The price paid by Rudd personally - and taxpayers

Comments on Christopher Joye “How Rudd's bad advice won Gillard power”, 24/06/2010, http://www.businessspectator.com.au/bs.nsf/Article/Rudd-refused-the-best-advice-pd20100624-6PUZL?OpenDocument&src=sph
This rare and useful information provides excellent insights into the pitfalls of decision makings at the top of the national government.

Of course, we can only see how the PMO advisors operated. Some other interesting of the picture would be how Treasury and the Treasurer operated in such an environment.

Ultimately, it was the combination of them, and possibly some other handful people involved in the process.

This is the price Rudd paid, but ultimately the taxpayers have paid for low transparency and mal-management by the government.

PS: I find the information is extremely insightful. In case that the reference would not be available for any reasons in the future, here is a copy of the article:

So Australia has its first female prime minister.

In the inevitable wave of post-mortems written about Kevin Rudd’s prime ministership there will be much made of his political mis-steps.
The absence of a historical constituency of factional support. The school-boy errors committed by his chief of staff, which disenfranchised key powerbrokers when he sought to count numbers on the PM’s behalf – a job typically left to MPs – and then leaked this fact to the media.
Here the lay observer might be confused. Yet to the initiated, Alister Jordan’s actions were insulting to Julia Gillard and her backers, since they insinuated that she’d been seeking to undermine the PM when, in practice, Gillard had been relentless in offering support. In the words of one kingmaker, this was the straw that broke the camel’s back.
Then there was, of course, Rudd’s unilateral decision-making processes, which in the early days of his administration were lauded by the commentariat as commendable reform to the archaic and undemocratic caucus system. In this context, the deliberate centralisation of authority within the closed-circle that was Ruddland was most clearly displayed by Kevin07’s determination to eviscerate caucus’ right to appoint cabinet ministers.
We will doubtlessly hear much talk of the ruthless retribution wrought by the serpentine unions that control caucus, and whose incredibly well-funded campaign against the coalition’s WorkChoices policy were essential ingredients to Rudd’s success at the last election.
Watching the slaying of a Prime Minister on Sky News and in real-time via twitter and text offered political tragics visceral satisfaction rarely experienced since the days of Ancient Rome’s coliseums. The advent of a world enmeshed by the internet has yielded us a new form of gladiatorial bloodsport, which, once shielded by elites behind closed doors, now plays out blow-by-blow in our living rooms.
While there will be many putative victors in this battle, perhaps the most intriguing is the charismatic hitman Paul Howes of the AWU, who in his late twenties is shaping up as the country’s most influential and politically capable union official and an heir to Bob Hawke.
But when all is said and done, the commentariat’s conclusions will miss the point. They will be consumed by the superficial symptoms of Kevin Rudd’s problems, rather than their underlying cause. This was not really about politics. The PM’s political errors were merely visible manifestations of a far deeper and more significant malaise.
At the end of the day, Rudd’s downfall was about leadership in the conventional managerial sense that the owners of small businesses and chief executives understand. And it was about the exceptionally poor preparation professional politics affords one prior to tackling the single most challenging leadership exercise of them all.
The early indication of Rudd’s date with a one-term destiny was his inability to recognise his own shortcomings. In any normal circumstances, the CEO of a major company who lacked experience relevant to his task would promptly compensate for this deficiency by surrounding himself with advisors that possessed the requisite skills. Take James Packer’s decision following his father’s death to immediately establish a council of the most weathered and hard-headed minds in the business. This talent was critical to helping him transition away from the family’s traditional media investments at the best possible point in the cycle.
By way of revealing contrast, Kevin Rudd constructed a benign dictatorship on the back of three influential twenty-somethings with virtually no experience at all. That is to say, his principal political, media and economic advisors had never held down day-jobs in the real world for any meaningful length of time. And how could they have been expected to do so? While brimming with talent, these guys had only been out of university for a handful of years.
Rudd’s decision to surround himself with youngsters who acted as echo chambers of his own opinions was a mistake of both stunning and catastrophic proportions. Having been out of government for a similar period time, his predecessor’s office, which was guided by veterans such as Grahame Morris, Arthur Sinodinos, and Tony Nutt, with decades worth of germane know-how, makes for an awkward comparison.
The composition of Rudd’s office was the most transparent signal that he had no idea what he was doing. If he was indeed a proven managerial maestro, he could have got away with it. (Some argue that Bob Hawke did.) Yet Rudd was none of these things.
Jejune hubris resulted in both Rudd and his advisors attributing their seamless success at the 2007 election to unique political skills, which appeared in no need of support, when, in fact, their ascendancy had more to do with an electorate fatigued with an ageing, multi-term prime minister, and the myopia born from having been inculcated from economic adversity for 18 years.
I was personally exposed to, and could empathise with, Ruddland’s naiveté. After years at Goldman Sachs, the Reserve Bank of Australia, and Sydney and Cambridge Universities, I felt like I could take on the world. I thought that there was really not much more I needed to learn. And it was with this mentality that I decided to start an awesomely ambitious business. Over the ensuing years I would learn that no matter how smart you are, there is simply no substitute for hard won, life experience. Rudd and his advisors will reluctantly arrive at the same conclusion when they reflect on what went wrong.
For better or worse, I also got to see first-hand the writing on the wall. One of Rudd’s consigliere would occasionally call me for economic advice. And these exchanges would reveal the raw inexperience that was driving the country. In the middle of the GFC I fielded a call asking me what the ‘commercial paper’ (CP) market was. Rudd’s office had been accused by the deputy governor of the RBA of inadvertently ‘killing the CP market’ with the government’s bank guarantees. What does all this mean, I was asked.
The commercial paper market provides the short-term funding needs for very highly rated corporations. By offering to lend the Commonwealth’s AAA-rating to banks and building societies with far lesser credit ratings, the government had unwittingly destroyed demand, or liquidity, for debt securities in more highly rated sectors that did not have the benefit of this taxpayer support. This included AAA-rated residential and commercial mortgage-backed securities, mortgage trusts, and highly-rated commercial paper that large companies relied on. I obliged with an explanation while at the same time wondering why I was having to supply one.
Then there was Rudd Bank. Australians were greeted with the surprising news that Rudd had decided to commit $2 billion of taxpayer cash, and nearly $30 billion worth of taxpayer guarantees, to bailing out small commercial property investors on the unstated basis that these assets posed a threat to the major bank’s balance-sheets.
So I asked Rudd’s advisor what their assessment of the risks had been prior to launching this unprecedented and expensive initiative. In particular, I asked what they thought the banks’ loan-to-value ratios (LVRs) were to the commercial property assets in question.
Westpac and ANZ had already had near-death experiences with commercial property in the early 1990s. Since that time all the majors had scaled back their exposures and adopted much more conservative lending practices.
My own intelligence suggested that the vast bulk of the loans were written with low LVRs of 50 per cent of less. This meant that the assets would have to suffer extraordinary hair-cuts in value before the banks were genuinely threatened.
Anyways, the response I received was worrying. The short answer was that the PM’s office did not know. Stunned, I enquired as to how they could possibly have made the decision to commit billions of dollars taxpayer funds without first having this information. After all, it existed—it was just a matter of getting it from the banks.
We cannot make head or tail of APRA’s data, I was told. But mate, you are providing hundreds of billions of dollars worth of taxpayer guarantees to these institutions. Surely you have asked for this directly from them? Nope. We primarily just meet with the chairmen and CEOs.
Shocked, I said, That’s a bit disturbing. The PM’s office should be getting fortnightly or monthly feeds directly from these institutions on all their key operating and risk metrics so long as the insurance is in place.
Backtracking, I was asked whether I could prepare a ‘data request form’ that they could then send to the banks. I naturally obliged and was subsequently told by senior regulators that the PM’s office had implemented the new regime.
The problem for Rudd and his advisors was they did not know what they did not know. The professional inexperience meant that they were being plagued by Rumsfeld’s ‘unknown unknowns’. But this is not the way it had to be. Rudd could have humbly taken the counsel of vastly more learned operators. That he chose not to is precisely why he is no longer Prime Minister today.
The temporary abandonment of the ETS was not the final nail in Rudd’s coffin. It was a politically expedient decision that most thoughtful folks agreed with. Rudd’s ute-gate was the RSPT. The irony of this is that the principle underlying the RSPT had near-universal support from academic and professional experts. The theory was sound. It was once again the ‘execution’, which is the most visible evidence of leadership, that was fatally flawed.
In an election year, Rudd ended up isolating vital nodes of support from the leader of the nation’s sovereign wealth fund, to directors of the central bank, the financially influential resources industry, and even his principal private sector advisor, Rod Eddington.
Perhaps the most unprecedented and withering criticism came from Australia’s most respected macroeconomist and Reserve Bank board member, Professor Warwick McKibbin. Yesterday he laid Rudd’s headstone:
“I also disagreed with the scale of the stimulus package, and I would say I was right... It wasn't evidence-based policy, they panicked…
The government rammed those decisions through the economy even though they were fraught with risk. No-one was consulted about an alternative view and if you did say anything you were attacked by the Treasurer and the Prime Minister in public...
The stimulus created a problem. The government overspent...so they come up with a really badly designed resource tax to try and get the position to look good three years from now, and in the middle of a sovereign risk crisis exposed the economy to a reassessment of sovereign risk...
I am stunned that the Treasury keeps supporting the government. The review of the tax system should have been independent of the Treasury and then critiqued by it and other economic agencies...
The government has ceased to use the Productivity Commission for sensitive questions. It should have been critiquing the National Broadband Network which is a gigantic white elephant waiting to happen.”