What’s one of the solutions to combating obesity? Is it to make bigger trousers so you don’t have to worry about outgrowing them? Or is it better to just stop eating as much?
According to the National Australia Bank (NAB) it’s ‘bigger trousers please.’
The Australian Senate is taking submissions for the enquiry on the Australian Business Investment Partnership (ABIP – or Fairy Ruddfather Bank) which is to be run by ex NAB executive Ahmed Fahour.
In its introduction the NAB submission states: “Managing bank portfolio exposures in deteriorating economic conditions will present challenges for individual banks as they deal with customers in financial distress.”
Excuse us for a moment while we quickly refer to our “Running Banks for Dummies” handbook…
Sure enough, there it is, part of the role of a bank is to manage its exposure in deteriorating economic conditions. It’s right below the bit that says its other role is to manage its exposure in improving market conditions.
It’s what banks are supposed to do.
Seriously, if a bank isn’t capable to fulfilling its one and only task which is to take money in and then lend it out in return for an income for the saver and a profit for the bank, then they shouldn’t be in the business to start with.
Of course, the NAB has the comfort of being a 4-Pillar bank, so its incompetence can be limitless.
But don’t worry, it gets better than that. NABs submission goes on to say:
“The four major Australian banks cannot solve the problem, due to industry concentration limits, and increasing capital requirements from credit quality downgrades.”
Here it seems as though the bank is saying that if only the banks could merge into one big happy family and they didn’t have to worry about the credit quality of the loans then everything would be fine.
Naturally, we’ve got no problem at all with banks merging. None whatsoever. As long as it’s in a competitive environment. And that means the distortions in favour of the 4-Pillar banks need to be removed. But that isn’t going to happen.
But for all the spin we all know it comes down to one thing. And the NAB admits it…
“Capital values of commercial property and business assets are falling, and this trend
is likely to continue in the short and possibly medium term. The extent of falls in value will vary depending on asset class/quality, credit conditions and individual sellers’ situations. Deep discounts are being applied in forced sale circumstances.”
In other words, they’ve invested their depositors money in crappy commercial property assets because they thought the price of property would always rise. The bank has forgotten – if it ever knew – how to run a bank.
But let’s be fair. It’s not just NAB displaying incompetence. A scan of the submissions to the Senate enquiry shows they’ve all got their nose in the trough. It’s a veritable feast of vested interests:
- Property Council of Australia
- Master Builders Australia
- BIS Shrapnel
- AMP Capital Investors
- Eureka Funds Management
- General Electric
- Urban Taskforce
And not forgetting the Treasury either. Granted, some of the above give stronger support than others. But every last one of them is in favour of the government ‘doing something.’ The ‘doing something’ clearly means ‘Help! We’ve stuffed up!”
But whichever way you look at it, one thing shines through. And that is the continued denial of a property bubble. Even while arguing the case that they need a government bail-out the blame for it is attached to global credit markets rather than an over-supply of dodgy real estate.
There is another submission. It’s from Concept Economics. That’s a firm involving Henry Ergas who is the economic guru for Malcolm Turnbull. Ergas argues against the ABIP. That must be a good sign…
Wrong… Ergas isn’t arguing against it because he thinks that in a free market bad decisions by businesses should be met with bad consequences. No, he firmly believes that the commercial property sector is just fine.
So who does Ergas turn to for support? None other than the property spruikers at Rismark International. Only a cynic would claim Riskmark would offer a biased point of view in favour of property.
There is a set of simple facts in all of this. Property prices are determined largely by three things: supply, demand and price.
And at the moment the property market has a distortion in demand thanks to the first home buyers bribe and artificially low interest rates. It has a distortion in supply thanks to the above and the belief that property prices always rise.
And it has a distortion in price which is as a result of supply and demand, and attempts such as ABIP to prop the prices up. What they don’t seem to realize is that all these distortions are actually making things worse. Much worse.
They cannot continue to argue that high property prices are sustainable while claiming:
- That government needs to prop up commercial property
- That the first home buyers bribe must remain to help demand
- That banks don’t have spare capacity without government money to provide more loans
As each day passes and each reason is put forward by government, the banks and vested interests to argue that there is not a property bubble, their arguments get weaker, and the holes more apparent.
There is a property bubble. A property price crash is inevitable. We look forward to viewing the rest of the submissions to the Senate and the next round of arguments from the RBA and the banks claiming the robustness of the Australian property sector.
Other Stuff on the Markets
We go from Australian banks needing bigger trousers to the American banks having no clothes. “Hurray” the market shouted at the GoldmanSachs results. “Hurrah” they yelled at the JPMorgan results. “Huzzah” they bellowed to the Citigroup results.
“Hang on a minute, we’re not that dumb” they hissed at the Bank of America profit numbers.
Last night the euphoria over the quick – too quick obviously – recovery of the US banks wore off. If it looks like a rat and smells like a rat, then chances are it isn’t a cuddly bunny. Investors in the banks may find they have a few less fingers after playing with them.