Tag Archives: moody’s

Moodys Warns Of Australian Banking Collapse

15 Jul

Here’s some timely news. Timely, in that we have recently seen proof that the Australian Government has included plans for a Cyprus-style “bail-in” of the banks in the 2013-14 Budget.

From today’s Australian Financial Review:

Banks vulnerable to housing collapse

Australia’s banks have the highest exposure to the residential mortgage market than banks in other major economies, making a US-style banking collapse likely should house prices plummet.

And since the AFR has a paywall that prevents us reading more, here’s MacroBusiness with details of what Moodys had to say:

The continued strong expansion in real estate loans—at least relative to other lending segments—has raised some eyebrows. The Australian banking sector has the highest exposure to residential mortgages in the world, according to the International Monetary Fund (see Chart 5). With the absence of any publicly supported securitization market—such as that provided by Fannie Mae and Freddie Mac in the U.S.—and a currently weak private securitization market, any new mortgage originations have to stay on banks’ books. This trend has been exacerbated by recent changes to RBA rules in that the central bank will accept residential mortgage-backed securities, which may be internally securitized (that is, the loans may be securitized by the originating institution and held in their entirety by the same institution on their books), as collateral for loans.

The high degree of exposure to the domestic mortgage market raises many concerns. Recent experience has shown that house prices can fall significantly and trigger serious banking meltdowns. But what are the chances of a similar housing collapse in Australia? Many international analysts think the chances of an antipodean housing bust are quite high—it would take a bold economist who has been in a decade-long coma to declare that an Australian housing correction was impossible. When trends in Australian house prices are compared globally, the signs look worrying. House prices have increased for longer and faster than in many of the markets where prices cratered during the Great Recession.

Here at barnabyisright.com, we have warned repeatedly of precisely this scenario from the inception of this blog.

The FSB-directed new regime requiring the G20 nations to bail-in their banks using depositors money is looming ever nearer.

UPDATE:

Don’t say you weren’t warned. One example only, from 29 June 2011 –

RBA Says Our Banks Are Stuffed … In Other Words

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Australia’s AAA Ponzi Rating: What Wayne Forgot To Mention

24 Dec

Everything’s fine.

Nothing to see here folks.

Move along now.

Back to your consumer spending.

Here, have another credit debt card:

Acting Prime Minister Wayne Swan says the reaffirmation of Australia’s triple-A credit rating by ratings agency Moody’s proves the economy is strong and the federal opposition is wrong to talk it down.

The treasurer on Thursday also labelled as “complete rubbish” media reports suggesting the country was on the brink of an unemployment catastrophe.

Moody’s said overnight that Australia’s AAA credit rating was “supported by the very low level of public debt and the country’s strong financial system”…

Uh … Wayne.

What else did Moody’s say?

The government’s debt rating of Aaa takes into account the aim of maintaining a balanced budget, on average, over the business cycle.

Oops.

As shadow treasurer Joe Hockey rightly (for a change) points out:

Without further detail, the government’s projection to reduce net debt to zero by 2020-21 is hardly believable, coming from a Treasurer who this year will chalk up his fourth huge deficit out of four budgets. It would require six consecutive annual reductions in net debt of $22bn. That is six consecutive surpluses larger in dollar terms than has been achieved previously (the largest underlying surplus was the $19.7bn achieved by the Coalition in 2007-08) or very solid growth in financial assets, which seems problematic given the likely continued financial and market volatility across the medium term.

Not. Gonna. Happen.

Even if the Green-Labor government succumb to Joe’s empty threat … which they won’t:

Default threat as Liberals issue debt warning

The Coalition has threatened to block any effort by the government to raise the $250 billion limit on public sector borrowing, potentially forcing the government to run out of money.

“Whilst the Coalition has supported this in the past, the government should not expect a rubber stamp this time,” Mr Hockey says in his article.

The Coalition demands could include scrapping the carbon tax and the mining tax, along with the benefits they are intended to finance, such as personal tax cuts and increased superannuation.

Does anyone seriously believe that the Opposition would force a government shutdown, and default on our public debt obligations, rather than increase the debt ceiling?

Not. Gonna. Happen.

What else did Moody’s say, that Wayne conveniently forgot to mention:

The stable ratings outlook is premised on the expectations that the government will maintain its low debt levels and macroeconomic conditions will continue to support fiscal consolidation.

Any trend or event that caused a long-term shift in budget balances to significant deficits and an increasing public debt burden might put downward pressure on the rating.

In other words, hope like hell that global macroeconomic conditions don’t continue over the cliff, and get back to annual budget surpluses pronto so that you can actually start paying down that “low” (but ever-rising) public debt level … or you can kiss your AAA rating goodbye.

Not. Gonna. Happen.

Mr Swan on Thursday also slammed a newspaper report that suggested the country was on the verge of a jobs crisis.

Sydney’s Daily Telegraph reported Australia was set to lose 100,000 jobs in the months after Christmas.

Not so, according to the treasurer.

“Our economy has strong fundamentals, we have low unemployment, we have strong public finances, we have trend economic growth and we have a huge investment pipeline.

We have “trend economic growth”, do we Wayne?

You’d better hope not.

Because if we do, then your budget surplus soothsaying is in very deep doo doo.

“The Liberals have been talking our economy down. But we have also got the Daily Telegraph today running a story which is simply exaggerated nonsense.”

Mr Swan said neither advertisers or their customers would appreciate the economy being talked down just before Christmas.

Why so much concern about “talking it down”?

You see, dear reader, the simple truth is this.

The word “economy” … in the modern, bankster-debt-driven sense … is exactly synonymous with the word “Ponzi”.

Both need continuous growth.

Generated by lots of fools at the bottom … whose money flows to the scum at the top.

Running a Ponzi is all about con-fidence.

You always have to be “talking it up”.

You can’t have anyone “talking it down”.

Because the moment that participants in the system begin to lose con-fidence … growth slows, then stops.

Horror of horrors … it goes backwards. The Ponzi begins to implode.

And the parasitic scum at the top begin to lose their sole source of sustenance.

You.

Likewise, a bankster-debt-driven “economy”.

Which is why the scum at the top are always so keen to … talk it up.

Australia has a AAA-rated economy Ponzi.

One of the last remaining AAA-rated Ponzi’s in the Western world.

More fool us.

Fresh Evidence Our Banks In ‘Race To The Bottom’ Means You Can Kiss Your Super Goodbye

9 Jun

From news.com.au, 7 June 2011:

Fresh evidence is emerging of a “race to the bottom” among banks and other lenders as demand for mortgages slides and competition boils over.

Lenders are increasingly cutting standards by enabling home buyers to make smaller deposits, new research indicates.

About three in every five mortgage products now enable home buyers to borrow up to 97 per cent of the value of their property, according to financial research group RateCity.

RateCity chief Damian Smith said the rise in loan-to-value ratios (LVR) indicated that lenders wanted to kick-start growth in the sluggish home loan market.

“We haven’t seen this level of money offered to mortgage borrowers since the start of 2009,” Mr Smith said.

He warned that change in lending criteria was putting borrowers at risk.        

“There is a concern for some borrowers who take on too much debt, because it makes them more susceptible to risk if rates increase or property values fall.”

It’s not just borrowers that are put at risk.

What this means is that the day is drawing nearer when the Government proclaims “No Super For You!!”

How’s that, you say?

Bear with me on this. All will become clear:

High loan-to-value ratios also place banks at greater risk, with the likelihood of a lender absorbing a loss in the foreclosure process increasing as the amount of equity decreases.

Similar borrowing practices were behind the collapse of the US housing sector when people with a higher chance of defaulting on on their payments were provided loans at higher-than-normal interest rates.

Indeed.

It places banks at greater risk.

On 18 May 2011, Fitch’s Ratings credit rating agency offered this ominous warning about Australia’s banks’ lending standards (from Business Week):

… Australian banks could have their credit ratings cut if they lower standards to boost mortgage sales as demand for home loans slumps.

If we do start to see signs of erosion in those lending standards, there may be some negative pressure on ratings coming through,” Tim Roche, director of Fitch’s financial institutions group in Sydney, told a credit forum today.

Here’s how the domino effect works.

1. House prices fall – as they are right now.

2. Banks lower lending standards – as they are right now.

3. Arrears on mortgages rise – as they are right now.

4. Ratings agencies cut Big Four banks’ credit rating – as they have just done, and are threatening to do again.

5. Banks cost for wholesale funding rises due lower credit rating.

6. Banks pass on increased costs to you, as interest-rate increases.

7. Mortgage arrears rise further due to interest rate, cost-of-living pressure.

8. House prices fall further due “distressed” vendor sales.

9. Banks’ “asset” values, profits fall.

10. Residential Mortgage-Backed Securities (RMBS) fall in value and are downgraded – as they are right now.

11. Banks’ lose trillions on “derivatives” bets related to RMBS.

12. Banks’ credit ratings downgraded even further.

13. Rinse and Repeat, from 5.

14. Bank/s cannot borrow (a “credit squeeze”).

15. Short-sellers smell blood in the water; Banks’ share prices collapse.

16. Banks fail … just as in the USA, UK, and the EU.

17. Government pilfers your super to prop up our government-guaranteed, Too Big Too Fail banks.

Think it can’t happen here?

It can.

And it will.

Both parties are already planning for it.

The Government has effectively guaranteed it (How? By guaranteeing the banking system; a guarantee underwritten by you, the taxpayer).

And Senator Joyce has specifically forewarned of it.  Just as he (correctly) forewarned of the US debt default that is happening right now.

Labor has introduced legislation moving in that direction in the May budget.

And the Liberal Party has just announced a new policy – disguised as a “reform” to “help” business – that is aimed squarely at getting the ATO‘s hands on your super … before it even gets to your super fund.

Learn all about the wave of superannuation confiscations rolling across the Western world, and our own super theft to come, here.

UPDATE:

h/t reader and Guest Poster “JMD”, in Comments below.

Want to try and access your super early, and beat the government to it?

No can do.

Not unless you’re underwater on your mortgage. Then you can … to pay out the banksters:

“You can however access your super early, ‘to prevent your home being sold by the mortgage lender as a result of non payment on your home loan’. It would be interesting to find out when that rule was slipped in, allowing the banks to access your super but not you.”

Go to http://www.rest.com.au/Forms-Publications.aspx

You will see a tab to click on; Withdrawals from your account, then a pdf; “Fact Sheet: Accessing your super early.”

No Super For You!!

6 Jun

* Extended update of original article published 18 May 2011. Includes details of a disturbing new Liberal Party policy, announced Friday 3 June.


What will you do when they take away your super?

From the Washington Post, 17 May 2011:

Treasury to tap pensions to help fund government

The Obama administration will begin to tap federal retiree programs to help fund operations after the government lost its ability Monday to borrow more money from the public, adding urgency to efforts in Washington to fashion a compromise over the debt.

Treasury Secretary Timothy F. Geithner has warned for months that the government would soon hit the $14.3 trillion debt ceiling — a legal limit on how much it can borrow. With that limit reached Monday, Geithner is undertaking special measures in an effort to postpone the day when he will no longer have enough funds to pay all of the government’s bills.

Geithner, who has already suspended a program that helps state and local government manage their finances, will begin to borrow from retirement funds for federal workers.

The USA is taking public servants’ pension funds, to pay government bills.

Note that well.

Because just over 3 weeks ago – and 4 days before that Washington Post story hit the wires – our own Senator Barnaby Joyce made a very disturbing revelation (below).

Think it could only happen in America?

From Reuters, 21 October 2008:

Argentina’s center-left President Cristina Fernandez on Tuesday signed a bill for a government takeover of the $30 billion private pension system in a daring and unexpected move that rocked domestic markets.

From Bloomberg, 26 November 2010:

Hungary is giving its citizens an ultimatum: move your private-pension fund assets to the state or lose your state pension.

Economy Minister Gyorgy Matolcsy announced the policy yesterday, escalating a government drive to bring 3 trillion forint ($14.6 billion) of privately managed pension assets under state control to reduce the budget deficit and public debt. Workers who opt against returning to the state system stand to lose 70 percent of their pension claim.

“This is effectively a nationalization of private pension funds,” David Nemeth, an economist at ING Groep NV in Budapest, said in a phone interview. “It’s the nightmare scenario.”

But Argentina and Hungary are not like us, right? That couldn’t ever happen in a Western economy like ours, could it?

From eFinancialNews, 29 November 2010:

France seizes €36bn of pension assets

Asset managers will have the chance to get billions of euros in mandates in the next few months for the €36bn Fonds de Réserve pour les Retraites (FRR), the French reserve pension fund, after the French parliament last week passed a law to use its assets to pay off the debts of France’s welfare system.

Oh, but that’s France. They’ve got hangover problems from the Global Financial Crisis, right? That couldn’t happen in a really strong economy like ours, one that sailed through the GFC without even having a recession … right?

Wrong.

Poland was the only economy in the European Union to achieve economic growth through the GFC. It then doubled economic growth in 2010. It is the sixth largest economy in the EU, and is considered “Europe’s new economic superstar“.

Despite this apparent success, Poland too has just passed new laws to steal more of its citizens’ private retirement savings.

From Warsaw Business Journal, 9 May 2011:

The government’s controversial pension reform plan, which slashes the percentage of workers’ salaries going to private pension funds (OFEs) from 7.3 to 2.3 percent, became law on May 1. OFEs will start receiving the reduced amounts from June.

The changes mean that the state-controlled social security and pension fund, ZUS, will now receive 17.22 percent of workers’ salaries…

Critics have said the changes were nothing more than some creative accounting by the government to shore up its budget deficit

And from Global Pensions, 6 May 2011:

It appears moving backwards on pension reforms has become the thing to do on both sides of the Atlantic.

Hungary last year moved much of its private pension assets to the state. Last month, new rules came into effect in Poland diverting 5% of the 7.3% of salary going to private pension funds to the state.

another recent reversal we’ve seen has come from Latin America. In the 1990s, Bolivia’s decision to move its pension assets from the state to private managers placed it among the most advanced pension systems in the region. However, the current government has decided to nationalise the assets once more claiming it is creating a pension system that is equal for all.

Oh yes, but Poland is really just a Central European economy, not long removed from communism. Something like that couldn’t ever happen in a mid-level, “advanced Western economy” like ours … right?

From Business Insider, 10 May 2011:

Irish Bombshell: Government Raids PRIVATE Pensions To Pay For Spending

“The various tax reduction and additional expenditure measures which I am announcing today will be funded by way of a temporary levy on funded pension schemes and personal pension plans.”

But the Irish had a really big housing bubble, didn’t they? No way anything like that could happen here … right?

From the Sydney Morning Herald, 4 March 2011:

Australian house prices remain the most overvalued in the world, according to the latest quarterly ranking of global house prices by The Economist magazine.

But our housing market could never fall. Not like it did for Ireland … or the USA … or the UK … or Spain … right?

From AAP, 29 April 2011:

Capital city home prices have posted their biggest quarterly fall in at least 12 years, as more stock in the housing market allows prospective buyers to wait for bargains, a survey shows.

Capital city dwelling values fell by a seasonally adjusted 2.1 per cent in the first quarter of the year, according to the latest RP Data-Rismark Home Value Index.

The quarterly change was the steepest since the index series began in June 1999, RP Data research director Tim Lawless said.

And from the Sydney Morning Herald, 17 May 2011:

Real estate slump will leave banks in pain too

Australian real estate, long the subject of global concern, bears all the symptoms of a market that simply has run out of puff.

Ever since America’s housing bubble burst in 2007, setting off a chain reaction in Britain and across Europe – which then infected the global financial system – international pundits have been warning of a similar catastrophe here.

Do you remember what our government did the last time our real estate market began to fall sharply?

It was during the 3-month peak of the GFC, in late 2008 / early 2009:

Steve Keen's Debtwatch

The Labor Government guaranteed to use taxpayers’ future earnings to underwrite our banks’ trillions in foreign liabilities. Poured $20 billion in borrowed money into Residential Mortgage-Backed Securities (RMBS). And borrowed billions more to prop up the housing market. How? By bribing thousands of young people into massive debt, thanks to the government’s double-trouble First Home Owners Grant.

About that $20 billion in RMBS that Wayne Swan purchased.  With borrowed money. Just how safe is that $20 billion “investment” looking?

From the Sydney Morning Herald, 26 May 2011:

Arrears on mortgage repayments spiked to a record high in the first three months of 2011, as more Australians struggle with rising costs, Fitch ratings agency says.

Arrears on prime residential mortgage-backed securities (RMBS) of 30 days or more hit a record high of 1.79 per cent in the first quarter, from 1.37 in the final quarter of 2010, the group said, as Christmas spending and the Queensland floods forced more Australians to struggle in repaying their mortgages.

RMBS are home loans which are bundled together and sold to institutional investors by banks and mortgage lenders. Misrated RMBS were at the heart of the subprime crisis in the US which lingers to today.

It only gets worse though:

The increase in arrears for the most fragile band of mortgage borrowers, low-doc loans, with payment delays of 30 days or more hit 6.74 per cent in the first quarter, up from 5.7 per cent in the final quarter of 2010, a higher level than December 2008 quarter, when the financial crisis hit and the Reserve Bank began rapidly lowering rates.

Low-doc mortgages are written for riskier borrowers than prime mortgages, which are written for customers who have a reasonably safe ability to borrow.

Delinquencies of three months or more on conforming low-doc mortgages, which are used by people who are self-employed for example, soared past 5 per cent in the March quarter, from about 3 per cent the December 2010 quarter.

Would our Wayne have “invested” any of that borrowed $20 billion in low-doc RMBS?  Or, did he stick with prime RMBS?

From the Australian Office Of Financial Management website:

Purchase of RMBS – Program Update

Minimum Eligibility Requirements

* Low documentation loans, that is loans underwritten using alternative income verification procedures, may be included in mortgage pools.

Well done Wayne.

$20 billion worth of RMBS. With low-doc loans included. A brilliant government “investment” in keeping our property bubble inflated. And now that investment too, is failing, with record-high arrears on the mortgages backing those “securities”.

But there’s nothing really to worry about, because we’ve got the “strongest banking system in the world”, right? Even if the property bubble does pop, our government would never need to go looking for even more money, to bail out our banks … right?

On 17 May 2011, leading credit rating agency Fitch’s downgraded 54 ‘tranches’ of Australian Residential Mortgage-Backed Securities, indicating that “cash-strapped borrowers and tight-fisted mortgage insurers are a greater threat to Australian banks than previously thought.

The next day, another leading credit rating agency Moody’s downgraded our Big Four banks.

From the Sydney Morning Herald, 18 May 2011:

Moody’s Investors Service has downgraded the long-term debt ratings of Australia’s big four banks to Aa2 from Aa1, citing their relatively high reliance on overseas funds rather than local deposits.

Moody’s explanatory paper effectively stated that our banks are Too Big Too Fail.  That the Big Four’s liabilities must continue to be supported by the Australian Government Guarantee For Large Deposits And Wholesale Funding that Labor “decisively” introduced (like Ireland) in response to the GFC. And if the guarantee is removed, Moody’s indicated that the Big Four’s long-term debt ratings will be downgraded by at least two further ‘notches’.

Meaning?

Moody’s has just placed our government on notice.  Australian taxpayers are now effectively on the hook – permanently – to bail out our banks when our housing bubble bursts.

Exactly the same thing that happened in the USA, UK, Ireland, Spain et al.

Don’t believe that we have a housing bubble?  Think the nightmare housing-driven bank collapse scenario that is throttling the rest of the Western world won’t ever happen here?

Fine.

If the housing-collapse trigger event is not enough to bother you, then take a moment to think about derivatives.

Those “exotic” financial instruments that were at the heart of the Global Financial Crisis. The ones that famously prudent investor Warren Buffet referred to as “a mega-catastrophic risk”, “financial weapons of mass destruction”, and a “time bomb”, way back in 2003.

The same kind of exotic instruments that lauded economist Saul Eslake also referred to just a few days ago, in an argument with me on my blog over my criticism of his public lobbying for a carbon dioxide “pricing” scheme (emphasis added):

“And while it is true that banks might make money from an emissions trading scheme, they could just as likely lose (as many banks have done from trading other ‘derivatives’”.

Do our banks have much exposure to derivatives now – even before an emissions trading scheme is introduced?

Sure do.

Prepare to be shocked.

According to RBA statistics at December 2010, Australia’s banking system has $15 Trillion in Off-Balance Sheet “Business”, versus a mere $2.66 Trillion in On-Balance Sheet “Assets”.

And exactly what kind of “business” makes up 92.3% of that “Off-Balance Sheet” $15 Trillion – more than 10 times our nation’s annual GDP?

You guessed it. Derivatives.  Those “financial weapons of mass destruction” which so nearly blew up the whole world in 2008-09.

Finding it a bit difficult to get your head around these huge numbers?  Pictures often help.

Take a look at this simple chart comparing our “safe as houses” banks’ On-Balance Sheet “Assets” (blue line) – which are 66% loans – versus their Off-Balance Sheet “Business”, 92.3% of which is derivatives (click to enlarge):

$2.66 Trillion in "Assets" versus $15 Trillion in Off-Balance Sheet "Business"

Still feeling confident about our banking system?

There’s more.

Australia’s banking system only just dodged a bullet in 2008-09, thanks almost entirely to the government (taxpayer) guarantee which is still in place today.

“Almost” entirely thanks to the government guarantee, you say?

That’s right. Something else helped save our banking system too.

The Australian public remains blissfully unaware that during the GFC, two of our Big Four banks, and our very own central bank, the RBA, all obtained secret emergency loans from the US Federal Reserve – which is simply printing new money, Zimbabwe-style.

From Business Spectator, 3 December 2010:

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… 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.

If you think “it could never happen here”, if you think that our government would never take away your super to pay for its massively wasteful spending, its crappy “investments”, or to bail out our Too Big Too Fail, very recently downgraded, multi-Trillion derivatives-laden banking system, then it’s time for you to think again.

Were you one of the many who ridiculed Barnaby Joyce’s warnings in late 2009, about the possibility of a US debt default (“Barnaby Warns Of Bigger GFC“)?

That’s coming to pass right now. Trying desperately to avoid a default is the reason why the US Treasury has now resorted to stealing federal workers’ retirement savings, to pay government bills.

So pay close heed to another prescient warning from Barnaby, given on 13 May 2011:

On Tuesday night’s budget, Labor sneaked in an Amendment of the Commonwealth Inscribed Stock Act 1911. Here is the most telling statement for where our nation is going under this Green-Labor-Independent Alliance. Under Part 5 Section 18 subsection 1 “omitting ‘$75’ and substituting ‘250’ ”.

Now that is in billions ladies and gentlemen and it is real money that really has to be paid back. If we have all this money stashed away under the lower net debt figure that is always quoted by Labor, then why not use some of this mystery money to pay off what we owe to the Chinese and others who we are hocked up to the eyeballs to.

The reason why we can’t is at least $70 billion that makes up ‘net’ debt is tied up in the Future Fund and student loans.

Of course, the public servants will not be happy when we use their retirement savings, put aside in the Future Fund, to pay off some of Labor’s massive debt.

!??!

That is exactly what is happening in America. Right now.

And Barnaby is warning that it could happen here too.

The first steps in that direction have already begun.

From Global Custodian (Australia edition), 11 May 2011:

The Gillard government’s 2011-12 budget has proposed a raft of initiatives aimed at encouraging superannuation fund and private investment in infrastructure projects.

In light of the botched “school halls” program, and the stalled white elephant NBN – which so far has only achieved a 12% takeup rate, versus their predicted 58% – would you really trust this government to wisely and prudently invest your super in Government infrastructure projects?

Others have their doubts.

From The Australian, 12 May 2011:

The government’s plan to use tax incentives to encourage superannuation funds to invest in new infrastructure could be thwarted by inadequate returns on projects and a reluctance by the states to take on project risk, experts say.

First, a little “encouragement” for super funds to invest in government spending programs.

Then, when the costs blow out, or when the government debt becomes unmanageable … or when the banks need bailing?

“No super for you!”

Barnaby is the only one on the ball.

And, he is the only politician in Australia with the honesty, decency, and courage, to (once again) try to forewarn the public about the risks of debt, and where this debt train is taking us.

Still not convinced there’s anything to worry about?

Then consider the words of Labor’s PM-in-waiting, the Minister for Financial Services and Superannuation, Bill Shorten. He already thinks of your super as a “significant national asset” … a kind of “sovereign wealth fund”.

From Shorten’s op-ed published in The Australian, 4 May 2011:

Superannuation is our sovereign wealth fund

This week marks 12 months exactly since the government announced plans to take compulsory superannuation from 9 per cent to 12 per cent.

… our superannuation savings place Australia fourth in the world. Its $1.3 trillion in funds under management through superannuation significantly boosts national savings and provides greater retirement security for millions of Australians. Superannuation is also a significant national asset because it strengthens our financial sector.

Superannuation “strengthens our financial sector”? Can you see where this is going?

Shorten and his cohorts already have their eyes on our $1.3 Trillion in super savings. In Labor’s view, your retirement savings are “our sovereign wealth fund”.

When our Too Big Too Fail, derivative-laden banks inevitably run into trouble again – as indeed they are right now with a falling housing market – you should have no doubt that our government will follow the lead of the USA, France, Ireland, Poland, and all the rest, and simply take your super to prop up our “financial sector”.

After all, they have “guaranteed” our banks.  Your future taxes … and if necessary, your super … are the collateral for those guarantees.

But if the Coalition wins government everything will be fine, right?  They’re far better economic managers, right?  We can all trust the Liberal Party not to put their hands on our super, to pay down Labor-incurred debts … right?

Wrong.

Just this past Friday 3 June 2011, the Liberal Party announced a new policy that they will take to the next election. Loaded with weasel words, it is yet another harbinger of the super theft to come, sneakily disguised as a helpful “reform”.

From the Liberal Party website:

Further relief for small business

The Coalition will relieve the red tape burden from Australia’s small businesses by giving them the option to remit the compulsory superannuation payments made on behalf of workers, directly to the ATO.

Small business will be given the option to remit superannuation payments to the ATO at the same time as they remit their PAYG payments.

This will require only one payment to one agency – rather than multiple cheques to multiple superannuation funds. The ATO will be responsible for sending the money to superannuation funds directly.

Can you see the cunning plan here?

Billions and billions of dollars in compulsory superannuation payments, going directly from our employers’ bank accounts to the government’s tax department , every 3 months. And we have to simply trust the government of the day, that every cent of it will immediately be passed on to our private super funds. Not siphoned off into special “investments”, or government accounts.  Or simply “sat on” for a month or so, in order to prop up the government’s weekly cashflow needs.

Oh, but not to worry … it will just be an “option” for “small” businesses to do this, of course.

Right. If you believe that, then I’ve got an air-backed derivative called a “carbon permit” to sell you. Ever heard the old saying, “It’s the thin end of the wedge”?

A final thought.

Our government is presently considering the Garnaut proposal for introduction of a carbon dioxide “pricing mechanism”. A key part of this proposal that has (surprise surprise) drawn strong public support from economists employed by the banking sector, is the suggestion that the billions of dollars raised should be administered by an “independent” Carbon Bank. One that …

…could be allowed to borrow money to invest in renewable energy projects against the future revenue of Labor’s proposed carbon tax and emissions trading scheme.

In other words, a Carbon Bank run by unelected, unaccountable parasites – chosen from the banking sector, no doubt – with the government … meaning taxpayers … acting as the final guarantor for any losses made on their “green” “investments”.

Does that prospect concern you?

Can you see where this is all heading?

We have a government that has already racked up nearly $200 billion in gross debt.

Is running a “forecast” $50 billion annual budget deficit.

Is presently borrowing at a rate of over $2 billion per week.

And – like an America’s “Mini-me” – has now moved to raise our debt ceiling by another $50 billion (ie, a 25% increase), to a new record quarter of a Trillion dollars.

This is the same government of completely unqualified economic incompetents behind a string of costly disasters – killer ceiling insulation, overpriced school halls, “green scheme” rorts, subsidised Toyota hybrids (that noone except government is buying), the problem-plagued Nation Bankrupting Network … and their latest rort-ridden debacle, “free” set-top boxes.

Do you honestly believe that this government would not end up burying taxpayers with even bigger losses from their carbon dioxide “air tax” scheme too?

Do you honestly believe that this government would never follow the lead of Argentina, Hungary, Bolivia, France, Poland, Ireland, and now the superpower USA … and steal your super to pay for massive debts that they have racked up?

These are just some of the many sound reasons why Senator Joyce has persistently tried to raise public awareness of the real and grave peril of ever-increasing government debt and deficit, in a (supposedly) post-GFC world.

Your retirement savings depend upon your taking notice of his warnings.

Barnaby is right.

If like me you are under 50 years old – indeed, if you are under 60 years old – then I’m willing to bet you all of my super that you will never see all of yours.

And unlike our bank(st)ers and government … I never bet.

By Hook Or By Crook – Moody’s Says Our Banks Are Too Big To Fail

20 May

Australia’s Big Four banks have all just received a credit rating downgrade by ratings agency Moody’s.

From the Sydney Morning Herald:

Moody’s Investors Service has downgraded the long-term debt ratings of Australia’s big four banks to Aa2 from Aa1, citing their relatively high reliance on overseas funds rather than local deposits.

For a closer analysis of what this really means for Australia’s economic future, we turn to a man far more knowledgeable on this topic than I.

From the must-read MacroBusiness.com.au (emphasis added):

Moody’s analysis of the Australian banks’ vulnerability is pointed. In fact, it’s right on the money as it were, capturing both the past vulnerability and potential future problems, as well as solutions.

To put it bluntly, Moody’s is onto us.

For well over a decade, Australia’s banks have funded huge swathes of the current account deficit. As well, over the past two commodities booms, much of the export income has been leveraged up and blown on housing and fancy living. Moody’s is effectively calling the risks of this model to account. And they’re still not finished:

At Aa2, the major banks’ ratings continue to incorporate 2 notches of uplift from systemic support. Moody’s views bank supervisors and the government in Australia to be supportive by global comparison and the banks to have high systemic importance, as implicitly recognized by the government’s “Four Pillars” policy (which restricts M&A among the banks).

Moody’s also notes that creditor-unfriendly initiatives — such as bail-in legislation — are not on the policy agenda in Australia.

Heavens to Betsy.  It’s finally out in the open. The big four are too big to fail and Moody’s rates the Australian government’s implicit guarantee of the banks’ wholesale debt (as well as the explicit deposit guarantee) as worth two ratings notches. Moreover, by phrasing it this way, Moody’s has essentially put the Australian government on notice that if it dares back away from that guarantee then it can count on the result. The further implication is that the Budget had better remain shipshape to provide the guarantee.

Moody’s is rightly concerned about our banks’ heavy reliance on borrowing from off-shore, in order to lend into our housing bubble.

But as we have recently seen (“Tick Tick Tick – Aussie Banks’ $15 Trillion Time Bomb“), our banking system is vulnerable to a much greater danger than reliance on wholesale funding.

Derivatives.

The exotic financial instruments at the very heart of the GFC, that the world’s most famous investor, Warren Buffet, famously called “a mega-catastrophic risk”, “financial weapons of mass destruction”, and a “time bomb”.

To give you an idea of the vast disconnect between our banks’ $2.66 Trillion in On-Balance Sheet “Assets” (66% of which are loans), and their $15 Trillion in Off-Balance Sheet exposure to OTC derivatives, take a look at the following chart.

It shows our banks’ combined total Assets – blue line – versus a red line of total Off-Balance Sheet “business” (click to enlarge):

$2.66 Trillion in "Assets" versus $15 Trillion in Off-Balance Sheet "Business"

Never mind the risk of wholesale funding liabilities.  What happens when our banks’ $15 Trillion worth of Off-Balance Sheet “financial weapons of mass destruction” blow up – just as they did in the USA?  That’s more than 10x the entire value of this country’s annual GDP!

Now you know the answer.

The takeout from the Moody’s downgrade is very simple.

Moody’s has effectively just warned the Australian government that it MUST continue to guarantee the liabilities of our entire banking system. Or else the Big Four banks’ credit ratings will be downgraded even further.

Meaning much higher interest rates.  And, the real risk of off-shore funding drying up completely.

Australian taxpayers are now firmly on the hook … to bail out the crooks.

Because – just like in America – they are now considered Too Big To Fail.

For a sneak preview of our future, here’s how Australia will look when the SHTF.

Junk Bonds Record in ‘Goldilocks’ Market

29 Mar

From Bloomberg:

Junk bond sales reached a record this month as rising profits and record low Federal Reserve interest rates foster lending and investment to the lowest-rated borrowers.

Companies worldwide issued $38.3 billion of junk bonds this month, passing the previous high of $36 billion in November 2006, according to data compiled by Bloomberg. Yields fell 0.95 percentage point this month to within 5.96 percentage points of government debt, the narrowest gap since January 2008, Bank of America Merrill Lynch index data show.

This is “an almost ‘Goldilocks’ environment for leveraged credit markets,” JPMorgan Chase & Co. analysts led by Peter Acciavatti, the top-ranked high-yield strategist in Institutional Investor magazine’s annual survey for the past seven years, said in a March 26 report to the bank’s clients.

This is very bad news.

There has been growing concern around the world that the sales of junk bonds prior to the GFC will lead to a junk bond apocalypse in 2012:

“An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this,” said Kevin Cassidy, a senior credit officer at Moody’s.

Private equity firms and many nonfinancial companies were able to borrow on easy terms until the credit crisis hit in 2007, but not until 2012 does the long-delayed reckoning begin for a series of leveraged buyouts and other deals that preceded the crisis.

Now, the ongoing Zero Interest Rate Policy (ZIRP) in the USA, and near zero interest rates in Japan and many other developed nations, has led to a new record in the sales of those same high risk ‘junk bonds’.

In other words, central banks and governments around the world are adding more fuel to the fire.

Junk Bond ‘Apocalypse’ in 2012

18 Mar

From the New York Times:

When the Mayans envisioned the world coming to an end in 2012 — at least in the Hollywood telling — they didn’t count junk bonds among the perils that would lead to worldwide disaster.

Maybe they should have, because 2012 also is the beginning of a three-year period in which more than $700 billion in risky, high-yield corporate debt begins to come due, an extraordinary surge that some analysts fear could overload the debt markets.

With huge bills about to hit corporations and the federal government around the same time, the worry is that some companies will have trouble getting new loans, spurring defaults and a wave of bankruptcies.

The United States government alone will need to borrow nearly $2 trillion in 2012, to bridge the projected budget deficit for that year and to refinance existing debt.

The apocalyptic talk is not limited to perpetual bears and the rest of the doom-and-gloom crowd.

Even Moody’s, which is known for its sober public statements, is sounding the alarm.

“An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this,” said Kevin Cassidy, a senior credit officer at Moody’s.

Private equity firms and many nonfinancial companies were able to borrow on easy terms until the credit crisis hit in 2007, but not until 2012 does the long-delayed reckoning begin for a series of leveraged buyouts and other deals that preceded the crisis.

The attacks on Barnaby Joyce’s economic credibility began in late 2009, when he publicly questioned whether the US could default on its debts.

Take a look at this chart.

It’s from the US Federal Reserve, using data sourced from The White House Office of Management and Budget. It shows the US Budget surplus / deficit for the last 108 years. But only up to September last year.

It’s far worse today.

Barnaby is right.

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