It’s ‘The City’ and Wall Street, Stupid!


Ten years on, let’s revisit what went wrong in world economies in 2008.

A lack of confidence in the UK’s Northernrock Bank caused a run on the bank. It had irresolvable mortgage issues, and was nationalized in February 2008. (It has since become Virgin Money). Other banks were carefully managed because they were ‘too big to fail’. Too big to fail? Really? They may make fabulous profits at the public’s expense in the good times but, when the good times end, the public must bail them out? Is this not this sort of ‘win-win’ the very definition of ‘moral hazard’?

The outlier in the US was Bear Stearns, which collapsed under its ‘collateralized debt obligations’. After having won awards for its great service, and having traded at $172 a share, it was finally taken over by JP Morgan Chase for $10 per share in May 2008. Lehman Brothers then failed in September 2008. Mortgage backed securities were similarly at issue with Lehmans.

These and other financial collapses spawned banking mortgage bailouts and takeovers around the world:-

Of course, the failures were related to a period of rapidly-escalating land prices which came to an end, leaving excessive mortgages exposed to a deflated, more moderate, land market.

Has anything changed since 2008 to stop these events occurring again? Have not China, Canada and Australia built up towards Northernrock/Lehman Brothers-like calamities?

Flagrantly ignoring sound warnings from Adam Smith, David Ricardo, John Stuart Mill, Henry George and, more recently, Joseph Stiglitz regarding the socio-economic ills emanating from privatized land rent, tolerant tax regimes continue to encourage the banking industry to generate these inflated land price bubbles and accept them as ‘security’ for mortgages. By definition, bubbles burst.

It’s ‘The City’ and Wall Street, Stupid!  


The day when Australia acknowledges the need to tax away economic rents/unearned incomes (including spectrum rents) – instead of wages and wealth-creating profits?


We don’t have to look further than Adam Smith, JS Mill and Henry George to know that the increasing extent of privatised land rent comes at great cost to wages and profits. This letter in the Australian Financial Review today makes the point. Is it ignorance or complicity with the 0.1% that silences the modern economist on this point?

Neutralise the unfair privileges of land tenure arrangements

Jennifer Hewitt (“Pay rises for all is the mantra of the moment”, January 18) correctly stresses the importance of productivity improvements as a necessary foundation for wage increases. But it seems that the harder the workers row and the more water they bail from our economic lifeboat, the bigger grows the hole in the hull. Despite labour productivity steadily increasing in recent years, wage growth has stagnated. Meanwhile, if we look at land prices, it appears that the economy is booming. ABS figures reveal that in the past decade total Australian land values have approximately doubled (to be now worth nearly $6 trillion) and last year alone they grew by around 13 per cent ($660 billion).

An increasingly large proportion of ballooning corporate profits is attributable merely to the capitalisation of rising land values. These gains accrue without effort by landowners (even while they sleep) at the expense both of the rightful wages of labour and fair returns on productive investment. One-dimensional proposals to cut company tax for big business would only exacerbate this disjunction between effort and reward. To boost overall economic efficiency and to free the market to facilitate fair rewards for producers, we must neutralise the unfair privileges that pervade our land tenure arrangements. This can be achieved by removing all taxes from labour and its products and instead relying upon community-generated land values for public revenue.

Ronald E. Johnson
Charnwood, ACT