Deutsche Börse AG looks set to acquire the New York Stock Exchange, while the LSE Group is also set to merge with the Toronto exchange in the latest cross-border tie-ups between securities exchanges. The local market has correctly interpreted these deals as increasing the likelihood that Australia’s Treasurer will approve the proposed merger of SGX and ASX (it has already cleared ACCC scrutiny). If an icon of US capitalism such as the NYSE can be acquired by Deutsche Börse, it becomes very difficult for Australia’s FDI protectionists to argue that the ASX should be immune from foreign acquisition. Oddly enough, opposition to the Deutsche-NYSE deal is more likely to come from European than US regulators.
We should still not underestimate the potential for the ASX-SGX deal to fall over, either because Treasurer Swan deliberately spikes the approval with so much conditionality as to make it unacceptable to the parties or because of parliamentary disallowance of the necessary regulatory changes. The deal remains a key test of Australia’s international openness, one that some combination of the federal government, the cross-benches and the opposition might still fail.
The various glitches you may have noticed in recent weeks follow an upgrade to the backend of the site and a server migration that did not go as smoothly as usual, but have since been bedded down. A few cosmetic changes have also been made, including the introduction of “share” icons (thanks to Brendan Underwood for implementing these).
I’m increasingly using Twitter as a more efficient way of linking to things of interest that do not require any additional comment or elaboration from me. You can follow me on Twitter and be confident there will be no tweets about what I had for breakfast, just the good stuff.
Let me know if you encounter any problems with the site. Self-registration for comments is permanently closed for security reasons, but you can email me and I will register you for comments.
When, in 1998, the Australian Competition and Consumer Commission rejected ASX’s bid for the Sydney Futures Exchange, it consigned ASX to a non-independent future. In the seven years it took for the ACCC to finally approve the merger, most of the bigger stock exchanges in our region and some outside it had emulated Australia’s aborted lead. This robbed ASX of a significant first mover advantage, depriving it of scale and scope and an unrepeatable regional leadership position.
There can be no doubt that the 2006 merger of ASX and the Sydney Futures Exchange, when it came, was a huge benefit to both markets and to Australian financial services generally, but it came too late to fully leverage this success internationally.
Government intervention in US housing finance was the cause of the recent financial crisis and yet US policymakers have completely ignored GSE reform in their policy responses. Despite having some of the world’s most sophisticated, deep and liquid capital markets, US policymakers find it hard to conceive a system of housing finance that is not dependent on government support. The AEI has produced a white paper on GSE reform, a theme the AEI has pursued since well before the crisis. Here’s some of what the AEI had to say about the GSEs in 2005:
Congress may be unable to summon the political will necessary for enacting a suitable regulatory framework for these politically powerful entities. The inability of the political process to cope with the power of the GSEs, even after their demonstrable failings in recent years, should be a matter of concern to all Americans. Either Congress controls the GSEs or the GSEs control Congress.
Posen on Monetary Policy Activism and Asset Price Cycles
We have previously linked to Adam Posen’s work critical of suggestions that central banks should adopt an activist approach to managing asset price cycles. Here’s Posen’s talk at last year’s Cato Institute Monetary Policy Conference.
Peter Martin rounds-up opinion in favour of re-appointing Warwick McKibbin to another five-year term on the Reserve Bank Board, including some supportive comment from me.
As Chris Joye notes, there is no reason why Ross Garnaut could not be appointed to one of the other looming vacancies on the Board, allowing both Warwick and Ross to serve concurrently. That would certainly liven-up Board meetings and move the Board closer to an MPC-style model of decision-making. The government should eventually move to separate monetary policy decision-making from the Board, as I argue in this article.
In the UK, the government was brave enough to appoint an American, Adam Posen, to the BoE’s MPC. The logistics of having a foreigner other than a kiwi attending monthly RBA Board meetings would be difficult, and the local media reaction would be nothing short of hysterical, but there is no reason why foreign talent should not be considered. A foreigner would actually be significantly less conflicted as a monetary policy decision-maker than many of the existing external Board members.
While my first foreign pick would be Don Brash, my guess is he would be unwilling to serve under the existing RBA governance model. All the more reason to change it.
The libertarian entrepreneur and hedgie has a thing for New Zealand. One theory:
Thiel is nothing if not an ambitious, long-term thinker, so what’s the big picture here? What could the famously contrarian investor possibly see in a country of 4 million people whose economy is mostly based on agriculture and tourism?
Here’s a thought: maybe Peter Thiel wants to turn New Zealand into the next Silicon Valley. Or maybe even the libertarian utopia of his dreams.
Instead of Leonard Read’s classic I, Pencil, I have been using The Toaster Project in teaching as a more contemporary take on the division of labour, specialisation and the gains from trade. Thomas Thwaites gave a presentation on it at TED, which be viewed here. While it is amazing he got as far as he did, it is also a disturbing glimpse into the counter-factual of life under autarky.
model simulations indicate that the past and projected expansion of the Federal Reserve’s securities holdings since late 2008 will lower the unemployment rate, relative to what it would have been absent the purchases, by 1½ percentage points by 2012. In addition, we find that the asset purchases have probably prevented the U.S. economy from falling into deflation.
Paul Cleary has not done himself any favours beating-up the product of The Australian’s latest FOI request of the Reserve Bank:
The decision to sell 167 tonnes of the bank’s reserves has cost the nation about $5 billion based on today’s soaring price of almost $1400 an ounce…
The RBA’s sales pushed the world gold price down to an 11-year low, returning just $2.4bn for the gold that was sold via a single broker engaged without a tender.
The same amount of gold would be worth about $7.4bn today.
This analysis ignores two inconvenient facts. The gold was sitting on the RBA’s books at the Bretton Woods parity price, so the RBA booked a sizeable profit on the sale even at 1997 prices. The suggested $5 billion ‘loss’ ignores the return on the income producing assets the RBA purchased with the proceeds of the sale. It is likely these assets have underperformed gold recently, but historically, the real returns to gold have been negligible compared to other assets. As one of the world’s biggest producers, Australia is naturally long gold. There is no diversification value in relocating gold from the WA goldfields into vaults under Martin Place.
The 1997 RBA gold sale should give gold bugs pause. As we have noted previously, above ground gold stocks dwarf annual production, so the gold price is best viewed as a stock rather than a flow equilibrium. There is a certain irony in people who fear an over-supply of fiat money taking refuge in an asset in which central banks hold substantial stocks that could be dumped on the market at any time. At least one US think tank has advocated selling the US gold stock of 261.5m ounces to yield a quick and dirty profit for the US Treasury. The RBA was able to offload 167 tonnes without too much difficulty.
