The Killing Season Uncut (7 page)

Henry told the Prime Minister and Treasurer that the worst-case scenario would mean a deep recession.

Three weeks after that flight, US Treasury secretary Henry ‘Hank' Paulson steered through the last-minute deal that saved American investment bank Bear Sterns from collapse. In the wake of the bailout, Rudd met with Paulson in Washington. Even as the crisis continued to cascade through the US financial system, Rudd made an impression.

Kevin really stood out to me. He was quite a remarkable guy … this was the Prime Minister of Australia, [a] long ways away, coming into my office and wanting to have a serious discussion about what was going on, and he understood not just the politics, he understood the economics.

After filming Rudd in Boston, we flew to Chicago to interview Paulson. The interview was important for the series because by 2014, an objective view of Rudd was hard to find.

Paulson cuts an impressive figure: a star footballer in college, his athleticism is still evident. He is also atypical for a former
CEO of one of the biggest US investment banks, Goldman Sachs. He has an interest in animal conservation, he's an ascetic among the multimillionaires of Wall Street, and he's a Republican somewhat in the mould of Nelson Rockefeller. Having spent his career in commercial banking, he had been reluctant to accept a position in government.

When we arrived for our interview, the skyscraper housing Paulson's office was bathed in gold in the early morning sun. It towers over a bend in the Chicago River in the city's business district, rising from a cluster of Art-Deco and modern architectural masterpieces. You can feel the wealth of Chicago's extraordinary nineteenth- and twentieth-century mercantile booms. It's hard to imagine that in 2008, the financial system in the US was on the brink of disaster.

On Monday 15 September, Lehman Brothers filed for bankruptcy after attempts to find a buyer failed. The firm had 25 000 employees. That morning, the world watched images of them leaving their offices carrying boxes containing their possessions.

Treasurer Wayne Swan remembered the moment.

Fifteenth of September, Lehman Brothers goes over and basically the global economy is on the precipice. It's on the edge of a cliff. The financial system is splitting apart at the seams, funding for financial institutions is drying up, markets are volatile and all over the place, and it's doom and gloom.

The Prime Minister's press secretary, Lachlan Harris, accompanied Rudd on his trips to the US.

Travelling to Washington, DC with Kevin Rudd as Prime Minister is the worst slash best thing you'll ever do in your entire life basically. Forget about breakfast meetings. There's meetings before the meeting before the breakfast meeting, and it goes on and on and on. It was like a meeting Tourette syndrome in DC. Henry Kissinger would be coming over to
have tea before you had the meeting before breakfast, which was with Madeleine Albright. I mean this was a man who had a little black book and really wanted to use it. It was [a] UN nerd's Tinder going off like you've never seen before.

Harris thought Lehman was a turning point for Rudd as well as the government.

All of a sudden you could feel that even the journalists themselves were looking for explanation and leadership. It was a very different tone from that moment forward. You had a different set of challenges. You had a different Kevin … Howard was in Washington for September 11 and it was the making of Howard in some ways, and absolutely no doubt it was the making of Rudd to be there in Washington in the days following the collapse of Lehman Brothers.

Ken Henry said Rudd was perfectly placed to handle the ensuing crisis.

I think it is extremely likely that he was better prepared for any of this stuff than any political leader anywhere else in the world.

Kevin Rudd travelled extensively during the crisis phase of the global financial meltdown. Julia Gillard was Acting Prime Minister. David Epstein noted how quickly she took to the role.

She, and more particularly her staff at the time, were very ambitious. We used to have a game of cricket sometimes in the prime ministerial courtyard. That was cleared out so a photo opportunity could occur with Julia Gillard within about an hour of her arriving in the office as Acting Prime Minister. You probably can't blame her. She's an ambitious person who wanted to be Prime Minister. That ambition didn't sit very far below the surface, even in the early days of the government.

According to Communications Minister Stephen Conroy, Gillard was more efficient than Rudd when she deputised for him.

The running joke inside the Cabinet is we'd all wait for Kevin to go overseas. You never bothered putting something you needed prime ministerial sign-off for into the PM's office until you knew Julia was going to be in the chair. Now, responsibilities are different. Julia was filling in; she wasn't engaged in the day-to-day stuff because Kevin was still the Prime Minister and, in terms of the politics, whatever was taking him overseas. But his office was famous for being just a black hole.

 

Having arrived in New York for a session of the UN General Assembly, Rudd joined an impromptu gathering of world leaders at the Waldorf Astoria Hotel, sometime around midnight. The Waldorf Astoria allowed our cameras in, but we didn't know which room to film in. None of those present who we spoke to could agree exactly where the meeting had taken place, and in UK Prime Minister Gordon Brown's account the meeting took place somewhere else altogether (either his memory was faulty or Brown didn't want his Labor followers to know that global policy is sometimes determined in very swanky hotels).

Economic adviser Andrew Charlton went into the meeting with Rudd.

I thought there was another staffer in the room until he spoke in Spanish and I realised he was the Prime Minister of Spain.

Gordon Brown said he and Rudd shared the view that existing global institutions couldn't handle the developing uncertainty.

The G20 became absolutely critical because the Western powers plus Japan, the original G7, could not solve the crisis on their
own … starting in September it was an extraordinary set of events that unfolded. I think Kevin [would be] in the same position as me in that he would wake up in the morning talking to a leader in one country, and go to bed at night after talking to leaders in another country. You had to use the different time zones so that you could talk successively to a series of leaders around the world, and I know Kevin was doing that night and day.

Hank Paulson also backed Rudd's call on the G20.

We were reviewing the G20 and I told him I thought history would remember him kindly, that he was taking the right stance there.

History may be kind but contemporary Australian politics are not. At home there was limited acknowledgement of Rudd's efforts in ensuring Australia's place in the international response to the global financial crisis (GFC).

In late September 2009, at a Leaders' Summit in Pittsburgh, the G20 was designated the ‘premier forum for international economic cooperation'.

 

By October 2008, as Ken Henry had predicted months earlier, the flow of foreign capital into Australia was drying up. Henry said that when the International Monetary Fund released its
World Economic Outlook
, the forecast was sobering.

It was saying that there was going to be a recession in the developed world and there was nothing that could be done about it. On top of that, the Australian financial system could not borrow from offshore—that's toxic, absolutely toxic.

Swan's deputy chief of staff, Jim Chalmers, could see that the effects of the crisis were starting to hit home.

People easily forget now just how scared the Australian population was during the global financial crisis. There was a lot of anger. People had been to the ATM and discovered for the first time that they could only take out a maximum of a thousand dollars cash in a twenty-four hour period.

Less than a week after the first significant discussion about introducing a fiscal stimulus package, a run on the banks seemed like a real possibility.

On Friday 10 October, after major losses on the Australian share market, the Prime Minister convened an urgent weekend meeting in Canberra. Rudd allowed cameras into the Cabinet room to film part of the proceedings.

We knew we had to communicate to the country at large that we had a substantial problem which was going to require drastic action, and you've got to actually bring the public with you.

Julia Gillard and Finance Minister Lindsay Tanner attended the meeting; Swan joined in by phone from Washington. It was the first public outing of that small group of ministers that came to be known as the Gang of Four.

Henry explained why they made the policy decisions that shaped the government's response to the GFC.

It simply would've been impossible to get everybody in the right place at the right time, and it would've proved an overwhelming distraction.

That weekend, there were people in the room who understood the harsh reality of unemployment. Henry had been an adviser to the Hawke and Keating governments.

Anybody who is an adviser, who lived through the recession of the early 1990s, could not help but have this seared on their brains and their hearts. Hundreds of thousands of people out of work,
families destroyed as a consequence, a very large proportion of those aged over fifty-five who lost their jobs never worked again a day in their lives. It has a tragic human impact. It's really the worst economic catastrophe that can affect a country.

The Rudd government had inherited a Budget surplus of almost $20 billion. Now he and his senior ministers were considering a stimulus package that could push the Budget into deficit. Henry said it required political courage.

When you design a fiscal stimulus package you have to accept that there will be, in the jargon, leakage. There'll be money spent on imports, all of that kind of stuff will happen. You've got to have the courage for it. You're going to be pilloried—and by the way, this was very much discussed before this decision was taken on that weekend—you're going to get all of that negative publicity. Be aware of it. If you don't have the stomach for that, then we can always have a good recession.

Julia Gillard remembered the discussions.

The environment was so much focused on the economics that I don't really recall sitting around canvassing the politics. I think we all sort of inherently knew that there was this potential liability for Labor.

Rudd had sold himself as an economic conservative, but the unravelling of the international financial markets set him and his government on a course radically different to the one they'd plotted on reaching office. They settled on a $10.4 billion package, with cash payments for families and pensioners, and an increase to the First Home Owner Grant.

We knew, and I knew, that the Budget was going to go into deficit anyway, so my argument was simply this: it's better we,
the Australian Government, based on the advice of the Treasury, do everything possible to rescue this economy and at best, maybe, just maybe, avoiding a recession, which no-one at that stage thought was possible.

The other equally pressing question to be resolved was whether to provide bank guarantees. On Sunday morning, Henry's advice to Kevin Rudd was not to wait.

Before the meeting started, I took him aside and I just said to him, ‘You need to be aware of this and I don't think you've got the luxury of waiting. I think you have to make an announcement this afternoon, before the banks open on Monday morning. Monday morning could be too late'.

Swan's chief of staff, Chris Barrett, said the decisions the group made in early October were crucial to restoring confidence in the short term.

If you want to look at the thing that really made the difference, that first bit of stimulus made probably about 60 per cent of it … We were out with the announcements barely four weeks later [after Lehman], and you can see how quickly the consumer and business confidence jumped back up. I give a great deal of credit to the PM and to the Treasurer then. They really understood the need to get into people's heads, and in particular, get into people's heads before the Christmas shopping season.

Fortunately, the filming schedule for
The Killing Season
coincided with Christmas. Louie Eroglu filmed every Christmas scene he could find: shoppers, department store trees, illuminated cathedrals, inflatable Santas waving wildly outside car dealerships on Sydney's Parramatta Road. This became a scene to describe Christmas stimulus spending.

Ken Henry paid tribute to Rudd's decision-making over the stimulus.

Ken Henry (KH): At the end of the day somebody has to make the judgement, and in the political system that we have, that person has to be the Prime Minister. It can't be anybody else.

SF: And he made that decision?

KH: He made that decision. I said to him subsequently that I thought his instincts were better than mine, and I still think that.

I have no particular taste for the personal brutalisation of politics, none whatsoever.

Kevin Rudd

T
HE INTERVIEW WITH
Kevin Rudd in Boston in October 2014 didn't go smoothly. Rudd is a hard interview. His timing can be brilliant, with moments of pure vaudeville, part pastor, part PT Barnum, but he can also be turgid, using too many words to demonstrate knowledge rather than share it. (When I asked Rudd about the criticism that he didn't understand the union movement, he gave me a lecture on the Tolpuddle Martyrs.) It's never clear which version of Rudd you are going to encounter.

New South Wales Senator Sam Dastyari suggested there are a number of different Kevins.

The key with Kevin is you've got to know which Kevin you're dealing with before you walk into the room. Are you dealing with workaholic Kevin? Are you dealing with charming Kevin? Are you dealing with angry Kevin? Are you dealing with cunning Kevin?