In January 2008, The American Dialect Society named ‘subprime' the most interesting new word of the year (see ADS Press Release, 4 Jan 2008). They deemed this to be the word that had best caught the public mood in 2007, the one that most people could relate to or had experience with. 

This is a worrisome thought as ‘subprime' is the word that is increasingly becoming synonymous with the financial distress being felt as the Global Financial Crisis (GFC) continues to destroy wealth across the world.

So what makes the ‘GFC' different from other financial crisis we have experienced in the past? 

The answer lies in its source. In the recession of 1991, we saw the collapse of large corporate entities such as Quintex, Bond Corp and Westmex. While the collapse of these no doubt had a major ripple effect on the economy, it's like the difference between throwing a stone in a pond or throwing a giant boulder.  The boulder is always going to make more waves. 

This time round it's not the satellites that have been falling out of the sky, it's the mother ships. The mother ships being the banks that keep the blood flowing through the system.  When we saw the collapse of the subprime lenders, and then the mortgage insurers, and then US mortgage lenders, Fannie Mae and Freddie Mac, we saw the mother ships start to come down, and this of course meant that the waves of distress were going to spread across the global financial community.

There is no doubt that, economically, Australia is in a better position than most other countries.  This is for two key reasons. 

Firstly, our financial services regulation is amongst the best in the world - if not the best.  It is regulation that we, the Coalition under the Howard Government, thought very carefully about and which, in effect, ensured that Australia could not go down the path of the US in offering credit to people who could not afford to repay it.  With the creation of APRA and ASIC and the separation of the three regulators into individual regulators - the central bank, the prudential regulator and the corporate regulator - what you effectively get is three separate entities who can focus on the challenges that directly affect their stakeholders, instead of trying to conquer battles on all fronts.

The second reason is that we have a budget in surplus and the Australian Government has no debt.  This is a legacy of eleven years of good economic management under John Howard and Peter Costello and has undoubtedly left us in better stead than most comparable nations.

However, in saying that I believe that it is important we recognise that this is going to be a very challenging time.  In fact, I'm going to be quite frank and say that these could possibly be the most challenging times Australians have ever faced.  Despite the series of cuts by the Reserve Bank to the official interest rate, credit card rates remain at an average of 19.75 per cent.  If you consider on average, every Australian has $3136 worth of credit card debt, this is a worrisome statistic.

Last week I called on the Government to put pressure on the banks to drop these ludicrious rates and so far we are yet to see the Government take any initiative on the matter. We will continue to raise this issue until action is taken.

The greatest fear I have is that the Rudd Government just isn't up to making the right economic decisions at the right time to get us through unscathed.

They have already shown a remarkable ability to make rash and incorrect decisions - such as the blunder over the 100% deposit guarantee, or their failure to recognise the importance of legislating the whole funding guarantee.  The effect of these policy blunders has been increased distortions in markets resulting in financial hardship and distress for thousands of Australian investors. 

The government has many tough decisions to take in the months ahead and we hope that they will consider the implications and impacts more carefully than their "Hollowmen" record would suggest.

The Hon. Joe Hockey MP is the Federal Member for North Sydney, Shadow Minister for Finance, Competition Policy and Deregulation and Manager of Opposition Business in the House of Representatives. Joe was elected to represent the seat of North Sydney at the 1996 Federal Election. Three years later he was appointed a Minister, initially for Financial Services and Regulation. In the following nine years his portfolios included Tourism and Small Business, Human Services, and in Cabinet as Minster for Employment and Workplace Relations. Before entering politics, Joe worked as a banking and financial lawyer with a major Australian law firm and was the Director of Public Policy to former NSW Premier John Fahey. Joe studied law at the University of Sydney, was elected President of the Students' Representative Council in 1986, and is a former State President of the NSW Young Liberals.

www.joehockey.com