November 10

Our subprime crisis: constitutional advantage

We have had our own subprime crisis: the difference is our constitution allowed the government to fix the problem.  It is often said Australians have little understanding of their constitutional system. In fact Australians seem to know more about the constitutional system than Americans do about theirs.

Australians understand that a government is responsible to the House of Representatives. This means that Parliament cannot legislate against fundamental government policy, however difficult the Senate may be.

…world economic crisis….

The turning point in the recent presidential election was the world economic crisis. As Piers Akerman points out, this was not caused by "extreme capitalism," as Prime Minister Rudd claimed ("Can Rudd stem fortress America?" Sunday Telegraph, 9 November, 2008). 

It is hardly surprising that the PM doesn't understand the cause of the crisis. His economic credentials are minimal. His bungling of the bank guarantee, and the resulting run on the property funds which has had such a deleterious impact on the compulsory superannuation savings of hundreds of thousands, has no parallel in the history of the Commonwealth.

The world economic crisis was caused not by extreme capitalism, but by political meddling in the market. In brief, Congress required that loans be made to persons to whom prudent bankers would not lend.

This is the notorious subprime crisis.

From the last Presidential election, it is clear that the majority of Americans think they too live under some version of Westminster system where legislation is consistent with the government’s programme, and on the whole, the elected government has its way.

This misunderstanding may be because  the mainline American media was so determined that Senator Obama should win, they did not do their job. The only other explanation is that the majority of Americans are not rational, which I just do not believe.

The world economic crisis was caused not by extreme capitalism, but by political meddling in the market. In brief, Congress required that loans be made to persons to whom prudent bankers would not lend. This is the notorious subprime crisis.

…our own subprime crisis and our constitutional system…


[Victorian Parliament House, Melbourne]


It is forgotten that we have had our own subprime crisis. Fortunately it was restricted to Victoria, another example of the advantages of federation. This was under the Cain and Kirner governments in the late eighties and early nineties. They required the State Bank’s merchant banking arm, Tricontinetal, to lend to persons no bank would lend to.

The argument was that marvellous innovative proposals were not getting the capital they needed. The hopeless and the carpet baggers lined up.

The result was a financial disaster for the state. People began to leave Victoria, and there was a spectacular run on one financial institution which had to be bailed out by the Commonwealth. Mrs Kirner’s successor Jeff Kennett turned the state around only by stringent budgeting and the sale of assets accumulated over generations.

Under our Australian Westminster system he was able to act. Under the antiquated US constitution, he may have found, as Bush did, that he was impotent.

If Kennett had been a US state governor, he could have been stuck with and blamed for the very problem he was trying to cure. That is the difference between our constitutional systems.

…the US crisis…

The US subprime crisis is the direct result of legislation by the Democrats. The legislation was kept in place by the Democrats,notwithstanding attempts by Senator Mc Cain to reverse them. Senator Obama was not interested in correcting this manifest error in public policy. The Democrat Party continued to support massive subprime lending to people who could never pay. Worse, they corruptly used this for its own political purposes.

Yet Obama is presented as the solution, principally for a reason totally unrelated to merit –his racial background.  I do not recall the same excitement when two “people of colour”, as they call those of us who have even a minor and recent trace of non European blood, successively became Secretary of State. Was it because they were   nominees of George W Bush?

Nor do I recall the same excitement when a woman, Margaret Thatcher became Prime Minister. And  no one said the world had changed forever when Disraeli, a man of Jewish origin, became Prime Minister. Columnists were not so stupid nor so manipulative in the nineteenth century.

It is extremely disturbing that pollsters say extraordinary majorities of black and hispanic voters preferred Senator  Obama. This is tribalism; this is not a mature democracy. It is of little relevance what sex (sorry, gender is about grammar) or what race politician or indeed a judge is. The only criterion is surely merit. The commentariat should move beyond immature adulation based on sex and or race.

To return to the constitutional issue, the Republican Party has been blamed for the actions and inactions of the Democrat controlled legislature. The only conclusion is that the majority of Americans think the government has control over the legislative programme. Under the American constitution this is not so.

The confusion was of course exacerbated by the mainstream American media’s determination to campaign for Senator Obama rather than indulge in objective news reporting. This was reflected sadly in much of the Western media.

…the role of the media and Bob Carr's curious history lesson……

It was refreshing then to hear Christopher Hitchens on the ABC’s round-up of the election on 8 November 2008 say that as a journalist it was not his role to have the warm and fuzzy feelings which were engulfing the other panellists, former NSW Premier Bob Carr and Robert Manne. He said the role of the journalists is to ask questions, listen to answers and then to pose tougher questions.

There was an amusing moment. When Bob Carr was parading his knowledge of American history and eulogising the various Supreme Court decisions on race , Hitchens interjected “like  Dred Scott.” 

“Yes, a great decision,” enthused Carr.

But  Dred Scott v. Sandford was in fact a notorious decision of the Supreme Court in 1857 affirming the property rights of slave owners under the American Constitution. Surely Carr does not approve the constitutional protection of slavery. (This decisions is a good example of the judges saying the constitution means what we want it to mean, and the danger of giving too much legislative power to courts, a danger which, incidentally, Carr recognizes.)

Dred Scott was handed down 85 years after Lord Mansfield had rules slavery was not recognized under the common law. It was not only taxation which encouraged the American slaveowners to revolt against Britain.

Hitchens continued to adopt a sceptical position, and was constantly talked over by presenter Tony Jones. The message was clear – we don’t want to hear that heresy, just the warm and fuzzy purring of the cheer squad. 

…the lessons for us….

What is the lesson for us? First keep the federation. Who would want a central government like that of Mrs Kirner?  If we make a mistake in those whom we elect, their power to inflict damage is limited to mercifully one jurisdiction.

 The other lesson is those who want to change the fundamental aspects of our constitutional system should explain what flaws in the constitutional system they wish to correct, precisely what they want to do, and how this will correct the identified flaws.

Please note that, Mr. Rudd.




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