Reviewed by Norrie Sanders
The People vs The Banks is a compelling tale of the events leading to Australia’s royal commission on misconduct in financial services – the first in eighty years. The action takes place in recent years, with emphasis on the commission’s activities from December 2017 to February 2019. Michael Roddan demonstrates how close we came to not having a commission at all. A series of financial, legal and political events over several years eventually prevailed over reluctant governments and recalcitrant banks.
Each chapter brings new depths of depravity as one by one, whole sectors of the industry are dismembered. “The life insurance industry was used to raking in big coin, but it wasn’t used to spending that money on customers or reinvesting in its own businesses. The inability to prudently manage their own operations would put life insurers into a potential death spiral”.
For those who took a day-to-day interest as the rackets unravelled – there was a plethora of information. The institutions were destined to be seen as a public enemy, but the depth and breadth of the schemes and scams were extraordinary. At the time, it was hard to keep track of who were real baddies and those who were just baddies; let alone understand the cultural viruses that infected our once esteemed and trusted money managers. Not to mention the government regulators, who clearly were not up to the task.
What this book does – and does well – is to pull together all of the threads and make sense of them in both a contemporary and historical context. A reader might wonder if the offenders really understood what was coming after them. This is a tome that begs to be put down – yes, put down – because each page is packed with facts and quotes that have the reader reeling with the complexity and audacity of it all. One needs time to cool down and reflect on the implications of these hundreds of revelations. We might even need more time still to fully comprehend their complete make-up.
It is evident that Michael Roddan has expertise in these matters and presents a very complex assessment of a very complicated situation in words that most laypeople would understand. Revealed was a money-making machine, greased and oiled by weak governments, influenced by shameless lobbying, rampant liquidators and emasculated regulators. Customers and the general public were largely trusting – or at least unaware. Even those customers who had experienced the worst were largely powerless to fight.
One heinous practice that the Commission uncovered was the generous loans offered to farmers, based on inflated property valuations. Some were given “such a good deal” that they could hardly refuse (shades of The Godfather?). Soon after, the banks would reduce the valuation and demand repayment or loss of the farm: “Bankers were moving from farm to farm like locusts, stripping them of all they could, just to earn bonuses.”
Astute and colourful commentary enriches the content. In contrasting the industry superannuation fund evidence with that offered by the banks, the author says:
“Much of the time, the bankers could barely be trusted with their responses. It didn’t seem like they believed the answers they were giving, either. Not only did the industry fund executives say what they believed, but you got the idea they also believed what they said.”
This particular analysis is welcome because it goes to the heart of political power – the industry funds have a union/Labor connection and the retail have a big banking/Coalition connection. We are even privy to a Government Minister’s attempt to influence Michael Roddan’s media commentary to denigrate industry funds while ignoring transgressions of the banks.
He also observes the curious inverse relationship between bank performance and executive remuneration:
“Over the period of [CEO] Smith’s reign, ANZ’s share price fell 6 per cent. Over the last five years of his leadership, it was the worst performing of the major banks on the local share market. Still, he became the highest paid major banking executive in Australian history. Over his eight years at ANZ, he took home close to $100 million. As a banker, even if you lost, you still won.”
The author warns that a telling point which can often be lost is that much of the activity undertaken by banks was useless:
“With rivers of gold flowing into company coffers, banks employed an unusually large number of workers to engage in increasingly obscure and unnecessary work.”
The credibility and power of this book lie in its insightful distillation of the commission’s factual analysis and its political objectivity. The final chapter is the only disappointment. It includes an odd apologia for the role played by an ineffectual Government Minister and singular praise for one of her backbencher colleagues. There is also speculation about dark futures for industry funds. Not unreasonable perhaps, but a curious departure from the unprejudiced account of the commission.
Schadenfreude can be entertaining, but it is usually short-lived. It was difficult to avoid delight when dissembling bank executives were roasted by Commissioner Hayne and his legal team. With the ink still barely dry on the report, eighteen senior executives have already been vaporised. Yet somehow, there is already a sense that not only will banks continue to thrive, but that the creative minds and bean counters will quickly roll out new schemes to enrich the executives and shareholders at the expense of the long suffering customers.
The People vs the Banks is a must read for anyone in this country who deals with money – and isn’t that most of us? At once appalling and fascinating, it is a cracker of a book. The final word belongs to Michael Roddan:
…”the royal commission showed the financial industry for what it was. ….It was a bubble inflated by useless fees, harmful kickbacks and commissions, and sustained by a lobbying network that at every point tried to keep the grift going.”
Michael Roddan is a journalist with The Australian. He worked at Business Spectator and has written
about economics, policy and politics, regulation, banking, insurance, superannuation
and financial services.
By Michael Roddan
Melbourne University Press