With Rohan Pitchford.
Following the collapse of Lehman Brothers in 2008, the Australian government may have quietly bailed out an investment bank or two. It did so by transferring bank risk to itself. For example, in early 2009 Macquarie Bank was allowed to sell US dollar denominated commercial bonds that are guaranteed by the Australian government. This helped MacBank avoid the massive US credit crunch, gave it favourable Libor rates and, in fact, one cannot be sure if MacBank or any Australian bank could have had access to commercial loans in the US and Europe in the first half of 2009 without a government guarantee. Essentially, the Australian government transferred an asset, its own ability to repay loans, to banks in a non-transparent way, and perhaps—given the immediate risk to the financial sector at the time—for free.
Turning to 2014, there is no doubt that investment banks would be very interested in managing HECS debt, after all there is a lot of money to be made when governments transfer their ability to guarantee repayments. We are not entirely against the idea of moving the management of HECS debt to the private sector but should this be on the cards such a transfer ought to fairly value the government’s special powers to tax citizens.