Thread by @beneltham

Some thoughts about Kenneth Hayne's final report of the Banking Royal Commission. It's a fair harsher and more critical report than many in the media have initially judged.

At the heart of Hayne's critique is a merciless critique of financial market failure in Australia.

Hayne makes stark factual claims about the nature of misconduct in Australian finance. Together they add up to a stinging indictment of the way Australia's economy has failed ordinary citizens and consumers.

Firstly, the misconduct was driven by greed. Hayne observed rampant profiteering and gouging; "sales became all important."

The sales culture has pretty much infected the entire Australian financial system, driven not just by institutional profit motive but by individual commissions and the rapacious perversion of advice into sales: "Advisers became sellers and sellers became advisers."

I think what's interesting Hayne's analysis is that he argues that it's not just unrestrained profit maximisation to blame. There are also overriding perverse incentives operating at the level of both the individual and the firm.

These perverse incentives rewarded misconduct; breaking the law was treated as a cost of business. "Rewards
have been paid regardless of whether the person rewarded should have
done what they did."

Second, Australian banks were able to build a system of unlawful profiteering because of their overweening market power. Echoing Thucidydes, Hayne writes that "entities and individuals acted in the ways they did because they could."

Financial firms could do this because they've rigged the market in their favour. Consumers have little power, and the information asymmetry is massive. "There was a marked imbalance of power and knowledge between those providing the product or service and those acquiring it."

The power imbalance is something that was on graphic display at the Commission, with the scarifying accounts of internal meetings at financial firms, where managers calmly decided to charge fees to dead people.

Third, Hayne observes that middlemen and intermediaries are systematically working to fleece their clients, or should we say their marks. The problem is that many advisers are double-agents, working for the bank, not the customer.

"The interests of client, intermediary and provider of a product or service are
not only different, they are opposed."

The essential conflict of interest inherent for intermediaries like mortgage brokers is one aspect of Hayne's critique, which is why he wants essentially get rid of that conflict altogether.

Fourthly, the regulators failed. "Financial services entities that broke the law were
not properly held to account." Misconduct was 'punished' with risible fines or even, in a pointed dig at ASIC, by media release.

Hayne writes that "the community also expects that financial services entities that break the law will be held to account."

Taken together, these points amount to a swingeing critique of Australian consumer finance, and indeed of Australia's compliant regulatory regime. They also amount to a critique of capitalism itself, though few in the media seem to have been prepared to admit that.

A related and devastating point is that Hayne feels it necessary to set down as his first "general rule of conduct" that "the law must be applied and its application enforced."

Imagine having to write that one down, after 50 years in the law culminating on the High Court bench. "Guys, please enforce the law."

In other words, of course, Hayne points out that the enforcement of financial justice has been entirely perverted by prevailing philosophies of light touch regulation ...

After all, as Hayne points out, ASIC could have taken stronger action if it had wanted to. It had plenty of powers. But it didn't want to.

You might as well recall Marx and Engel's famous dictum that "the executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie."

@beneltham final thoughts on this: Hayne’s conservatism means his recommendations really can’t address the illness - which is capitalism