Rudd spills beans on GFC bank insolvency

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From Kevin Rudd’s witness statement yesterday, Rudd recalled the fateful post-Lehman weekend meeting of the Strategic Budget and Planning Committee of Cabinet:

“Cabinet was informed that unless the Government moved immediately to provide a Government guarantee for every Australian’s bank account, there was a real prospect of a run on the banks, as had occurred abroad.”

“We were also advised that the Government also needed to provide a guarantee for the inter-bank lending requirements of Australia’s private banks because global credit markets had already frozen.”

Is that insolvent enough for ya?

Comments

  1. The burning question now is.. Who informed and advised the cabinet to bail out the banks?

    Parko or the one who tried to paint GFC as a “North Atlantic crisis” (Glenn Greenspan)? Or both?

      • My mistake.. And Rudd’s statement says it was Treasury advice. Hopefully, this has got nothing to do with Ken Henry getting a seat on the board of one of the bailed out banks.

    • migtronixMEMBER

      I believe you’ll find it was the jackals, see John Perkins for reference

      • for the answer read APS 210 on APRA’s website. Its called ‘baked in’ systemic risk. Banks are not only allowed, but they are actually heartily encouraged by APRA and the RBA to hold each others debt. And as you will see in plain English in APS 210, the RBA guarantees to buy their debt (or repo it until eternity) in exchange for cash.

        Put simply, APRA requires each ADI to buy debt from one another. In a solvency crisis, the RBA has established the CLF – basically an unlimited committed credit line where say, Westpac, who has purchased billions of MacBank’s debt under APRA’s requirement, gives that debt to the RBA and for a small haircut (probably far less than the yield Westpac is earning on MacBank’s debt) gives Westpac cold hard cash into their ESA account.

        http://www.apra.gov.au/adi/PrudentialFramework/Documents/Prudential-Standard-APS-210-Liquidity-(January-2014).pdf

        Now APS 210 in its current form (and certainly not the CLF) didn’t exist during the GFC. But APRA and the RBA knew fully well all banks were all systemically exposed to each other. They had seen little old Northern Rock in the UK, smaller than Bendigo Bank, almost start a system wide run in the UK. They knew they had to underwrite every bank irrespective of whether they needed it or not, for to have one fail they all would have failed within a matter of days. Even if the failing bank itself hadn’t taken a cent of deposits (recall Northern Rock was mainly RMBS funded) it would have fatally harmed other banks.

        For another clue look at APS 221. APRA will limit the ‘large exposure’ cap a bank can take on a corporate customer to 25% of the banks capital base. But it will allow a bank to expose up to 50% of its capital base (yes, double the amount) to another ADI.

        http://www.apra.gov.au/adi/Documents/cfdocs/APS-221-12-12-07-3.pdf

        Not only is this systemic risk known by the government, its not even just encouraged, its mandated by the regulator.

    • mine-otour in a china shop

      APRA’s pawprints would have been all over this “recommendation:. They have all the data on the ADI sector via monthly and weekly returns, in crisis and would be in regular contact with the Banks.

      APRA would then inform the RBA and Treasury via the Emergency committee, and these recommendations would be passed to Government (along with numerous phone calls) for “decision”.

      So it was APRA’s likely analysis that drove the recommendation … sorry the ADI’s who tell APRA what to do, that drove the recommendation.

  2. A little more clarity but Rudd has a long record on making himself all his actions the centre of the world. We need to know who informed them and the detail, or it might be the on-going Rudd melodrama.

  3. “…there was a real prospect of a run on the banks”

    Errr … still lying —

    “The man [Ian Harper, member of Wallis Inquiry] who had just been reassuring everyone there was nothing to worry about went down the street to the ATM and made a sizeable withdrawal to make sure his wife would have enough cash.

    All around the country, banks were facing unusual demands for cash…

    It was a silent run, unnoticed by the media. Across the country, at least tens and possibly hundreds of thousands of depositors were withdrawing their funds. Left unchecked, there would soon be queues in the street with police managing crowd control, as occurred in London at the Golders Green branch of Northern Rock a year earlier…

    Households pulled about $5.5bn out of their banks in the 10 weeks between US financial house Lehman Brothers going broke – the onset of the global financial crisis – and the beginning of December. That is roughly 80 tonnes of cash salted away in people’s homes. Mattress Bank is doing well, was the view at the Reserve. A year later, only $1.5bn had been put back.”

    http://www.theaustralian.com.au/news/features/tonnes-of-cash-were-salted-away/story-e6frg6z6-1225882001496

  4. Hardly a revelation, banks are always technically insolvent if all on call depositors asked for their money back when the banks have lent long term.

    It’s the governments job to guard against that. Good to see that the government did it’s job well.

    • I would have thought it was gov’t job to ensure bank lending conforms to strict standards that ensures the gov’t does not have to step in. If not, then nationalise them or tax the bejeesus out of them. Why are the bankers the only one getting a free lunch?

      • migtronixMEMBER

        Pffffft how would Peter make a living then?

        He’d have to go… Seek alms… Bwaahaahaa

      • migtronixMEMBER

        The lunch isn’t free, someone yesterday told us it costs 5 freshly minted dollars (I do wonder whether the canteen at the RBA accepts cash?)

      • notsofastMEMBER

        Then how would the global elites control our economy and hold our politicians to ransom???

      • The rich and their children would have to do real work to stay rich or get richer. You know, become doctors, invent googles, etc. Poor dears.

        Yes it is amazing that most people don’t know how much of a rort it all is and because they swallow MSM bs they’re basically complicit in helping those bmw drivers they hate so much. You couldn’t make it up.

      • “then nationalise them or tax the bejeesus out of them.”

        Welcome to my world squirrell.

        I will be looking for you to add the “Ban Usury (Again). Problem Solved” sign-off to your comments some day soon 😉

        THE reason the banking system is as it is, is Usury. (ie) so private oligarchs can maximise usury returns on the creation of “capital” / “money” / electronic bookkeeping entries / debt obligations.

        It has been so since 1515, and has only gotten worse (read, “more cunning, more obfuscated, more indoctrinated”) in the centuries since.

        BTW, 500th anniversary of (Medici) Pope Leo X’s official sanctioning of the Monti di Pieta, coming up in 12 months:

        https://www.jewishvirtuallibrary.org/jsource/judaica/ejud_0002_0014_0_14150.html

      • Opinion*Bred, interesting comments – I guess usury is something that MANY have had difficulty with (eg Aristotle, Islam still does, Catholics a few hundred years ago, and even Jews unless lending to gentiles!).

        at its heart, i think the problem is when money supply out paces the growth in an economy. When this occurs a disproportionate amount of newly created money ends up in assets (eg housing) , this enriches those who already own the assets. When we tax income and undertax capital we simply exacerbate this natural advantage. Personally I think we are stuck with usury but should look to limit money supply.

      • “the problem is when money supply out paces the growth in an economy”

        Usury is the CAUSE of that phenomenon.

        Compound interest grows geometrically. Real (non-financial) economy can only grow arithmetically.

        Ergo, “money” supply (ie, to keep feeding the usurers their pound of flesh) will always, over the long run, outpace real economic growth.

        This is the repeated story of the world’s recorded monetary history, going back to Sumer (Babylonia).

        (cf. Michael Hudson).

    • migtronixMEMBER

      LOL the Government’s job is to make sure citizens don’t get their money back? Yes you’re probably more right than you realise…

      • actually it cost the government (and the people of Australia) nothing and it protected the depositors (the people) money from an ugly banking collapse.

        Be careful what you wish for otherwise we might end up with a cashless society where bank runs aren’t possible.

      • migtronixMEMBER

        Look outside the window Peter, its 2014, we’re already there.

        It was never about long lines a la Northern Rock it was about money market funds being depleted and making sure all the associated paper (think Repo 105s) was guaranteed.

      • Hey mig why don’t we just worry about the banking system here. The UK and Europe is a different ballgame. If you want to get paranoid read the articles on negative interest rates on bank reserves for those who don’t lend in the EU. Google it.

        If we ever go cashless strange things could happen. Look up secular stagnation.

      • migtronixMEMBER

        Hey mig why don’t we just worry about the banking system here.

        Errrr last I looked CBA/WBC/ANZ all operate in the money markets, and yes I know all about the negative rates, and as for cashless doing strange things? Why? I use BTC regularly and there are no strange things…

      • Assumed risk of that magnitude should come with a large premium so that when u have to pay up the premiums cover the loss. We are on the hook for bad banking practices, probably no choice there, but while we are on the hook, double taxes on banks until they are in a stronger position. Bank shareholders will then force healthy practices on the board. Why would the govt want to continue to privatize profit and socialist losses?

      • actually it cost the government (and the people of Australia) nothing

        Hahahahhahahahahha… That is as good as saying insurance companies shouldn’t charge a premium this year because there weren’t any floods or cyclones or you didn’t fall sick this year. Are you sure you work in the FIRE sector?

        it protected the depositors (the people) money from an ugly banking collapse.

        Which is why the government should charge the big 4 banks (who may or may not pass it on to depositors) for providing deposit insurance.

      • Peter
        I think it APPEARS to cost us nothing because we ignore the external account. If you include the external account in your considerations the cost becomes clear. In reality it has cost us and constinues to cost us the birthright of our own nation. We have to sell it to maintain the farce.

      • @ flawse – you keep saying that but our banks borrow and lend in AUD – where is the forex risk there. The overseas funds are all hedged so why does it affect the external account?

    • I agree. A bank run would have been catastrophic. The government had no choice. Waiting until there actually WAS a bank run before pulling that lever would have had few advantages and several significant disadvantages.

      • migtronixMEMBER

        So in that case shouldn’t the second thing done be to nationalise the banks and have the profits flow to government?

      • Agree with migtronix here. Capitalism is supposed to reward those who take on risk. The govt did need to step in, but large duties should have been imposed conditional on banks becoming safe again.

      • Posters on this thread are not clearly delineating between two key questions (and hence we are receiving a somewhat confused mix of what people would have liked, what should have happened and what should be done about it in future).

        The questions are:
        1. Given how the banking system operated and the state of the global environment, should the Government have stepped in at that point to guarantee bank debt and deposits?
        2. Given that the taxpayer did have to effectively back-stop the banks (exposing taxpayers to some risk) what should be done differently in future?

        My view on 1. is that the Government did the right thing because the consequences of not doing so were potentially catastrophic. The Government did charge a fee for a large part of this guarantee (which seems to have been ignored by most people on this thread) 0.7% p.a. on the big four AA-rated, and up to 1.5% p.a. for lower rated ADIs. The part of the guarantee that was not ‘paid for’ by the banks could be recovered by a Government-administered levy on ADIs. Whether the fees paid by banks for the guarantees should have been higher is debatable.

        My view on 2. is that things should be done differently in future. And it appears that things are different. Forced changes to wholesale funding mix on the Australian banks, higher capital requirements, introduction of bail-in conditions on debt issued by banks (specifically so that tax payers won’t foot the bill). I doubt this process is yet complete.

        A little too much emotion on this thread, and too little hard analysis.

    • Its hardly a revelation that your business model depends entirely on taxpayer moral hazard and your ilk is far worse than dole bludgers in sucking at the government teat.

      • Indeed.

        At least “dole bludgers” sucking at the government teat could be seen as honest laziness.

        The usury sector is dishonest laziness.

        Irredeemably so.

  5. notsofastMEMBER

    So this is the state a much lauded Prime Minister and his Treasurer, noted for their financial credibility, left the Australian Banking system.

    Easy to make people feel good when you are allowing an increase in private household debt by 7 to 8% per year. The problem is that debts need to be serviced, they need to be repaid and private household debt cannot rise forever.

    • migtronixMEMBER

      Worlds best treasurer, I really really reeeeaaallly hope Joe doesn’t try to best that — for all our sakes…

  6. Kind of make all those excuses about NAB and Westpacs secret bailout (taking advantage of cheap funding ) look a bit lame!

    Best banking system in the world mate! as long as we keep telling you so, and letting them off the hook.

    Privatise the profits, socialise the loses hey!

  7. Ronin8317MEMBER

    You need to read his statement with a bit historical context. During that time, Ireland bailed out their bank with an ‘unlimited deposit guarantee’ (and bankrupting the Irish government in the process), and there is a threat of capital flight. I remember reading somewhere that the RBA is saying 50 billion dollars are being withdrawn from bank accounts to be hidden under the mattresses. So something has to be done.

    However, providing a ‘free’ guarantee to the banks was the wrong thing to do : it just allow the banks to borrow even more. The guarantee should have cost the bank in preference shares plus mass firing and salary control for the top management and board (who allow the mess to occur). What we have ended up with now is a banking system with 4 ‘too big to fail’ banks. If it’s too big to fail, then it should be nationalized, and then split up into ‘not too big to fail’ banks.

  8. Nick1970MEMBER

    Peter is right that we require the banks to remain stable BUT they can’t have it both ways. If they are allowed to earn vast profits by creating money and lending irresponsibly (which I believe they have done towards housing) then they need to pay some kind of rent tax to subsidise the country for their implied Aust Gov’t underwriting. They should probably be split up too – with the cowboy investment part of the bank being split from the retail side (loans and deposits).

  9. It is important to get the context right here. The banking system was always funded. There can be no run in the system – the loss of one deposit (and associated ESA) is a gain for another bank. And all aud is swapped in the fx market. Cash can be withdrawn at the ATM but that is easily replaced and tiny in the scheme of things (not enough to send the system broke).

    But Individual banks could become insolvent but not the system . So Rudd really just introduced moral hazard (basically saving Macquarie and small banks at the Same time).

    The rba managed the process well . Satisfying all bank ESA requirements by expanding the approved securities pool. You can see this on the rba website and they talk about it in great length. The interbank rate was managed by the huge increase insupply in ESA – which meant the banks did not have to tap the interbank market.

    The real problem was the foreign loans forced on the banks by apra. It is still a massive problem today but alas no one can see it.

    The rba was telling every bank treasurer the same thing – we have the capacity to stand behind every aud dollar in the system. They were right then, and they would still be right today.

    • migtronixMEMBER

      The rba managed the process well

      What are you talking about? So well that these institutions were exposed in the first place? Yes I suppose that’s the regulators job, and who is supposed to advise the regulators? The RBA isn’t it?

      Managed very well, managed to crush savers and gift bond holders — thanks!

      • They managed it as well as they could.

        The real stuff up was Rudd’s guarantee (Based on Henry’s advice). There were probably a few banks which should have gone under. But once he provided the “Funding Guarantee” (which comes from the RBA anyway) the RBA could not let any significant financial institution fail – otherwise it would look like the Government was out of money. Then the Sht would have really hilt the fan.

        Moral hazard at its worst.

        The RBA was backed into a corner – and given then circumstance, did a pretty good job.

      • there were banks and lenders that went under in my view. Ones that come quickly to mind are Bankwest, St George, RAMS, and some others.

        Also teetering at the time were Macquarie, BoQ and Suncorp but the guarantee did save them.

        In the overall scheme of things I would prefer more banks not less to ensure that we have some competition in this space. The big 4 don’t really compete that much with each other, they have all established a slightly different niche.

      • migtronixMEMBER

        And bankwest (formally rural and industrial or something quaint and not very profitable like that) went to? RBS. And RBS was? Bailed out…

        Thanks for playing Peter…

      • No RBS wasn’t bailed out. Bankwest was put on life support for just long enough to persuade the CBA to buy them at a bargain basement price. The RBS lost heavily on the sale and lost again recently when the CBA claimed once again for the loans they sent to the wall under an agreement with RBS. It was cold blooded murder for some.

        Bankwest was always going to struggle and get taken over at some point. That’s what happens to commercial banks who assume the position of lender of the last resort.

      • migtronixMEMBER

        @Peter Fraser : You are correct in that time line thanks for the clarification, apologies

    • flyingfoxMEMBER

      b_b Do you think the advise was because of yours or mine few grand or for all the Mrs Watanabe’s hundreds of thousands that might have left?

      • ff…That’s the point! Not only did we need Mrs Watanabe to maintain her deposits we needed her to send us a whole lot more be it in the form of Bank deposits or buying up our natural resources.

      • The advice was given because Ken Henry does not understand the banking and financial system.

        Ken Henry gave an interview a couple of years ago saying he (and Rudd) were worried about “funding the current account”. Such a notion is absurd since the CAD never technically needs funding.

        Which bring me to Mrs Watanabe, and why Flawse’s statement is incorrect.

        Mr Watanabe was free to take her deposit at any time – it made no difference to the banking system.

        Why?

        Because Mr Watanabe needs Yen to deposit her money in the Japanese Banking System. So she needs to sell AUD in the market so she can have her Yen.

        But for every seller of AUD there is a buyer. That buyer takes Mrs Watanabe’s AUD and redeposits it back into the banking system The external accounts (CAD) pretty much work the same way. Which is why the CAD is never funded – it simply reflects a swap.

        Australia does not rely on the benevolence of foreigners to “fund” our economy. We abandoned the peg 30 years ago.

      • flyingfoxMEMBER

        @b_b But Mrs Watanabe leaving does drive the dollar down in the mean time …

      • migtronixMEMBER

        @b_b Ah Ha ! Gotcha !

        It has EVERYTHING to do with insolvent banks because they’re carrying liabilities in the form of IR/FX swaps they can’t honour!

      • Mig,

        Yes, indeed, let’s talk about IR swaps too. That’s an even bigger monster.

        Try $12.28 Trillion notional “value” @ Dec 2013. (RBA B2.xls)

      • Mig – they were hedged.

        They are required to be hedged for regulatory reasons. So the fall in AUD did nothing for their solvency.

        From the RBA
        “As at March 2009 around 20 per cent of banks’ total liabilities were denominated in foreign currencies. Despite this apparent on-balance sheet currency mismatch, the long-standing practice of swapping the associated foreign currency risk back into local currency terms ensures that fluctuations in the Australian dollar have little effect on domestic banks’ balance sheets.”

        http://www.rba.gov.au/publications/fsr/2010/mar/html/box-b.html

        Now when the currency falls, the Aussie bank hedges are “in the money” to offset the increase in foreign liability measured in AUD. It is a receivable for the Bank. An asset. So nothing to do with local bank funding at all.

        Try again.

      • migtronixMEMBER

        @b_b
        when the currency falls, the Aussie bank hedges are “in the money” to offset the increase in foreign liability measured in AUD.

        Yes the regulators are all over that! Just ask MF Global clients…

      • Opinion 8.

        “The derivatives exposure is off-balance sheet.”

        The quote was not referring to derivatives. It was referring to on balance sheet lending. Try to read the post please.

      • b_b,

        Per your own quote, “this apparent on-balance sheet currency mismatch” is (purportedly) hedged using OFF-balance sheet derivatives.

        Heart of the matter.

        I think it is you who is not reading carefully.

        EDIT: Note the conclusion of that quote — “..the long-standing practice of swapping the associated foreign currency risk back into local currency terms ensures that fluctuations in the Australian dollar have little effect on domestic banks’ [ON] balance sheets.”

        … because the hedging is done via OFF-balance sheet derivatives “swaps”.

      • OMG!

        Here is the full text from my post again again

        From the RBA
        “As at March 2009 around 20 per cent of banks’ total liabilities were denominated in foreign currencies. Despite this apparent on-balance sheet currency mismatch, the long-standing practice of swapping the associated foreign currency risk back into local currency terms ensures that fluctuations in the Australian dollar have little effect on domestic banks’ balance sheets.””

        Now the facts
        1. It was an RBA quote not mine as you say. The hint was when I said “FROM THE RBA”.
        b_b 1
        Opinion8 zero

        2. You then said
        “Despite this apparent on-balance sheet currency mismatch…” The derivatives exposure is off-balance sheet.

        You quoted this completely out of context. the quote above clear refers to the context 20% of balance sheet funding as per the very first sentence of the RBA quote.

        b_b: 2
        Opinion8: zero.

        You then claim
        3 “It is you who is not reading carefully.”

        b_b 3
        Opinion8 zero.

        Please give up before you fall over and hurt yourself.

      • “Now the facts
        1. It was an RBA quote not mine as you say.”

        I wrote “Per your own quote, meaning, your quoting of the RBA. If I had meant that I was quoting YOU, I would have written “Per your comment”.

        “You quoted this completely out of context.”

        No, I did not. Read the RBA quote, that you presented, twice, again —

        “As at March 2009 around 20 per cent of banks’ total liabilities were denominated in foreign currencies. Despite this apparent on-balance sheet currency mismatch, the long-standing practice of swapping the associated foreign currency risk back into local currency terms ensures that fluctuations in the Australian dollar have little effect on domestic banks’ [NOTE MISSING WORD] balance sheets.””

        My response pointed out that the reason why the “practice of swapping” results in “little effect on domestic banks’” ON (that missing word) “balance sheets”, is because the swaps are OFF balance sheet. In other words, the true picture of risk/exposure viz foreign currency liabilities is masked by concealing the risk OFF balance sheet, in the portfolio of swaps (derivatives) used to do the hedging.

        I think it important to note that your now choosing to present a purported scorecard of this discussion — claiming victory, naturally — strongly suggests, at least to me, that you are not sincerely interested in establishing the truth. Instead, it appears that you are only interested in scoring (pseudo) intellectual points, and this only the further evidenced by your further bogus claim of victory below.

  10. surflessMEMBER

    Which banks were at highest risk if a run on banks occurred?
    Was the risk with one of the big four banks or one of the regional banks?
    Good indication would which bank share price was hit hardest during the GFC.

    • The small banks were under the most pressure because of their perceived riskiness. They attracted deposits prior to the GFC by offering higher deposit rates. Once the GCF hit, no-one cared if they got an extra 0.5% on their savings account – capital preservation was the name of the game.

      The big banks were awash with funds (ESA’s).

      • migtronixMEMBER

        Moral of the story? Don’t be a little bank don’t bank in a little bank.

        Oh but if you do bank in a MegaBank know that you yourself are contributing to the moral hazzard. Silly little depositor you…

      • If the big banks were really “awash with funds” thanks to the RBA’s ESA facility, then how to explain the massive borrowings by the banks — including the RBA — from the US Federal Reserve? —

        “National Australia Bank Ltd, Westpac Banking Corp Ltd and the Reserve Bank of Australia (RBA) were all recipients of emergency funds from the US Federal Reserve during the global financial crisis, according to media reports.

        Data released by the Fed shows the RBA borrowed $US53 billion in 10 separate transactions during the financial crisis, which compares to the European Central Bank’s 271 transactions, according to a report in The Australian Financial Review.

        NAB borrowed $US4.5 billion, and a New York-based entity owned by Westpac borrowed $US1 billion, according to The Age.”

        http://www.businessspectator.com.au/bs.nsf/Article/Aussie-banks-tapped-Fed-pd20101203-BRRAG?OpenDocument&src=hp10

        “‘Bloomberg News today released spreadsheets showing daily borrowing totals for 407 banks and companies that tapped Federal Reserve emergency programs during the 2007 to 2009 financial crisis. It’s the first time such data have been publicly available in this form’…

        …Between 20 Dec 2007 and 16 Jan 2008, Westpac secretly borrowed USD90 million per day from the US Federal Reserve. Between 9 Oct 2008 and 1 Jan 2009, Westpac borrowed USD1 billion per day. For a total of 113 days, Westpac was surviving on daily loans from the US Fed…

        …For a total 252 days straight, between 6 November 2008 and 15 July 2009, National Australia Bank survived by secretly borrowing USD1.5 billion per day from the US Fed.”

        http://barnabyisright.com/2011/12/24/westpac-nab-survive-on-us-fed-life-support/

        Hmmmm …. maybe having the ability to “print” infinite AUD is not such a be-all-and-end-all argument for the purported merits of MMT after all. There’s those inconvenient little real-world problems of the CAD and FX to consider too.

      • opion8,

        The swap lines were necessary because Aussie banks borrowed foreign funds and therefore had foreign liabilities.

        This was (and still is) a huge stuff up from APRA.

        That is why the AUD fell during the GFC – domestic banks were crushing the market to meet short term foreign liabilities.

        The moment the swaps were made effective, it took the banks out of the FX market, and the dollar recovered (and effectively devalued the USD – which was why the Fed was so helpful). Anyone who understood what was really happening at this time made a killing in the FX market.

        Australia does not need foreign funds to operate. APRA requires the banks to obtain term funding – and Banks get their term offshore. They swap these fund into AUD and generally pushes up the FX rate. When these loans expire, the opposite occurs. This of course has absolutely nothing to do with the CAD. you clearly do not even understand the CAD is a swap.

        But they were awash with AUD ESA’s In fact do you even know what an ESA is? if so why are you even bringing up foreign funding?. Anyway, here is the chart from the RBA.
        http://www.rba.gov.au/mkt-operations/images/exchange-settlement-balances.gif

      • “The moment the swaps were made effective… Banks get their term offshore. They swap these fund into AUD and generally pushes up the FX rate…”

        This starts to get down to the heart of the matter; the $21.5+ Trillion (last I looked) notional “value” of derivatives held by the banks.

        It is also the reason why the banks (via AFMA) made “safeguards to avoid destruction of value”, specifically viz their derivatives positions, a clearly stated deal-breaker for their cooperation with the government on implementation of the FSB/G20 “resolution” (ie, depositor bail-in) regime —

        http://barnabyisright.com/2013/08/08/australian-banks-demand-protection-from-derivatives-losses-under-bailin-plan/

        (Yes, I believe I do understand the ESAs, it has been well covered here by Pfh007; I raised the above issues in order to point to the deeper and more critical ones, so further highlighting the completely parasitic, international financier-enabling, local citizen-enslaving monster fraud that is the usury-based “money” system)

      • What has the payment system (supported by ESA’s) have to do with usury? I’m a bit lost on that.

        Having said that, the broad theme of your post was quite right. Our banks needed foreign funds to meet their foreign liabilities when the crisis hit.

        What is totally lost on people, is these foreign funds are not required to support the banking system in any way (or the CAD for that matter). It reflects a poorly thought-out policy implemented by a bunch of lawyers at APRA.

      • RBA statistics B2.xls — $2.8 Trillion notional in OTC FX swaps, at Dec 2013; $2.4 Trillion in forwards.

        Please don’t tell me these are “fully hedged”. Guy Debelle (inadvertently, of course, only to be seen on close inspection of what was an arse-covering exercise, via footnote #9) gave the lie to this claim in this 2011 speech —

        http://www.rba.gov.au/speeches/2011/sp-ag-280611.html

        Specifically, see this old RBA paper, the one that Debelle deceitfully (buried in the footnote) referenced/relied on in his speech as supporting the claim of “fully hedged” FX risk. Note the weasel words (bold emphasis)–

        http://www.rba.gov.au/publications/bulletin/2009/dec/1.html

        “Summary

        The 2009 survey of foreign currency exposure indicates that Australian institutions remain well hedged against the risk of sharp movements in the exchange rate. Australia’s foreign currency debt liabilities are essentially fully hedged into Australian dollars using derivative instruments…”

        Alas, the accompanying chart (based on bank self-reported survey figures that, at the time of Debelle’s speech, were some 2 years out-of-date) showed the banks were actually net long $288 billion.

      • “What has the payment system (supported by ESA’s) have to do with usury? I’m a bit lost on that.”

        Fairly obvious, surely?

        It is the upper (elite) level electronic number shuffling double-entry bookkeeping game, that backstops (ie, enables) the base level fraud of endogenous ex nihilo creation and lending of Principal (P), owing Principal + Interest / usury (P + I), down at the consumer level.

      • Interest rate policy is quite separate to the management of the payment system (ESA). You either know that and are trying to be misleading, or don’t know that and confusing yourself (and others).

        And please stop with the “Zero hedge” style fear mongering of quoting the total NOTIONAL derivative market.

        The notional hedge amount can never become a reality because hedges are offsetting in a zero sum game.

        Ie:
        Bank A Hedges in $100M USDAUD
        Seperately, Bank B hedges $100 AUDUSD

        The Notional Amount only becomes relevant if both currencies become worthless at the same time. At which point there are usually un-deliverable anyway (covered by relevant ISDA agreements).

      • “And please stop with the “Zero hedge” style fear mongering of quoting the total NOTIONAL derivative market.”

        Errr … that is a quite unfair and unnecessary misrepresentation of my position.

        In the post above, the point was quite clearly to demonstrate — from the RBA “horses mouth” — that underlying the galactic notional numbers, and more specifically, the claims of “fully hedged” FX exposure (ergo, purportedly “safe” banks), what remains after netting is still a near-$300 billion derivatives bet (at March 2009, according to their own self-reporting) on movements in foreign exchange by the banks.

        EDIT: You are clearly very knowledgeable of the workings of the banking system. If you cannot see how these intermeshing mechanisms enable (backstop) the base level action of lending “money” at usury, then I suggest that you are either choosing not to think about the Full Picture and thus not seeing the manifest injustice of that picture for the average citizen, or, you are trying (for whatever reason) to justify the practice of usurious lending (of electronic 1’s and 0’s).

      • Opionion8

        You do know that is just the derivatives book right? That is not the total net exposure which is a very different thing.

        Example
        A Bank may have US$1.0bn in loans (say to an Aussie company needing offshore funds), US$2.0bn in liabilities from a 144A bond issue, and therefore a net derivatives book of US$1.0bn. But the net EXPOSURE of zero.

        So the currency moves up or down, and the net exposure is still ZERO, despite a net derivatives book of US$1.0bn.

        And you keep using the words “Trillions” when you are discussing the notional derivative market. It is clear to me why you are donh that.

      • migtronixMEMBER

        Here we go with the netting out again as if AIG FP didn’t blow that notion out of the water years ago. I remember it well I was there (in the City) all our models turned to dust…

      • Opion8

        You still have not answered my question from a few weeks ago.

        Bank makes a loan and creates a deposit such that

        Dr Loan $100
        Cr Deposit $100

        Interest is charged at 5% per annum.

        How do you see the accounting entries working after 1 year?

      • migtronixMEMBER

        @b_b
        Mig – Yes, when banks assets go bad, they get into trouble.

        News at 11.

        So do their counter-parties! Updates at 12!

      • b_b, I’ve already told you that I’m not going to engage in your deliberately over-simplistic little accounting game, by which you imagine that you are disproving the reality that usury is a DE fraud.

        I politely suggest, again, that you go back to the last time you tried this on, and reference what was pointed out viz. your much-touted trump card on this topic; some blogger who you falsely and mischievously implied had taught Steve Keen how to do DE.

        As a reminder, that purported trump card of yours, in his/her post you referenced:

        (a) openly conceded the base position viz DE accounting that is well proven in the book “Double Entry” by Jane Gleeson-White; it is all subjective, a matter of interpretation; there are many ways to construct a set of DE accounts that all may be technically “correct” (ie, balanced entries);

        (b) was pwned by a commenter in the thread to the post you cited.

      • migtronixMEMBER

        @b_b

        How do you see the accounting entries working after 1 year?

        Well 95 dollars is in the community and 5 with the banker, if the community consists of 100 people the banker has >5x the purchasing power of everyone else for doing jack diddly.

        Get it yet?

      • Opinion 8

        a) openly conceded the base position viz DE accounting that is well proven in the book “Double Entry” by Jane Gleeson-White; it is all subjective, a matter of interpretation; there are many ways to construct a set of DE accounts that all may be technically “correct” (ie, balanced entries);

        Yes like when expenses are booked as an asset (ala Enron).

        I do not think my example does not leave much room for interpretation. So in that context, what is your “interpretation” of the accounting entries.

        You say I don’t understand the issues of Usary. So here I am – ready and willing to learn!! An eager student! Show me how you think it works.

      • @ Mig

        The good news is you are actually closer to the truth than Opion8.

        The bad news is you are still way off.

      • migtronixMEMBER

        @b_b

        Yes we know you’re going to tell me that the banker is part of the community too and not all at hoarder.

        And we’re (op8 and myself) are going to tell you that at whatever non-zero rate of compound interest – lets say the “loan” is interest only for the sake of it (ie not paying back principle) — eventually the banker has the lions share of the created money by attrition because he gets more back than need to get spend.

        So! Again! Do you get it yet?

      • b_b,

        Perhaps you might begin by going back to the example you cited, as a purported trump card, and study it much more closely.

        IIRC, you might take particular note of the concession made by the author viz the chronology of banks accounting for interest owed in their ledgers, in order to balance their books and lend again.

      • No – I really don’t. Are we against usary or bankers? If bankers earned no money, do we still hate usury? If interest rates were zero and bankers still earned a wage is that good or bad?

        That is why I have asked for the accounting entries.

        I have asked for them 7 or eight times now.

        And despite the very strong conviction both you and Opinion8 have on this issue, you can’t seem to be able hold your argument together with a very simple example.

        Help me please. I want to learn. Show me how you think the accounting entries work.

      • Opion8.

        Ok . I tried. I mean I really really tried.

        You say you have an important message that people “need to understand”. And despite my continued efforts to understand your perspective you refuse to do any more than to point me else where (something I have already read no less!!!).

        You have dodged this issue for months now. I now know why. You clearly lied when you said you understood accounting. This erodes the credibility of pretty much anything else you have written.

        As I said – I really did try. I thought I may have learned something – alas you have nothing to teach.

        Good luck with your dogma. I’m off to the pub.

      • migtronixMEMBER

        Dear lord b_b let’s say the bankers makes net interest margin of $1 per annum but only spends 0.5, how many years before the banker has accumulated more than $50 of all the money ever created for doing nothing more than disbursing the payments from that original loan? Seriously.

        EDIT : buy me a round!!

      • migtronixMEMBER

        How can you not see that bringing forward hypothecated and imputed earnings is a fraud?

        Can I bring forward imputed loses over a life time and claim it against my taxable income today ? Because that would be just dandy.

      • Ronin8317MEMBER

        In regard to borrowing money from the US Fed. It was FREE MONEY!! No banker will say no to free money, and it was offered for free so the ‘market’ cannot tell which bank is in serious trouble.

        As to the original poster, it was actually a rhetorical question. The answer is Mac Bank. They were being shorted before the RBA came to their rescue. It also took them just one phone call to the ASIC/ASX to have the ‘uptick’ rule in place. This is about as ‘regulatory capture’ as you can get.

      • b_b @4:17pm,

        You are continuing to engage in intellectual dishonesty, viz your repeated “challenge”. Your claim of triumph now proves it.

        The tactic goes something like this:

        1. Attempt to redirect discussion away from its prior context and/or specific subject matter, on to a new (albeit related, most importantly) theme (ie, field of argument/battle); one that you stridently insist will, if engaged upon, resolve the dispute.

        2. Ensure that your chosen frame of reference (ie, preferred new field of battle) is one that is subjective, open to interpretation, without recourse to any definitive proof via external authoritative sources, and so is inherently inconclusive; and further, attempt to insist that the debate on that new field MUST occur only within overly (thus, irrelevantly) simplistic boundaries … the ones that you wish to set (ie, 1x bank, 1x borrower).

        3. Attempt to draw the other person onto your preferred field of battle, by a combination of flattery and feigned weakness (ie, “Help me please. I want to learn”).

        4. If your opponent engages, your Straw Man has been erected, and the appearance of success is now assured — the discussion has now been redirected onto a field ready-made for dissimulation, hair splitting, obfuscation, subjectivity, and inherently unprovable/unresolvable debate.

        5. If your opponent is wise to your strategy, and refuses to engage on your terms (ie, help you set up your Straw Man), claim victory, and wave a self-woven Winners Wreath over your own head. Just as you have now done.

        You, Sir, are dishonest.

      • Geez youre a bore bb – no one can be fagged going back to their bloody university accounting textbook because it doesn’t matter jack sh&t. Accounting is just a language of classification.

        If you want to run them out for us, then knock yourself out. Do it as a stream of consciousness because it would be a laugh to see when the lights turn on.

      • Goodness,

        Is b_b still proving the point that a little accounting knowledge is a dangerous thing?

        Of course debits = credits.

        Of course the charging of interest results in double entries that balance each other.

        If he actually completed his accounting for interest correctly he would see that proper accounting for interest supports the point that Op8 is making.

        I would do it again but I have done it several times in the recent past.

        There is no inconsistency between double entry accounting and the important economic significance of the charging of interest.

        While I have a somewhat different view to Op8 as to the appropriate response to issues raised by the charging of interest the idea that double entry accounting makes the issue vanish simply demonstrates a poor understanding of accounting and not making the correct entries to reflect the character of the transactions involved when interest is charged.

  11. It wasn’t a free guarantee. The government charged and got quite a lot of money from it, several hundred million if I recall correctly.

  12. Zowie… what a thread…. seems some confuse the complete lack of fiduciary underwriting standards wrt credit issuance and enhanced remuneration for the risk bundler’s and CB insolvency.

    • migtronixMEMBER

      No no skip that’s just what we’d “liked to have happened”, you’re just not sophistryticated enough yet. Ask the MickyG…

      • I think he means ‘sophisticated investor’ status where all standards can be waived.

      • migtronixMEMBER

        Direct observation vs metaphysics is not a game of sophistry.

        Well you say that, ever read the rambling of one Sir Alan Greenspan?

      • Huh… Greenspan the neoliberal quasi Austrian – Neoclassical numb nut monetarist normative natural rate Ninny???? WTF does he have to do with my comment.

      • migtronixMEMBER

        Ha ha ha gotcha on the wrong of bed?

        Because he exemplifies turning factual into metaphysical sophistry..

        Geddit?

  13. The witness statement is an interesting read. A number of times Rudd suggests that Departments made recommendations (on the pink bats scheme) in submissions to Cabinet.

    This would be strange and at odds with the arrangements set out in PM&C’s Cabinet Handbook:

    “Submissions coming before the Cabinet and
    Cabinet committees must have a sponsoring minister,
    usually the Cabinet minister with portfolio responsibility
    .
    Ministers are expected to take full responsibility for the proposals they bring forward, even where detailed development or drafting may have been done on their behalf by officials.”

    That is, Departments don’t make recommendations to Cabinet, Ministers do.

    Presumably the Royal Commission has the relevant documents and can make an assessment of who recommended what.

    • And what do the Ministers base their recommendations on?

      The big omission in these enquiries is the employers of the 4 dead installers.

      1) Who were the employers
      2) What training did the individual installer have?
      3) What did that training say about the risks that took the installers’ lives?
      4) Were the installers employers members of any accreitation scheme?
      5) Did the employers meet all requirements of their own policies, their insurers, the state and federal regulations relevant to the actual work
      6) What did the employers advise of their operations to peolpe like the state based OH&S and workers insurance authorities?

      These deaths were first and foremost a result of the poor OH&S performance of the employers of the installers, assuming the installers followed the training and procedures they were given.

      And if the answer is that there were no regulations breached by the employers, it is a dramatic example of the risks of an underregulated capitalist society, or industry within it.

      These deaths are a testament to the cost of private enterprise acting either in breach of regulations or in an unregulated manner.

      Go to CFMEU at Lidcombe and look at the rosk with the death list of members. Most are sparkies. PS I am not a unionist and haven’t been one since about 1980 when I gave up working in pubs.

      • You’re right about where primary responsibility rests – the employers of those kids.

        Nevertheless, the Rudd Govt may also need to accept some responsibility. It appears they set up incentives for new entrants to an inherently dangerous industry to go hell for leather without umdertaking adequate training.

        An interesting omission from the witness statement was any mention of Ministers’ Offices. A reader unfamiliar with the way the Rudd Govt operated might go away thinking that Ministers were passive recipients of Departmental advice, the contents of which was totally at the Department’s discretion.

      • My understanding Ex is that most of the contracts went to big companies not really related to the industry who took a bite and just farmed it of to any Joe Schmo – totally agree the companies and the head contractors are missing here and that makes the stench of party politics even more disgusting.