Cash has usurped the throne, but is it the rightful ruler?
Friday, January 9th, 2009
In this editorial, MLC CEO Steve Tucker talks about the dangers of moving investments out of the sharemarket and into cash products:
Late last year it was hard to avoid the media frenzy around the Federal Government’s guarantee on cash products and I observed the commentary with disbelief. The public debate was fixated on which companies would offer government-guaranteed products, which ones would pass on the cost of the guarantee to customers and whether or not customers could get access to the guarantee for free if they split their money among several different accounts.
However, no-one seemed to ask the most important question, which is: beyond bringing Australia into line with actions taken by governments around the world, what value was there for a customer with more than $1 million who would pay an additional 70 basis points for the guarantee on a low-risk, low-return cash product? The Government did not introduce the guarantee because it was worried about the stability or security of Australia’s banking system, which is strong and performing well. Cash products have operated effectively in Australia for decades and there is no reason why this would not continue. Unfortunately, these vital facts were missing from much of the public discussion around this issue, which seemed to be stuck at a product level rather than being focused on whether or not chasing the guarantee made sense.
