Monday, November 29, 2010

Wikileaks cable reveals Syria's price for US support

Syrian is ready to cooperate with America again over Iraq but only at a price and flatly refuses to link an Israeli deal with Iran’s nuclear capability. These are the key messages revealed in one of the top secret cables published by Wikileaks this weekend. The cable “10Damascus8, Codel Gregg’s December 30 meeting with President” discusses “a frank one hour meeting” between Syrian President Bashar Al-Asad and six visiting US Senators Judd Gregg, Evan Bayh, Arlen Specter, Mike Enzi, John Cornyn and Amy Klobuchar on 30 December 2009. (Photo credit not known, sourced here)

Asad began the talks by saying he wanted a return of Turkish-facilitated indirect talks with Israel but said Syria's relationship with Iran should not be linked to Israeli peace negotiations. Syria's ties with Hamas and Hezbollah could be “satisfactorily resolved” only after peace was achieved. Asad said he wanted to see better relationships with the US but his foreign minister Walid al-Muallim said the ball was in the Americans’ court for taking the next positive step.

Asad called Iran the region’s most important country and said the West should acknowledged Iran's NPT-protected right to enrich uranium under IAEA monitoring. Instead of insisting Iran ship all of its Low Enriched Uranium at once as the West demands, Asad said Iran’s counter-offer to ship several batches of LEU for enrichment abroad was "reasonable". Asad said Iran was not interested in pursuing a nuclear weapon, but warned an Israeli military strike on its nuclear infrastructure would fail to end the program and would only increase Iran's determination.

Asad also refused to link Iran’s nuclear program with Israeli talks, arguing it would complicate both issues. Asad said eight months of indirect peace talks in May 2008 with Israel under Turkish auspices had achieved more than several years of direct negotiations with Israel in the 1990s. Direct talks failed because of the lack of "rules of negotiation." He said indirect talks represented the best way to establish terms of reference similar to those reached by James Baker in 1991. Asad urged the US and EU to support the Turkish initiative. “Israel's military superiority would not secure it from attack against missiles and other technologies,” he said.

Asad then bristled at suggestions Syria was allowing extremists across its borders into Iraq. Asad blamed the situation on the absence of political cooperation with the US. The Americans possessed a "huge information apparatus" but lacked the ability to analyse this information successfully. "You're failing in the fight against extremism,” he told the Senators. “While we lack your intelligence capabilities, we succeed in fighting extremists because we have better analysts.”

Asad said Syria had refused to cooperate with President Bush because it did not trust him and because his administration had wrongly accused Syria of supporting foreign fighters. When President Obama assumed office, Syria tried to be positive. Asad said he had shared the idea with Special Envoy Mitchell of a border security cooperation initiative with Iraq as a first step (the CIA analyst disputed this saying it was an American suggestion to which Syria reluctantly agreed).

Asad also compared the difficulty of patrolling the large Iraqi border with similar issues on US-Mexico border. "In the US you like to shoot (terrorists),” he said. “Suffocating their networks is far more effective.” Asad blamed “US mistakes in Iraq" for trouble in the region. The report said despite a shared interest with the US in ensuring Iraqi stability, Syria would not immediately jump to intelligence cooperation without ensuring its own interests would be respected. "I won't give it (intelligence cooperation) to you for free," Asad told the Senators.

The Senators had two other agenda items they wanted Syria to address: to facilitate the release of three detained Americans in Iran, and re-open the Damascus Community School. Asad said he was unfamiliar with the detained Americans issue but was “ready” to reopen the school after he shut it down in response to a US military attack in 2008 that killed seven Syrian civilians.

The cable went into a great more detail of the discussions than was revealed by Senator Specter’s account of the CODEL in the February congressional record. While Specter mentioned the Turkish solution and the "decoupling" of Iran he made no mention of the LEU offer or what Asad requested of the US in exchange for intelligence support.

The report is one of 15,000 Top Secret classified documents released by Wikileaks on the weekend. On Sunday they began the painstaking task of publishing over a quarter of a million leaked US embassy cables. The cables date from 1966 to February 2010 and contain confidential communications between the State Department and 274 embassies in countries throughout the world.

Thursday, November 25, 2010

Arms dealer BAE pleads guilty to hiding bribes

A British Magistrates Court heard on Tuesday how Europe’s largest defence company wilfully failed to keep proper accounting records of payments. The notorious BAE Systems is the largest arms manufacturer in Europe and the fourth biggest in the world with annual military sales of $15 billion. In a Magistrates Court hearing in London BAE lawyer David Perry said the company would enter a guilty plea at a higher court next month in a plea deal with the Serious Fraud Office. (Photograph: Paul Ellis/AFP/Getty Images)

The indictment charges BAE is charged with knowingly not keeping proper records that explain payments that relate to two contracts. The statement of offence against BAE read “between 01 Jan 1999 and 31 Dec 2005 BAE knowingly...failed to keep accounting records which were sufficient to show and explain payments made pursuant to (a) a contract between Red Diamond Trading Limited and Envers Trading Corporation, (b) a further contract between British Aerospace (Operations) Limited and Merlin International Limited.”

After the guilty plea, District Judge Caroline Tubbs said sentencing should be approved by a higher court. She sent the case to Southwark Crown Court. The next hearing will take place on December 20. At this unprecedented hearing a judge will be asked to confirm the final settlement. However, many believe the timing of the Crown Court hearing is deliberately close to Christmas in order to bury the bad news.

The legalese around the trial charge did not state the dodgy accounting was hiding bribes to procure the sale of a military radar system to Tanzania. BAE covertly channelled bribes through the Panama-registered Envers from its company, Red Diamond, to secure a contract in 1999 to supply Tanzania with a military radar system costing $40 million. However BAE avoided more serious charges after it struck an agreement with the SFO in February.

The deal
splits jurisdiction with the US Department of Justice over the company’s misdeeds. The SFO got Tanzania and the DoJ got the rest. As a result BAE agreed to plead guilty in the Crown Court to an offence under section 221 of the Companies Act 1985 of failing to keep reasonably accurate accounting records in relation to its activities in Tanzania. The company had to pay $50 million comprising a financial order to be determined by a Crown Court judge with the balance paid as an ex gratia payment for the benefit of the people of Tanzania.

In return the SFO will drop all investigations into BAE deals in South Africa, the Czech Republic and Romania as well as Tanzania. An NGO called The Corner House have expressed deep concern the plea bargain means SFO has agreed to fetter its future prosecutorial discretion. “If further evidence came to light that was sufficient to mount a prosecution against individuals that necessitated making allegations concerning BAE’s conduct, the SFO would not be able to bring such a prosecution as it has undertaken not to do so,” said The Corner House.

The Campaign Against Arms Trade has also been implacable foes of BAE. They have joined The Corner House in trying to bring to the Court’s attention over the plea bargain’s apparent undertaking never to prosecute any individual in future if doing so involves alleging BAE Systems was guilty of corruption. CAAT’s Kaye Stearman said the new hearing date is so close to Christmas that “in the hackneyed phrase, this will be a good day to bury bad news.” “Yet there is still much about this whole sorry saga that the public deserves to know,” she said.

CAAT are responsible for much of what we do know about BAE’s arms dealings. They scored a major victory over BAE in 2007 after the High Court ordered the weapons dealer to produce a sworn affidavit divulging how it obtained a confidential and legally privileged document from CAAT. In 2003 the Sunday Times revealed how BAE paid a company to carry out an elaborate spying operation on its critics and infiltrate CAAT.

The 2007 affidavit followed the failed police investigation a year earlier of BAE’s illegal activities in Saudi Arabia. BAE chair Dick Evans had easy access to PM Tony Blair and the government bought pressure on the SFO to drop the corruption investigation into BAE's Saudi arms in December 2006. Former British Foreign Secretary Robin Cook said the relationship between BAE and the government was too close. "In my time I came to learn that the Chairman of British Aerospace appeared to have the key to the garden door to Number 10,” he wrote. “Certainly I never once knew Number 10 to come up with any decision that would be incommoding to British Aerospace".

Sunday, November 21, 2010

Ireland faces eviction

There is an image of Ireland doing the rounds which has gone viral. The image is in the format of a classified advertisement. The item for sale is Ireland itself offering “76,000 km2 of floor space” to the buyer. The “vendors” are prepared to sell for 900 billion Euros or roughly $1.23 trillion.

All joking aside, Ireland is no longer worth that kind of money. The pretend asking price is exactly ten times Ireland’s debt which currently stands at $123 billion and continues to grow. It is now equivalent to one third of Ireland’s GDP. With Ireland still seen as a risky proposition and the bucket of money fast running out, the situation is about to get a lot worse for the Irish taxpayers. They may have to bail out their banks to the tune of $95 billion and will pay the price through a series of austerity budgets and the return of emigration. The bad times are back with a vengeance.

Poverty has been the normal situation for Ireland for much of its existence. Founded out of the barrel of a gun in 1921, the Irish State was the desperately poor relation of northern Europe. Its protracted independence battle from Britain left it penniless, its war neutrality cost it a place in the Marshall Plan and the economic illiteracy and conservative social attitudes of Ireland’s towering statesman Eamon de Valera encouraged mediocrity. In an infamous St Patrick’s Day speech to the nation de Valera’s vision of Irish life was “the romping of sturdy children, the contests of athletic youths and the laughter of comely maidens.”

But as the sturdy children, athletic youths and comely maidens grew into adulthood, they found an Ireland that had no place for them. Until the 1960s emigration was the only solution for most if they wanted a secure a financial future. Emigration was also an escape from a stultifying environment. An island off the coast of an island off the coast of Europe, Ireland was isolated culturally and financial from much of the European post-war boom in industry and ideas.

The Irish Catholic Church had enormous power and privilege in de Valera’s young state to the point where he allowed the archbishops to co-write the 1937 constitution. The Church’s conservative hierarchy held onto its power by ensuring new ideas were suppressed through censorship and criticism from the pulpit. Efforts to change the constitution in the 1980s mostly failed but the battles severely bruised the Church.

Europe would eventually come calling and change everything. Entry in the then-EEC in 1973 had a profound effect on Ireland coming as it did at the same time as the arrival of British satellite television across the country. Informed by overseas events and subsidised by European money the country rocked through waves of social revolution in the 1980s that bitterly divided populations. The constitutional referenda were mostly over sexual matters which had long been the preserve of the Catholic Church.

By the 1990s the Church's power was crumbling fast. Clerical scandals robbed them of their ability to preach down to the flock while the encroaching cultural influence of Britain and the US throughout the 1980s robbed them of respect in the young. Meanwhile an increasingly monied society was finding it no longer had the time nor need for spiritual aid.

The effect was revolutionary. A population of three million used to accepting power from the belt of a crosier suddenly found organised religion surplus to their requirements. As in many post-religious societies, mass materialism quickly rushed in to fill the void. Moral worth was now judged by the car people drove and the house they owned. Like the other PIIGS, all of whom emerged from strict Catholic or Orthodox societies, the Irish put their noses in the trough for 15 years of good times. As the economy improved through a series of one-off reforms, the nation went on a consumerist spending spree stimulating the economy even further. Long a net exporter of people, Ireland suddenly found itself an attractive destination for refugees desperate to get a job in this humming hive. The immigrants brought with them new ways and new ideas and further shook up a tightly homogenous society.

The original Irish boom was based on the take-off of low taxing hi-tech IT and pharmaceutical companies. But by 2000 those industries had plateaued. The boom was running on its own fuel. Construction became Ireland’s biggest industry. Ireland’s lax planning laws led to a building frenzy. The big profits available in property encouraged existing homeowners to gamble with their equity in what seemed like no-brainer easy money. The move to the euro made access easy to European markets. The Irish plunged into property in southern Europe and along with the equally cashed-up Russians and British became primary investors in places as diverse as Montenegro and the Canaries.

A few Cassandras such as Morgan Kelly (Professor of Economics at University College Dublin) predicted what would happen when the boom ended and the constructed house of cards collapsed. It wasn’t just private investors who were playing for high stakes. The Irish banks had made astronomical profits in the boom but got themselves in deep to foreign investors in the process. When the Global Financial Crisis hit, the cheap money those banks relied on dried up. With confidence killed at a stroke, businesses began to contract. The toxicity of many of the loans left the banks deep in debt with no new income to replenish them.

Desperate to avoid the loss of face of its major financial institutions going under, the Irish Government issued a bank guarantee as Governments did in US, Britain, and Australia. But unlike the other three English speaking counties, the Irish guarantee would lead to national insolvency. Three Irish banks (Anglo Irish, Allied Irish and Bank of Ireland) had hidden the extent of their bad debts from the Government at the time. Now the Government’s open-ended commitment to cover the bank losses far exceeds the fiscal capacity of the Irish State to pay.

The turning point in the crisis came in September when bank loans worth $75 billion due to the UK, German, and French banks matured. Despite being lied to by the banks, the Irish Government agreed to pay off the loans. It was accomplished with another loan, this time from the European Central Bank. Now Kelly is saying the next crisis will be mass home mortgage default. Like the “for sale ad”, Kelly goes for gallows humour. "After a sudden worsening in her condition, the Irish Patient has been moved into intensive care and put on artificial ventilation," he said. "While a hospital spokesman, Jean-Claude Trichet, tried to sound upbeat, there is no prospect that the Patient will recover."

The "hospital spokesman" Trichet is the French civil servant who currently heads up the ECB. The ease of access the euro provided was now the noose that threatened to leave the Irish economy to hang. Trichet would normally turn his Gallic nose up at the gauche goings-on of the Irish. But he has too has much to lose from the burgeoning debt situation. Ireland still owes a lot of money to French banks.

And like fellow terminally-ill patient Greece, the death of Ireland would put the health of the wider integrated European economy at risk if the crisis of confidence spread up the line to the larger economies. Ireland is relying on Trichet’s riches to pay for decades of crony capitalism. But the kindness of strangers will have a price. If mortgagees start to default on a widespread, Ireland could be ruled within five years by what Kelly calls “a hard right, anti-Europe, anti-Traveller party that will leave us nostalgic for the, usually, harmless buffoonery of Biffo, Inda, and their chums."

Thursday, November 18, 2010

Auditor diagnoses Queensland Government's IT ills

Queensland’s Auditor General Glen Poole has issued a report tabled in parliament yesterday which is sharply critical of the way Queensland Government implement their computer systems. The report “No 13 for 2010” is the result of audits to end October. Among the many government audits in the report, the one of biggest interest to the media is the one on Queensland Health’s troubled new payroll system. But what the auditor is really saying is the fact the problems Health had were replicated in other agencies with their new payroll systems and there are some serious issues with the IT outsourcing process.

The same audit report said QBuild’s (Department of Public Works) Ellipse system was implemented to replace their existing operational, financial and payroll systems at a cost of approximately $32m and “significant issues arose after this system was implemented.” The auditor found project management controls were not consistently applied across the system implementation lifecycle while governance structures were not effective in communicating complete and timely information. The auditor said the level of testing performed was also unsatisfactory given QBuild’s financial reporting and payroll processes “were dependent on the rigour of this testing.”

The audit said his QBuild findings were consistent with what he found at QH and between them they demonstrate “a critical need for improved system implementation skills within the public sector.” The original idea was whole of government implementation which was changed to a project governance arrangement in June 2009.

After many years of design, development and testing, Queensland Health implemented a new payroll system on 14 March this year. Poor requirements gathering and system design meant there were over 47 change requests to the original scope, delaying the project by 18 months and making the project three times more expensive than it was original estimated. Overall QH spent $100 million on their new payroll system and associated whole of government initiatives.

An auditor’s opinion on the QH debacle was issued in Report No 7 in June 2010 after significant deficiencies were found in the completeness, accuracy and timely payment of employees when the system first rolled out. The audit found the deficiencies arose as a result of “weakness in internal control” and represented “material non-compliance with the prescribed requirements for the department to maintain an appropriate expense management system.

The system was clearly not ready to implement on 14 March however the Go Live decision was made after project partners IBM and CorpTech signed off the technical readiness while the business signed off on the Acceptance Testing report. Because of the project’s complex outsourcing, it was acknowledged significant contractual and commercial challenges would occur if the project was further delayed. Yet there were no contingency plans for business cut-over and no testing done in the production environment to determine whether the pays were correct prior to the first live payroll being produced. Nor did anyone consider the impact of the changed business rules in the new system on business practice.

The initial problems after implementation were so bad and so widespread, QH were forced to establish a Payroll Stabilisation Project in conjunction with KPMG. In yesterday’s report the auditor said the Stabilisation Project has now ended and the project has transitioned into the Payroll Improvement Program. QH activities have resulted in a declining trend in payroll enquiries and outstanding transactions. But Poole cautions “close monitoring of the transaction backlog and further improvement in the efficiency of business processes is still required.” Importantly however, the audit found the deficiencies did not have a material effect on the completeness and accuracy of the reported employee expenses.

The recommendations for the QBuild project closely mirror what was recommended for QH in Report No 7. The first key point is a lack of a project management methodology that includes requirements for project reporting, including key risks and issues. Poole also recommends government departments engage an experienced project manager with strong enterprise resource planning implementation experience. He said strong governance frameworks should be established to ensure there is separation between the roles of the senior supplier and the project manager while suppliers should only be paid on deliverables satisfying acceptance criteria.

Some of his recommendations may be unrealistic (eg “user acceptance testing should be completed prior to commencing user training”) however most of it is basic project management methodology. Given that experience of such methodology is plentiful at QH, CorpTech and IBM, it may be that too many cooks spoiled this particular broth. Serious questions need to be asked about the efficacy of outsourcing large government IT projects.

Disclosure: this writer is a former employee of IBM and worked very briefly – and unenjoyably – on the QHIT project before tendering his resignation in April 2009.

Tuesday, November 16, 2010

Harry Redford, the White Bull and Roma

In the 1860s the newly formed government of Queensland issued licences for a sheep and cattle station called Bowen Downs north of Longreach in central western Queensland. Bowen Downs extended along the Thomson River and its tributaries to the town of Muttaburra. In 1870 more than thousand cattle disappeared from the Bowen Downs station. This event would have grave consequences some years later to the town of Roma, 700kms to the south. (picture: "Harry Redford leaving NSW for the new frontier Qld, 1869" by John Morrison)

The controversy started when a number of cleanskin cattle were taken from Bowen Downs and branded with the names of several men who lived in the area. Among those who lived in the area at the time was a certain New South Welshman called Harry Redford (in some accounts called Readford). Redford was one of four men in charge of drays and horses belonging to a William Forrester who owned a station near Bowen Downs.

The four men rode 40kms up the Thomson River and built cattle yards. When the yards were completed, they mustered a large number of unbranded Bowen Downs cattle and gradually filled the yard with them. Among the cattle taken was very valuable imported bull of pure white colour who would accompany the cattle to keep them quiet. On 1 March 1870, the cattle were then taken to Forrester’s camp where they were branded with the names of several owners. Later Redford and four other men drove the mob in a dangerous journey to the southern colonies to sell them off.

By June, Redford and his crew were spotted at the general store in Strzelecki Creek, South Australia. Redford (posing as a “Henry Collins”) bought clothes and provisions and offered to sell the storekeeper two cows in payment. Redford told him he and his brother kept the cattle in an adjoining colony. The storekeeper demanded the white bull as well and the deal was done with Redford issuing a receipt in the name of Collins.

It wasn’t until September that stockmen at Bowen Downs noticed tracks of cattle leaving the station. They followed the tracks to a neighbouring property belonging to a McKenzie where they found some Bowen Downs cattle. McKenzie made no claim to the cattle but another man would later testify McKenzie was told “the coast was clear” when it came to dealing with the Bowen Downs cattle.

McKenzie and two other men (McGrath and Cornish) were arrested and charged with stealing “20 oxen 20 cows 20 steers 20 heifers and calves” from Moorehead and Young (owners of Bowen Downs). McKenzie and McGrath were brought before the District Court in Roma in 1871. The Government, alarmed at growing reports of cattle thefts, supplemented the Crown Prosecutor with a private barrister. Despite bringing a large number of witnesses to testify against the men, the jury found the pair Not Guilty.

Meanwhile the discovery of the stolen cattle led to further investigations which uncovered an even larger amount of missing cattle. After a massive search, the famous white bull was eventually found at Strzelecki and the remainder of the cattle were traced to Adelaide. McKenzie and McGrath were brought back to Roma to face charges with Forrester and two other men (though not Redford) for stealing 200 cattle from Moorehead and Young. McKenzie turned Queen’s evidence and testified he in was in the pay of McGrath when they took the cattle and branded them in Forrester’s yard. But once again the jury found McGrath Not Guilty. The prosecution decided not to proceed with the other cases.

It wasn’t until February 1872 that Redford was arrested in NSW in relation to the Bowen Downs crime. He was transported to Roma in November that year and remanded for trial in February 1873 charged with stealing “100 bullocks 100 cows 100 heifers 100 steers and 1 bull.” There was great difficulty empanelling a jury with only 7 out of 48 jurors accepted. The judge determined only those set aside by the prosecution would return and the process continued until 12 were selected. A Bowen Downs overseer told the court he had bought the valuable white bull and Redford's signature was matched with the fictional Collins. A former accomplice in the raid gave evidence against Redford. The accomplice’s testimony was undermined by the defence which showed he had escaped from a lunatic asylum in Brisbane and was promised a pardon if he gave evidence.

The defence called no witnesses but said Redford had suffered great hardships in the 12 months since being arrested. After a 12 hour court case, the jury needed one hour to return a verdict of Not Guilty, which was greeted with gasps of surprise from the crowded Roma Courthouse. Judge Blakeney asked the foreman to repeat the verdict, after which he exclaimed “Thank God, gentlemen, that verdict is yours, not mine.”

The Brisbane Courier, Sydney Morning Herald and Victorian press sharply attacked the verdict while wealthier citizens of Roma petitioned the government deploring the miscarriage of justice. “As a Magistrate of the District I beg to add my private testimony to the fact that the feeling in Roma is evidently much very against convictions for cattle stealing and the present jury list contains many names of men quite unfitted to return an honest verdict,” one man wrote.

Judge Blakeney wrote a letter to the Attorney-General explaining the situation. He said although Redford was charged with stealing a thousand cattle, only the theft of the white bull could be proved. However the judge said “I fail to see the possibility of obtaining a conviction for cattle stealing in any case before a Roma jury.” He blamed the defective Jury Act which allowed “respectable people” to be barred from jury duty.

In March 1873, the matter came before parliament in Brisbane which decided to withdraw the District Court from Roma for two years. Defenders of Roma juries wrote letters to the Brisbane press in order to “redeem ourselves from the imputation cast upon us” and put the blame on the Crown for failing to secure the prosecutions. In the end the ban lasted less than 12 months.

The trial received notoriety across Australia. It was one of several episodes which Ralph Boldrewood’s Robbery Under Arms is based on with Redford’s fictional counterpart Captain Starlight tried in “Nomah”. The real Redford continued to get himself in hot water and was arrested in St George in 1875 for horse stealing. However, once again a Roma court found him Not Guilty. A second horse stealing charge was dismissed due to lack of evidence but he was eventually sentenced to 18 months for a third horse stealing offence. Significantly, this trial took place at Toowoomba, not Roma.

When he was released, he joined a party which was exploring a suitable route for a rail link from Brisbane to Darwin. He would receive lasting fame for opening up stock routes across the Barkly Tableland between Queensland and the Northern Territory. He eventually died in 1901 when attempted to cross the flooded Corella Creek. He was buried nearby.

Saturday, November 13, 2010

Squirming all the way to the bank

The last two of the major four Australian banks to act on the Reserve Bank rate rise have passed on substantial rises to their beleaguered customers. While the RBA announced a quarter of a percent interest rate rise on Melbourne Cup Day last week, today the National Australia Bank lifted its standard variable rate 43 points to 7.67 percent while Westpac added 35 points taking their standard variable loan to 7.86 percent. ANZ announced a similar hike yesterday.

All three were slow to act after Commonwealth’s early response of 20 points above the RBA addition unleased a week and a half of frenzied attacks against the banks. Both media and politicians had their reasons for lashing the banks and with the CBA and its CEO Ralph Norris taking most of the heat Westpac, ANZ and NAB scurried off to the bunkers to contemplate how to sell their response.

It was never in much doubt they too would pass on inflated rises. Like the Commonwealth, all three acted in the best interests of their board not their customers. While all four expected some adverse consumer reaction, the four majors could rely on the vast majority of their customers to grudgingly accept the rises rather than go through the hassle of changing over to cheaper options provided by loan operators, credit unions and building societies. Between them the Big Four control over 86 per cent of the Australian mortgage lending market.

The media release NAB sent out today to announce the rise is a masterpiece in sleight of hand. In the same first breath as it announced the size of the raise, it maintained it was still “highly competitive” against the other banks. It is true they remain the cheapest of the big four by 13 points. But they are not highly competitive when measured against Wizard/Aussie or RAMS. Building societies such as ABS and Heritage are also between 10 and 20 basis points cheaper than NAB. Credit unions have cheaper loans still with Credit Union Australia offer a (pre rate rise) standard variable of 6.87 percent, almost a full 100 points cheaper than Westpac.

The trigger for the bank’s money grab was the initial decision by the RBA as everyone in Australia was tucking into chicken and champagne ahead of the Melbourne Cup. RBA Governor Glenn Stevens began with apparent good news. The economy was purring along in good shape. Confidence is returning, he said, employment is firming and business is being stimulated by global growth and high commodity prices. Trouble was these conditions generally brought increased inflation with them. “Inflation is likely to rise over the next few years,” said Stevens. “This outlook, which is largely unchanged from the Bank's earlier forecasts, assumes some tightening in monetary policy.”

The RBA "tightened" monetary policy by 0.25 percent. While Melbourne Cup was ending, the Commonwealth was first out of the blocks. The additional 25 points was not tight enough for them. The Commonwealth raised their home loan variable interest rate from 7.36 per cent to 7.81 per cent a year, a jump of 45 points. Group Executive, Retail Banking Services Ross McEwan blamed the additional 20 point rise on the “sustained increase in the Retail Bank’s wholesale funding and retail deposit costs”. McEwan said money was more expensive since the GFC and as older and cheaper funding arrangements expire they had to be replaced with more expensive funding. Commonwealth said consumer deposits which formed 60 percent of their home loan funding were now more expensive because of “increased competition".

After nine days of silence from the other majors, ANZ came out with their plan yesterday. They bumped their rates up 39 points to 7.80 percent and blamed “the sustained rise in the cost of funds in recent months”. ANZ CEO Australia Philip Chronican dressed the decision up as taking “the lead in doing more to give customers’ choice and to help them manage their finances in this uncertain interest rate environment.”

Like the NAB, Westpac waited until today to tell us their news. They added 35 points taking their standard variable loan to 7.86 percent, the highest of the four majors. Group Executive, Westpac Retail & Business Banking Rob Coombe was wheeled out to deliver the bad news. “This was a very difficult decision brought upon us by average funding costs that continue to rise, and was only made after the most careful consideration.”

NAB didn’t bother disguising their news as “careful consideration”. Instead they asked consumers to look at positives. As well as their fabled competitiveness, they were reducing their greenhouse gas emissions (no doubt causing jubilation among green mortgage holders) while asking for sympathy while they continue to absorb "a significant portion" of its increased average funding costs. The problem with these arguments are the banks recent profit statements. In 2010 NAB cash earnings increased almost a fifth to $4.6 billion. Commonwealth did better still with a similar percentage increase to $5.7 billion. Westpac were on the same path with cash earnings of $3 billion for the first half of the year, as were ANZ with $2.3 billion.

Part of the reason for these high profits are Australia’s high interest rates compared to most other developed other countries. The US, Canada, UK, Japan, the Euro Zone and Switzerland all have official rates of 1 percent or under. Only the steamrolling economies of China, India and Brazil have higher rates than Australia. But there is a second reason that enables bank customers as taxpayers to feel angry. The huge profits are a reflection of the privileged position enjoyed by the banks resulting from the Australian Government’s bank deposit guarantee.

The guarantee was withdrawn at the end of March but kept Australia stable in the post Lehman Bros collapse era. The State acted as guarantor to $32 billion worth of bank borrowing from international credit markets. On behalf of those unhappy taxpayers (and with his own job on the line) Treasurer Wayne Swan led the charge against the banks. “What we've seen in terms of the profitability of our banks which have been restored to pre global financial crisis levels,” he said, “means that any increase over and above the Reserve Bank increase is simply not justified.” Swan has an undoubted political agenda but the management double-speak used by the banks to justify the inflated rises would appear to bear him out.

Thursday, November 11, 2010

Burma buys time with sham election

To nobody’s great surprise, Burmese military rulers had a sweeping victory in last week’s election. With the last democratically elected leader of the country under house arrest for the last eight years and her party forcibly disbanded, few outside the remote capital Naypyidaw had any faith in the election’s validity. The country has been ruled undemocratically since 1962 by a military proxy party under several different names. It annulled the unfavourable result of the one free election it had in the last 48 years. It was little surprise then to hear they picked up 80 percent of the seats this time round. (picture: SOE THAN WIN/AFP/Getty Images)

But it took a while for even this news to seep out. Silent for three days after the election, State Television finally announced on Wednesday top members of the ruling junta, including army joint chief-of-staff Thura Shwe Mann and Prime Minister Thein Sein, were among those who won seats in Parliament.

We only have State Media’s word for what happened as foreign reporters are not allowed in the country. The tightly controlled local media only takes the Government’s side when it is forced to take a side at all. Yet the people of Burma are not stupid and word of mouth ensures everyone knows what is really happening. A brave few like Muang San strapped on a hidden camera as he went to vote. “I’m a journalist,” he said. “It’s my duty to show the world what is happening in Burma.”

The main opposition party led by the imprisoned Aung San Suu Kyi boycotted the election. The Government retaliated by her National League for Democracy party. A breakaway offshoot called the National Democratic Front contested the election against the Government. With no press, no charismatic leader, no scrutiny of the polls and ten times fewer candidates, they were soundly trounced. “The Burmese junta hosted this election in order to whitewash itself internationally," said a banana seller at a market near the biggest city Rangoon.

This overlooks the fact that even this sham of an election has given voters the rare chance to voice their opinions and gain insights into a political culture stunted by an authoritarian government. The Government may struggle to put the genie back in the bottle. But the banana seller’s cynical analysis is mostly spot on.

The very fact an election was held, however irregular, gives the regime kudos and useful bargaining chips in its key relations with other ASEAN countries and China. Due to the repeated criticism of the US and the EU, Burma has become ASEAN’s albatross the association of south east Asian nations has survived due to its policy of turning the other cheek to member excesses but are under enormous pressure to get Burma to conform to international norms. ASEAN countries have offered guarded support for the elections. The real benefit is to give Asean an excuse to ignore further criticisms of the Naypyidaw regime.

The regime itself can also afford to ignore the criticisms. Burma spends at least 40 percent of its national budget on the military compared to 0.4 percent on healthcare and 0.5 percent on education. Its standing army of 500,000 soldiers is the largest in south east Asia. Foreign powers are queuing up to take their money.

In 2009, Burma signed a contract with Russia for the purchase of 20 MiG-29 jet fighters at a cost of nearly US $570 million and many of Burma's future nuclear military purchases may come from fellow rogue state North Korea. China is also a huge contributor as Burma’s third-largest trading partner and provides extensive military, economic and diplomatic support.

While fellow generals across Asia get cosy with the junta tatmadaw, the biggest thorn in their side remains the frail but immensely courageous activist Suu Kyi. The 65-year-old Nobel Peace Prize laureate, democracy activist and daughter of the country’s founder is apparently scheduled to be released Saturday from house arrest. Most observers remain sceptical this will happen as she has been in detention for 15 of the last 21 years despite repeated calls from the international community to release her. A bad sign is today’s decision to reject her appeal against house arrest by the politically motivated Burma’s Supreme Court.

Not all the regime’s enemies are in prison. In the hills, army forces still fight with ethnic groups that don’t want to be a part of Myanmar. Karen separatists are causing havoc on the border with Thailand. Thailand is concerned not because it wants to see a new Karen state, but because unrest at the Mae Sot-Myawaddy crossing is causing economic losses estimated to be in the region of 10 million baht (almost $400,000) this year. The Karen National Union has said it will now join up with five other ethnic rebel groups: the Kachin Independence Army, the Karenni National Progressive Party, the Mon New State Party and the Shan State Army-North.

Burma, for all its half a million strong army, is unable to crush these six ethnic revolt. Neither can the compliant media stop the grumbling on the streets of Rangoon. Like any Government that rules by fear, the Burmese junta philosophy is driven by desperate fear it will be overthrown. It has to prove the election victory is not pyrrhic, otherwise its enemies will strike stronger than ever. But at the very least it buys them more time to plan the counter-attack. The paranoid tragedy that is Burma’s politics still has a few acts to go before the curtain falls.

Wednesday, November 10, 2010

The Social Network and Facebook's foreign policy

A few weeks ago, Internet law writer Tim Wu playfully asked (or his headline writers did) whether “Facebook had a foreign policy?” It’s a reasonable enough question. If Facebook were a national state, it would be the third largest in the world after China and India. Facebook is not anywhere so powerful as a nation yet but its 500 million adherents mostly recognise there is no other tool yet that manages that social network side of life nearly as well.

Wu called Facebook “an integral part of the world's social architecture”. The author of the book Who Controls the Internet understands what makes Facebook interesting: “a mutual agreement to tell others who you are, what you like, and what you are doing.” Not only has this “agreement” attracted mass audiences, it attracted a massive intensity of international and domestic scrutiny which Wu said would give us a sense of the soul of this company more so than any “recent movie” ever could.

Wu was making a powerful point about Facebook but erred badly in his faint praise of the “recent movie”, the acclaimed David Fincher and Aaron Sorkin film “The Social Network”. It deserves better. Director Fincher reins in the violent storytelling ability he showed in Seven and Fight Club while Sorkin brings the intelligence of the West Wing to the script. The result is a brilliant but tight expose of how and why the biggest social network of our generation came into being.

How Facebook became “The Social Network” is indubitably the story of its chief founder Mark Zuckerberg. The 27 year-old New Yorker officially owns just under a quarter of Facebook but his mindshare in the company is a lot closer to one hundred percent. The story of the film is set in the recent past with Zuckerberg facing two law suits from those that feel they lost out while Zuckerberg made billions. “You’re not an asshole, you’re just trying really hard to be one,” one sympathetic female lawyer said in the film, yet whether he was or wasn’t became immaterial to the film's purpose.

Zuckerberg didn’t cooperate with the filmmakers yet right from the electric opening scene, we see a strange hagiography emerging. Zuckerberg harangues a soon-to-be-ex-girlfriend and paints himself as an intensely burning candle with little or no thought to what way his smoke went out. Jesse Eisenberg’s gift is to make audiences awed by his audacity and awareness of opportunity as much as they detest the way he treats people. Sorkin and Fincher are both 20 years older than their main character and it may they are trying to channel their own X-gen faults with women through the Zuckerberg they came up with. His jilting/jilted lover is “Erica Albright” who is made up for dramatic purposes (his real girlfriend is Priscilla Chan) but it isn’t difficult to believe he might be that chimeric with women.

Aided by a deft soundtrack by Trent Reznor, the plot surges along in a manner most would not associate with computer nerds. We see how Zuckerberg and his friends turned a new idea called “the Facebook” (complete with definite article, it is a pre-Internet Ivy League invention to describe a set of photographic data that defined a student) into a success story. As it gets closer to becoming a billion dollar industry, bottom feeders such as Sean Parker (played with Best Supporting Actor Oscar-winning conviction by Justin Timberlake) start to shape Zuckerberg’s vision.

Zuckerberg’s Brazilian friend Eduardo Saverin (Andrew Garfield) provides inspiration in the shape of intellectual honesty as well as a mathematical algorithm and funds to keep the server running. The film is based on the book "The Accidental Billionaires" a semi-fictional account that tells the story primarily from Saverin's point of view. But in the movie Saverin overplays his hand and is ousted by the Machiavellian Parker. The eventual feud forms one of the two dramatised court cases; the other being Zuckerberg’s fight with the Winkelvoss twins (both effortlessly played by Arnie Hammer) who claim they gave him the idea to use the Harvard .edu domain to promote the social network. Zuckerberg tells the “Winkelvi” if it was their idea then they would have done it. The filmmakers’ sympathy is with the nerdy Jew over his upper-class co-religionists.

How much he has won since that battle was shown in a new item this week on the BBC about a fight between Facebook and fellow Internet heavyweight Google. Facebook has offered users a workaround after Google Gmail blocked the export of contact material because Facebook “did not share its data reciprocally”. Mike Davis, a senior analyst with research firm Ovum, told the BBC the stand-off says a lot about the developing rivalry between the two firms. "Facebook is a significant challenge to Google's dominance of the web sphere and it has decided that it doesn't want to give Facebook any more advantage,” he said. "This is Google waking up to the fact that it was the next big thing and that now Facebook is," he said.

Because Facebook’s phenomenal reach shows little sign of slowing, there are those who worry greatly about its power. Criticism to date has focused on data mining, child safety, and the inability to terminate accounts without first manually deleting all the content. But there is a bigger hankering issue which Wu alluded to earlier. In the film Zuckerberg acknowledges Facebook’s phenomenal growth is based on its “cool” value Wu called the “mutual agreement to tell others who you are”. But when Zuckerberg himself is such a cipher, why should we treat the agreement as mutual? Without a foreign policy to guide us, Fincher and Sorkin have done us a favour by asking the question.

Monday, November 01, 2010

MEAA and CPSU: the marriage proposal

The MEAA union revealed to its members in an email last week it would be asking them whether they should merge with a bigger union, the CPSU. Given the MEAA is the journalists’ union, the most remarkable aspect of this proposal there is little in the media about it.

The MEAA is the Media Arts and Entertainment Alliance, itself a merger of older actor and journalist unions. As well as being the peak representative body for journalists, the union gives its name to a journalistic code of ethics its members are bound to, to the point of imprisonment. Journalism has little in common with acting except they are both among the creative industries. Both keep a distinct identity within the shared concern.

The MEAA's new suitor is the Community and Public Sector Union. Like the MEAA it has two halves. The PSU-Group has members in administration, sales, engineering, communications and information technology involved in a wide range of industries including the public sector, telecommunications, call centres, employment services, commercial broadcasting, the aviation industry and science and research. The other half, the State Public Service Federation Group covers members in State government and related employment. The PSU-Group has around 60,000 members. The SPSF Group has around 100,000 members. The CPSU is no stranger to amalgamation having done so five times though none in the last 16 years.

Meanwhile the MEAA, or the “Alliance”, has a tag line of “the people who inform & entertain Australia.” That could describe broadcasters in the CPSU PSU-Group as much as it does journalists and actors in the MEAA. But few of the other parts of the CPSU’s brief have much in common with the creative industries’ approach to the division of labour.

The MEAA said the merger talks were a matter of securing the future of its existence. It is not struggling financially now. it said, but the GFC accelerated long-term industry trends in A/NZ. These included the decline of the newsprint business, loss of free-to-air television advertising and declining government support for performance arts. The union is worried its member base will shrink to the point it will lose its abilities to make a profit and bring all its economies of scale.

Last Monday, the MEAA sent an email to its members saying it was investigating potential marriage proposals. The major acceptance criterion the union had in mind was quality in the partnership. “It did not want to be absorbed,” it said. Beyond that they were looking for unions active in the same industries and covering similar work, solvent, as committed to organising as they were, and “internally functional.”

The MEAA told its members the CPSU were closest to meeting all five criteria. The were also five benefits: the doubling of its entertainment industry workers base, the additional industrial strength, less waste, having wider geographical reach across regional Australia and having “campaign clout”: the ability to punch above their weight.

Senior members of both unions have already laid out much of the groundwork for the wedding but it acknowledges there are sticking points in the dowry much of which relate to power structures. For instance, the MEAA is unsure whether "existing autonomies" will carry over to the combined body and how many seats they will have at council and executive levels. It is also worries about its own set of paid officials.

The MEAA is now calling for a vote of members for approval to continue to work towards an in-principal agreement with the CPSU. It also asks its members to think of other issues not yet considered. It launched a merger debate blog for members to discuss the issue. The early comments suggest there is a lot of opposition to the proposals with a tally of 14 comments to 2 going against the proposal at the time of writing.

Alliance Queensland Secretary, Terry O'Connor said on the blog the merger is “not a done deal” but it is difficult to accept this totally given the emotional investment those already in the talks have in a successful outcome. With 160,000 members in the CPSU and just 22,000 in the MEAA it is also difficult to accept it as a marriage of equals. While O’Connor’s blog has had some engagement and response, it is surprising to see so little questioning of it in the media so far from journalists who are directly affected.