme for carbon will eventually affect a wide range of consumer prices, but based the relatively small increase petrol prices that it will produce, the scheme is not likely to have a significant impact on consumer behaviour. The scheme will do all its work on the behaviour of businesses and, given the dire financial straits we find ourselves in today, this is presumably why the Government has been so unambitious with their target. But this does also highlight that there is a lot more that the Government could be doing to reduce consumer carbon emissions beyond the trading scheme itself.

Photo Source: Foto43 on flickr (Creative Commons).

Recently I bought a new house at auction and now I am in the process of selling the old house, which will also be by auction. As a result, I have spent a lot of time of late pondering the best way to approach an auction, both as a buyer and a seller.

There are a lot of different types of auction. In a Dutch auction, popular at wholesale fish markets and also known more prosaically as a descending price auction, the auctioneer starts with a high price, which is then reduced in increments until a buyer is prepared to pay that price for the fish (or whatever is being sold). Bond market tenders are closely related to Dutch auctions.

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Over the last few months I have written a lot about the global financial crisis. My posts have focused on specific events as news has broken, ranging from a programming bug by Moody’s to the enormous US bailout plan and Government guarantees from Ireland to Australia. Here I will instead take a broader perspective and provide an overview of how the crisis has unfolded and, more specifically, how Australia came to be caught up in the mess.

A year ago, many commentators were extolling the idea that Australia’s economy had “de-coupled” from the United States and Europe, and would continue to be powered by the rapid growth of China and other developing nations. Concerns about inflation meant that interest rates were rising and many felt Australia would escape the incipient economic slowdown in the developing world. Events have instead unfolded differently. The Federal Government has taken the extraordinary step of guaranteeing deposits held in all Australian banks, building societies and credit unions and the Reserve Bank of Australia has delivered an unexpected 1% cut in interest rates, citing heightened instability in financial markets and deteriorating prospects for global growth. This was an extraordinary turnaround. It is, of course, the result of Australia becoming ensnared in the global financial crisis that began in mid-2007 and has intensified ever since. But how and why did Australia get caught up in a mess that started with falling property prices in the US?

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In a post earlier this week, I wrote

The Government was right to step in with the guarantee and it has doubtless provided some stability for a financial system that remains jittery, but the sooner the details are sorted out, the better.

The main outstanding question I was referring to was how the guarantee would apply to wholesale debt. Uncertainty on this point has been creating significant concern for investors in cash management trust and other managed funds. The amount of money moved from these funds to bank deposits may be over $1 billion.

Finally today, the Government announced the wholesale guarantee fee, which will also apply to retail deposits over $1 million. While there had been speculation that the fee would vary based on the time to maturity of each security, the Government has instead opted for a fixed fee. The fee varies with the credit rating of the bank taking up the guarantee.

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Following the shenanigans in parliament earlier this week, the Government has modified their original 12 October media release about the Government guarantee for banks. In the process they no longer list the local and foreign banks covered by the guarantee, so with the help of Google’s cache I am republishing the original list here. The Government has also (finally) announced the terms of the wholesale guarantee, so stay tuned for another post on that subject. Update: here is that post.

Today the Government announced the fees payable for a guarantee on wholesale debt, which will also apply to retail deposits over $1 million. At the same time they announced that foreign bank branches will be able to access the deposit guarantee but only if they pay the fee, regardless of the size of the balance. The lowest possible fee is 0.70% (it varies with each bank’s credit rating) and the bank is sure to pass that on!

Note that foreign banks not in the list below are now also able to access the wholesale guarantee (for short-term debt only) and the deposit guarantee, but the wholesale guarantee fee will apply even on balances below $1 million.

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Treasury Secretary, Ken Henry, appeared before a Senate Estimates Committee today to provide some clarity on the nature of the consultation between the Government, Treasury and the Reserve Bank prior to the 12 October announcement that the Government would provide guarantees for all Australian banks. This followed yesterday’s article in The Australian which claimed that the Reserve Bank and Treasury were at odds on the question of providing an unlimited guarantee. Opposition leader Malcolm Turnbull tried to capitalise on the issue in Parliament the same day and, despite scoring some initial points, he lost the upper hand when he appeared to question Henry’s integrity.

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In the latest instalment of the Global Financial Crisis (”GFC”), following the lead of Ireland and other countries, the Australian Government has taken the extraordinary step of guaranteeing all deposits with Australian banks, building societies and credit unions as well as locally incorporated subsidiaries of foreign banks. The guarantee can also extend to wholesale debt (if banks pay an as yet undetermined guarantee fee), which allows protection of bonds issued by Australian banks offshore.

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It’s time for a break from watching the financial markets implode. Instead, this post will focus on the arts, Newtown-style. Every year, the shops of Newtown become an extended gallery exhibiting the works of young Australian artists. Or at least, that’s how I describe it. According to the City of Sydney website, the aim of the exercise is “to combat the exclusivity fostered by institutional gallery spaces”. In years gone by, the exhibition was called “Walking the Streets”, but this year it goes by the name “2042: Art on the Street”. For those who are not local, 2042 is the postcode of Newtown and the immediate surrounds.

Being locals, Henry, my five year-old son, and I took a walk up King Street today to look at some of the works on show. Inspired by the blog Nosey in Newtown, we decided we would document the event, so we set off both armed with cameras. The undoubted favourite was the sculpture of giant ants beginning to rip into a car.

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Earlier this week, Australia joined the US, the UK, France, Germany, Canada and other countries in clamping down on the practice of “short selling” shares. According to the regulator, the Australian Securities and Investments Commision (ASIC), the new restrictions were aimed at reducing “unwarranted price fluctuations”. For the moment, the restrictions are in place for a period of 30 days, at which point ASIC will decide whether to extend or lift the restrictions.

For many outside the financial markets, the practice of short selling is a mysterious one and, for some, rather worse than that. The following letter to the editor in the Sydney Morning Herald is a case in point:

Short selling can be carried out only if the buyer is misled into believing that the seller owns the stock (”ASIC in total ban on short selling“, September 22). Can short selling ever be morally justified? Surely the only beneficiaries of such activity are those with sufficient funds to manipulate the sharemarket. After all, we cannot legally “short sell” anything else we do not own, such as a neighbour’s house, business or car.

Laurie Mangan Tamworth (September 23)

So what is short selling? Contrary to Laurie’s view, there is no misleading involved but it does involve selling shares that, essentially, you do not own. There are two types of short selling: naked (which really sounds naughty) and covered (which sounds a bit better). To explain what each of these involves, I’ll first go into some of the mechanics of share trading.

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