Comments on: How the Banks ‘Look After’ Your Money

By: Pete

Pete — Tue, 09 Feb 2010 21:31:04 +0000

I may have it all wrong, but, as a small business operator, I am constrained by laws, (not to mention controlled credit), that prohibit me from operating insolvent. It seems to me that the bigger the business the less constraints you have on you, all the way to the ‘TOP’(?), that is the Government, who operate under a situation where the whole assets of the nation could not bail them out.
Why not invoke their own laws on bankruptcy, wipe all their gambling debts and restart our own National Bank, like the CBA used to be, and build our Nation back up.
Sound too far fetched? It worked when our own Government credit system paid our own way through the second world war, exactly as did the USA, and came out of it healthily industrialised.
It worked when the Government via the CBA financed the Snowy Mountain Scheme and paid for it before it was even completed through profits already generated.
The problem is we are under the RULE of a world wide MONETARIST system, and that is a three tiered system, PROFIT FIRST, PROFIT SECOND AND ALL PROFITS to the financial empire that runs it.
Bailing out the banks? No, just let them drain our Super, get us further in debt with easy credit, further into their control, and so it goes on.
Australia wasn’t meant to be this way.

By: cb

cb — Thu, 04 Feb 2010 07:46:41 +0000

Bravo that, Ralph. You would expect at least that much.
However, we might see our wish granted in the form of government bonds that the banks will be required to hold as part of their reserves. Clever, ey? Treasury killing two birds with one stone.

By: Ralph

Ralph — Wed, 03 Feb 2010 23:24:46 +0000

That’s right, BB. Now the government guarrantee is in, it’s probably going to be there forever. The government might put a fee on it to make it look like the banks are paying something for it. Same goes for the guarrantee of borrowings. But regardless of the tweaks that may or may not occur, I think it’s safe to say that there will always be an implicit guarrantee. As several others have said, the banks know the government will step in and bail them out as soon as things start looking shaky. Out overleveraged financial system depends on it.

It’s moral hazard of the worst kind and I think it stinks. But it’s there. I would be able to live with it better if the gov’t had the guts to beat the banks into shape a little in return – a bit of quid pro quo if you like. Asking the banks to boost their reserves and increase their liquidity is not too much to ask in return for the safety of a guarranteed taxpayer bailout when the $hit hits the fan.

By: BB

BB — Wed, 03 Feb 2010 23:00:11 +0000

My understanding of the Government ‘guarantee’ prior to end 2008 as the s*it hit the fan was that there was no implicit warranty required from the banks in respect of coughing up depositor savings. It appears to be one of the things nobody thought of as the traditional links between ‘government’ owned banks such as Bank of NSW (morphing in Westpac) and eventually the Commonwealth Bank sell out. Whilst banks were government owned there was no risk that you could loose your life savings. At end 2008 I think there was a commitment by St. Kevin and confirmation from then Liberal leader Malcolm Turnbull that $20,000 of savings in bank accounts would be guaranteed. In the context of those recent scary days they quickly realised that wasn’t enough to stop a run. Many ‘doctors wives’ were already on their way to their local banks with a suitcase! Rudd kicked it up to $1M and extended it to non-bank savings (but not super of course) and thence it stays today with no end in sight as far as I know?

By: PuntPal

PuntPal — Wed, 03 Feb 2010 22:54:48 +0000

cb – True its not worth it, we agree to disagree on this one.
Cheers

By: cb

cb — Wed, 03 Feb 2010 12:17:50 +0000

PuntPal, perhaps I should not, but I will make just one more attempt at demonstrating to you that there is innuendo in the article, as I suggest:

“Just $2.20 for every $100 you deposit
Well that doesn’t make things any better. When you deposit your money in a bank account you do so because you want someone to look after it for you.
Right now, for every $100 you deposit in the bank, the CBA keeps just $2.20 in cash. Another $17.60 it invests in ‘Trading securities’ and ‘Investment securities’. And pretty much the rest it invests in loans to businesses and households.
The majority of it going to Australian residential property market.
…………
So, the next time your employer pays your wages into the CBA – or any other bank – just consider that for every $100 that goes in, the bank only ‘looks after’ $2.20, the rest it punts on the financial markets and the housing market.
Happy saving!
Cheers.
Kris.”

There it is. The bank only looks after $2.20 of every $100 you deposit. The rest it bets in various risky ventures, with the bulk of it going into the most risky of them all, according to Sayce, (AND YOU), the property market. It is insinuation, innuendo, and total bunkum. But let us try not to fall out over it. It is just not worth it.

By: cb

cb — Wed, 03 Feb 2010 11:57:51 +0000

PuntPal – this discussion is clearly deteriorating. I suggest we leave it at that.

By: puntpal

puntpal — Wed, 03 Feb 2010 11:46:06 +0000

Sorry but I dont accept your argument – yes Sayce was saying that the Banks take our deposits and then lend them out recklessly, but I dont agree that someone reading this would assume that their deposits are in risk…

the point as I have said on 3 occasion and would love Sayce to confirm tomorrow – please Kris if you read this! – is that the our banking sector is house of cards. IT HAS NOTHING TO DO WITH THE SAFETY OF OUR DEPOSITS!!
If the banks collapse because of recklessness we all pay – even though depositers will get their money via the Government, because WE FUND THE GOVERNMENT WITH TAXES!!

So say I get my money back off a collapsed CBA, I will have to pay for indirectly through higher taxes (look at what is happening in US and UK – that bailout money didnt grow on trees, it is a cost to the population of those countries).

I think you are actually being intellectually dishonest here, and you are the one twaddling

It was clear that this is what Sayce’s article was about and I only wish the mainstream press reported like this.

A run on the banks might be just the thing to wake up the regualtors to the trouble that lies ahead!

By: cb

cb — Wed, 03 Feb 2010 11:20:29 +0000

PuntPal – As I said, the article’s overall thrust has been that banks are not looking after depositors’ money, and that instead of keeping their money safe, they lend it out and invest in goodness knows what assets and ventures. It is true that he stops short of saying what is blatantly obious cr@p, but given that he addressed his article to the depositor, not the unsecured lender and shareholder, the insinuation is there. At least that is the conclusion that one would jump to if one read his article and gave it full credence:
“If my bank is being reckless with my money, then maybe my savings are not safe with them, and I better withdraw them before they squander my hard earned cash.”

PuntPal, tell me if anyone with their faculties intact and who had no contrary information to rely on from other sources would conclude anything else after reading Sayce’s article. Tell me especially whether they would still be left with the belief that even though the banks are being reckless squanderers with saver’s deposits, those deposits are nevertheless safe, and that savers need not worry about all the shenanigans of the banks with their savings while chasing their bonuses.

You have to read that article with these considerations in mind to get to the heart of and the likely effects of the arguments on the reader. I maintain that, insofar as the the article has been aimed at savers and depositors, which it clearly has been, it is largely misleading twaddle.

Now, as to your argument of moral hazard, that certainly is there. The banks know that there is no way in the world that they will not be bailed out if they are squeezed with cashflow, or worse, sustain losses that exceed their reserves. Consequently, they will be likely to try running as lean an inventory (reserves) as they can. After all, if they can count on the tax payer, why not? Their reasoning stinks, but iis entirely rational and understandable.

However, there is a little more to the low reserves probably, and I will cover that a little later.

By: etch

etch — Wed, 03 Feb 2010 10:15:05 +0000

cap 23 mill oz party