Secret Banking Business

Secret Banking Business

FacebookTwitterReddit

You’ve read a lot about the banks in Money Morning during the past week. And today is no different. So strap yourself in…

Yesterday we gave you the reply we’d gotten from the Reserve Bank of Australia (RBA). We’d asked them when the RBA had been told about National Australia Bank [ASX: NAB] and Westpac’s [ASX: WBC] secret loans from the US Federal Reserve.

Its spokesman wrote, “The Bank does not comment on commercial institutions’ business dealings or transactions.”

This apparently even extends to when the taxpayer is also underwriting the banks.

Its funny isn’t it. When you apply for a loan with a bank they quite rightly want to know what other loans you have. That way they can supposedly figure out whether you can afford the repayments or not.

Although over the past thirty years we’ll admit, even that is less important than it used to be. Because over that period it was assumed asset prices would always rise and therefore borrowers were given bigger loans – if they defaulted, no problem, just sell the mortgaged asset at a profit… easy.

Yet when it comes to the taxpayer underwriting loans to banks it seems to be a different story. Everything must remain top secret. The RBA “does not comment…” So there.

So while the taxpayer was told about the deposit guarantee and the wholesale funding guarantee – big enough obligations by themselves – the taxpayer was kept in the dark about the USD$53 billion of loans the RBA had taken out with the Fed. Again, backstopped by the Australian taxpayer.

And the taxpayer wasn’t told about the over USD$5 billion of obligations to the US Federal Reserve that two of Australia’s banks had committed themselves and the taxpayer to.

But the RBA isn’t the only regulator to lose its tongue.

We spoke to Andrew McCutcheon, Media and Communications Manager at the Australian Prudential Regulation Authority (APRA). We’d sent APRA the same email that we’d sent the RBA last week.

We wanted something in writing but Andrew preferred a phone call. Hopefully you’ll forgive us, our shorthand isn’t what it used to be. Actually, that’s not saying much, our shorthand has always been bad.

So we’ll just have to paraphrase the response.

Andrew tells us that Section 56 of the Australian Prudential Regulation Authority Act 1998 forbids APRA from revealing any information regarding the institutions it regulates!

What? How does that work? What’s the point of a regulator if everything is top secret?

Although we’re not surprised he won’t tell us. According to the Act there’s a penalty of two years imprisonment for revealing secret information on the banks.

You can check out the full Act by clicking here.

And here’s the best thing, Section 56 comes under Part 6 of the APRA Act. The heading for Part 6 is… of course… Secrecy.

And because it’s top secret, the Act informs you that “A document that: (a) is a protected document; or (b) contains protected information; is an exempt document for the purposes of the section 38 of the Freedom of Information Act 1982.”

As I say, your editor is no legal eagle. Our only legal training was gained from the Matlock School of Lawyering followed by a post-graduate qualification from the Rumpole Academy. But even that limited training tells us that APRA will never reveal the full extent of what it knew and when it knew it about the Aussie bank bailouts from the US Federal Reserve.

So, the last response we’re waiting on is from the Australian Securities Exchange (ASX). But considering we’re yet to see a notice appear against NAB or Westpac’s names we can assume either the ASX already knew about the secret bailouts and aided the banks in keeping it a secret, or it’s going for the old head-in-the-sand routine.

Quite frankly, either explanation is possible.

And don’t think there are any Australian politicians who are keen to expose the bankers. Unfortunately Australia doesn’t have an equivalent of Ron Paul in Federal Parliament. Someone who’s prepared to stick up for sound money.

Instead, you’re more likely to get the kind of response that Money Morning reader Stuart apparently received from Joe Hockey’s office:

“Dear Stuart

“Thank you for your email to Mr Hockey.

“The Australian banks were not bailed out by the US federal reserve [sic], nor was the Reserve Bank of Australia. As NAB is a public company it would have needed to disclose this to the market, and I can assure you that it did not.

“Yours sincerely

“Alistair”

We’ve not idea who “Alistair” is, but he may want to check his facts. As he seems to have got his logic in a muddle. His argument seems to be that because neither NAB nor Westpac disclosed the bailouts to the market then the bailouts didn’t happen.

Even though they did. Because it’s there in black and white on the Federal Reserve website. But no, a public company would have to disclose that information, and because they didn’t, no bailout!

Madness.

Even the mainstream press has pointed out the bailout dollars received by the RBA from the US Federal Reserve.

And even the mainstream press has acknowledged that Australia’s banks would have received some of that cash as emergency loans.

The fact that NAB received USD$4.5 billion of US Federal Reserve bailout money but didn’t report this to the ASX – or if it did the ASX agreed to keep it confidential shows you this cover-up has gone right to the top.

But as the Wikileaks disclosures show you, governments worldwide – including Australia – have plenty they need to cover up.

Politicians, bureaucrats, conservatives and socialists are all labelling the Wikileaks revelations as treasonous or at least criminal.

We take the opposite view. We take the view that the kind of corrupt and inappropriate behaviour revealed in those documents proves how dangerous it is to have glorified town councillors in positions of immense responsibility.

Put it this way, if you tell your American friend to whack your Chinese friend on the nose, who gets hurt? Well, the Chinese fella obviously. And he may not take too kindly to what you asked your American friend to do.

But that’s pretty much the extent of the damage.

But if a glorified town councillor like the Fairy Ruddfather asks his American buddies to bop China, who gets hurt then? Potentially everyone.

A career in politics for most people in our opinion is simply an attempt to gratify a perverse urge to control others. It’s the same urge from town councillor all the way up to Prime Minister.

Anyway, it seems to be the more we dig, the more we’re prevented from digging. Neither APRA nor the RBA have any interest in keeping you informed about the safety of your taxpayer dollars and your savings… we don’t like that.

However, we have seen several comments that suggest NAB and Westpac were simply doing what any bank should do, access funds for a cheap interest rate from the Federal Reserve.

That the banks were simply borrowing cheap money which they could then lend out for a higher rate and pocket the difference.

It’s a nice line. And it could even sound plausible – if it wasn’t complete nonsense.

Let’s not beat around the bush here. NAB and Westpac borrowed from the US Federal Reserve because they had to. And the Reserve Bank of Australia borrowed from the US Federal Reserve because it had to – because it needed to bail out Australian banks.

The idea that NAB and Westpac executives suddenly decided to borrow cheap out of choice is ludicrous. It ignores the entire reason why these emergency loan facilities were made available by the Federal Reserve.

You see, it’s true that banks borrow money all the time. That’s how they work. They borrow money from depositors. They then create ten-times the deposited amount in new money to lend out to borrowers. All the while, the depositor is free to withdraw his or her money on demand.

But we won’t worry about that last aspect today. We’ve covered that before. Banks borrow money for short-term and long-term durations. That means on any given day a bank has to roll-over a loan.

Simply put, if a bank takes out a loan for a 30-day duration then at the end of 30 days the bank needs to repay the loan or it needs to roll it over to a new loan. In normal circumstances, when everyone was happily – and foolishly – lending money left, right and centre, this was pretty easy – out with the old loan, and in with the new.

But then through 2007, 2008 and early 2009, you remember what happened don’t you? The “credit crunch” occurred and lending ground to a halt.

Now, that was a good thing. It should have been the beginning of the end for the current unstable and corrupt banking system. But the central bankers, politicians and mainstream economists thought they knew better.

Instead of acknowledging the dangers of a highly leveraged banking system and allowing it to collapse, they didn’t want that happening on their watch. Hence the bailouts. Bailouts that have only succeeded in postponing the natural consequence of the credit meltdown.

Anyway, can you guess what happened to the banks?

That’s right the banks needed to repay loans but found it hard to borrow the money to pay off those loans.

So, in order to meet short-term loan repayments, the banks needed a bailout from the US Federal Reserve – the loans to Westpac and NAB that we know about – and from the RBA – loans to the banks that we assume will remain top secret.

Without those loans the banks wouldn’t have been able to meet their obligations to repay short-term funding. And if the banks couldn’t repay their short-term funding… they would have defaulted and you would have seen a run on the banks.

That’s why the banks took the loans from the Fed and the RBA. Not out of choice. Not because they recognised an opportunity to make a quick buck. They did it because they had to. They had to in order to not go bust.

But the other thing that amazes us about this is the lack of interest from the hopeless credit rating agencies.

As we’ve pointed out, without the loans from the Fed and RBA the banks would have defaulted on their obligations. Yet the banks retained their AA ratings throughout. And despite this info now being made available to the public, the banks are still double-A rated.

You probably remember all the guff spouted by the Aussie banking execs about how our top four banks all have double-A ratings. How they are four of only twenty banks in the world to hold a double-A rating.

A double-A rating that means nothing when the four banks were obviously within days of collapse. A sure thing if it wasn’t for the Fed chucking them a few billion to tide them over.

But as I say, don’t think that means you should heap praise on the Fed or Ben Bernanke for having saved Australia’s banks from collapse, because you shouldn’t.

All this sorry affair has done is prolonging the pain. Pain that would have been swift and sharp in 2008 has turned into something that will last for years, possibly decades.

Even Ben Bernanke has admitted on 60 Minutes in the US that:

“At the rate we’re going, it could be four, five years before we are back to a more normal unemployment rate”.

So much for saving the economy. Ruining it more like.

Make no mistake, the Australian banking system was bailed out in 2008 and 2009 just like most other banks around the world.

We figure that’s the reason why the mainstream press has completely ignored this story. Because it rubbishes their entire argument about the strength and stability of Australia’s banking system.

It isn’t strong, it’s just like the rest – perpetually on the verge of collapse.

Cheers.

Kris Sayce
For Money Morning Australia

Kris Sayce

Kris Sayce

Publisher and Investment Director at Port Phillip Publishing

Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the editor of Tactical Wealth, and Microcap Trader — where he reveals the best opportunities he’s discovered in the markets. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It’s where he shares investment insight, commentary and ideas that he can’t always fit into his regular Money Morning essays.
Kris Sayce is the Publisher and Investment Director of Australia’s biggest circulation daily financial email, Money Morning Australia.Kris is a fully accredited advisor in shares, options, warrants and foreign-exchange investments.

Kris has close to twenty years’ experience in analysing stocks. He began his career in the biggest wasp’s nest in the financial world — the city of London — as a finance broker back in 1995.

It’s there where he got his ‘baptism of fire’ into the financial markets, specialising in small-cap stock analysis on London’s Alternative Investment Market. This covered everything from Kazakhstani gold miners to toy train companies.After moving to Australia, Kris spent several years at a leading Australian wealth-management company. However he began to realise the finance and brokerage industry was more interested in lining its own pockets with fat fees, commissions and perks —rather than genuinely helping out the private investors they were supposed to be ‘working’ for.

So in 2005 Kris started writing for Port Phillip Publishing — a company which was more attuned to his investment outlook.

Initially he began writing for the Daily Reckoning Australia— but eventually, took over Money Morning. It’s now read by over 55,000 subscribers each day.

Kris will take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money! Whether you agree with him or not, you’ll find his common-sense, thought-provoking arguments well worth a read.

To have his investment insights delivered straight to your inbox each day, take out a free subscription to Money Morning here.

Kris is also the editor of Tactical Wealth and Microcap Trader where he reveals the best opportunities he’s discovered in the markets that you could profit from. If you’d like to learn about the latest opportunity Kris has uncovered, take a 30-day trial of Tactical Wealth here or Microcap Trader here.

Official websites and financial e-letters Kris writes for:

FacebookTwitterReddit

Leave a Reply

109 Comments on "Secret Banking Business"

Notify of
avatar

Sort by:   newest | oldest | most voted
UnSpin
Guest
UnSpin
5 years 11 months ago

Kris. The banks didn’t feel it necessary to disclose the Fed’s ‘bailout’ cash to the ASX right? So they didn’t need ‘bailout’ money right? So haven’t they defrauded someone by applying for ‘bailout’ money?

Even if it wasn’t fraud then I’d say that US citizens will be mighty peeved. Afterall, their Reserve leant to our banks at super low interest rates. But when our Reserve lends money it gave it to Rudd who handed it out as cash to middle and low income earners. Right?

I wonder if Oprah knows?

UnSpin
Guest
UnSpin
5 years 11 months ago

Idea for a placard for the Oprah visit. “Thanks for the cheap cash USA. It paid for my LCD TV”

cb
Guest
cb
5 years 11 months ago

But would Oprah care? Or dare to disclose this and make a fuss about it? She is part of the top 1% in the establishment. These people don’t rock the boat in which they fare so well.

AS
Guest
AS
5 years 11 months ago

What do the credit ratings agencies have to say about this?

cb
Guest
cb
5 years 11 months ago

Excellent article, Mr Editor. Give them heaps, and well done!

cb
Guest
cb
5 years 11 months ago

Upon reviewing this clip again, I am getting this increasing feeling that it could be made just as plausibly and compellingly to the NWO advocates. For, what an supra-national bureaucracy is going to mean will be even worse than what the EU Parliament means for the countries of Europe, who, in may ways, are one by one losing their paliamentary democracies with more and more of their laws being made for them by internationalists whose are not answerable to them.

‘Who the Hell You Think You Are?’ Nigel Farage throws egg in Eurocrat faces
http://www.youtube.com/watch?v=2gm9q8uabTs

Mickey
Guest
Mickey
5 years 11 months ago

Your doing Gods work.

oysterboy
Guest
oysterboy
5 years 11 months ago

Agree – a good topic. Keep stoking away Kris.

cb
Guest
cb
5 years 11 months ago

And so it appears that the Wikileaks controversy circus is making a show, with just enough criticism from MSM to make it all look important and credible. This article certainly would fit that mould:

Why Assange is no Gandhi
http://www.businessspectator.com.au/bs.nsf/Article/WikiLeaks-Julian-Assange-news-leaks-pd20101207-BVSMD?OpenDocument&src=kgb

UnSpin
Guest
UnSpin
5 years 11 months ago

@cb. You’re probably right. But I suspect her viewers would care.

wpDiscuz