If you’ve read Money Weekend over the past three weeks, you’ll know that soon we’ll launch a new free eletter.
The eletter will cover some of the topics we’d like to write to you about in Money Morning, but can’t.
The reason is that this is supposed to be a mainly financially based newsletter. So when we go off on a tangent, talking about things like press freedom, personal freedom and the expansion of the police state, some readers don’t like it.
In fact, those tend to be the days when we get the most unsubscribe requests. We get that. You may have signed up for Money Morning to read about financial markets, the world economy and a few stock tips. What you may not have signed up for is our take on non-financial matters.
So, we’ve decided to switch the non-financial commentary to a separate free eletter. We’ll make more details available over the next few days, including how you can subscribe to the new eletter.
In the meantime, feel free to drop us a line to email@example.com to let us know what you think of this idea, and the kind of subjects you’d like us to include.
As for today’s Money Morning, the mainstream press seems shocked that the world’s biggest banks have manipulated interest rates for years. We’d like to know where the mainstream press has been all this time, because interest rate fixing goes to the very top. It implicates some of the most powerful men and women on earth…
Four years ago some labelled us as a crackpot, a nutter and a lunatic (names we consider a badge of honour rather than an insult).
Back then we dared to suggest that the Aussie banking sector was just as fragile and corrupt as the US and European banking sectors.
‘Oh no’, came the frequent reply. ‘Aussie banks have much higher lending standards. They didn’t get involved in sub-prime loans.’
But we knew we were right. That’s why we kept banging on about it. We wanted to make sure Money Morning readers knew the real state of the Aussie economy, the Aussie housing market, and the Aussie banking sector.
Well, four years later and what do you know…
‘A senior National Australia Bank executive expressed grave concerns about the credit market in an obscenity-laden email sent in February 2008, two months before the bank officially recognised a portfolio of sub-prime loans were damaged goods.’ – Age, 17 September 2012
‘Home loans classed as “sub-prime” accounted for about one in 10 of the nation’s mortgages when the global financial crisis hit, with those loans now more than six times as likely to be in arrears as normal loans.
‘The figures reveal that claims Australia was insulated from the worst of the GFC due to vastly superior lending standards, a notion encouraged by many of the biggest banks, are exaggerated.’ – Australian, 27 September 2012
‘America’s subprime mortgage scandal triggered the Global Financial Crisis and the world’s still recovering from it. What’s less known is that Australia too had its own subprime loans scam, the full extent of which is only just emerging.
‘Banks and other lenders abused the system of so-called low doc loans, which are designed for small business people.
‘They were sold by the thousands to pensioners, single mums and people on welfare and many investors are still struggling to pay the price of it.’ – ABC 7.30 Report, 13 August 2012
Good work by the mainstream media. It’s just a shame it took them four years to catch up. It might have been good if they’d backed us up when in 2010 we revealed the secret loans obtained from the US Federal Reserve by National Australia Bank and Westpac.
But no, not a peep. The mainstream was too busy cheerleading for the wonderful Aussie banking execs who had supposedly steered the banking sector through a global crisis. But they forgot to mention the Fed’s secret loans, the first homebuyer’s bailout, and the banking deposit guarantee.
The Aussie banking sector would have been toast without those three direct and indirect taxpayer funded bailouts. Given the fragile and corrupt state of the global banking system, it could still be toast.
Trouble is as always the mainstream press is looking the wrong way. They’re getting their pants in a twist about the wrong thing. Take the latest reporting from Bloomberg News on the Libor scandal.
It’s Not Just the Banks Fixing Interest Rates
The headline runs, ‘RBS Instant Messages Show Libor Rates Skewed for Traders’.
The report notes:
‘Royal Bank of Scotland Group Plc trader Tan Chi Min told colleagues the firm was able to move global interest rates, according to electronic messages the bank is trying to make secret.
‘Transcripts of the internal instant messages were included in a 231-page affidavit filed Sept. 19 by Tan, the bank’s former Singapore-based head of delta trading for Asia, who’s suing Britain’s third-biggest lender by assets for wrongful dismissal after being fired last year for allegedly trying to manipulate the London interbank offered rate, or Libor.
‘”Nice Libor,” Tan said in an April 2, 2008, instant message with traders including Neil Danziger, who also was fired by RBS, and David Pieri. “Our six-month fixing moved the entire fixing, hahahah.”
‘The conversations among traders at RBS and firms including Deutsche Bank AG (DBK) illustrate how the risk of abuse was embedded in the process for setting Libor, the benchmark for more than $300 trillion of securities worldwide. RBS, 81 percent owned by the British government, is one of at least a dozen banks being probed over allegations they colluded to manipulate the rate so they could profit from bets on interest-rate derivatives.’
What a scandal.
Of course, compared to the scale of the real interest rate manipulators, the Libor rate fixing is a storm in a teacup.
Think of it this way. The Royal Bank of Scotland was fined 290 million pounds (AUD$452 million) and fired at least two employees for fixing interest rates.
Now read this extract from the Australian last week:
‘The central bank posted a profit of $1.076 billion last financial year, compared with a loss of $4.889 billion the previous year.
‘Reserve Bank of Australia governor Glenn Stevens said the bottom line rebound was due mostly to the fact that the Australian dollar didn’t repeat the sharp rally it recorded a year earlier.’
Or this from the Daily Beast:
‘So far this year, the Fed, which turns over its profits to the Treasury department, has earned more than $80 billion for the government and over $5 billion just this month.’
How do the central banks profit? That’s right, by fiddling with interest rates. Yes, the Libor scandal may have affected the pricing of USD$300 trillion of securities, but that’s nothing compared to the impact on interest rates caused by the US Federal Reserve.
A Bigger Scandal Than Libor
According to the Bank for International Settlements, the total derivatives market is USD$604.9 trillion.
But that’s not the end of it. According to McKinsey Global Institute:
‘The total value of the world’s financial stock, comprising equity market capitalization and outstanding bonds and loans, has increased from $175 trillion in 2008 to $212 trillion at the end of 2010.’
Already we’re up to USD$816.9 trillion. And that doesn’t even include physical assets such as gold, silver, and owned property. And it doesn’t include bank savings accounts.
In short, don’t worry about what the corrupt banks did with the Libor scandal. It’s nothing. Not when you compare it to the daily interest rate fixing committed by the government backed central banks.
Their actions are much more harmful than anything committed by the Libor banks. Remember the report from last week’s UK Daily Mail:
‘QE [money printing] has the effect of lowering annuity rates, which dictate how much a newly-retired person receives from their pension, to an all-time low.
‘Some 20 years ago a £100,000 pension pot bought £15,650 a year for life – today it’s just £5,800.
‘This, combined with low interest rates on savings and the rising cost of living, has hit pensioners especially hard.
‘[Bank of England governor,] Sir Mervyn expressed “great sympathy” for their plight and said he found the impact on their lives “deeply upsetting.”
‘Millions of elderly have seen the income on their savings accounts disappear with many accounts paying close to zero per cent.’
Make no mistake, it isn’t the Libor banks that have pushed pensioners into poverty. The real criminals are the central banks. They are the ones that control the interest rates covering 1,000 trillion dollars of wealth and speculation.
Your Wealth is the Next Target
The yield on a US two-year government bond is 0.26%. That means investors receive 0.26% in interest each year. The current US price inflation rate is 1.7%.
In other words, the cost of living is rising more than six times faster than the income US retirees can earn from a ‘risk-free’ investment.
And if you go by the unofficial price inflation rate on Shadowstats.com, the real price inflation rate is 5%…or nearly 20 times greater than the return on a ‘risk-free’ investment:
If it wasn’t for central bank meddling, interest rates would be higher. Why? Because in a free market with the current inflation rate, no investor in their right mind would lend money at a rate so far below the price inflation rate.
Bottom line, we’re not saying the banks are innocent, because they aren’t. But don’t trust the mainstream press, governments or central bankers to tell you the truth.
If they did, they would have to reveal the identity of real financial terrorists…themselves.
Those who claim to have the solutions to fix the current global financial mess are the ones who are making things worse.
Unfortunately, it’s directly impacting your current or future retirement. And as we’ll reveal in this week’s Money Weekend (in your inbox on Saturday morning) the government isn’t satisfied with wealth destruction…
After they’ve finished wreaking havoc on your savings, the next step is to rob you of what’s left.
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Written by Kris Sayce
Kris Sayce is Editor in Chief of Australia’s biggest circulation daily financial email — Money Morning. (You can subscribe to Money Morning for free here).
Kris is also editor of Australian Small-Cap Investigator, his small-cap stock research service, where he provides detailed analysis on some the brightest, smallest listed companies on the ASX.
If you’re already a subscriber to these publications, or want to follow his financial world view more closely, then we recommend you join Kris on Google+. It’s where he shares investment insight, commentary and ideas that he can’t always fit into his regular Money Morning essays.