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the Coffee party

Discussion in 'Politics' started by RugbyFuture, Oct 27, 2010.

  1. Ruggo Mark Ella (57)

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    The problem with Whitlam was he tried to do things to do things to quick. It is the exact problem the Rudd govt had. The concepts were good but the methods were shit. Although in different forms, alot of his agenda that was implemented is still around today such as medicare and tertiary education assistance. The controversy of his dismisal often overshadows other aspects of his tenure as PM like getting us the fuck out of Vietnam. His biggest failure was indiginous policy reform. The concept was magnificent but the implentation is a big reason for the indiginous problems we have today.

    I completely agree with you Scotty in regards to Hewson. During the Election, every Monday arvo ABC radio had him and Clare Martin on talking about the issues. It was a great discussion to listen to and a refreshing change from the usual spin.

    The less said about Howard the better. I wonder if his book makes mention of what a completely useless treasurer he was during the Fraser years.
  2. The_Brown_Hornet Michael Lynagh (62)

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    It's OK, we can agree to disagree. I think they have more to offer the world than a lot of other people think, but I understand that not everyone feels that way. I can quite truthfully say that at no stage was I scared to live there. I would rather have their system than the other great social experiment that we had in the last 100 years.
  3. The_Brown_Hornet Michael Lynagh (62)

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    Agree there. Whitlam was reckless, even though many of his ideas were good ones. Had he tried them over 10 years rather than 3, I think the outcome might have been better for him and the country.
  4. The_Brown_Hornet Michael Lynagh (62)

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    I would argue that this is the case the world over. Desperate people do desperate things. In the case of Katrina, there was a lot completely inaccurate reporting about what went on in the aftermath of the flood, especially when talking about the situation at the Superdome. Some reports were asserting that widespread rape, murder and mayhem was occurring, when in fact little of that happened at all.

    The thing to remember is that NO was a complete basket case of a city *before* Katrina hit. The flood just highlighted to people outside of Louisianna how bad it was. The government response was poor, no argument there, but that is more a case of incompetence than malice IMHO.
  5. Elfster Jim Clark (26)

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  6. Rob42 Ron Walden (29)

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    Alistair Cooke, the BBC correspondent who reported from America for about 50 years, liked to say "Everything you say about America is true". It's such a diverse society, no matter what positive or negative thing you say about it, it's probably right. The division between the rich and the poor is so dramatic, and yet most individuals see "giving back to society" as an essential part of life - but they want to do it privately, not through taxes.

    I'm glad America's there - I'm just glad I don't live there.
  7. Ash Michael Lynagh (62)

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    Gagger's point on splitting bail outs and stimulatory spending:

    Regarding bail outs - you have to let some fail and live with the shocks. Moral hazard is a doozy. Just ask Westpac:


    A bank expecting to be bailed out EVERY time? Not good. Read about Bear Stearns and Lehman Brothers - there was widespread disbelief in the US banking sector that they were left to fail. More should have been.

    Bail outs should be about keeping the wider economy from collapsing - something which the banks will always overstate and lie about because it is in their interest to do so. Bail outs should be repaid to the government - because it is the tax payer providing the bail out. The TARP is an epic failure in this, as in the whole "mark to myth" crap. The US, supposedly the home of free capitalism, has suddenly become all about the cliche of "socialing the losses and privatising the profits" - another epic fail.

    Regarding stimulatory spending - I have two views on this. Firstly, in a credit crisis like the GFC and great depression: no, or, limited. Secondly, in other recessions, like dot com crash - yes, within reason.

    Regarding the first - you have to realise that stimulatory spending and lower interest rates encourages cheap credit and cheap speculation. When your crisis is built on cheap credit creating unsustainable speculation (read: bubbles), what do you not do? Fuel the cheap credit further to try to drive yourself out of the hole. This is what the US has tried to do, and why I think it just will not work. Ultimately, austerity measures will pay off in the long term, whilst what the US is doing may provide some short term relief, but the underlying problem still exists. Hence yet another reason why the US is screwed.

    Ultimately, a recovery from a credit crisis will be about deleveraging in some sense, something the US does not seem to want to admit publicly. Unless you print (QE) your way out.

    Regarding the second - Keynes believed in government spending to pick up the loss of demand from the private sector. Keynes also mentioned that money could be spent on nothing to stimulate the econmy with some effect (boondoggles), but the real benefit comes in upgrading infrastructure like rail, ports, etc which can increase future demand and capacity. So the problem with stimulatory spending and activities is two-fold: one - use it in a meaningful manner which will be advantageous for the future, as opposed to boondoggles, and 2) reduce it swiftly, and preferably ahead of time, as opposed to late. The latter lesson was painfully taught by Greenspan pump priming the US economy with holding interest rates low for too long (encouraging speculation via crazily cheap credit) after the dot com crash - and it appears the US has not learnt that lesson, either.

    And seeing as I posted a link to an economics blog that believes Australian houses are in a bubble, and I mentioned the cheap credit mistake from the US, I'll end with this: You can state that supposedly Australia has a chronic undersupply which is creating some underlying supply issue, you can claim it's supply and demand without understanding supply curves and demand curves at all, but think about this: it is the banks providing the credit, and the banks allowing 70%+ of a person's take home salary going to fueling an interest only loan. Without the cheap credit readily available to encourage punters to bid up house prices, what happens? 30% of all bank credit is sourced from overseas, what happens if this disappears due to an external shock, or is no longer available? (Hence why Westpac expects to be bailed out, every time.)
  8. Scotty David Codey (61)

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    The economists can't agree whether we are in a bubble or not. Not just can't agree, but some suggest 10%+ house increases, and some suggest a 20% + correction. The fact is that no one really knows. I suspect that in reality we are in a sort of bubble, as Ash says, and that the supply vs demand is driving this (adding in the state and local government factors in making development more expensive), but that the bust will come if there is an issue with credit supply/recession.
  9. Scotty David Codey (61)

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    Ash linked article supports Joe Hockey's push to have an analysis and regulation of the banking sector.
  10. Ash Michael Lynagh (62)

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    Scotty; there's several issues with that (Hockey). I agree with Hockey, and think he's a moron at the same time. He's right, yet going about it the wrong way and speaking complete rubbish while he's at it. And on top of that, he's in the Liberal party - who are traditionally free non-interventionalist in business markets.

    For starters, he just said "pull levers" to control banks rising interest rates, of which none exist. He's been rightly called out on it. Honestly, I don't think economics is in Hockey's (or Abbott's) skill set at all. Robb should be the economics guy for the Liberals, and they must have a leader who is willing to at least deal with economics, unlike Abbott. One can only hope with Turnbulll.

    Secondly, the banks are actually right, their cost of funding is rising, for several reasons. The 30% they source overseas is more expensive as hedging costs have increased, plus competition for funds is large (and it's NOT because of Labor government borrowing - another Hockey and Abbott lie - Australia's federal borrowings are actually tiny compared to the massive amount of sovereign borrowings world wide and are tiny enough to have no effect on the cost of borrowing for Australian banks). The money the Australian banks source from local deposits (to lend) here increased in costs as well, as high interest savings accounts are back in vogue as they fight for Australian deposits once again (see Ubank for instance, which is a NAB offshoot used to fund their loans). The banks have actually reduced their profit margin on mortgages, and increased it on businesses, and the business sector has been shafted. Mortgage rates from banks should, actually, be higher if you revert to traditional margins.

    Now, to their huge profits. Which are quite obsence and wrong.

    The banks have abused the government's borrowing guarantee - they used the government's AAA during the GFC (when it was available), and then loaned their sourced money out locally at much higher rates. Macquarie in particular was a bad abuser of this. Actually, becuase of the stimulatory measures the Australian banks actually did very well out of the GFC - much better than they should have. CommBank and Westpac have also been huge abusers - durring the GFC those two were writing 75%(!) of all residential mortgages in Australia. It's no wonder then you see Westpac expecting a government bailout should those GFC FHB (dubbed "Rudd prime" for those who used his increased grant as their only deposit on record low interest rates) ever starting defaulting en mass.

    Hockey should be demanding why Australian banks have forsaken business lending for mortgages. The NAB business arm (NAB has traditionally been more of a business lending bank than residential) has complained about exactly that for nearly half a year now. It's not something that a productive country would do, and it's a worrying trend. How can a country who excels at digging up dirt and rocks to sell overseas, and selling houses for ever increasing amounts, ever hope to be productive into the future?

    Whilst our regulation of the banking sector is better than the Americans, it still leaves much to be desired. When Basel III comes in hopefully it will lessen the banks willingness to take on massive residential loan books.

    I wish Hockey well for his attempts at an inquiry. I think that he just completely botched it, which is unfortunate. He just wasn't the right person for the task.

    One guy who deserves respect is Senator Ludlam, who is from the Greens and doing what the Liberals should be doing: attacking the Labor government over stimulatory housing policies (like negative gearing, CGT concessions, FHB grants, other tax concessions on rental properties, etc), yet at the same time the government is creating "affordability" schemes (like NRAS, etc) which have nothing to do with stopping increased prices and speculation. In fact, when Senator Ludlam stated that the best way to get affordability to improve is removing stimulatory policies (and to allow prices to deflate), he was flatly told that was not in the government's area, and to go talk to Treasury.

    Here's the irony, which I am sure Labor haters will like: when Labor was elected, they made some noise about housing affordability. The then housing minister, Tanya Plibersek, is actually on quote in saying that increasing the FHB grant will "not improve affordability" and will "drive up prices", and they were not looking at that as a solution. Come the GFC, and what did they do? And they had the gall to say they were doing it to "help FHB enter the market". Flat out liars.

    (PS: I hate both major parties.)
    (PPS: I am a little drunk.)

    For more anti-Australian housing blogs, you can read:

    Remember to get balanced opinions from both sides - the other side is Christopher Joye from Rismark, normally, who also has his own blog, but he tends to be a little self-flagellating.
  11. Scarfman Knitter of the Scarf

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    For a semi-drunk dude you make a lot of sense.

    I thought competition was meant to sort out the banks. How can the big guys make so much money, when there ought to be plenty of competition from your Aussie Home Loan types. Do the big guys have a monopoly on cheaper funds?
  12. Gagger Nick Farr-Jones (63)

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    Ash - am well and truly intimidated by your knowledge, energy and wordcount on the subject.

    On the UK bail-outs; while I'm instinctively with you on the no pain no gain approach, the UK bailout had to happen. You had 3 of the UKs biggest banks and the biggest UK mortgage lender (including the mortgage on Gagger mansions!) about to go down the swanny.

    I find it hard to even comprehend what that would have looked like in terms of short term real life impact had it all gone up in smoke - my cash savings wiped, my mortgage foreclosed. My business' cash is also in one of those banks - vaporised.

    The UK government had earlier guaranteed a level of savings in UK banks, so they would have been out of pocket covering those guarantees, rather than with an equity stake in the UK banking sector.

    I'm liking your thinking on the stimulus vs non stimulus arguments
  13. Bowside Peter Johnson (47)

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    The hewson was in relation to the acme fightback plan. And how it contributed to him losing an election.

    I agree that he is good to watch on tv, I liked him on the gruen nation.
  14. Ash Michael Lynagh (62)

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    A lot of the smaller guys (non-bank lenders) were tapping the RMBS (residential mortgage backed securities) market primarily, and sourcing debt overseas as well. In the GFC, the RMBS market fell right over (unsurprisingly), and they suddenly lost their access to funds as their short term debt couldn't be refinanced as well as foreign banks suddenly didn't want to lend to the smaller guys anymore as they looked a lot riskier. Hence, the non-bank lenders largely fell over during the GFC, and the big banks bought their lending books.

    I don't think securities are the answer - look at the way they were abused in the US, such that none of the buyers, and even the ratings agencies, really understood the product. Even the smaller banks used RMBS as a major source of funding.

    During the GFC the Aus government used $16B of tax payer money to buy AAA rated RMBS to keep the market ticking over. Not particularly being a fan of securitisation, I wish they would find another way to keep the smaller guys with a good source of funds. (They also guaranteed desposits as well, among other methods.) The problem is, the RMBS market in Australia is still on the nose, but now the government has sort of committed itself to propping it up and the banks are demanding the government buy more. One of the big banks (Westpac? I think) even had the nerve to suggest the government should buy BBB rated RMBS with tax payer money.

    The big four have a mixture of sources - local deposits, their own equity, other debt markets (local, foreign, short term, long term), securitisation (although this is very small for the big guys). The smaller banks have the same sources, but rely a lot more on securitisation.

    To answer your question finally - yes, the big banks have access to cheaper funds. They have better access to overseas debt markets, have a better rating from the ratings agencies (and thus pay a lower premium on debt) and control more of Australia's local deposits.

    The RBA actually maintains lots of information like this and it is readily findable on their webpage if you know what to look for. The page on bank lending sources from the first quarter this year is here:


    Look at how securitisation has fallen through the floor since the GFC.

    And this might be of interest as well, if you're interested in if the banks are hedged or not on their overseas lending:

  15. Ash Michael Lynagh (62)

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    Gagger; yeah, whether the banks are left to fail or not, the everyday citizen like you or me surely has to be protected - bank deposits can't be just wiped out, loans foreclosed on / called in / margin called, etc. The government should step in and make sure that the day to day operations keep ticking over. If this doesn't happen, then you'd think that society would stop functioning as we know it.

    What the government has to do though is draw a line between those who've taken excess risk (eg those with huge margin loans on shares or property investment loans, etc) and normal banking operations for businesses, people, etc. There's nothing worse than seeing risky speculators hyper up to their eyeballs in silly debt bailed out - and this is effectively what a lot of those banks were.
    Richo and The_Brown_Hornet like this.
  16. Gagger Nick Farr-Jones (63)

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    Yep, and that's exactly what they didn't do with any regulation, and as far as I can tell, still haven't done.

    There were 4 biggies who would have gone pop because of this, and no doubt there would have been a run on the remaining. So, the government either shells out gazillions in guaranteed savings cover - burnt money with no way of recouping - or they prop up the banks.

    As for the mortgages, there is no government cover. You think they should / would have just nationalised those mortgages somehow?
  17. Scotty David Codey (61)

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    Great series of posts Ash. So info that I think you should put it in a blog. Agree with pretty much all you say, but having trouble working out where to start with any response.
  18. Richo John Thornett (49)

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    Fantastic posts, Ash. Very interesting.

    Having worked in politics -- in Canada mostly -- I'm pretty confident in saying that knowledge levels within the political arena on these issues are low. Sure, Treasury will have excellent analysts and Ministers will usually have at least one or two expert staff members, as well as detailed department advice, but that doesn't mean they necessarily understand what they are looking at. Too many policy decisions are made from a communications perspective.

    This is exacerbated by big banks' excellent job of tying, in public perception, their own success to the success of economies. A kind of double dilemma operates: pollies shouldn't get involved because they don't understand AND any meddling would ruin the economy, not just the banks. Drives me crazy.

    Remember Paulson's two-page document requesting $800bn from Congress? When they asked what for, he basically told them to go jump and give him the money, it was complicated and He Knew Best. Absurd. but at the end of the day not that many more strings were really attached.
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  19. Scotty David Codey (61)

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    Ash et al,

    Do you think that the ACCC and government should have allowed CBA to buy Bankwest and Westpac to buy St George? Surely in hindsight it was a massive mistake (in fact at the time many questioned the merits of the reduction in competition).
  20. Ash Michael Lynagh (62)

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    Gagger; mortgage books will always be onsold if a lender collapses, and the government should ensure that the buyer of the book honours the mortgage. This occurred in Australia during the GFC: many small lenders like RAMS could no longer support their own mortgage books when both the RMBS market and the overseas short term money market fell over at the same time, and when their short term debts matured and couldn't be rolled over they basically folded and on-sold their mortgage books to the big banks.

    Richo; the sickening thing about Paulson's document were the bits stipulating that the government would not be allowed to investigate where all the money went. The arrogance in that is unbelievable. It almost looked like he was saying "you will give me all of this tax payers money to bail out my banker friends, but you'll never know what I did with it, thanks and have a nice life". Not only that, he was basically threatening congress with doomsday scenarios about what would happen if they didn't give him what he wanted and he couldn't "keep liquidity in the markets". To this day, you still see interviews with Bear Stearns bankers who claim that Bear Stearns only folded because people were "misled" by rumours to believe that Bear Stearns were in massive trouble, and thus stopped lending to them. They just can't admit that Bear Stearns and Lehman Brothers were like packs of cards, waiting to fall.

    Scotty; probably, in hindsight, with St George. Bankwest is complicated though. It was owned by Bank of Scotland (HBOS), who basically went under and were bought by Lloyd's. Lloyd's then basically came close to going under and desperately sold Bankwest and other assets. Plus, Bankwest took on a lot more risky loans than the big banks and it looked like they were going to pay, but the GFC didn't end up hitting us as hard as expected. When CBA bought Bankwest they had huge bad debt provisions set up for it. CBA then turned some large paper profits by reducing the Bankwest bad debt provisions as they weren't hit as hard as expected. St George wasn't in as much trouble, so in hindsight that probably wasn't the wisest move for the government to have made.

    During the GFC it should be noted that both Commbank and Westpac went mad with building their residential mortgage books, and at one stage between them they were writing about 75%(!) of all new mortgages in Australia, as well as hoovering up as many other loan books that they could buy. Now, Commbank is barely growing residential mortgage borrowing - they have basically said "no more". There was a really good article in the SMH about it recently.

    BTW, I think that the CommBank rising of interest rates is a big brouhaha over nothing. The RBA considers the SVR the banks offer when adjusting the OCR. The RBA has stated in previous meeting minutes that we would've had another rate rise by now, but the banks raising rates out of step with the RBA meant that the banks did the RBA's work for them.

    Where I agree the banks need to be hit hard on is unfair fees (like exit fees for mortgages), size of fees, unfair credit card rates and practices, and unfair lending to businesses - up until now, it has been businesses and credit card holders paying extra to support the lower margins the big banks have been taking on residential mortgages. Oh, and I hope the CBA passes that extra 0.2% onto their savers - but I bet they don't. Why don't they look into that? Swan and Hockey are only playing populist games with the media and broader population.

    BTW, heard "Aussie" John Symonds on the radio last night having a big whine about lack of competition. His "solution" was for the government (using our taxes) to both buy more RMBS, and guarantee RMBS. No thank you, I'd rather not my taxes be abused by mortgage lenders like John Symonds to fuel their profits.

    Competition should be created by making it easier for smaller banks to co-exist.

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