Monday, April 27, 2009

The road to socialism

A new government intervention for Australia - lenders can now be sued for damages if they make loans that turn sour.


The uniform national law will for the first time cover mortgages, credit cards, pay day lending and other consumer credit products.

The Australian Securities and Investment Commission will be charged with enforcing the so-called responsible lending laws.

Under the laws, defaulting borrowers will be able to sue for damages as a result of being put into loans they cannot repay.

Breaches will attract fines of up to $220,000 for individuals and $1.1 million for corporations and jail terms of up to five years.

Why is it that so few people can see the side-effects and hazards of this legislation ?

Firstly, it imposes huge new costs and risks on lenders, thus making them less likely to make all kinds of loans - good and bad.

Secondly, it runs counter to other government interventions in the banking sector. Efforts to lower interest rates, boost first home owners grants, support the property market, provide a guarantee to bank deposits have all acted to expand and maintain the supply of credit to the market (much of which has been based on some fairly bad and sub-prime type lending).

Which brings me to my view of how things are shaping.

Whilst a pure dictatorship moulds and grows government to his single purpose - his limitless power and prestige - what we are seeing is a typical socialist government.

It blindly and clumsily creates new government plans, powers and agencies to maintain power and popularity and to look like it is acting in the best interest of "the society". Yet many of these agencies often have impacts that contradict each other, and the society becomes burdened with thousands of pages of regulations that limit freedom and tie everybodys hands.

No consideration is given to the existing plans, agencies and regulations that we are saddled with. As the layers of complexity and regulation build, we begin to see what I call "the crap sandwich".

And these ill conceived plans are not free:

ASIC will be given an extra $66 million and hire 200 new full-time employees to administer the laws.

Its tough being a taxpayer these days.