Interest rates, currency, foreign ownership, politics. The new banking.

So “China” is buying into Australian banks.

Little more than 18 months ago Australian banks such as the market leader Commonwealth Bank and the ANZ were aggressively expanding into China and being welcomed as significant investors in the country’s relatively young though fast-developing financial institutions.

Yesterday one of the offshoots of a sector that has access to $US1.46 trillion ($1.7 trillion) of foreign exchange reserves showed there were two sides to an investment “partnership” by popping up as a shareholder in Australia’s three largest banks. Industry sources confirmed a report by the Financial Times in London that China’s State Administration of Foreign Exchange had acquired through a Hong Kong subsidiary, SAFE Investment Company, small parcels of shares in ANZ, Commonwealth and National Australia Bank.

Have Sydney Morning Herald readers been hit with a quota on commas? For Cliff’s sake, people: punctuation is your friend.

This story comes on the same day that Australian banks increased their variable rates on their mortgages.

A day after National Australia Bank lifted its variable mortgage rate to a decade-long high without waiting for official prompting, ANZ announced late yesterday it would raise fixed-rate mortgages by 0.25 percentage points from Monday to 8.54 per cent, just under the standard variable mortgage rate of 8.55 per cent.

The bank will have to increase variable mortgage rates by just as much or more so that borrowers have a reason to lock in a fixed rate.

…

Borrowers have been hit by rising interest rates on a range of products since the US subprime mortgage debacle triggered a global crisis.

Credit card and fixed interest mortgage rates have increased steeply, and well above Reserve rate rises.

The NAB’s new standard variable mortgage rate of 8.69 per cent is the highest charged by a major bank since 1996.

“The cycle has definitely passed us by,” the general manager of the research house InfoChoice, Denis Orrock, said. “There is no more cheap money.”

This is interesting for a few reasons. The latter story contains this incredible quote from our new Treasurer:

The Treasurer, Wayne Swan, repeated his call for banks to consider the impact on families of more rate increases.

“I would still ask them to be extremely mindful of the impact of those decisions on average Australian households with mortgages and, of course, business,” Mr Swan told ABC radio’s AM program.

That’s just plain funny. I wish him luck with that, although he clearly has forgotten that he’s referring to banks. Branch-closing, job-shedding, sector-consolidating multi-billion dollar profit-making banks. I’m just saying. I don’t think banks halt their march of profits for the sake of families, so much as laugh all the way to, well, themselves.

Of more relevance to debate is the foreign ownership issue, especially with regards to today’s macro – and global – economic bogey-man. In fact, the block-quotes above are deliberately misleading, not containing this piece of information:

It is understood SAFE has invested the equivalent of several hundred million of Australian dollars purchasing stakes of less than 1 per cent of each of the bank’s share capital as it seeks to get a better return on its money as opposed to what it could make on local currency markets.

In the case of the ANZ, the most active and biggest investor of the domestic banks in the Chinese financial services industry, it is believed that SAFE recently bought $200 million shares – about 0.3 per cent of the issued stock.

ANZ is capitalised at more than $52.4 billion, so SAFE’s investment is tiny compared with the shareholdings of the big institutions and superannuation funds that make up a significant proportion of the bank’s register.

As for the Commonwealth and NAB, which are valued at $76 billion and $60 billion respectively, SAFE’s share buying has been on a proportionally smaller scale, although the Chinese company is not obliged to publicly disclose the size of its investment until it exceeds 3 per cent.

Which is standard, textbook macroeconomics, now. Strong currency with interest-rate increases? Foreign capital is going to want some exposure to those margins. The very interesting aspect of this is two-fold: First, how will this play out in the court of public opinion (formed by garbage reporting/editorials), both now and if/as the level of investment increases? We’re talking about non-significant levels of foreign investment (along this vector, in this story), but that doesn’t mean it won’t affect hearts and (small) minds, even now.

Second, assuming specifically that this sort of thing continues, do we need, in a global economy, to start thinking more about how we measure competitiveness. Concentration ratios, for example, tell us that four firms make 99% of the cigarettes in the US. Already in 2000, Australia’s 5-bank concentration ratio was 72.5% – and it will only have been increasing, since.

Do we need, then, multivalent indices that include concentration in shareholder votes? Boards of directors are already ridiculously incestuous, but that one has gotten by Economics. Here is an opportunity to really construct a significant measure of who owns exactly how much of a given market, irrespective of where those owners are.

I’m not the first to this. At least one paper [Dahlquist, M and Robertsson, G. 2001. Direct foreign ownership, institutional investors, and firm characteristics,
Journal of Financial Economics, 59(3): 413-440], for example, considers concentration as a factor in foreign investment – not quite the same things, but similar thinking.

There is another excellent paper [Denis, C and Huizinga, H. 2004. Are Foreign Ownership and Good Institutions Substitutes? The Case of Non-Traded Equity. CEPR Discussion Paper No. 4339] looking at shareholder concentration specifically, and what factors make concentrated foreign ownership likely. Directly in their abstract, they make the point relevant to globalisation, “Empirical evidence supports the hypothesis that foreign ownership of non-traded equity is higher in countries with poor investor protection.” We will get worked up about foreign ownership when it comes from (let alone is concentrated in) countries with poor disclosure/oversight, but I’m willing to bet that we, in turn, go to markets with fewer prying eyes as well.

Anyway. Just a thought. I’m sure many PhD students at least are already working on it.

Some basic mathematics for newspapers

Ah, the Sydney Morning Herald. I don’t suppose this story originated there – and their whaling story is carrying a Greenpeace advertisement, so I won’t assume much about editorial control going in.

Consider the story about the apparently so-called Santa Claus rally on Wall Street (honestly, does commodification pass as the sufficient condition for verisimilitude, these days? When did it breeze right by being a necessary one?). Leaving aside tripe such as

“Wall Street is awash with holiday cheer in this last full session of trading before the Christmas break,” said Joseph Hargett at Schaeffer’s Investment Research.

He said RIM was the latest tech group to deliver solid earnings, which eased concerns about a slump in profits.

Meanwhile news that a Singapore fund was eyeing a $US5 billion ($A5.84 billion) investment in Merrill Lynch “took the edge off credit crunch concerns for the financial sector”, according to Hargett.

None of which makes up for all the bad reports coming out – or does a USD5bn cash card for Merrill Lynch outweigh the short life and death of the SIV superfund?

What really did me in, though, was this one:

On the economic front, a report showed US consumers shook off a slump in housing and tight credit and boosted spending by a stronger-than-anticipated 1.1 per cent in November.

I had seen this – a (former) student, in fact, had emailed it to me on the day, asking whether it was not good news (I said no: consumer staples were driving it via appreciating prices). Here, though, is the full context that the SMH let run:

On the economic front, a report showed US consumers shook off a slump in housing and tight credit and boosted spending by a stronger-than-anticipated 1.1 per cent in November.

The Commerce Department report also showed that personal incomes rose 0.4 per cent, a notch weaker than forecast.

“Consumers have not stopped spending and as long as income keeps growing, the economy can stay out of recession,” said Joel Naroff, chief economist at Naroff Economic Advisors.

We’ve seen discussed, here and everywhere, the – accepted, surely – fact that the level of private dissavings is basically enormous. Then, if consumption expenditure can increase a further 1.1%, while incomes increase only 0.4% (and real incomes no doubt less), how does that let us stay out of a recession? At best it pushes one off down the road to grow bigger and meaner, to jump us later in 2008.

“Dawning of a new ice age” – meaning one without it

Ah, irony. Or unbelievable stupidity. Opinions differ. But check out that photo

The opening of a blue ice runway in Australia’s Antarctic territoryThe opening of the air link between Australia and Antarctica, decades after it was first imagined, is belated but timely.

…

The secrets held in the ice have never been more valuable to humanity, revealing the planet’s climate history and exposing the minutia of unfolding change. As the American writer Barry Lopez observed on his Antarctic journey, it has become “a place from which to take the measure of the planet”. this week opens the last true wilderness to a new era of scientific exploration.

The story has to be read to be believed – 20 to 30 flights during the summer season. I wonder if their first observations are “Gee, what a lot of con-trails Antarctica has. Ooh, the ice sure is melting fast down here.”

From the IPCC’s report on aviation and the global atmosphere, we learned that air travel makes a contribution to climate change well above the fuel it burns:

Averaging all types of aircraft of different age and trip length and aircraft capacity factors, each passenger-mile flown emits 0.566 pounds of carbon dioxide. This does not include two other important impacts of commercial aviation on climate. The first is that commercial aircraft emit nitrous oxides (NOx) and other pollutants at high altitudes.

The Intergovernmental Panel on Climate Change (IPCC) estimates that such pollutants increase the climate impact of flying by a factor of at least 2.5 compared to the combustion of jet fuel alone. Second, air travel results in additional greenhouse-gas emissions from energy used in airport buildings, facilities, baggage systems, airport service vehicles, concession facilities, aircraft fueling, airport construction, and air navigation and safety operations.

Howard’s ministries: social welfare at the “very limits of acceptable conduct”

Harsh.

Australia’a poorest people have been pursued in an unprecedented and aggressive legal campaign over welfare payments – and the workplace relations department is under fire for running up lawyers’ bills chasing small amounts of money or cases so weak they never reach court.

The number of cases pushed through the courts by the Department of Employment and Workplace Relations has soared almost 20-fold over three years in one court alone, as pension payments are challenged and moves made to recover amounts as low $1300.

…

The aggressive pursuit of welfare recipients dates from 2004, when the Howard government handed the department control of a $20 billion social security budget. As secretary, Dr Boxall oversaw a significant culture change, with the number of appeals by the department to the Administrative Appeals Tribunal soaring from just 17 in 2004-05 to 202 the following year, and to 321 last year.

A lawyer who has worked closely with the department said it had pursued social security recipients to the “nth degree” – whatever the legal merits of the case. The department was “ruthless in the pursuit of any and every case” where a social security recipient may have received a small overpayment – even when it had been given wrong and misleading advice by Centrelink.

“In my experience, [the department] operated at the very, very limit of acceptable conduct,” he said.

Actually, Australia’s poorest people have nothing like that sort of thing to contend with. Our poorest people have to deal with this sort of thing:

An international student assessment reveals there’s been little improvement in Indigenous performance over the last six years.

The results of the OECD Organisation for Economic Co-operation and Development international student test shows a big gap between Australia’s Indigenous and non-Indigenous students.

Australia’s northern Aboriginal communities will bear the brunt of climate change, with increases in water-borne diseases and loss of traditional food sources, an international report says.

In the Torres Strait Islands, at least 8000 people will lose their homes if sea levels rise by 1m.

… more than 100,000 people in remote Aboriginal communities across northern Australia face serious health risks from malaria, dengue fever and heat stress, as well as loss of food sources from floods, drought and more intense bushfires.

In the remote areas of the Northern Territory, where high unemployment is rampant, the government’s main jobs program has been abolished, forcing thousands more onto welfare. Welfare payments for all Aborigines living on Aboriginal land are now controlled by government bureaucrats. Federally appointed administrators with wide powers have been imposed. The permit system, by which Aboriginal communities in the Territory controlled entry onto their land and settlements, has been abolished.

Olga Havnen, a leader of the National Aboriginal Alliance, said in a message to the protesters in Sydney that the “only visible change in most communities has been the construction of housing for government business managers.”

Doctors from across Australia have launched a high-profile attack on the Northern Territory intervention, saying it is failing indigenous people.

Writing in The Medical Journal of Australia today, the doctors criticise the intervention as disrespectful and badly thought through.

Aboriginal peoples and Torres Strait Islanders will not achieve equal health outcomes with non-Indigenous Australians until all governments properly fund and resource accessible health services and programs, and their economic, educational and social disadvantages have been eliminated.

Aboriginal peoples and Torres Strait Islanders have the poorest health of any group living in this country.

Indigenous standardised mortality ratios are more than three times the expected rate, and death rates between 25-54 years of age are 5-8 times that seen in non-Indigenous Australians.

Indigenous infant mortality rates are three times higher than for non-Indigenous infants.

The 17-year gap in life expectancy between Aboriginal and Torres Strait Islander Australians and the rest of the Australian population must be closed. It is not acceptable in 2007 for any Australian to have a 1920s’ life expectancy. The gap in life expectancy must be closed within 25 years.

I’m just saying Prime Minister Rudd has a lot of work to do. A lot can be left behind in 11 years of government by a neo-colonialist tit like John Howard.

Election day

For me, anyway. And not before time. How on Earth could the coalition’s numbers be tracking upwards?

I love the people over at Oz Politics.

Three attempts in 5 years to change my electoral enrolment, and I’m still listed as where I lived with my brother as an undergraduate – 7 years ago. Perhaps somebody down-town at the Consulate-General can offer an explanation. One, of course, is the electorate itself: Grayndler.

Call me a conspiracy theorist. Over here, I could vote for where I wanted; instead, I’m stuck voting where, frankly, it doesn’t matter (usually. I vote for Green candidates anyway – guilt-free, thank you preferential voting system! – so I always have the hope of pushing the liberal party from their spot in 2nd place).

Oh well. I get to keep my record: 28 years of age (going on 29, now) and never voted in my own electorate. I’m just never in the right place at the right time. Good thing voting is compulsory and our laws force the government to facilitate the vote of every Australian (exceptions being Indigenous people. I’ll see if I can dig up numbers on that).

” … People should be entitled to know how their water bills are being spent.”

Mr Turnbull, the Minister for the Environment, announced yesterday he would order the Productivity Commission to review the dividend policy of every capital city’s water utility and require water bills to show all fees, including dividends paid by state-owned corporations to state governments.”State governments have been treating these businesses as cash cows and running them in ways that a commercial business in that industry would never be run,” Mr Turnbull told the Herald.

“It is quite unusual for businesses that are growing and are great long-term businesses to be paying out 100 per cent of their profits in dividends … People should be entitled to know how their water bills are being spent.”

These manner of claims are amusing always because of their hypocrisy. The last people that the people need lecturing them on transparency are bloody politicians. Perhaps Mr Turnbull might like to address some of his colleagues on our entitlement to know how our money is being spent on detaining asylum seekers, and locking up their children away from schools? Just a thought.

In an incentive-based model similar to Kevin Rudd’s health plan, Mr Turnbull said yesterday a re-elected Coalition government would direct investment in water infrastructure towards states which reinvest profits from their utilities.

“We want to use some incentives for more appropriate policies and financial management, ” he said. “The concern we have is that the more the Commonwealth moves into urban water, the more the states use that to take cash out of their own water companies.

Funny – it wasn’t all that long ago that the government had been busted spending all their infrastructure money – money scheduled to last ’til 2010 – on electioneering.

An election-year increase in spending from the Government’s $1.6 billion Water Smart Australia Program – set aside to cover large-scale water infrastructure projects – has drained it nearly dry, despite it being meant to last until 2010.

“… a record number of men are finding they are not the fathers of children they believed to be theirs.”

Now, there are statistics and then there are statistics.

Almost a quarter of paternity tests conducted by one of Australia’s largest DNA laboratory companies show the man submitting a sample is not the father, compared to an estimated one in 10 “exclusions” 10 years ago.

Besides being just plain kind of funny, it’s an intrinsically interesting statistic. Specifically:

The number of tests taken in Australia has doubled from 3000 in 2003 to more than 6000 last year.

Thousands of men are turning to DIY testing kits – available online – to discover whether they are the biological father while they are still in a relationship and without telling their partners about their suspicions.

There is a selection problem. I would suggest that a record number of men are making the effort to find out whether or not they are the father of the children pom-tiddley-pom. By making the test cheaper and more easily accessed, the testing company (DNA Bio Services) is allowing the testing to reach further down the spectrum of doubtful fathers – previously it sounds like the tests were directed by fathers hoping to avoid paternity, which is a lower proportion of exclusiong, prima facie.

Managing director Gary Miller said: “The increase is across all social classes and ages – it affects everyone.

“Before, a lot of the work was for men who had been contacted by a woman or the CSA for maintenance and wanted a test to prove they weren’t the father.

“Now we see a lot of men in a relationship or just out of one who are just looking for reassurance that they are the father and then find out they’re not and are completely devastated.”

I can’t honestly imagine 22.22% of Australian children are being raised or otherwise supported by the wrong father. Although it would still be funny.

Australia and greenhouse gas emissions

Two people (one friend, one student) have sent me this story about Australia’s bad environmental placing. I did, to be fair to them, see it first in the Sydney Morning Herald (i.e. before these two emails, by a long way, and before the BBC had it, I believe).

The story: a study/database, Carbon Monitoring for Action (CARMA – aren’t they clever?) has been stitched together for the purpose of figuring out, globally, whose industries are up to what. Alley-oop:

Australia’s contribution to global warming may be much greater than first thought. New research shows our power stations are the world’s highest per capita producers of carbon dioxide.

…

shows the two biggest producers of CO₂ in Australia are in NSW – the Bayswater station at Muswellbrook and Eraring near Lake Macquarie, which each produce 18.325 million tonnes of CO₂ a year.

Their level of CO₂ to power output is comparable to many of the power stations in China often criticised for being dirty plants.

The survey shows Australians each produce more than 10 tonnes of CO₂ emissions for every person just through generating power, compared to nine tonnes for each American and two tonnes for each Chinese.

I’ll just assume they meant each Chinese person (wtf? Get an editor, people).

This is not news, really. Comparing ecological footprints, the US, Australia and Canada place 1^st, 2^nd and 3^rd. It would stand to reason, then, that a rank of greenhouse gas emissions would replicate that. Canada manages to stay clean, though, or at least outside the top five (in emissions per capita):

1. Australia – 10.0 tonnes
2. US – 8.2 tonnes
3. UK – 3.2 tonnes
4. China – 1.8 tonnes
5. India – 0.5 tonnes

That list from the BBC – I can’t get the CARMA site up. The list in total terms changes, of course: the US and China are the top two (unsurprisingly).

The SMH story closed on some interesting details:

Dr Wheeler said his data had been compiled from public records and by extrapolating from a commercial database used by the power industry. Where disclosures of CO₂ emissions were not publicly available, the researchers used modelling based on the age and size of the power station.

“Information leads to action,” he said. “We know that this works for other forms of pollution and we believe it can work for greenhouse gas emissions, too. We expect that institutional and private investors, insurers, lenders, environmental and consumer groups and individual activists will use the data to encourage power companies to burn less coal and oil and to shift to renewable power sources.”

I would like to see which countries/power plants required that inferencing. China’s lack of any sort of pollution controls at the plant-level are well-enough known – do these numbers under-estimate their carbon-load? Method can make a lot of difference. Not that it matters a great deal. For us to even be on such a list is as great a shame as it is entirely not surprising.

Also, much as I like the idea that information leads to action, one can only hope: information has, one would think, been sufficent to prompt action before now, yet the likes of Australia, the US, China and the UK are clearly not giving up on coal. Hell, we’re building more plants at mines.

To the extent that this information has an effect, I would expect, just as cynically as is reasonable, to see more palliative efforts at pollution control (probably not including China), but no less use or demand for coal-fired energy.

Trading places

What a delightful way to start one’s morning. A friend sent me this, from Oz Politics:

“The Coalition” is the coalition of the Liberal party (our conservatives) and the National party (our conservatives from rural areas). Our Labor party is the Labor party (why it is spelled thus, I never remember).

“If we’re going to entertain such massive measures, they need to be informed by scientific fact and experimentation, and less by opinion and profit motivations,”

A rare (these days) environmental story – a weird one (interesting piece of trivia, Australians: when you call things “weird”, here, Americans will think, quite often, that you said “weed” – even if that interpretation renders your statement utterly non-sensical).

Via Wired magazine:

An Australian company is injecting urea into the ocean, hoping to sequester greenhouse-gas pollution and cash in on carbon credits.

If all goes according to plan, oceanic plankton will thrive on the nitrogen-rich urea broth and absorb carbon dioxide. When the plankton die, they’ll sink to the bottom of the sea taking the carbon dioxide with them. The business plan: Companies licensing the technology can sell carbon offsets.

But some scientists worry the technique hasn’t been rigorously studied. The nitrogen injections, they say, could feed toxic algae, disrupt poorly understood ecosystems and ultimately release more carbon dioxide than is deep-sixed.

“If we’re going to entertain such massive measures, they need to be informed by scientific fact and experimentation, and less by opinion and profit motivations,” said ocean fertilization researcher Kenneth Coale, director of the Moss Landing Marine Laboratories in California.

People think up crazy shit, these days. I rank this one up with the big mirrors in space. Here is quite an interesting detail:

To produce urea, the company would need to build natural-gas-burning factories. Whether plankton blooms would offset the carbon dioxide released by those factories is unknown. Ocean Nourishment factors urea production into its carbon equations, but commercial pressures threaten the integrity of companies pursuing climate modification, Coale said.

He said that people pursuing climate-engineering projects for profit need to be separated from those who decide whether the projects are a good idea. “Right now, they’re the same.”

If we’re going to pretend we learned anything at all from Iran-Contra, the K-Street project, Enron/WorldCom/Arthur Andersen, Sub-prime and CDOs… we’re going to need to separate the people deciding that a project is profitable from those deciding whether it makes any other kind of sense. Same for, on that score, tar sands and oil shale. The fact that it makes financial sense, with oil heading to the magic USD100 a barrel, doesn’t make it a good idea: the return on the energy expended to get the energy from the oil found should be the guiding criterion – and no, the fact that oil can go into our cars most easily is not supposed to be a factor in that decision.

It seems that this plan will suffer from any accounting oversight anyway: I sense a consensus that actually measuring the carbon sequestered thus is difficult to impossible – not considered a ‘plus’ for something with investment vehicles still to be attached.