11/11/2010 - 00:00

Banks take a hit, but not to their profits

11/11/2010 - 00:00


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If any business sector is profitable we congratulate it and buy more shares. Why should banks be any different?

BANK bashing is very dangerous because it can lead to some very strange outcomes.

I am aware of the frustration of small business and property developers in this respect but let’s get a few things straight before we belt up the banks too much.

Firstly, we were all happy to have a solid banking sector in the GFC; so much so we allowed them to eat up viable independent competition without too much thought of the consequences. Sure, the banks also had a government guarantee but that was as much for the voters as it was for the banks.

It is easy to blame the banks for taking advantage of the situation, the government is at fault for throwing competition policy out the window as part of its reaction to the GFC. Along with too much misdirected stimulus spending, those decisions are haunting us now.

Nevertheless, we have a problem. What we don’t need is a bunch of bad decisions reinforcing the previous errors. Forcing banks to make loans to certain segments of the community is silly and may well have been a root cause of the GFC in the first place when you look at the US government’s moves a decade ago to push lenders to offer better deals for first home buyers.

We ought to look at our own history in this respect. Interest rates are only a significant political issue because of the price of housing. Many argue that housing affordability has reduced as the consequence of two very different government policies. Firstly, state and local governments have over-regulated land development, making it more costly. This has played into the hands of major developers who have the capital to hold out and demand a premium. As smaller developers fall by the wayside, prices rise and big developers are rewarded by rising margins on rising prices.

In addition, the federal government has incentivised the wealthiest third of the country to be overweight in property. The primary home is tax free, and negative gearing gives high salary earners an advantage in bidding as investors against owner-occupiers in many cases. It’s all about churning and very little about community.

If governments pushed harder to get land released and reduced demand from investors, the average mortgage would be lower and we’d be less sensitive to small interest rates moves.

Finally, the banking sector is no longer the preserve of a rich elite. They are listed companies in a nation that is arguably the greatest equity owning democracy.

If any other sector is profitable we congratulate them and buy more shares. Why should banks be any different?

Of course, SMEs will argue that they can’t hedge in this way because all their capital is tied up in their businesses. I am frustrated by this too, but as a nation we have to decide how much we want to accept in sharing the risk of entrepreneurs. Forcing private banks to make more risky lending decisions is not the answer at a time when, globally, regulators are still coming to terms with the levels of risk they allowed in the lead up to the GFC.

Broadband debate

THE federal opposition has floundered badly in attempts to explain alternatives to the hard-wired $43 billion-plus National Broadband Network it opposes.

And the federal government has made hay from the opposition’s quandary, openly laughing at the prospect that, in the future there might be a wireless technology to provide a cheaper solution to Australia’s unique problem of vast open space.

So it is intriguing to hear news from the government’s own science agency, CSIRO, about a breakthrough in wireless technology called Ngara that could significantly improve the connectivity of people in the bush.

Ngara – which CSIRO suggests offers 12 mega bits per second download speeds for multiple users using existing television spectrum – was revealed in public last week, but presumably that initiative hasn’t been kept secret from the government during these past few months.

While CSIRO specifically suggests the technology would be for people living beyond the optical fibre network, as a technologically challenged observer I can’t help wondering if it might be one of the technologies that could override the need for fibre in many remote places – just as the opposition suggested might occur, albeit in a somewhat ham fisted way both before and after the recent election.

In it a preview of its launch, CSIRO said the spectral efficiency of its new technology was three times that of the closest comparable technology and the data rate was more than 10 times the industry’s recently declared minimum standard. That would be a big leap by the sounds of things.

CSIRO said spectral efficiency was about packing as many bits of information as possible into the channel (frequency range) allocated for its transmission. CSIRO’s 12Mbps, six-user system works in the space of one television channel, which was seven megahertz (MHz) wide.

CSIRO is achieving spectral efficiency of 20 bits per second per Hertz (20 b/s/Hz).

“Even with just half of our system completed, CSIRO is already helping define the future of wireless technology,” CSIRO ICT Centre director Ian Oppermann said in an announcement.

According to the science agency, one of the most promising aspects of CSIRO’s Ngara technology was that it could re-use old analogue TV channels.

“This means any rural property or business that can currently receive TV signals could in future connect to high-speed internet just by using a new set-top box,” Mr Simpson said.

While no-one would suggest this technology can necessarily meet the standard proposed by the NBN, the question remains as to whether such options might cost effectively provide what most people need in terms of broadband.

From what I’ve read, CSIRO is suggesting this technology will meet the requirements of many of the remote medical applications that have been touted as the holy grail of the NBN.

Furthermore, it also showed that the technology is moving at a great pace and may well have more than just a cost advantage by the time the fibre optic rollout is completed many years hence.

To me, the potential for technology leaps in wireless has been the essence of the poorly enunciated argument against the fibre plan.

Yet the government leapt on this issue as a furphy, or technological fudge.

Just last week, Broadband, Communications and the Digital Economy Minister Stephen Conroy challenged the opposition to explain the following if it wanted to guarantee minimum broadband speeds of 12Mbps:

• Was 12Mbps the upload or download speed? What is the average speed?

• Will it be subject to congestion like wireless and HFC?

• How will Australians receive a minimum of 12Mbps using the aging copper network?

• What would the cost be and who would pay?

• Will they fully fund the cost of remediating RIMs and pair gains?

Senator Conroy seemed to be implying, as he had many times, that much of this was impossible.

My amateur reading of the CSIRO statement indicated that many of the answers Senator Conroy was seeking from the opposition were probably available to his government at the time of his grandstanding.

Maybe he ought to have asked CSIRO to explain – or wouldn’t he have liked the answers?

• mark.pownall@wabn.com.au



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