OC, nice retort, But you wont find much info on this because its gaurded heavily, but cracks are appearing, how many banks have recently had freezes on cash withdrawals, what about etrade. commsec and alike who have had regular system shutddowns during trading hours, the movement of funds is limited becasue there are no funds, just imaginary extrapolations of YOUR savings. For every dollar you deposit 5 times as much is created from thin air. The whole debtathon is coming to an end, leave your money in banks and shares at your peril. Oh and Your superannuation wait til the Greens get hold of it. cheers Hiho
Sorry, This subject is too far off the planet for me. Nothing I have read here makes economic or business sense. End of discussion. OC
Australian banks = p00p, just like the global banks we are hearing about. All in my opinion of course. Place your bets according to your beliefs.
In theory you are correct in that our banks have slightly better regulations but like all other banks they have plenty of offbook assets/investments which they put into their annual reports using fancy accounting such that you have no idea they are risky ! I agree with you for now our banks are not 'illiquid' at this point in time, it would be wrong to say so because the shares are still very tradable. Our banks are obtaining funding through offshore borrowings, any sneeze in the value of AUD (drop) then our banks will be in pain because they're way overleveraged and the interest/forex repayments will burn them. They probably have hedged but really, even with hedging, somebody will lose because that's the game. Forex is a zero sum game, for every winner there will be losers. Perhaps it'll be the banks here who knows, but this is not the point. The point is, our banks are exposed to extremely high amounts of risk while reporting everything as AAA. The sheer amount of offshore borrowing, US investments, heavy reliance on mortgages and vulnerability to investor risk appetite changes all compound to make Australian banks a risky industry. Of course it all looks fine and dandy here, but imagine if stuff happens and comes to bite the banks they would be hard pressed to find equity funding to continue their business as usual. Let's say if the AUD suddenly drops back down to 0.8 USD, banks would suddenly have to pay an extra 20-30% on their repayments. Or if 10% of the people suddenly can't afford to pay their mortgages and declare bankruptcy due to rate rises, that's 10% of their income gone. On paper this looks tiny but remember our banks use the fractional banking reserve system so for every dollar they get through mortgages, it is ten dollars to them once they cycle through the system. Stuff like that will compound, roll into a massive ball and our banks will run low on equity and poor cash flow. This cannot be good. This is mostly hypothetical but with the world economy looking grim and our government failing it's not that far-fetched from reality.
Well money doesn't hold its value due to inflation so I see no need to keep any more than you need to have for day-to-day expenses and emergency money. Anything in excess of those needs should be doing more than just sitting in a bank account, slowly going down in value or just keeping its head above water. I am not suggesting keeping money out of the bank, that is even worse as it loses value through inflation and you don't get interest on it. I am just suggesting turning the money into some other store of wealth which is less subject to loss through taxation and inflation. Currently the excess money we have is in a term deposit, this is a compromise between me wanting to spend all the money on silver and my wife wanting to sell all the silver and put them money in the bank.
you get taxed on the interest earned in a term deposit, after you've paid income tax when you earned it and then when you spend it....you get charged GST on it! :/ You'd wanna be getting a good interest rate. ...i'm just sayin'
Australias true personal tax rate is 68% and the banks are illiquid, they just wont show you in their glossy financial statements
this from todays DR, OC take note my man http://www.dailyreckoning.com.au/extinction-events/2011/07/05/ --Australia's share market is linked with a healthy, functioning global credit market. The Aussie dollar and Aussie shares have benefited from global speculators hunting for yield and a story linked to China and commodities. A fascinating article in Monday's Australian Financial Review showed that global speculators are now upping their bearish bets on Australia. That's a big contrast to the last few years. --"Shorting the Australian government is among the hottest trades in the credit markets as trading activity of credit default swaps (CDS) referencing the Commonwealth of Australia reached more than $2 billion last week," report Jonanthan Shapiro and Paulina Duran. They add, "the volume in Australian sovereign CDS contracts has doubled from a month ago and is more than five times higher than the weekly average from January to May." --CDS contracts are used to hedge against default risk. But does this mean global investors are hedging against the risk of default in sovereign Australian bonds? That would be news. After all, Australia is not Greece. The public debt-to-GDP ratio may be climbing. But government debt levels here aren't nearly as critical (as a percentage of GDP) as they are in other countries. So what gives? --The bet on sovereign default is really a bet against the banks. The big banks own Australia's $1 trillion mortgage book. That's household debt. And Australia's household debt-to-GDP ratio is among the highest in the world, thanks to absurdly high house prices and a big credit boom.
Had a read of the link you posted above..I was surprised that the data used was from Moody's, Standard & Poors & Ftich who I feel have no credibility at all when it comes to rating banks...Look, did they see any of the banks in the USA in trouble in 07 & 08 ? Australian banks would be a lot safer if the Australian people had saved more over the past years, but they don't, and so the banks must borrow overseas to fuel our desire to spend on houses, cars, luxuries and every day items including petrol. Old Codger, you copped a bit of flack over this issue, but while I do not agree with you on this issue, keep posting for the issues you raise makes us all think whether we be young, old or indifferent. Regards Errol43
hiho - my man, In the world of banking, it is recognised that a man's mortgage is the safest overdraft/loan that a bank can have. It is (usually) well secured with a real property with a valuation only about 80% of the REAL market value. The borrower has his 10 to 15% or so in the deal, and any prudent bank will look long and hard at the employment history of the applicant. Even to the extent of ringing the boss and asking him. I have done that myself! In the case of a young married couple, the wife's salary should NEVER be included. It certainly wasn't in the olden days!!!! The Trillion Dollar mortgage book is an ASSET!!!! It is the very backbone of prudent lending. Are you suggesting that Australia is in danger of Sovereign Default???? OC
OC with all due respect, until one exercises the mind laterally one cannot expect to see the non-oncoming traffic, expect the unexpected
Where did you get this figure from, not doubting it for a moment, I would just like to see a break down of the numbers for demonstration purposes! I remember someone had a figure derived from the stated inflation rate plus all the other incidentals which brought it up to around 6%. Someone else also had a way of calculating the real interest rate on a bank account taking into account the income tax due on the deposit which comes off the interest. I would be very grateful if anyone could point me in the direction of this info, all I have is the RBA Inflation counter!
Relax mate, different people have different levels of 'faith' in the banking system, not surprising at all. It makes for an interesting discussion topic. OC, a question for you, what makes Australia that much different to Ireland, UK (Royal Bank of Scotland)? Surely we all know the USA failed due to CDO and MBS being unregulated properly but... RBS needed a bailout from the UK gov and Ireland... fails so why did they fail and why won't Australia follow down this path?
Fishball, "what makes Australia that much different to Ireland, UK (Royal Bank of Scotland)? Surely we all know the USA failed due to CDO and MBS being unregulated properly but... RBS needed a bailout from the UK gov and Ireland... fails so why did they fail and why won't Australia follow down this path?" IMNHO, the answer is in 2 words I have used here before - PRUDENT LENDING. or as refined gentlemen like me sometimes observe the opposite, - CRAP LOANS! I have mentioned APRA and that is a powerful agency. If our banks tried to buy up a zillion dollars of a nations Treasury Bonds from a basket case, APRA would stamp on it. There is an APRA regulation now, ever since the Bank of Adelaide and SSB went bust, that a bank CANNOT lend more than (I think) 2% of its loan book to any one borrower. Most of our banks can trace their family tree all the way back to 1817 in one case (Westpac) and most well over 100 years. They have seen and done it all. Do a Google on 'Community Reinvestment act 1979' and learn of the birth of the words "Sub Prime" and "Junk". Banks FORCED to make loans to 'African Americans' etc with NO job and NO assets. They appealed to the courts and lost, so they made the loans and on sold the crap mortgage to "a greater fool". It is ALL about prudent lending!!!!! OC
did we not go through a period of lax lending regarding the (in)famous "lodoc" and in some cases "nodoc" lending spree?
"did we not go through a period of lax lending regarding the (in)famous "lodoc" and in some cases "nodoc" lending spree?" I think you will find that MOST of the 'Lo Doc' loans were made by the so called 'Mortgage Brokers' who borrowed money in bulk from a bank, at maybe 5% and then on lent it to many borrowers at maybe 5.5%. Little if any was made by the Big 4. It was said back in the olden days that a sign of an astute business man was one "that could live off the interest on the money he owes". IN FACT that is what banking is ALL about! Borrowing at interest, and lending at HIGHER interest. OC
