O'BRIEN: Kevin Rudd, if there is a recurring phrase on the global financial crisis in the commentary from some of the world's top financial minds, it's ‘uncharted waters'. If there is another, it's that this is the worst situation financially since the Depression. Do you agree that the world financial system is in uncharted waters and facing its biggest challenge since the Depression?
PM: I won't put a time measure on this Kerry but certainly in our discussions with the Treasury and the Reserve Bank and APRA the Australian financial regulator, it's quite clear that we are dealing with something here which we as Australian national economic regulators haven't had to deal with for decades and the core of it of course goes back to bad loans in the United States.
But of course that's been made worse by the fact that those loans have been securitised by a lot of non-transparent financial instruments spread right across the world. And that's now gone on for 12 months and as you have seen it's sort of affected one institution in the United States after another and some in the United Kingdom.
That's why it's going to be tough but our regulators are up to the task and they are performing very well.
O'BRIEN: Certainly there is a commonality in views that this is uncharted waters and if the global financial system is in uncharted waters, how can anyone even the Governor of the Reserve Bank, say with any certainty what the possible impact or likely impact of the global credit crunch is going to be on Australia?
PM: Because the Reserve Bank Governor in making statements as he has done is very mindful of the state of the balance sheets of Australia's banks. He's very mindful of that in relation to what has been the balance sheet on the relevant US institutions and you know something, his advice and that of APRA is the balance sheets are in sound order. They are in good order and for those reasons we should have confidence in what the regulator has to say.
And therefore at times like this it's important to be clear cut about where problems exist, but equally to be balanced about the underlying strength, not just of the economy overall but of these institutions based on an objective analysis of their balance sheets.
O'BRIEN: But if we needed another reminder of our connect, of Australia's financial connect with the rest of the world, the Macquarie Bank which has been Australia's greatest investment bank by far I would have thought, its shares fell by as much as 24% today before they recovered slightly. Nearly 50% in just over a month. I don't expect you to give value judgments on individual companies or share values but it does suggest that this crisis is very much in play in Australia.
PM: Well we've said from day one, right back at the beginning of the year, that we are facing uncertain global economic times because of the global financial crisis. Now the number of times I have reflected on this at the despatch box in question time over the last nine months is probably, I don't think I could count how many times I have done that. But the key thing here is the health of the system, the health of the Australian banking system, the health of the Australian finance system, the state of its balance sheets is good, the state of the regulators is robust.
Most financial regulatory systems around the world look at Australia and ask themselves this question - why don't they have as robust a regulatory arrangement as we do in this country?
For those reasons, both the Governor, the head of APRA and others have made the statements that they have. And therefore we need to be balanced and sensible about our public statements on this.
O'BRIEN: But in castigating Malcolm Turnbull about his comments on what the Governor said, you seem to be just saying at times like this political leaders should sit mute on the Governor's utterance even if they don't entirely agree?
PM: The key thing is we are facing a global financial crisis and therefore if the Governor and not just the Governor but APRA as well, the Australia Prudential Regulatory Authority, has had a look at the balance sheets and based on that objective analysis has made the statements that there is a vast difference between the state of Australian banking institutions and those in the United States and that there is light years between the two, a vast gap between the two, I believe those statements should be respected.
They are not just plucked out of space, they are based on an analysis of the numbers. And my criticism of Mr Turnbull today, and he should know this having been a merchant banker himself, is that when you have a whole lot of uncertainty arising out of the global financial crisis, it's not the time to start making idle observations about whether the Reserve Bank Governor is right or not and I think that was his error today.
O'BRIEN: Do you have full confidence in the Governor and I ask that particularly in the context of former Treasurer Peter Costello's comments about the Governor in his memoirs when he said in relation to Glenn Stephens putting up interest rates just before the last election that and I quote ‘a more experienced Governor would not have felt the same need to prove himself by putting rates up and thereby demonstrating his independence from Government', in other words implying that the Governor still had things to learn at least in November of last year?
PM: Well there you have Mr Costello writing the epistle of truth I presume. I mean others could regard the Costello memoirs as an essay in arrogance which I think is much closer to the truth. Why, because Mr Costello is trying to defend one core proposition - 10 interest rate rises in a row while he was in charge of the economic reins of the country.
Look you either accept the independence of Australia's monetary authorities or you don't and we as a matter of policy have said throughout our time when we were in Opposition, when I was Opposition Leader and since we have come into government including two interest rates rises after we came into government, we respect the independence of the Governor.
O'BRIEN: But in respecting the independence of the Governor, do you also have full confidence in him and his judgments?
PM: As I have said before we have confidence in the institution, we have confidence in the Governor and full confidence in the Governor. And furthermore, to take some politically partisan shot in saying that the Governor might have got it largely right but not completely right in his statement about the robustness of Australia's financial institutions as Mr Turnbull did today, I think is economic irresponsibility writ large when you have got so much at stake in the economy.
O'BRIEN: But Mr Turnbull's comments were pretty innocuous weren't they, particularly in the context of him also expressing confidence in the Australian economy and the Australian banking system. Are you sure that you are not over-reacting in your zeal to land some blows on the new leader's economic credibility?
PM: Kerry, if Mr Howard was Prime Minister now and if I was the Opposition Leader and I came out and partly disputed the accuracy of what the Reserve Bank Governor said about the health of Australia's financial institutions now relative to the United States, what do you think would have happened?
He would have been over me like a rash. You know something - the reason I have said what I have said today is to cause Mr Turnbull to think and reflect about the importance of language, public language, at times like this. And the reason for that is you have got objective problems out there in the global economy to do with the facts I talked about before. But you know there are subjective ones as well which go to confidence and if you have language like that and more generally what we have seen from other comments from the Opposition starting with Mr Hockey earlier this year when he began talking the possibility of a recession, I think that is plain irresponsible when the health of the economy is at stake and the confidence of our financial institutions is at stake.
O'BRIEN: Have you made it your business to reassure yourself that the Government's $40 billion Future Fund is safe in the context of the American crisis, that it has no significant exposure to American financial institutions?
PM: Well what we have done obviously in relation to the developments with Lehmans most recently is ask that very question. And the response that we have got on the question of Lehmans is there is no significant exposure at all by the Future Fund in relation to the collapse of that institution. As the situation unfolds in the United States we will continue to pose those questions both in relation to the Future Fund and of course the Australian Office of Financial Management as well.
This is the right and responsible thing to do. I've got to say the Treasurer and myself and other burn the midnight oil on this and we are on the phone a lot.
O'BRIEN: You and Mr Turnbull are circling each other at the moment like a couple of wary wrestlers if I could put it that way...
PM: I have never seen myself as a wrestler Kerry...
O'BRIEN: I stopped short of saying Sumo wrestler
PM: Well thank you very much I appreciate that..
O'BRIEN: Is it really so wise to be attacking him on the basis of his wealth. If his wealth is an issue, why isn't yours?
PM: Look Kerry I have not said anything in relation to Mr Turnbull's or anyone else's personal wealth and can I say...
O'BRIEN: Yes but those around you have including your deputy leader.
PM: Can I say there is always going to be a general sort of to and fro in the political conversation, there was last year and there has been this year but can I say to you as the Prime Minister...
O”BRIEN: Sorry before you go any further, Mr Rudd, are you saying that you have no part, no role, no contribution to the strategy discussions behind the scenes about what tactics to address to Mr Turnbull in his first week as leader, that this is some kind of random criticism coming from your associates but not from yourself?
PM: The fact that I have said nothing about this Kerry reflects my absolute view that a person's individual wealth has got nothing to do with their suitability for office. What is relevant here is the content of their policy.
And therefore my critique of Mr Turnbull goes to the essence of his economic leadership and the fact that he has simply given the tick to the irresponsible budget strategy adopted by his predecessor which is to block $6 billion worth of revenue measures for us in the Senate.
O'BRIEN: Then can I assume from that, that you will be asking your subordinate Ministers to cease their attacks on his personal wealth?
PM: As I have said before Kerry, my view and absolute view has been all along that a person's individual wealth has got nothing to do with their fitness for office. What does have relevance to their fitness for office is as I think the Finance Minister said in Parliament yesterday, not where they have come from but what they represent.
What they represent on WorkChoices, what they represent on whether we should be buying back water entitlements from the Murray Darling System, what they represent in terms of the importance of fighting the fight against inflation and what they represent about the seriousness of interest rates changes and the impact of interest rate rises on working families.
Remember Mr Turnbull said not long ago that a 25 basis point rise in interest rates was not really anything to get excited about. Well I think people in western Sydney would have a different view. It's the content of policy which takes my attention, not Mr Turnbull's background at all.
O'BRIEN: The Opposition has now set its sights on your penchant for overseas travel, pointing out that you will have been overseas for 50 days out of 300. Is this next trip really necessary in the context of what is going in Australia?
PM: Well the first thing to be said Kerry is that in March when I was there I had an opportunity to speak with the Chairman of the Federal Reserve Board Mr Bernanke, the Secretary of the Treasury, on top of that the Chairman of the SEC Mr Cox as well as the Deputy Secretary of the Treasury as well, as well as the President of the World Bank and the head of the IMF.
And the reason I did that in March was because I had a deep sense then that these relationships were going to be critical as the year unfolded. I have been on the phone and had other meetings with a number of these individuals since then and it's very important that those discussions be renewed and there are concrete practical reasons for it. And that is in terms of the future health of various US domestic financial institutions and their global impact, we in this country need to know what's happening. We need to make preparations when that's necessary.
And the other thing is this: in going to New York the other objective I have got is on climate change. We need a global outcome on climate change and this provides an opportunity with 130 leaders from around the world in the city at one time to work with them on what we can get as a decent outcome for Copenhagen.
They are practical things and by the way on the numbers of days you talk about, Mr Howard in recent years was travelling 60 days, 63 days, 64 days, 65 days. This year I have travelled..
O'BRIEN:Not in his first year..
PM: ..40-43 days. But you know something? It is necessary in an age of complete global interdependence - whether it's on security, whether it's on climate change, or could I say the state of the global economy - to be in a position where you can pick up the phone and deal with people and/or meet with them because the challenges are really hard.
And relationships in all that as I have discovered in recent days on this global financial crisis has really been very important.
O'BRIEN: Kevin Rudd we are out of time, thanks for talking with us.
PM: Good to be with you.