Confidence trick

It takes a certain quantity of chutzpah to be a blogger. You need to know your subject well and be able to bat away your critics with good arguments. You can’t be afraid to stick your head out. In sum you might say you need a fair dollop of confidence. Especially if you’re going to invest hard earned savings into making it into a business.

But that’s not the kind of confidence that’s being bandied about by an increasing number of banks just now. Wesptac CEO, Gail Kelly, told us on the weekend in no uncertain terms that because, as a group, we’re not borrowing as much as we used to because we lack confidence:

Well, I think people will deploy whatever additional cash that they’ve got, either to save or indeed to repay further debt. So I think that’s what’s going to happen, rather than go and spend more. Because ultimately obviously what we need for the economy to grow is for people and businesses is to regain confidence and to decide now’s the time to spend more and indeed to invest more. But I think we’re a little bit off from that at this point.

Today, David Turner, Chairman of CBA, agrees:

While the resources sector is performing well, other parts of the economy are subject to headwinds. These include fragile consumer and corporate confidence, political uncertainty, a strong currency and natural disasters. Ongoing offshore instability continues to impact the domestic economy, and this has the potential to place further upward pressure on wholesale funding costs for domestic banks. While the 2011 financial year has been characterised by subdued system credit growth and intense competition, there is nothing to suggest that the 2012 financial year will be much different. Fundamentally, it comes down to confidence, and its confidence that will encourage both individuals and corporations to invest for growth.

Although both bankers refer to investment, what they really mean, I think, is borrow. And given both banks are glorified building societies these days, what they really mean is ‘get a mortgage’.

Conveniently, a more direct message of just this is available at the CUA:

Forgive me for being a stick in the mud but, to me, deciding to save and repay back your mortgage, which is what much of the nation has elected to do, is a preeminent act of confidence. Turning away from yesterday’s housing casino driven growth and towards business investment driven growth takes confidence. Save and invest, you bet. A collective act that will, ironically, rebuild confidence in the very banks that are telling you you lack it.

David Llewellyn-Smith

Comments

  1. HnH, agreed, definitely an act of confidence. I think the banks definition is more akin to ‘blind willingness’.

  2. of course its all confidence. Has nothing to do with debt saturation, job losses or any of that “real world” stuff.

    /sarc

    Westpac reduced headcount in the last year. I would assume that all the majors will be embarking on a round of cost-cutting this year to try and maintain margins. They can talk their books all they like, drop lending standards all they like but it doesnt change a thing in the real world. There is too much debt out there and it needs to be paid down.

    I hope they understand this and are preparing accordingly (rather than just expecting to go to the govt for bailouts).

  3. dumb_non_economist

    Ok, as the dummy on the block, can someone explain this for me?

    The US has been dragged around the block in chains`the past 2 yrs, Europe has done a Monty Python and had both arms chopped off and cries out “it’s only a flesh wound”, households are under a pile of debt higher than a Hedland iron-ore stockpile and we aren’t feeling confident! Shit, I hope these guys never, ever, go into counseling. “Okay, your wife and children hate you, your dog’s run off, you lost your job, house, car and have nowhere to live. What’s the prob, your in the same boat as everyone else.”

    In the meantime, they show their confidence by planning or actively retrenching their own work force!

    Now, the question; where do they think growth will come from, the credit card is maxed out?

    • Bankers, RE lobby & MSM believe if they stay on message the guppies will return to bite more debt.
      For CEOs it is easy to get confident. Gail Kelly Westpac gets a salary of $9.5M and the other bank CEOs on similar.
      They must really think the whole of the country is naïve enough to believe that there is no relationship between income and debt.
      Putting on the rose coloured glass of confidence will not pay the bills.

      “Dangerous Idea 1: create a genuine market for CEO compensation. Germany does this by having a board of directors and a supervisory of employees and unions. As both boards must approve CEO compensation it has been controlled. Instead of the 400:1 ratio of CEO to worker salaries in the US, in Germany it’s more like 40:1, where it was in the US and the UK before the laissez-faire deregulation of financial markets a generation ago.”
      http://afr.com/p/opinion/overpaid_bosses_just_call_their_FUBcZnJdiIUM0UfNCMB0JP

      • The more books I read about banking and the GCF (i.e. The Big Short by Michael Lewis) the more I come to the inescapable conclusion that the higher the renumeration the bank pays, the more stupid the person being paid.

        I suspect that a team of monkeys choosing between business options could manage Westpac better than Gail. Will time prove me right? Probably. Will Gail ever have to pay back any of her over-the-top renumeration if the govt has to intervene? No.

        Where’s OWS when you (still) need them?

  4. I was in the RBA Museum a wee while back and there are all these old posters from banks with the catchphrase “Save to Buy!”; Save… for a holiday, Save… for retirement, Save… for a new car, Save… in case of illness.

    You can bet the (much smarter) bankers back then weren’t getting paid millions of dollars a year to exhort customers to use this sensible approach to their personal finances.

  5. con men show con tricks to justify the cons they use to earn money at the expense of the public and global interest. they cannot create wealth. they can only lend money on usurious terms to those who can create wealth. the capitalist model is unethical and immoral and there are no checks on their excesses from weal governments beholden to them.

    • I probably agree with you on “who creates wealth”.

      But it is 90% the fault of GOVERNMENTS for making it so unattractive to do anything that DOES create wealth i.e. use resources, use land, employ people, make fair profits. This has a lot to do with bubbles in property, in gold, and also in sovereign debt instruments – all of which are “safer” and “less hassle” than actually creating wealth.

      There is really only one part of the world economy really humming and resilient today, and that is the Southern and heartland US States with low taxes, low regulations, business friendly laws, employer friendly laws, low cost urban land, low barriers to competition, low barriers to resource extraction, etc etc etc. So much for the “failure of capitalism”. It is “crony capitalism” that is the problem, not “capitalism” per se.