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Aussie Banks Put Taxpayers On The Hook For Another $130+ Billion

7 Nov

Back in July we saw that Australia is a kleptocracy (“rule by thieves”).

Courtesy of esteemed business commentator Robert Gottliebsen, we discovered that the very design of our political system means that our political parties are beholden to the banks who loan them the money to run their election campaigns:

To understand the pivotal role of Australian banks in the funding of political parties requires a deep knowledge of how the system works.

For the most part, in the vicinity of three quarters of a major party’s funding in most elections comes from the public purse. The ‘public purse’ amounts are allocated to parties after the election in accordance with the proportion of the votes that are achieved.

But there is no forward allocation of money. The distribution of ‘public purse’ money is strictly governed by the proportion of the votes actually achieved.

ALP organisers are not looking forward to meeting with their bankers as the election nears. They are deeply apprehensive that as a result of current opinion polls, their bankers will slash the amount of election funding available to the ALP and lock it into a low vote.

Some criticised my article as only assuming that banks actually use this power over our politicians to ensure favourable policies.

However, while tacitly conceding that “yes”, it does look bad that our political parties must go begging bowl in hand to the banks to get loans to cover the cost of running their election campaigns, critics and doubters continue to wilfully ignore the multitudinous evidence in support of our basic contention.

Examples?

The Guarantee Scheme for Large Deposits and Wholesale Funding that was introduced in response to the GFC. It remains the only thing standing between our banks and their having their credit ratings slashed by the ratings agencies.

The ban on short-selling of bank shares.

And the daddy of them all, the Clean Energy Future legislation. Politicians and cheerleaders purport it to be all about using “market mechanisms” to reduce CO2 emissions. In reality, it is nothing more than a new bankster-designed derivatives scam, to replace the banksters’ mortgage-backed securities derivatives scam that caused the ongoing and worsening GFC (see Ticking Time Bomb Hidden In The Carbon Tax).

Now, we have yet more evidence that banksters rule this country. Just as they rule the USA, the UK, and Europe.

What is this latest evidence?

The Green-Labor government, enthusiastically prompted, aided and abetted by the Coalition, has just passed legislation that further helps give a leg up to the banks … while skewering we the taxpayers ever more firmly on the bankers’ hook (debt).

And putting your bank savings at risk too.

Michael West at the SMH takes up the story:

Here is a tale of two leg-ups: a tale to raise the hackles of the so-called 99 per cent and a tale which plays to the contrast between the US and Australia when it comes to corporate welfare.

Late last week, amid the parliamentary din surrounding the carbon tax, a little bill slipped through the Senate with minimal fuss.

This was the “covered bond” legislation – yet another friendly leg-up to the banks and one which effectively lumps another $130 billion of risk into the lap of taxpayers.

But first, late on Tuesday night this little story flashed up on Bloomberg: “Bank of America hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

”The Federal Reserve and Federal Deposit Insurance Corp disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorised to speak publicly.”

Translating from “Bloomglish” into English: a cabal of powerful “counterparties” (read banks) had, with the connivance of the US Fed, shifted a load of derivatives (probably the gnarliest credit default swaps on their books) from that part of the bank not backed by taxpayers to that part of the bank which was backed by taxpayers

Yep. There’s that word “derivatives” again.

… on these fair shores, the banks now enjoy the fillip from “covered bonds”. Covered bonds will allow the banks to raise capital a bit more cheaply. They are issued to big institutional investors but, unlike other corporate bonds, rank ahead of depositors in the event of trouble. They are safer, therefore carry a lower yield.

Let’s not forget the banks have already been propped by guarantees on their wholesale funding and deposits, not to mention the short-selling ban and asset swap arrangements with the Reserve Bank.

Now, with covered bonds – which had previously not been allowed as they provide senior secured funding for bondholders at the expense of depositors – the taxpayer is on the hook for banks’ deposit liabilities.

Mind you the taxpayer is on the hook anyway as the financial crisis demonstrated banks are a cherished species too big to fail.

Observers estimate their cost of funds should be 30 basis points lower thanks to covered bonds, although few expect this little earner to be passed on to customers.

Covered bonds shift risk away from the wholesale bond investors to the taxpayers – and we are talking about $130 billion worth of risk, possibly increasing as time passes. There is no quid pro quo. At least with the sovereign guarantee for wholesale funding the banks were required to pay a fee.

This leg-up is perhaps best-described as a backdoor sovereign guarantee.

Bank shareholders can take comfort from the fact that their government lobbyists, as usual, have been working overtime to have their way with Canberra.

Regular readers will not be in the least surprised to learn that the Banking Amendment (Covered Bonds) Bill 2011 that enabled this latest leg-up for banks, enjoyed enthusiastic bipartisan support from our political class.

Indeed, Hansard reveals that the only real point of argument between our political parties, was over the fact that the Shadow Treasurer Joe Hockey wanted credit for the idea. The Opposition were rather put out that Labor had simply stolen Joe’s idea and acted on it 12 months later … in just the same way that Labor recently stole the Liberal Party’s plan to steal your super.

Oh, by the way … did we forget to mention?

Until recently, Joe’s wife was head of foreign exchange and global finance at Deutsche Bank. A 14-year investment bankstering veteran, in fact.

And Joe himself is a banking and finance lawyer, who “kiboshed a ‘phenomenal job’ in New York as chief advisor to the CEO of one of the world’s biggest banks” to return home “for the ‘unfinished business’ of politics and to fulfil a lifelong destiny as ‘a warrior for the Australian people'”.

Lovable, cuddly, amiable Joe. Can there possibly be three lower forms of bloodsucking societal parasite – the lawyer, banker, and politician? Our Joe is all three.

Just like his close mate from uni, and Goldman Sachs’ man in Oz, carbon-trading pusher Malcolm Turnbull.

Interestingly, only one year ago when Joe was first floating his 9-point banking plan that included the covered bond idea, both the RBA and the banking regulator APRA were apparently not overly enthusiastic.

From Dow Jones Newswires via The Australian, 30 November 2010:

The introduction of covered bonds into Australia could threaten depositors and debt investors, both the RBA and APRA regulator said. Covered bonds are common in Europe but Australian financial institutions can’t issue them because domestic law requires banks to place depositors above all other creditors in their claims on assets.

The worry for regulators is the bonds would subordinate depositors as they typically give the bond-buyer recourse to both the issuer and the pool of mortgages, or other secured collateral that stay on the bank’s books and “cover” the bond.

“Covered bonds are common in Europe”. The epicentre of ongoing global financial turmoil and banking systemic risk.

Hmmmmm. Another brilliant idea then, that we must follow.

Between them, Australia’s big four banks have a fund-raising task of around $140 billion, much of which is sourced in foreign-currency borrowing, though domestic investor appetite is strong. The smaller banks have largely depended on the securitisation market and are further hurt by high deposit costs.

Smaller institutions in Australia fear they would be at a disadvantage if the major lenders could issue covered bonds, especially as the debt would probably initially be pitched to overseas investors who are mostly familiar with the biggest banks.

So not only does this enthusiastically bipartisan-supported legislation benefit the big banks, at the risk of savers and taxpayers.

Contrary to all the high-sounding rhetoric from both “sides” of Australian politics about “free markets” and increasing competition, the covered bond legislation will actually reduce competition in the domestic banking sector, in favour of the Big Four banks.

Shadow Assistant Treasurer Mathias Cormann tacitly conceded as much, in his speech in favour of the Bill in the Senate:

Covered bonds are likely to be used mainly by the big four banks, although the bill does provide for ADIs to enter into an aggregating entity to issue covered bonds as well. It is unlikely that the smallest authorised deposit-taking institutions will use this funding facility.

And sure enough, the Commonwealth and the NAB are the first out of the blocks to increase their share of the Big Four’s monopoly. And hence, increase their Too Big Too Fail protected species status:

Two of Australia’s biggest banks are planning to test support from global investors for covered bonds, with the push coming just days after Canberra approved new rules allowing banks to sell the new form of bonds.

The race is on between Commonwealth Bank and National Australia Bank to become the first Australian lender to issue a covered bond, with both planning a series of investor meetings in Europe and the US from later this month.

A covered bond gives money market investors a claim on the underlying assets such as mortgages if a bank runs into difficulty.

Previously depositors had the rights to all of the assets of a failing bank.

It’s very important to understand the significance of this new legislation.

A vital place to start, is in understanding what a bank considers to be an “Asset”, and what it considers to be a “Liability”.

Most Australians simply have no clue that the vast majority of our banks’ so-called “Assets”, are actually loans.  Your bank loan – whether it be a housing loan, car (personal) loan, or business loan, is considered the bank’s asset. Recall what we saw above:

The worry for regulators is the bonds would subordinate depositors as they typically give the bond-buyer recourse to both the issuer and the pool of mortgages, or other secured collateral that stay on the bank’s books and “cover” the bond.

Your mortgage or car loan or whatever is the bank’s “asset”, which they will now put into “pools” and use as collateral for their new ‘covered bonds’. In practical reality, these are just another form of Residential Mortgage-Backed Security (RMBS), or Collateralised Debt Obligation (CDO). A derivative. Or as Warren Buffet called them in 2003, “financial weapons of mass destruction”.

What about bank “Liabilities”?

Your “savings” with the bank, are their liability.  If you come to the bank and want your money, they have to give it to you (in popular urban myth, at least).

So how to understand the significance of these “covered bonds”, in context of bank Assets versus Liabilities?

Here’s how Senator Cormann described covered bonds in his Senate speech:

Covered bonds are bonds issued by a financial institution that is secured by a pool of assets.

Remember, the “assets” of banks are actually the loans they sign people up to. So the “pool of assets” that is the security (collateral) for the covered bonds that our banks will sell to raise cash from foreign investors, will include “assets” like your loan with the bank.

Can you say “My house/car/business loan is not owned by NAB; it is really owned by a Russian mafia-financed Wall Street-based hedge fund, or an “Old European monied class” generationally wealthy inbred globalist lunatic’s private investment fund, or a Chinese sovereign wealth fund”?

Back to Senator Cormann:

In the event of [bank] insolvency, the holder has recourse to the pool of assets underpinning the bonds, and the holders of covered bonds have first rights to the pool of assets covering them ahead of shareholders and ahead of other holders of debt.

If the bank goes belly up … say, because Australia’s housing market continues its downhill slide, and the banking Ponzi scheme of selling ever more loans implodes here in Australia, just as it has throughout the Western world … then holders of these new covered bonds have first rights to the banks’ “assets”. Meaning, they have first rights to you, your “assets” and your future earnings, my dear debt slave.

But not only that. If you are a saver, that means you are effectively a holder of bank debt. Remember – a bank’s debts (or “liabilities”) include what they owe you – the savings of depositors in that bank.

And the key thing to understand, is that buyers of these new covered bonds have first rights to any real (ie, not loan) “assets” the bank may have, before you get your savings.

Our politicians are keen to reassure otherwise, of course. Here’s Senator Cormann again:

The rights of other holders of debt are protected in two ways. First, the proportion of Australian assets [loans] that can be committed to covered bond pools is limited to eight per cent. Second, the financial claim scheme provides a government guarantee for small depositors, currently up to a limit of $1 million, which will be reduced to $250,000 from February 2012. These protections are crucial, because the introduction of covered bonds is a major departure from one of the core elements of the banking system in Australia, which has been the primacy of the claims of depositors.

Ok.

So even though the government’s new law gives (foreign) holders of covered bonds first rights to the banks “assets”, even before other holders of bank debt such as Aussie savers (ie, depositors), the government wants to reassure you that your savings will be protected anyway, by the government guarantee for small depositors.

Ummmm.

Can you see the circular reasoning, the gaping flaw in logic (ie, the Big Lie) here?

The government has no money with which to guarantee anything.

Firstly, a government guarantee is simply a promise to use taxpayers’ money for something.

So in this instance, the government is saying don’t worry, all is well with covered bonds, because even though holders of those bonds get first rights on the banks’ assets, if that means Aussie savers are left out when (not if) a bank collapses, we the government will guarantee to pay out the Aussie savers who have been shafted using their own future earnings (taxes).

Secondly, our government (ie, the taxpayer) is under a mountain of debt already.

$218 billion worth of debt, in fact.

And they are not making any headway at all on reducing that debt. Quite the reverse:

Click to enlarge | Source: Australian Office of Financial Management (AOFM)

Their latest budget is already shot to hell. In just 5 months.

So when (not if) our banks go to the wall – as they will, since according to Fitch Ratings ours are amongst the most vulnerable to Europe’s debt crisis – then our government has no savings, no surplus with which to “guarantee” anything.

All they have, is the promise of the taxes you and your kids will pay in the future.

Oh yes, silly me.

There is another source of “money” with which the government can “guarantee” the safety of your savings.

They can borrow more.

But then … that’s no solution either.

Because you’ll just have to pay that back too.

You and your kids.

At its dark heart, Australia’s political system is no different to the USA. The UK. Or Europe.

We are all captive to banksters.

Our politicians of all sides are not only beholden to the banks (campaign funding loans).

They not only pass laws that only benefit banksters, at the expense of society (carbon derivatives scheme scam).

They are selling this country … they are selling you, the worker (and thus, the wealth generator) … into perpetual debt servitude.

With every single additional dollar of debt, with every financial guarantee, with every legislative leg-up for the banks, with every pledge of money that isn’t theirs to globalist parasite bodies like the UN and the IMF, what our politicians are really doing is this.

They are selling you, and your children, to foreigners (see Our Government *Officially* Does Not Know Who Owns More Than 60% Of Australia’s Debt).

Australia is not a democracy.

It is a kleptocracy.

Ruled by thieves:

Senator CORMANN (Western Australia) (13:11): As I have mentioned, this is an idea that was promoted by the shadow Treasurer, Joe Hockey, as far back as October last year. It was a very prominent part of the coalition’s nine-point banking plan and was copied in Treasurer Swan’s announcement of the government’s Competitive and Sustainable Banking System plan. While we are disappointed that it took the Treasurer so long to finally act on this, we are pleased that we are now finally dealing with this legislation and commend it to the Senate.

William Black, associate professor of Law and Economics, former financial regulator, and author of “The Best Way To Rob A Bank Is To Own One”, says it best.

To rob a country … own a bank:

The late George Carlin was right (must watch):

Ticking Time Bomb Hidden In The Carbon Tax

1 Nov

 

Remember when the world’s 3rd wealthiest man, Warren Buffet, called out the exotic financial product named derivatives as “a mega-catastrophic risk”, “financial weapons of mass destruction”, and a “time bomb”?

Over the next two weeks, our minority Green-Labor government is railroading a set of 19 new laws through the Senate.

They like to call those laws our Clean Energy Future.

And to date, no one in either the political class, or the media – including our “expert” economics media – have called out the ticking time bomb called derivatives that is buried carefully in the 1,000+ pages of our Clean Energy Future.

No one, except your humble blogger.

Here, dear reader, is proof positive that the government’s “carbon pricing mechanism” is not about changing the climate.

Nor is it, as the government claims, to “give effect to Australia’s international obligations on addressing climate change under the Climate Change Convention and the Kyoto Protocol”.

Nor is it to “take action directed towards meeting Australia’s long-term target of reducing net greenhouse gas emissions to 80 per cent below 2000 levels by 2050 and take that action in a flexible and cost-effective way”.

Nor is it to “to put a price on greenhouse gas emissions in a way that encourages investment in clean energy, supports jobs and competitiveness in the economy and supports Australia’s economic growth while reducing pollution.”

How can I be so sure?

Because not one of those claimed “Objects of the mechanism” requires laws that specifically permit bankers to create unlimited quantities of wholly unregulated “financial weapons of mass destruction” called derivatives (or “securities”).

They are completely unnecessary. Moreover, the ongoing GFC turmoil proves that unregulated derivatives markets represent a clear and present danger to our government-propped banking system, and thus are a sovereign risk.

And yet, this is just what our Green-Labor government is doing right now in the Senate.

Carefully buried in their Clean Energy Bill 2011 we find the ticking time bomb (underline added):

109A Registration of equitable interests in relation to a carbon unit

(1) The regulations may make provision for or in relation to the registration in the Registry of equitable interests in relation to carbon units.

(2) Subsection (1) does not apply to an equitable interest that is a security interest within the meaning of the Personal Property Securities Act 2009, and to which that Act applies.

In other words, while the regulations may make provision for registration of equitable interests in a carbon unit, they specifically (subsection 2) do not make provision for registering a “security interest” in a carbon unit.

[A “security interest in” a carbon unit is, quite simply, a derivative or “security” that is based on the underlying “value” of the carbon “unit”]

It is clear then, that the government does not want to record carbon derivatives creation and trading.

They want to permit it. Just not record or regulate it.

Indeed, they wish to ensure “avoidance of doubt” that banks are legally allowed to immediately pull the pin on creating and trading these (wholly unregulated) financial weapons of mass destruction (underline added):

110 Equitable interests in relation to a carbon unit

(1) This Act does not affect:

(a) the creation of; or

(b) any dealings with; or

(c) the enforcement of;

equitable interests in relation to a carbon unit.

(2) Subsection (1) is enacted for the avoidance of doubt.

And just in case you missed the point – and your missing the real point is, in fact, the whole point of their using such opaque language – then the truth is spelled out more clearly elsewhere.

Where?

Way down in the fine print, of course. In the Explanatory Memorandum tacked on to the end of the Bill (underline added):

3.36 The bill does not affect the creation or enforcement of, or any dealings with (including transfers of), equitable interests in carbon units. [Part 4, clause 110] This provision has been included for the avoidance of doubt. In addition, the bill does not prevent the taking of security over carbon units.

Now I ask you, dear reader.

How does the scheme’s granting permission for banks to create a secondary carbon securities trading market (ie, “security over” carbon units) help to reduce CO2 emissions?

Indeed, how does a wholly unmonitored and unregulated shadow banking market in carbon derivatives help to create a single cent in extra government revenue, for the Senator Milne-championed Clean Energy Finance Corporation to pour down the toilet of otherwise commercially unviable “green” energy projects?

Answer: It doesn’t.

The government will never see any of the profits generated by banks from their multi trillion dollar trading in wholly unregulated carbon derivatives.

But you can be certain that they (and we) will hear all about it when the banks’ multi trillion dollar derivatives betting on movements in the market price of thin air blows up too. Because that’s when – just as with the global mortgage derivatives trade that triggered GFC1 – the bankers will (again) come running to government for a bail out.

Did I say “trillions”?

Sure did.

As we have seen previously, according to the RBA our Aussie banking system already holds almost $17 Trillion worth of derivatives.  Most of these are bankers bets on movements in Foreign Exchange Rates and Interest Rates. And these derivatives are all held Off the Balance Sheet:

In just 3 months from December to March, our banks’ exposure to Off-Balance Sheet derivatives “Business” has blown out by a whopping $1.99 Trillion, to a new all-time record total of $16.83 Trillion.  That’s the biggest 3-month increase in our banks’ history.

By comparison, at March 2011 the banks have “only” $2.68 Trillion in On-Balance Sheet Assets. That’s an increase of “only” $19.9 Billion. In the same 3 months, their Off-Balance Sheet derivatives exposure blew out by 100 times that much ($1.99 Trillion)

Click to enlarge

[That’s right. Derivatives are a toxic, wholly artificial and unregulated financial product, created and traded en masse by the banks; they are held Off Balance Sheet so that noone really knows anything about their real activities. It was toxic derivatives over mortgages that nearly blew up the world in 2008.]

We have also seen previously, that our Aussie banking system is not “safe as houses”, as we are led to believe. Instead, it is a huge disaster waiting to happen. Our banks are only staying afloat – and generating ever-increasing salaries and bonuses for bankers – because of the government wholesale funding guarantee introduced in response to the GFC. Indeed, Moodys Ratings agency recently put our government on notice that it will slash our banks’ credit ratings if the government guarantee is withdrawn.

What happens when banks blow up?

The government (ie, the taxpayer) panics, and bails them out. Putting both current and future generations on the hook to pay for it.

What we have with the Clean Energy Future legislation, is a scheme designed by bankers (and their cheer-leading economists).  For the benefit of bankers.

That’s why a scheme that purports to be all about reducing CO2 emissions, has a ticking time bomb called “derivatives” hidden inside.

While ever the scheme lasts, banks will make a killing.

Not just on fees and commissions for their role in buying and selling “permits”.

Oh no, dear reader.

That trade is just the surface of the carbon pricing scam.

The fees and commissions on the straight trading in carbon permits … is peanuts.

The real monster action is in the unlimited, unregulated derivatives market, that sits on top of the basic carbon trading market. Just imagine an inverted pyramid, with the trade in carbon permits at the bottom, pointy end.

What the banks really want – and what this blogger predicted and forewarned of time and again leading up to the release of the draft legislation – is a mechanism that allows them to create and trade carbon derivatives.

In unlimited, unregulated quantities.

And that is exactly what the Greens, and the Labor Party, in cahoots with Tony Windsor, Rob Oakeshott, and Andrew Wilkie, have given the bankers.

In just a couple of little clauses. Carefully worded and buried in 1,000+ pages of bullsh!t legalese, so that noone will find it (or simply not understand it if they do).

If you want to do something practical to stop the bankers, then here’s my suggestion.

Call the Coalition Senators for your state.

Right now.

Tell them that you want them to go into the Senate policy committee hearings next week, and demand that the government explain the following:

(a) WHY their Clean Energy Future legislation specifically includes clauses permitting bankers to create unlimited, unregulated “financial weapons of mass destruction” on the back of the carbon pricing scheme;

(b) HOW their permitting banks to create unlimited, unregulated carbon derivatives will reduce greenhouse gas emissions;

(c) IF the government will guarantee the public that no taxpayer funds will ever be used to bail out a bank/s that gambles in the carbon derivatives casino and later gets into financial difficulty.

[Senators contact information here]

We know that the banks are already gleefully gearing up whole new departments for their new carbon derivatives trading casino.

Indeed, they were publicly bragging about it within a few days of the draft legislation being released:

Australian banks are eyeing opportunities to cash in on the proposed carbon tax by developing new financial products and services that capitalise on a market seen to be worth billions of dollars annually, according to a report by the Australian Financial Review.

Australian financial firms that have experience in European carbon markets, such as Macquarie Group Ltd, Westpac Banking Corp Ltd and ANZ Banking Group Ltd are particularly keen to establish their presence in the Australian market.

The initial three-year fixed carbon tax period from 2012 will serve as time to prepare for the release of ETS permits by 2015, when opportunities will really open up for banks to capitalise on the carbon market.

ANZ’s head of energy trading said the value of the derivatives carbon market would dwarf the $10 billion initially raised by the government, according to the AFR.

What did I say about an inverted pyramid, with money/profit churn from the simple carbon permit trade being only the little pointy bit at the bottom … the thin end of the wedge?

The shadow banking casino in carbon derivatives is the huge bit at the top.

And just like every inverted pyramid, the carbon pricing scheme scam is inherently unstable.

The Green-Labor Clean Energy Future is an epic financial disaster, just waiting to happen.

When it comes to pricing carbon, all you need to remember is two words.

“Bankers”.

“Derivatives”.

Tick.

Tick.

Tick.

Tick.

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