The Safest Assets in the Land - Aussie Mortgages!

Discussion in 'Markets & Economies' started by Yippe-Ki-Ya, Nov 28, 2011.

  1. Yippe-Ki-Ya

    Yippe-Ki-Ya New Member

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    The Australian Business Economists Annual Dinner recently took place in Sydney. Keynote speaker was Reserve Bank of Australia (RBA) governor, Glenn Stevens.

    Surprisingly, Mr. Stevens made one good point during his snooze-fest. He said:

    "One is that the most useful economic forecasts, like weather forecasts, are those that are based on a good sense of the 'big forces', as well as on an understanding of the dynamics of how economies typically behave."

    It's worth noting his speech compared two maligned groups of forecasters - economists and weathermen.

    It's funny a central banker should say that. Seeing as central bankers spend their whole time manipulating economies.

    Look no further than the RBA Committed Liquidity Facility (CLF) - another acronym to add to TALF, TARP, EFSF and many, many more.

    Put simply, CLF is a joint-venture idea between the RBA and the Australian Prudential Regulatory Authority (APRA).

    Under Basel III rules, banks need to carry more high-quality liquid assets on their books. Following the 2008 global economic meltdown central bankers thought banks should hold more government debt. Because that's safer.

    The only trouble was... governments had just bailed out the banks. That increased their own liabilities and weakened weak bank balance sheets.

    So now European banks have to hold lots of government debt which are impaired by the poor financial position of governments because they bailed out banks which forced them to go further into debt which led to the downgrade of their debt ratings which...

    You get the point.

    But don't worry. Australia doesn't have nearly as much government debt as Broken Europe. So the local solution is the CLF.

    The Safest Assets in the Land - Aussie Mortgages!

    This allows Aussie banks to deposit eligible securities with the RBA and in return the RBA will give the banks liquidity - cash.

    The question is, what securities can the banks deposit with the RBA? You guessed it... good old residential mortgage-back securities (RMBS)... the safest security in the land... apparently.

    With CLF, the bank agrees to buy the RMBS back from the bank at a fixed price at a later date. That's why it's called a repurchase agreement (Repo).

    Supposedly this means there's no risk of a moral hazard problem... where the banks make any loan knowing the RBA will buy it... or is there?

    Of course there is. There's always moral hazard when anyone guarantees to accept something in the future. Especially when there are no questions asked.

    You see, the CLF is a banking bailout by another name. No-one will admit the entire global banking system is broke. So Aussie central bankers worked double-time to make sure Aussie banks can stay in the game.

    They (like their U.S. and European counterparts) need to keep re-writing the banking rules in order to not go bust.

    But the Aussie banking funny-business is just a sideshow. The real stuff is overseas.

    This morning the Aussie market has taken off. Why? Because of this report from Bloomberg News:

    "The euro rose after Italian daily La Stampa said the International Monetary Fund is preparing a 600-billion euro ($799 billion) loan for Italy in case the debt crisis worsens, without saying where it got the information."


    We've lost count how many rumours we've seen from European newspapers about bailouts that never happen - remember the China-buying-Italian bonds rumour?

    As we see it, it's another case of bureaucrats and central bankers manipulating the market. Which is funny because...


    Bailout Rumourtrage

    In March 2008, the Australian Securities and Investments Commission (ASIC) clamped down on "rumourtrage". That is, the spreading of false rumours "designed to harm a company, such as by forcing a share price down..."

    In March 2010, ASIC put the campaign on ice... with only one prosecution.

    Roll forward to today and we can see why the regulators have stopped targeting "rumourtrage". Because the only false rumours investors get are from insiders keen to stop the markets falling.

    But maybe Italy will get an IMF bailout. However, don't think for a moment it's the final fix the Europeans have waited for.

    As you should have learnt by now, the fixing of one problem only creates another problem.

    Glenn Stevens says useful economic forecasts require "an understanding of the dynamics of how economies typically behave."

    The reason central bankers interfere in markets is because they know how the markets would behave if they didn't interfere. Ultimately it would mean the end of central banking.

    That's why you can be assured the bailouts and market manipulation will continue. The central bankers have far too much skin in the game to allow anything else.

    Cheers.
    Kris.
     
  2. Guest

    Guest Guest

    It's all fine, fair and good to say it's a manipulated game - a sham - a con - a ripoff.

    But the fact is, idiot Australians are still lining up in droves to sign their lives away and will continue to do so until the buck stops.

    There's been an anticipation for the great Australian crash now for a long time, but it just doesn't seem like it's going to happen the way the bear pundits want it to happen.

    Any ideas why?

    [youtube]http://www.youtube.com/watch?v=KVEoGlWSpac[/youtube]

    Should give you a clue.

    This country's politics indicate there is no crisis until the market collapses and sure as hell they'll throw the kitchen sink to maintain the political momentum on the 1/3 rent, 1/3 Paying off, 1/3 Own demographic that's the backbone of this nation.

    After all, what else does Australia have to fall back on after mining?

    Nothing.

    Don't get me wrong, I'm all for a real correction in the market back in line with long term affordability, but this country is basically going to have to go bankrupt for it to happen and I am not sure we're quite at that stage just yet.

    Our gubmint is not afraid to borrow us into debt to bail out others and our banking system still has a lot of wiggle room in the interest rates.

    Yes, I want to see it step back from insanity, but don't count your chickens on this happening anytime soon. Some mighty powerful forces and interests will keep this party rolling come what may and they still have a fair bit left in the tank, regardless of what the doom n gloom party want to tell you!
     
  3. Yippe-Ki-Ya

    Yippe-Ki-Ya New Member

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    I agree! The morons running the country (into the ground) will continue to steal money from us and use a substantial part of it to prop up the rotten to the core RE market...

    :lol:
     
  4. hyperinflation

    hyperinflation New Member Silver Stacker

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    RMBS is already accepted under the RBA's normal Repo mrket operations.. with a 10% haircut (ie: a bank will only be able to borrow $90 for each $100 of RMBS pledged) - and they have to post margin (ie: if the value of the RMBS falls below 90%, they have to top up the difference with cash). Banks can already pledge Government, State and Corporate bonds as collateral.. and RMBS (in my opinion) is no less safe than unsecured banks bonds..

    The only change is that banks will be able to post their own mortgage books as collateral, instead of selling it to another bank, who then posts it as collateral.
     
  5. aleks

    aleks Well-Known Member Silver Stacker

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    So it's not as loose as TARP/TALF

    How will banks report this if they are using CLF?
     
  6. fishball

    fishball New Member Silver Stacker

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    The banks put some of their assets into a pool (CLF) which backs these so called 'securities' which are supposedly 'low risk'.

    The CLF will most likely require the assets (mortgages) to be marked to market on a monthly(?) basis or more frequently.

    They will limit the % of bank's assets allowed to be used as collateral for CLF so it's not like the banks can dump all their mortgages and get money from the RBA.

    Basically this is a big nothing, just a bit of fudging to comply with Basel III imo.

    The current APRA release is a draft so we'll know more when the final comes out.
     
  7. Contrarian

    Contrarian New Member

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    It's playing out right before your eyes, slowly but surely.

    Even this one eyed property bull can see it. ;)

    C
     
  8. jpanggy

    jpanggy Active Member

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    What crash? Auctions are clearing again.

    Look, the banks have prepared a bailout before it is even needed, making Australia beyond triple A rating, S rating?

    So, best thing to do now? Borrow heaps and buy property as its on another leg up to the moon and then straight into the sun.
     
  9. errol43

    errol43 New Member Silver Stacker

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    Is there a problem when the Australian Banks borrow short overseas and lend long locally for housing finance?

    .. What happens if they can't borrow any more overseas at cheap rates?

    Regards Errol 43
     
  10. Lovey80

    Lovey80 Well-Known Member

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    That was rhetorical wasn't it Errol?

    Don't worry I am sure the old codger will be here shortly to tell us that all of this rubbish is just fine and the banks are perfectly in order and not at risk.
     
  11. errol43

    errol43 New Member Silver Stacker

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    Lovely80 Yep :)

    Regards Errol 43
     
  12. Yippe-Ki-Ya

    Yippe-Ki-Ya New Member

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  13. Guest

    Guest Guest

    Too slowly for it to really matter to be honest.

    That said, there's really no incentive to buy right now unless you want the tax write off and let me tell you, I'm fucking tempted...

    http://www.heraldsun.com.au/news/mo...p-kids-at-school/story-fn7x8me2-1226207519685

    We're in a country that now BRIBES the lowest common denominator in the system to stay in school, using our own money to do it, whilst slugging the living SHIT out of those who actually strive for achievement in massive fees for higher education?

    I'm absolutely sick of the bullshit and being forced to pay for it!

    I know I've given the tax dodgers at the top end shit over this, but it's not them who pay the taxes - nor the useless crap at the bottom - but the workers like myself who are forced to pay full taxes year after year only to see it thrown into a big black hole like this for cheap votes!

    I have the absolute right to be pissed to hell over this crap and I'm completely sick of it!

    SCREW THIS SOCIALIST NANNY STATE BULLSHIT COUNTRY!!!!!!!!!!!

    :mad:
     
  14. renovator

    renovator Well-Known Member

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    Holy crap !!!! you really did turn that corner .Your starting to see things for what they really are & theyll keep doing it as long as they can .....hopefully until the next upswing when things start to head north then they will tax the arse out of that .They will keep the boat afloat as long as they can get a hold of money.

    I think a lot of people miss the part about if it tanks most likely our dollar will too then were back to banana republic status ...They dont want that .They like our position in the world economy just the way it is thanks & will do anything they can to keep it that way...... Only my thoughts of course .
     
  15. renovator

    renovator Well-Known Member

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    & you agree too !!!! :lol: this is something to remember .Ive been trying to tell you they would :p: Theyre scumbags. Now lets all get drunk & laugh because theres SFA we can do We might aswell have a good time.....They are
     
  16. errol43

    errol43 New Member Silver Stacker

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    Far too many grants/subsidies given at election time by both sides.

    There is no such thing as a government subsidies.

    Government moving money around, it's the very biggest game in town, and WTSHTF, you hold out your hand and here comes the PM handing goodies around.

    You want a housing subsidy, no problems. A baby bonus, no problems. A tank subsidy, no problem. A solar heater, no problem..Mummy can I go to the toilet. :)

    Regards Errol 43
     
  17. Guest

    Guest Guest

    My moral code is still completely intact. The fundamentals I believe in have not changed one bit.

    I have just woken up to the fact that such ideology in THIS society, means less than a bucket of vomit.

    I know people still hold out hope that there will be a 'great awakening' and our next golden age of morality, justice and social balance is just around the corner, but I have to say I just don't see it happening.

    If we were going to take a philisophical view over the whole issue, I would say that the window of opportunity to beat back the criminal element that defines the modern system has been closed and sad to say, the good guys lost.

    It's just that the majority are oblivious to it.

    For my ideals to be founded as reality would require a complete wiping out of the system we see before us now. Whilst those with nothing to lose will put a hand up for it, it doesn't matter at the end of the day as long as the 'democratic majority' still tow the political line.

    I stack because I know we're fucked. Well and truly, absolutely FUCKED people!!!

    The only way out now is to roll the dice and beat the bastards at their own game and that my dear readers, is a very depressing thought indeed.

    But the more I watch my hard earned pissed up the wall for a bunch of thugs with guns to massage their own egos in a lust for power and control, the more I realise that fighting the ideology that forms the principles of the morally just is an absolute waste of time. The fucking gutter scum RELY on people like me to maintain the course of the ship, stfu and dilligently pay more and more taxes to feed their insatiable demands and maintain their position as lords of this feudal age.

    Now I see the world for what it really is, I'm just so disgusted by it and have absolutely no sympathy for it what so ever.

    Whilst I am not at the point yet Reno where I can simply be 'amused' by it all, I am still very angry and hold the world in utter contempt.
     

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