Sheltered Workshops

In yesterday’s Australian, Adam Creighton wrote a wonderful piece on the state of the Australian Financial Services “industry” – Time we lifted the lid on these sheltered workshops.

Whilst waiting for someone to lodge a complaint against Creighton and the Oz with the Australian Human Rights Commission for the derogatory use of the term “sheltered workshop”, Spartacus was reminded of the wise words of Nassim Taleb as it relates to breaking up the vertically integrated financial services behemoths.

Taleb wrote/said (can’t remember which) that any organisation that is the beneficiary of a government guarantee (actual or implied) is for all intents and purposes a government entity.  And as such, the managers of such quasi government entities should be remunerated as public servants.  At least until these entities are no longer the beneficiaries of government guarantees.

Taleb posited that if such rules were applied, these entities would be broken up so fast, our heads would spin.

He gave 2 examples to support his idea:

  • In the feeding the people industry, restaurants go broke every day without anyone noticing.  Yet, were a large supermarket chain (yes like you Coles and Woolworths) to get into financial distress, the conga line of lobbyists and glad handlers would converge on Canberra faster than a rat on cheese.
  • In the financial trading industry, hedge funds also go broke every day.  Yet, and readers may recall 2007/2008, were a large bank to get into trouble from trading (and notably not from the provision of core banking), a conga line of regulators would converge on Canberra on behalf of the banks.

The Australian Financial Services industry has long ago moved into the State Monopoly Capitalism territory where it is no longer survival of the fittest, but rather survival of the fattest.  And in this case, the banks are Hansel and Gretel and the Government is grandma fattening them up so as to eat them.  In this case however, not to exactly eat them but rather to tax them within an inch of their lives.  You see, in a competitive market, there are no super-normal profits and hence no rivers of tax gold for our political overlords to spend on things.

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30 Responses to Sheltered Workshops

  1. Bruce of Newcastle

    Unfair.
    The true sheltered workshops are government bureaucracies.

    When times become difficult even the likes of Coles and the banks fire thousands of employees in order to return to profitability. In doing so they cull those long term workers who are least efficient, most lazy, and most shonky. As a result they are fitter and more able to survive competition.

    Government bureaucracies never suffer from downturns. They never have forced rounds of redundancies. They never cull the corrupt, the slackers and the militant. They just get bigger and flabbier and more wasteful with every year.

    On top of that lately there has been a move for public sector workers to be paid higher than provate sector. So oodles of ABCers now receive >$300k a year. Paid for by angry taxpayers who never watch the excreta they produce.

    So Spartacus, if you want to grow a brain, lift the lid on the real sheltered workshops of the APS, ABC and the AHRC and other such massive wasters of taxpayer money.

  2. H B Bear

    I am sure the head of APRA and a few senior cardigan wearers at ASIC will be forced to resign any day now.

  3. BoN

    … lift the lid on the real sheltered workshops of the APS, ABC and the AHRC and other such massive wasters of taxpayer money.

    +1 Gazillion.
    …and a bit.

  4. H B Bear

    Maybe even the responsible Minister.

    You know, Westminster tradition and all that.

  5. Sparkle Motion

    Lovely piece. Isn’t it “glad handers” though?

  6. Egor

    Fees. The staff of life for big and little Aussie rent seekers performing no better than chance or an ETF.

  7. RobK

    I think both Sparty and BoN are onto something here.

  8. Dr Fred Lenin

    Sheltered workshops are usually filled with mentally retarded unfortunates or socialist bludgers , difficult to differentiate . Both financed by the taxpayer.

  9. DaveR

    The linked issue here that cant be ignored is the raft of retired Australians living on fully franked dividends from the banks – about 8.5% return pre-tax and not taxable – instead of having cash in bank deposits – say 2% and taxable. And if investors are lucky enough, they can get a cash rebate for any unused credits (until Shorten gets his way).

    Yes the banks are fattened and protected, but with their dividend payout ratios and franking, they are funding senior Australia in the current low interest rate environment.

  10. hzhousewife

    I am sure the head of APRA and a few senior cardigan wearers at ASIC will be forced to resign any day now.

    Maybe, but if so, will be replaced by clones.

  11. Des Deskperson

    ‘Government bureaucracies never suffer from downturns. They never have forced rounds of redundancies. They never They just get bigger and flabbier and more wasteful with every year.’

    I’m not convinced that large private sector bureaucracies – banks, insurance and maybe even private sector management levels in general – are all that better.

    Far from growing, the APS has actually had a small but steady shrinkage, from 143,000 ‘ongoing’ employees in 2011 to 136,000 in December last year.

    A lot of this shrinkage was achieved through rounds of redundancies, particular in the ATO. Admittedly most if not all of these would have been ‘voluntary’; not, perhaps, best practice, but quick and easy.

    From my limited knowledge of the private sector, I strongly suspect that the same pattern applies there. I’d be surprised if, for example, the banking sector had many ‘forced redundancies’ when it is simpler and quicker to ask people to ‘put up their hands’.

    As for culling ‘the corrupt, the slackers and the militant’, well, fraud will get you the boot pretty quickly in the APS and I assume that it is the same in the private and particularly the financial sector.

    On the other hand, I acknowledge that it is very difficult to get rid of non-perfromers in the APS. Still, I wonder how many lazy and/or incompetent managers in, say, the banking sector actually get ‘sacked’ – terminated without a benefit – as opposed to ‘packaged out’ or simply sidelined. I know from people who worked there that one of the major banks had a whole division set aside as a sort of very comfortable gulag for useless employees who they were too kind-hearted or gutless to sack.

  12. John Constantine

    For as long as the banks benefit from an implied taxpayer bailout to save the jobs of high level bank employees, the higher paid employees should have a daily drug and alcohol test in acknowledgement of the taxpayer support.

    If taxpayers have to be clean and sober to pay the tax that bails out the executives, but not the shareholders, the executives have a mutual obligation to be clean and sober as well.

    As they sign off on the next massive round of firings and branch closures.

    Comrades.

  13. Singleton Engineer

    Where I came from, the gulag of less competent or simply unloved employees was called The Departure Lounge.

    Yes, public service (State).

    Most moved on promptly with little fanfare. Others were missed and welcomed back into the mainstream.

    What I considered at the time to be a huge waste of money, etc, etc, turned out to be relatively painless for the corporation and for the employees, now ex-employees and with little or no negative publicity.

    So, not necessarily an invalid approach to downsizing or corporate refocussing or whatever it is called these days.

  14. Rossini

    DaveR
    #2694277, posted on April 24, 2018 at 1:06 pm
    +1

  15. Bruce of Newcastle

    I’m not convinced that large private sector bureaucracies – banks, insurance and maybe even private sector management levels in general – are all that better.

    Des – NAB last week flagged before next week’s earnings that they are paying $755 million in redundancies over 3 years to reduce staff by 4,000. Almost certainly forced as it is due to IT upgrades.

    My experience in medium and large companies is rounds of redundancies each recession. Some have been very deep cuts – 80 or even 100%, but rarely less than 25%. I’ve been through four big ones.

  16. Egor

    Speaking of sheltered workshops, Alex wants to take care he doesn’t get himself extradited to the US to testify under oath. There be dragons.

  17. Des Deskperson

    ‘Des – NAB last week flagged before next week’s earnings that they are paying $755 million in redundancies over 3 years to reduce staff by 4,000. Almost certainly forced as it is due to IT upgrades.’

    Dunno about the ‘forced’ bit.

    The NAB Enterprise Agreement states that the first factor to be taken into account in selecting employees for retrenchment is ’employee preference’.

    In light of this, I strongly suspect that the first step NAB management will take in this process will be to ask those employees who want redundancy to ‘put up their hands’: just like in the APS.

    BTW, the EA redundancy benefits for NAB employees – and presumably for the banking sector generally, because it’s usually the same union, the FSU – seen very generous by public sector standards. A NAB employee with ten years service gets a benefit equivalent to 34 weeks pay. In the APS, it would be 20 weeks .

  18. JC

    I have a problem with this piece as it doesn’t recall the history. The banks never asked for the four pillars policy, it was shoved down their throats/our by Keating. Now that we end up with perversion and depravity in the sector, we blame them and not government failure. And the hamster keeps spinning around with even more regulation and control until the next woyal commishion.

    Des, the APS is the most destructive and predatory institution in the country. Pretending otherwise is being silly and hallucinatory.

  19. Tim Neilson

    JC
    #2694372, posted on April 24, 2018 at 2:54 pm

    But wait, there’s more.

    The Michael Trumble Agility and Innovativeness Factory announced a tax on the 5 biggest banks to pay for their supposed de facto government guarantee.

    So now that the government has made a public representation that such a guarantee exists, is there any limit on how large a taxpayer funded bailout could be?

  20. Des Deskperson

    ‘Des, the APS is the most destructive and predatory institution in the country. Pretending otherwise is being silly and hallucinatory.’

    JC, I’m simply pointing out that in certain areas, the APS may be no worse than many private institutions.

    in terms of efficiency, the APS probably isn’t as bad as most other State, Territory and municipal public sectors – the ACT public service comes to mind. On the other hand, I tend to agree that its power and reach makes it far more dangerous.

    Anyone who advocates higher taxes ought to be made to spend 6 months in any APS agency to see how their money is actually spent.

    Actually, a week might suffice, if they are sane and of average intelligence.

  21. JC

    Spartacus was reminded of the wise words of Nassim Taleb as it relates to breaking up the vertically integrated financial.

    And

    Taleb wrote/said (can’t remember which) that any organisation that is the beneficiary of a government guarantee (actual or implied) is for all intents and purposes a government entity. And as such, the managers of such quasi government entities should be remunerated as public servants. At least until these entities are no longer the beneficiaries of government guarantees.

    Taleb posited that if such rules were applied, these entities would be broken up so fast, our heads would spin.

    The problem with the Leb’s theory is that he prefers his version of regulation rather than the current one.
    He also ignores the shareholder. That was the group which was absolutely hosed in the GFC through massive dilution. So it was a case that the owners were fucked royally as a result of the GFC.

    Vertical integration in baking allows scaling. If the central bank screws up monetary policy by being too tight and continuing tightness – exactly as we saw in the GFC- you’re going to have a bloodbath in the banking world no matter what regs are imposed. Sudden collapse in asset prices tends to cause that. Banks are highly leveraged institutions and will always be the frontline group in a recession taking the biggest hits as a proportion of their capital.

    The solution to all this is what was proposed by the Texas Congressman about a year ago. Raise equity to 25% lighten up the regs and then leave them the fuck alone. If they want to integrate let them. If they want to specialise then that’s also good.

  22. JC

    So now that the government has made a public representation that such a guarantee exists, is there any limit on how large a taxpayer funded bailout could be?

    Let’s be perfectly clear what a bailout means today.
    A bailout means that the shareholders will be ripped apart, the senior management fired and the bond and deposited holders made whole. That’s what it means.

    When you see the Left screaming about bailouts, it’s always a good thing to ask them if they think the deposit holders should move up the ranking as equity holders in the event of a bankruptcy. Watch carefully for facial twitching.

  23. JC

    Allows scaling in baking too, but I meant banking.

  24. Squirrel

    It’s not just the government backing of bank deposits (albeit limited) which has made life a bit too easy for some in the finance sector – all-time low interest rates and epic amounts of liquidity have basically created a lot of very lucrative one-way bets, with the result that a lot of people who are actually pretty average, have come to think of themselves as spectacularly shrewd and clever.

    A really good shake-out, which might see many of these people move to more socially useful careers, would be a good thing for the nation – e.g. do we really need more than one financial planner for every man, woman and child in Australia?

  25. BorisG

    Government bureaucracies never suffer from downturns.

    they do in WA at the moment.

  26. mundi

    Just look at this stupid royal commission into banking.

    It will just leader to more regulation and make it harder and harder for innovation and competition, and add auditing costs etc. etc.

  27. JC

    …. all-time low interest rates and epic amounts of liquidity have basically created a lot of very lucrative one-way bets, with the result that a lot of people who are actually pretty average, have come to think of themselves as spectacularly shrewd and clever.

    All time real rates are very low because the economy is quite weak and inflation extremely subdued. There is no justification to have higher rates unless you’re angling for a deep recession and a collapse in asset prices.

    Low interest rates are a signal of a weak economy. High rates are a signal of strength.

  28. sdfc

    Gotta feel sorry for the Banks. Funding costs are up but it’s hard to put up mortgage rates while being ripped apart by the royal commission.

  29. egg_

    I’m not convinced that large private sector bureaucracies – banks, insurance and maybe even private sector management levels in general – are all that better.

    +1

    Whereas many in academe have never left the classroom for a dose of real world accountability.

  30. JohnA

    JC #2694712, posted on April 24, 2018, at 10:33 pm

    …. all-time low interest rates and epic amounts of liquidity have basically created a lot of very lucrative one-way bets, with the result that a lot of people who are actually pretty average, have come to think of themselves as spectacularly shrewd and clever.

    All time real rates are very low because the economy is quite weak and inflation extremely subdued. There is no justification to have higher rates unless you’re angling for a deep recession and a collapse in asset prices.

    Low interest rates are a signal of a weak economy. High rates are a signal of strength.

    Sorry, but No. I worked in credit unions during the eighties when interest rates on Aussie Bonds peaked at 17%. That was NOT a period of strength in the Australian economy. Rather, it was a time of great stress and economic pain. Some of that was necessary but not all.

    The present low interest rates are a sign of weakness in the Reserve Bank rather than the economy. If the rise in interest rates in the USA is sustained, then our rates will need to go up too, or the Aussie Dollar will tumble needlessly towards the 65-70c range and our petrol prices will exceed $2/L at the bowser (capital cities).

    There needs to be a collapse of asset prices because the bubble was created by the standard government/central bank responses to the so-called GFC – inflate the money supply (go hard, go early, go households).

    We buy houses now with monopoly money. Some factors have increased the base cost of housing but mostly there are just more zeros at the end of the real numbers.

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