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Thursday, 16 October 2008

Global crisis 'failure of extreme capitalism': Australian PM

The global economic crisis is a result of the "comprehensive failure of extreme capitalism," Australian Prime Minister Kevin Rudd said Wednesday as he took aim at bulging executive pay packets.
The centre-left Labor Party leader named greed and fear as the "twin evils" at the root of the financial sector collapse, which began in the United States and swept the world.
"What we have seen is the comprehensive failure of extreme capitalism -- extreme capitalism which now turns to government to prevent systemic failure," Rudd told the National Press Club in Canberra.
Governments around the industrialised world have pumped billions of dollars into their financial sectors to bail out institutions, leading to charges that capitalism privatises profits but socialises losses.
Rudd, who on Tuesday announced a 10.4 billion dollar (7.25 billion US) economic stimulus package designed to shield the vulnerable and boost economic activity, said fear was the first of the demons to be dealt with.
"Dealing with the greed which has caused the fear will come after that," he said, pointing to executive pay that rewarded short-term returns and excessive risk-taking.
"Obscene failures in corporate governance which rewarded greed without any regard to the integrity of the financial system" were one of the factors behind the collapse, Rudd said.
Governments should act so that greed and lax regulation were never allowed to put the world in the same position again, he said, adding that Australia would press for this at a meeting of the G20 group of 20 rich and emerging nations next month.
Rudd said Australia would push for new global rules that banned excessive pay for finance industry executives and linked bank capital requirements and good corporate behaviour to executive salaries.
Global financial institutions need to have clear incentives to promote responsible behaviour rather than unrestrained greed, he said, calling on the Basel II accord on banks' capital adequacy to incorporate such requirements.
"Specifically... regulators should set higher capital requirements for financial firms with executive remuneration packages that reward short-term returns or excessive risk-taking."
Rudd said his government would work with the Australian Prudential Regulatory Authority (APRA) to bring fat-cat pay packets under control.
"This is not just a question of fairness and perceived fairness in the system, it goes actually to the kernel of the incentive structures around risk-taking," he said.
Canberra and the APRA will consider new policies that would "deal with the problem of executive remuneration" in financial institutions.
Rudd reiterated what has become his government's mantra amid the crisis -- Australia will not escape unscathed but its financial institutions are sound and the country is better placed than many to weather the storm.
One reason was that while countries such as China and India would be affected, emerging economies remained strong.
"Asia is the fastest-growing part of the global economy, by a long shot," he said. "Further, Chinese leaders have indicated a willingness to lower interest rates to stimulate their domestic economy -- an important signal for the global economy.
"Right now the world needs China's economic strength at a time when growth is under threat."
China's demand for raw materials to fuel its rapid growth has been the main driving force behind Australia's own economic boom over the past decade. (AFP)

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