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The Banks and John
Howard
Evan Jones
[Caution: this is a very long post. The impending election prevents
serialisation. The post is rated M for mature audiences only.]
In the early 1980s, John Howard was Federal Treasurer under the Fraser
Coalition Government. Howard had initiated the Campbell Inquiry into
the financial sector and its 1981 Report recommended comprehensive
deregulation of the sector.
The ‘experts’ thought and talked abstractly about the merits of
‘competition’ but remained blissfully indifferent to the meaning of
competition on the ground. Facing a loss of market share to various
newcomers, the trading banks set about transforming their cultures.
Banking culture was passé; marketing and speculative mindsets were the
new cultures de jour. Dealers earned inordinate salaries and
bonuses. Lending manager’s earnings and status was tied to business
done. Delegated Lending Authority limits (constraints on lending
managers) were increased dramatically overnight. A circular
distributed by the National Australia Bank on the 9th November 1984
summed up the new regime:
‘Funds for lending are in abundance and
with recent deregulation, … it is imperative that we use every avenue
possible to foster our existing customer connections and expand our
lending base. Competitiveness is of paramount importance and
competition is to be matched or bettered if worthwhile business is at
risk.’
John Salmon, a then NAB branch manager, has indelibly etched on his
memory the instructions given at a manager’s conference – they were
simply told to ‘lend, lend, lend and there would be no recrimination
for bad debt’.
Nobody associated with the Campbell Inquiry thought about the concept
of banking culture; John Howard the Treasurer remained blissfully
indifferent.
Big corporates were being familiarised with the prospects of borrowing
debt denominated in foreign currencies. Some marginal brokers sniffed
out the idea of marketing such a debt instrument to small businesses.
The banks sniffed a threat and an opportunity, and jumped on the
bandwagon – notably Westpac, the Commonwealth and the ANZ. Few people
in the banks had a clue of the implications, and those that did were
ignored.
Between 1983 and 1986 over 3000 loans were made in foreign currencies
to unsuspecting borrowers. The attraction of borrowing in Swiss
francs, for example, was that the interest rate in Switzerland was of
the order of 7%; in Australia it was double that. But the Australian
dollar plummeted against the franc in 1985 and someone who borrowed a
Swiss franc loan to the equivalent of $1m in Australian currency was
soon owing over $2m in local currency.
Forget the cheaper interest rate. This was not merely not a good deal
but a calamity. The rest of the 1980s saw the borrowers trying to head
off business and personal disaster and the lenders trying to stem
their own losses and head off liability.
Lending density across Australia of these foreign currency loans
varied, depending on the aggression of the lending managers.
Queensland was a shining star for the recently re-badged Westpac;
behind Westpac’s success were successive Managers International
Business, Neville Imhoff and Albert Look. Look and Imhoff were known
by their clients to be active pushers of the instrument.
Look’s role received a searching condemnation by Justice Pincus in
Thannhauser v. Westpac in the Federal Court Queensland in December
1991. Pincus had this say:
‘For reasons I shall explain, it appears to me improbable that the
advice Mr Look gave was either competent or objective. …
‘Mr Look had a poor knowledge of the subject on which it was his task
to advise. There is no evidence that the concentration on CHF [Swiss
franc] loans was a result of a carefully thought out policy; …
‘It is not easy to believe that if Mr Look had truly engaged in the
negative conduct which he claimed to have done, he would have achieved
such success, reaping for the bank millions of dollars of profits in a
single year. …
‘I am satisfied, that Mr Look was not telling the truth when he said
that his role was to warn people of the risks of offshore borrowing.
The truth is that it was his job to try to persuade people to borrow
in that way, no doubt because of the large profits which the bank
would earn, and perhaps favourable tax treatment of those profits.’
One has to appreciate the seismic significance of this judgement.
Judges are used to automatically taking bank officer statements, sworn
on the hallowed Word of God, as Gospel. Moreover, the banks and their
legal teams based their litigation fights on the claim that they were
passive facilitators of foreign currency loans and that they gave
prospective borrowers full information as to their dangers. In most
court hearings the presiding judges ruled in favour of the banks. The
Pincus judgement neatly disposes of the Westpac officer’s story and
the banks’ posturings. The truth was out.
The later 1980s and early 1990s witnessed a welter of litigation over
foreign currency loans. But the victory for Mrs Thannhauser was
quarantined.
Two people not helped by the Pincus judgement were foreign currency
borrowers Lionel Potts and Tony Lanza-Volpe. Both Potts and Lanza-Volpe
had experienced the Imhoff and Look marketing push as early as mid
1982. Potts even came away with twice what he had sought – $500,000
instead of $250,000. $250,000 was put on deposit, and Westpac neatly
quarantined it for extra security.
Potts eventually won a judgement against Westpac in the Supreme Court
Queensland in December 1990. But Westpac immediately appealed.
Coincidentally with the litigation hearings, there was general public
animosity towards the banks. Democrat Senator Paul McLean had for some
years been representing victims of bank malpractice in the Senate,
reading details of particular cases into Hansard. Public hostility,
McLean’s persistence, and related media coverage, led the Hawke
Government in October 1990 to establish a Parliamentary Inquiry into
the banking sector. Although the foreign currency loan saga was not
central to the Inquiry’s establishment, the fury and desperation of
fcl borrowers forced the issue into a significant place in the
Committee’s hearings.
But the Committee, chaired by Labor’s Stephen Martin, absorbed the
dissent and its report in November 1991 was a damp squib. Worse, it
was a scandalous whitewash.
It was in this environment of a weak Parliamentary Committee, a
recalcitrant Labor Government and the failure of the court system to
deliver a modicum of justice that Potts and Lanza-Volpe decided to
call on the Opposition. They were getting nowhere with the
authorities. That’s what Parliamentary Opposition is supposed to be
about – holding the ruling Party to account.
Tony Lanza-Volpe called on his local State member, Santo Santoro, who
in turn contacted Senator Panizza (a compatriot from the old country).
Senator Panizza arranged for John Howard to attend a meeting with the
two disgruntled fcl borrowers. Howard was then Shadow Minister for
Industrial Relations and Employment, but seen as a senior Party figure
and sometime Treasurer.
What happened at the meeting is of long-term relevance. Here follows
the description from the Statutory Declaration pf Antonino Lanza-Volpe,
declared at Brisbane the 29th day of April 1997 (Commissioner for
Declarations No.38359).
1. On the 14th October 1991, Mr Lionel Potts of … and myself had a
11.30 to 12.00 morning appointment with the Hon John Winston Howard in
the late John Horace Panizza’s office in parliament House Canberra.
2. Mr Howard arrived at approximately 11.50am and asked what he could
do for us. Mr. Potts raised the issue of foreign currency loans and
handed John Howard various documents. Mr. Howard glanced at them and
put them on a low coffee table saying quite forcibly “this bank
bashing has to stop!”
3. At that point he turned to leave the room whereupon Mr. Potts
protested “we have come a long way to present evidence as to what has
occurred with these loans.” A short discussion followed with Mr.
Howard responding “the Westpac Letters are privileged document (sic)
between Westpac and it’s (sic) solicitors and you have no right to
them.”
4. He again turned to leave and Lionel Potts picked up the documents
from the table and handed them to him saying “could you at least read
these.” John Howard then left.
5. This meeting was of short duration possibly a maximum 5 minutes and
we didn’t even get to sit down. Senator Panizza expressed his
apologies and indicated he was a bit surprised at Howard’s lack of
interest.
After having recovered from the Honourable Member’s breathtaking
performance, and having flown down from Brisbane, Potts and Lanza-Volpe
tried to get value for money by knocking on the doors of other
Honourable Members.
The Honourable Alexander Downer (then a member of the Martin Committee
banking inquiry) was located. The conversation with Mr. Downer went
something like this (liberal paraphrase):
AD: I can’t talk to you because I used to work for the Bank of New
South Wales 23 years ago. I am bound by confidentiality.
LP: But you’re now a Member of Parliament and represent all
Australians.
AD: No, I represent the constituents of Mayo. I’ve had enough of you.
Potts and Lanza-Volpe eventually found their way to the office of Ted
Mack, Independent member of the Lower House. Mack told them (liberal
paraphrase):
TM: Get on an aeroplane and forget it. Westpac flew into town the
other night; an entourage. There was much wining and dining with
members from both sides of Parliament. You’re wasting your time.
Before proceeding with the narrative, let us divert to outline the
significance of the ‘Westpac Letters’, the status of which Mr Howard
claimed to have been abused by the gate-crashing miscreants.
The Westpac Letters were two letters from Westpac solicitors Allen
Allen & Hemsley to Westpac dated 26 November and 11 December 1987
regarding the practices of Westpac subsidiary Partnership Pacific’s
mismanagement of borrowers’ foreign currency loans. The chaotic
essence of foreign currency loans was displayed for public
consumption. Westpac fought furiously but unsuccessfully to impede
their publication in the media.
Fairfax journalist Anne Lampe noted at a seminar on the Letters at the
University of Technology Sydney in June 1992:
'The Westpac Letters are the only 'absolutely private and
confidential' documents I ever received. They were without a shadow of
a doubt the most exciting leaked documents I have ever seen.
'But it didn't take long for it to dawn on me that what I had sitting
on my desk was Bankgate - devastating evidence of a major cover-up by
Australia's largest bank being advised by one of Australia's largest
law firms about major wrong doings of staff in one of its major
subsidiaries on how to best prevent information about those wrong
doings ever being revealed.
'These letters … were the findings of a senior partner in the law firm
advising Westpac, who considered 50,000 documents and looked at the
details of 7,000 before he concluded that there had been major
irregularities in Partnership Pacific Ltd's dealings with its offshore
loan clients.'
This is definitely the kind of document that an Honourable Member
would prefer to remain privileged.
Potts returned to Brisbane to face Westpac in the Court of Appeal. The
April 1992 judgment reversed the Trial Hearing and gave the decision
to Westpac. Justices de Jersey and Dowsett prevailed over Chief
Justice Macrossan. de Jersey and Dowsett have twinned careers – same
age, same school (Brisbane Grammar), same clubs, elevation to the
bench at the same time. According to John Salmon, consultant to small
business bank victims since his retirement from the NAB, this decision
was the most disgraceful judgement he has ever witnessed.
Westpac delayed the appeal for sixteen months. Potts was of the view
that Westpac delayed the appeal until Potts’ experienced Barrister was
not available. Westpac then delivered 250 documents to Potts’s legal
representatives on the Friday at 5.30 p.m. before the Monday case
(Potts himself was unaware), a scam that the bench did not rule as out
of order. Salmon believes that the documents included bank officer
diary records that were concocted.
de Jersey’s brief judgment included an argument lifted from another
(non-bank) judgment:
‘Indeed, in a competitive society, the infliction of pure economic
loss upon another will commonly be concomitant of the successful
pursuit of personal advantage by the way of lawful conduct in that
there can be discerned, in many commercial and financial transactions,
a correlation between the attainment of personal gain for one’s self
and the sustainment of economic loss by another.’
So there we have it. Westpac plays by the law of the jungle; we
oversee the law of the jungle; and Potts is a very sore loser.
Goodnight Mr. Potts and Good Riddance.
Yet four months earlier, in the Thannhauser judgement, Pincus J had
blown Westpac’s integrity out of the water. Brisbane is not a large
city. What is going on? What is going on is that Westpac let it be
known that Potts was the decisive judgement. You cannot win against us
in the courts.
Years grind by and Honourable John becomes Prime Minister in 1996. The
Foreign Currency Borrowers Association writes to the new Government
hoping for a fresh start, yet receive a reply that is the quintessence
of Sir Humphrey Appleby. Said the Honourable Jim Short, Assistant
Treasurer (the position invented by the previous Labor Government to
deal with all the shitty jobs considered too demeaning for the
Treasurer), dated 8 July 1996:
‘[I]t is not appropriate for the Government to intervene in private
commercial dealings between banks and their customers nor does the
Government determine the lending policies of the banks or interfere in
their daily commercial decisions.
‘The Government’s role is to ensure that the banking industry is both
competitive and secure. To this end, the Government is concerned that
there are no barriers to effective competition and that industry codes
of conduct and prudential standards are fully observed. This approach
is designed both to safeguard the interests of bank customers and to
ensure an efficient financial system.’
Confronting the magnificent appropriation of language in the mouths of
Honourable Members of Parliament and Learned Judges of the Bench,
Potts turned to direct action. At one stage, Potts was frog-marched
out of Westpac’s Sydney Head Office. But his pièce de résistance
was a bulky booklet titled Do You Trust Your Bank? of August
1995.
Amongst myriad reproduced clippings and documents, Potts highlighted
selected colorful phrases from the November Westpac Letter, notably:
‘5. PPL undoubtedly took points which, at best, exceeded its
entitlement and to which, in my view, PPL had no entitlement at all.
‘7. As a result of 1-6, it is likely that managed borrowers would
succeed against PPL.
‘STRATEGY …
5. My concern is that if [particularly dangerous potential claimants]
come onshore without a concession, they may become bellicose once
their reduced capital and higher interest rates start to bite.
6. Take all practical steps to avoid PPL’s weaknesses being known
outside PPL/Westpac boards and senior management.’ Etc.
Potts also reproduced Westpac’s Mission Statement from its 1982 Annual
Report.
‘To support excellence as the measurement standard for everything we
do. To acknowledge our social responsibilities and our special role in
the economic life of the community by absolute integrity, efficiency,
and good corporate citizenship.’
With Potts trumping Westpac on the propaganda front, Westpac conceded
defeat and settled with Potts.
The guard has changed at Westpac but the script has not. Said CEO Dr
Morgan (late of the Federal Treasury which oversaw the debacle of
financial deregulation) on 11th March 2003:
‘Business trust has been significantly undermined in Australia. People
are understandably frustrated and angry at what they see as a lack of
corporate transparency, accountability and a breakdown in the
corporate oversight business. With corporate integrity under question
globally, Australian business at the minimum will need to continually
demonstrate a genuine commitment to good governance and social
responsibility, both of which are fundamental to our future. Those of
us privileged to hold leadership positions ... we need to chart a new
course and not just begrudgingly accept true reform.’
Tony Lanza-Volpe is still looking for justice from Westpac, and his
foreign currency loan continues to tick over, racking up interest.
Yoo-hoo, Dr. Morgan; are you there?
And the Honourable Member for Bennelong, the Prime Minister?
In the House of Representatives on 21st June 2004, Mr Latham referred
the Prime Minister:
‘to the difficulty that most Australian consumers and small businesses
face in transferring from one bank to another. Will the government now
adopt Labor’s policy of increasing competition in the banking industry
by making it easier for customers to change banks – that is, by
requiring a customer’s old bank to transfer all direct debit details
to their new bank within three working days?’
One would have thought this suggestion entirely sensible and its
implementation a matter of little inconvenience to those with ‘a
genuine commitment to good governance and social responsibility’. But
it is known that the banks consciously inhibit transfer to enhance
their leverage over borrowers.
And Mr Howard’s response?
‘The Member for Werriwa belongs to the Australian labor Party that
presided over the highest interest rates this country has had since
the end of World War II. … Those interest rates have come down under
this government. One of the reasons they have come down is that we
have fostered greater competition …’
The Prime Minister was in election mode as early as June. What Mr
Howard has fostered (with considerable assistance from Labor in
office) is the institutionalisation of corruption on a grand scale in
the Australian banking sector.
This is another bravura performance from John Howard. Another term of
office for this man of the people would be richly deserved. [/sarcasm]
History of Banking Fraud:
The Coming Battle
By M. W. WALBERT
The
Coming Battle documents from Congressional records, newspaper reports
and writings by the founding fathers and others a chronology of events
long forgotten that shaped our fledgling nation from 1776 to 1899. Read
about the manipulation of our money and its supply, the intentional
creation of recessions, depressions and panics, manipulation of the stock
markets, and the demonetization of silver.
Secrets of the Federal Reserve
by Eustace Mullins
Eustace Mullins' carefully
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brings it to the mid 1980's
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