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

"Glenn Stevens said it was prudent for Mr Hockey to add that $8.8 billion to the RBA's reserve fund and that the strength of the fund had been an issue of concern because reserves had been run down because of the high Australian dollar

Now Mr Stevens said the fund needed to be rebuilt to ensure the RBA remains strong, for example to withstand an economic shock where the RBA might need to guarantee the banking system."

Read more: http://www.abc.net.au/worldtoday/content/2013/s3913776.htm
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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.
"Suitcases stuffed with cash were allegedly used to influence former Indonesian president Suharto to approve contracts to buy the Reserve Bank of Australia's plastic banknotes, according to a sworn witness statement made by a Jakarta middleman.

gave a shoebox full of US dollars to a relative of a senior Chinese Communist Party member.

This is the first time the RBA firms which were charged in 2011 with foreign bribery offences in Indonesia, Malaysia, Nepal and Vietnam have been linked to alleged corruption in China.

Read more: http://www.smh.com.au/national/case...corruption-witness-claims-20131219-2zm11.html
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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
 
hiho said:
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
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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.
 
JulieW said:
hiho said:
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
Click to expand...

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

Moody's consults on borrowers' rights in RMBS

Having taken legal advice, Moody's is revisiting the issue of how a borrower's deposits with a bank would affect an RMBS transaction in the event the bank failed. Assume a borrower has a $300,000 deposit and a $500,000 loan at the time the RMBS transaction is finalised.

In Australia, $250,000 of that deposit is guaranteed leaving the depositor with a $50,000 exposure to the failed bank. Does the depositor have the equitable right to say that it therefore only has to repay $450,000 despite the fact that the borrower has agreed to waive the right to set off that $50,000?

The situation has not been tested on a large scale basis in either the UK or Australia. Moody's has requested comments on its proposed approach which is to assume that the depositor has this right.

Source: http://www.australianbankingfinance.com/capital-markets/puma-kicks-off-rmbs-market/
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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 ...
chinawealth.gif

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 ...

PUMA kicks off RMBS market
The securitisation market started the year with a bang thanks to a $1.4 billion issue of residential mortgage-backed securities (RMBS) from Macquarie Bank.

The PUMA Series 2014-1 Trust had been launched earlier in the week as a $500 million transaction and was priced on Thursday.

The $1.288 billion of AAA-rated Class A notes with an expected average life of 2.7 years went out the door with a margin of 90 basis points (bp) over bank bills, with around half of the notes going to offshore investors. The $84 million of AAA-rated Class B1 notes and $28 million of unrated Class B2 notes were retained by the bank.

By volume, around two-thirds of the notes went to bank balance sheet accounts, five per cent to insurance companies and approximately 30 per cent to fund managers including governments and agencies. By number however, there were more non-bank bidders, said Kevin Lee, division director, debt origination and structuring, at Macquarie Bank.

The deal's structure was refined with investors' preferences in mind. There is a refinancing option after five years and if the deal isn't called the coupon steps up 50bp. Also the cashflows are fully sequential so that all the cash available to pay down the notes is directed to the Class A notes before any goes to the junior tranches.


That means the proportion of subordinated debt increases over the life of the deal. Furthermore, there are no triggers to switch to pro-rata payments. Lee said these features are unusual for a floating-rate transaction.


Credit union's $100m internal RMBS

At the other end of the scale, the Maritime, Mining & Power Credit Union closed its $100 million Waterside Trust No. 1 Series 2013-1R RMBS transaction last Thursday. Consisting of $80.6 million Aaa-rated Class A notes and $19.4 million unrated Class B notes, it was an internal securitisation of prime home loans for repo purposes.
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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? :rolleyes:
 
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.
:rolleyes:
 
"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
 
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