Lesson forgotten

The Rudd government's recent bank deposit guarantee was generally hailed as good policy. Unfortunately it diverted money away from other investments into now government guaranteed safe saving deposits. The result; mortgage and property funds have frozen withdraws:

The latest victim is blue chip funds manager Perpetual which froze redemptions today in seven of its funds containing around $2 billion in investors savings.

The Perpetual move comes hard on the heels of Challenger Howard, the biggest mortgage fund in the country ($2.9 billion) freezing redemptions earlier this week.

Before Perpetual's freeze today, some 24 funds in the mortgage and property sector holding $14.4 billion of savings on behalf of 93,000 investors had suspended redemptions. Any other fund in the sector still open must be seriously considering its options.

Back in 1946 Henry Hazlitt wrote the free market classic Economics in one Lesson. The lesson can be summarized into one sentence: "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."

Sadly our free market hating Prime Minister has no interest in learning the Lesson.