Is the RBA planning to monetise sub-prime mortgage losses?

Well, if you think the $8.8B Joe Hockey bailout of the RBA had nothing to do with the housing market, the CLF or the "Australian Banking System", here's what Glen Stevens said on the matter yesterday

Is he seriously saying the RBA ran out of money and needed an $8.8B taxpayer bailout? What about the $300B CLF? Where's the money coming from for the CLF? $8.8B is just 0.029% of the CLF! Is Hockey going to provide the entire $300B from tax revenue?

What a joke! Are these reporters and politicians brain dead zombies unable to ask pertinent questions?

This is the same organisation who runs around the world bribing foreigners in the hope and ambition of printing their currencies.

Bribing foreign officials, manipulating foreign currency markets, inflating house prices through buying unrateable RMBS from the "Big Four Banks" and then encouraging even further banking risk by committing 30% of the nation's GDP to bailout the banks if things go wrong! This on top of taking the $8.8B bailout in tax payer funds because, apparently, they can no longer afford to conduct their market operations, even though they define monetary policy and print their own currency.

Just what is the RBA's game?

 

good post Gino, now couple this with the "bail-in" legislation and you have bank shares that cant go down, if youre in cash in the bank then you should convert it into cash in the bank shares

 

No hurry. The govt will do it for us soon enough.

 

I've been wondering what the impact of the AUD dropping to US$0.80 will do to the price of mortgage finance in Australia.

If the "big four" Australian Banks source their funding, as they claim, from international markets, I guess that this downward pressure on the AUD will have an inverse effect on Bank Interest rates. In which case, queue the sub-prime crisis.

Any thoughts on this?

 

I've had similar thoughts.
Enter the RBA with another interest rate drop.

 

The Fed can tip in a few billion like they did five years ago too (when it dropped to 0.60).

 

Here's an interesting report on investment ratings agency Moody's being worried about the impact of an Australian Bank failure on the value of the RMBS investment derivative products sold before failing.

In essence, if a family looses $50k of its savings in a bank failure, can they offset that loss from the value of the loan they had at the same bank ... and as far as Moody's is concerned, what then is the impact on the rent-seeking vultures investors buying up Australian RMBS products?


So what if you borrowed the $300k, had it deposited because it hadn't yet been deployed but the loan was sold off in a RMBS product, and the bank folded before you could execute on your real estate investment. You loose the $300k, the government guarantees you $250k, the bank is closed. Are you still indebted to the RMBS trust for the $300k they have securitised and sold?

This is how debt is recycled into high yielding "wealth management" products China. It looks awfully similar to RMBS products here ...

Source:http://www.zerohedge.com/news/2014-02-12/it-begins-another-high-yield-chinese-shadow-banking-trust-defaults

And that's just for the AAA Class A debt that can be re-sold. The diagram for the Class B and self-rated/unrateable debt that gets parked at the RBA under these incredible repo arrangements that guarantee no financial loss to the banks, would be way more complicated.

 

A couple more interesting reports from the same AB+F source ...

Note those underlined section. All going to the RBA toxic debt dump. Guaranteed by the RBA and ultimately the Australian Taxpayer just so the banks capital requirements aren't effected. Where's my bad debt dump? Where's my taxpayer guarantee?

 

I thought this provided a good contrast to the scale of the RBA's $300B CLF to ring-fence Australian sub-prime mortgages.

The BRICS have established their own supra-national liquidity facility via their own Bank. Initial capital as reserves - $50B, growing up to $100B.

The BRICS Bank is 1/6th the size of the RBA's CLF necessary to protect just 4 Australian Banks from their potential sub-prime exposure!

Meanwhile, China is printing new currency at over 12% p.a. and leveraging up that inflation through foreign currency loans via its offshore Banks for foreign real estate speculation to increase the risk to Australian banks of domestic sub-prime loans even higher.

One might be excused for thinking that there was a financial war going on and citizens of countries with US aligned national governments are collateral damage.

Ah, I love the smell of freshly-minted-communist-politburo-currency-leveraged-into-foreign-real-estate-loans in the morning!

Just another day on the plantation with Tony and Joe looking after the master's interests... Yessa massa, sa! I be a good slave for 'un. Yessa massa, sa. I be rea' good! Pleas' mak'um sure 'do's big massa banks are protect'd in case'um it run bad. Don't you go worry'n none 'bout 'lil' 'ol me or doe's kid's need'n a house! We alls'a luv just a work'n un da farm massa sa! You jus' let 'do's comm'nists print 'un lever'g us to death while we keep a work'n 'un da farm.

 

"The BRICS Bank is 1/6th the size of the RBA's CLF necessary to protect just 4 Australian Banks from their potential sub-prime exposure!"



From where I stand, and have done since 1955, the "sub prime exposure" of the Australian banks is no more than 'about' 2% of all loans. It has been so since Adam was a lad.

As far as I am concerned, there is actually near NIL "sub prime" lending in the Big Four. A few dodgy lending officers certainly, but a tiny amount.

JMO


OC

 

....now if SHTF Day dawns, and the unemployment rate goes to >35%, then all bet are off.

The RBA rides to the rescue!


OC

 

I've known this for some time now.