THE FAIRY TALES WE BANK ON: How Neoliberal Myth, Regulatory Failure, and Political Cowardice Built a System That Eats the Vulnerable

Introduction: Where There Is Ignorance, Bad Things Find a Home

Where there is a lack of understanding, ignorance, then there is room for bad things to make a home for themselves.

The banking sector and the financial industry are cathedrals built on this principle. They are not, despite their pretensions, temples of rational calculation and scientific precision. They are theatres of belief – stages where complex mathematical models perform elaborate rituals designed to obscure one simple truth: nobody actually knows what anything is worth.

Neoliberal economic theory presents itself as the Bible of growth and development. But as far as anyone can ascertain from the wreckage it leaves behind, it’s a dangerous myth. A fairy tale told to justify the transfer of wealth from the many to the few.

From the global financial crisis that vaporised trillions on Wall Street, to the seizure of personal funds in Cyprus, to the ongoing rorts in Australia’s “Big Build” – it’s always the least powerful, the least well-funded who carry the burden. The speculators walk away. The bankers keep their bonuses. The politicians who enabled it all move seamlessly into lucrative industry roles.

This article traces the threads. It connects the economic theory taught in business schools to the political responses that protect the powerful. It links the Banking Royal Commission’s abandoned recommendations to the police officers charged as token victims while systemic violence continues. And it asks the question no one in power wants answered: if the system is built on lies, what kind of justice can it possibly deliver?

Part I: The Myth at the Heart of the Machine

What Neoliberalism Actually Is

Neoliberalism is not, despite its name, new. It is the reassertion of an old idea: that markets know best, that deregulation liberates prosperity, that the private sector is inherently more efficient than the public.

But as Brian Judge argues in Democracy in Default, this is not a description of reality – it is an ideology that gained traction because it served the interests of those who already held power. Judge reverses the standard causal story: it wasn’t that neoliberal ideas led to financialisation. It was that financialisation preceded and largely drove the rise of neoliberal policies and ideas.

Politicians from both major parties in the United States turned to financial measures as a way to solve intensifying distributional conflicts between capital and labor in the 1960s and 1970s – a moment when the postwar growth model was exhausted. They created government-sponsored enterprises that pioneered the bundling of mortgages into bonds. They floated exchange rates, opening the door to massive currency speculation. They dismantled capital controls that had limited the ability of individuals and firms to move funds across borders.

Each decision was presented as a technical fix. Each opened the door wider to financialisation. And once the process started, it took on a life of its own.

The Problem with Liberalism

Judge’s deeper argument is that liberalism itself – the separation of the economy from the realm of government – creates a structural incapacity to manage distributive conflicts. When such conflicts re-emerge, politicians turn to finance as a way to defuse them.

This is why proposals to “democratise finance” face such steep obstacles. The system is not broken by accident. It is broken by design – designed to depoliticise questions of distribution, to remove them from democratic debate, to hand them to unelected technocrats and market forces.

Michael McCarthy, in The Master’s Tools, offers a different perspective. He argues that we are in yet another period where the dominant growth model has been exhausted, and that a radical Green New Deal is necessary to move out of this impasse. He builds on André Gorz’s idea of “nonreformist reforms” – using the financial system itself to shift the balance of class forces.

But McCarthy recognises the danger: public financial institutions can easily adopt the same behaviors as their for-profit counterparts if not held accountable. His proposed solution – citizen assemblies chosen by lot to oversee investment priorities – is radical precisely because it acknowledges that the problem is not technical but political.

Part II: The Royal Commission That Wasn’t

What Hayne Found

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Hayne Royal Commission) delivered its final report in February 2019. It contained 76 recommendations.

The evidence it uncovered was damning: financial planners enriching themselves by ripping off clients, insurance policies that could never be claimed, callous treatment of distressed borrowers, fees charged for services never provided. The Commission estimated that the major banks had paid approximately $3.7 billion in compensation for fees-for-no-service misconduct, and approximately $227 million in compensation for non-compliant advice.

Commissioner Hayne was so disgusted that when he handed the report to Treasurer Josh Frydenberg, he refused to shake his hand. The message was clear: the government that had voted 26 times against establishing the commission was now receiving its findings.

What Frydenberg Did

Josh Frydenberg pledged to take action on all 76 recommendations.

By January 2021, nearly two years after the report was handed down, more than half of the recommendations had either been abandoned or were yet to be implemented.

Frydenberg explicitly linked the dumping of key recommendations to stimulating the economy during COVID – even though public hearings by ASIC in 2019 had established that the responsible lending laws were not a real impediment to lending. Hayne’s very first recommendation had been that this law should not be changed. Frydenberg changed it anyway.

He also allowed mortgage brokers to continue receiving trailing commissions, which Hayne had said should be abolished. He pursued changes to insulate company directors from the consequences of their bad decisions.

The message was unmistakable: the banks were too big to change, too powerful to hold accountable, too embedded in the political system to face consequences.

Where We Are Now

Five years on from the Royal Commission, progress has been made on some fronts. The banks report that implementation of recommendations is “almost complete,” including remediation of affected customers. The Financial Accountability Regime (FAR) has replaced the Banking Executive Accountability Regime (BEAR), extending accountability obligations to a wider range of financial services firms.

But conduct and culture issues persist. The Australian Financial Complaints Authority (AFCA) received 60,076 complaints in the banking and finance sector in 2023-24 – a 12 per cent increase from the previous year, which itself was a 27 per cent increase from the year before that .

Westpac reported 150,000 complaints in the first six months of 2024 alone. The banks attribute the surge to scams and interest rate increases. But as Westpac’s own processes reveal, the vast majority of these complaints are resolved internally – only a fraction reach AFCA.

The underlying problem remains: a system designed to maximise profit, not serve customers, will always produce conduct that harms the vulnerable.

Part III: The Regulatory Vacuum

The Attack on Oversight

In late 2025, the Labor government and Greens Senators signed off on changes that would reduce the frequency of reviews of ASIC and APRA by the Financial Regulator Assessment Authority (FRAA).

The justification? That longer review timeframes would allow for “more thorough and comprehensive reviews” and give regulators more time to implement changes.

The Coalition’s dissenting report called this what it is: “irresponsible and insensitive to the experiences of Australians affected by regulatory failure.” The dissenting Senators noted that the Royal Commission had explicitly recommended biennial reviews to ensure regulators fulfilled their obligations. Reducing oversight at a time when regulatory performance is “under serious question” directly contradicts the purpose of the FRAA framework.

The timing could not be worse. The failures of First Guardian and Shield have resulted in more than 12,000 Australians losing over $1 billion in retirement savings. Families have lost life savings. Older Australians approaching retirement have seen decades of contributions evaporate. Trust in the superannuation system has fractured.

And the response from Labor and the Greens? Less oversight. Fewer reviews. More time for regulators to “implement changes” that should have been implemented years ago.

ASIC’s Record

ASIC has improved since the Royal Commission, but remains a flawed institution. Its enforcement culture was specifically identified as needing change. It adopted a “why not litigate?” stance. It initiated an Internal Enforcement Review. It enhanced governance structures.

Yet the Dixon Advisory failure illustrates the scale of the problem. ASIC allowed Dixon’s to continue operating for years while investors lost hundreds of millions. The regulator’s response has been called into question repeatedly.

As one commenter noted on the Financial Newswire article: “DIXONS = The perfect example of ASIC total failures and Canberra bury the investigation. Dixon’s MIS fiasco followed by Dixon’s illegal Phoenix escape. WHAT DID ASIC DO? Nothing.”

Continued tomorrow… 

References

1. Parliament of Australia. (2025). Chapter 3 – Bank culture and conduct. House of Representatives Economics Committee.
2. My Compliance Office. (2025). FAR Sighted: The Changes for Australian Financial Firms.
3. Dissent Magazine. (2025). Can We Remake Finance? Review of Judge, B., Democracy in Default and McCarthy, M.A., The Master’s Tools.
4. The Guardian. (2021). No accounting for banks? Frydenberg’s response to the royal commission is on hold.
5. Gorrie, V. (Ed.). (2024). When Cops Are Criminals. Scribe Publications.
6. Parliament of Australia. (2024). Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020. Bills Digest No. 46, 2020–21.
7. Financial Newswire. (2025). Govt, Green Senators back less oversight of ASIC, APRA.
8. Investor Daily. (2019). Industry responds to final royal commission report.
9. The National Network. (2025). Another Police Shooting: We Must Name This for What It Is – State Violence.

Dr Andrew Klein PhD holds multiple degrees and has worked as an analyst, strategist, and – according to his mother – Sentinel. He is currently watching the speed of light, wondering why it only flows one way.

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