The Pickering Post
Monday, 18th June 2018

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BANKS SET TRAPS FOR YOU AND THE GOVT

Larry Pickering

Four-time Walkley Award winning political commentator and Churchill Fellow, has returned to the fray over concern that the integrity of news dissemination is continually being threatened by a partisan media.

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Six years of Rudd, Gillard, Rudd left Australia with its pants down around its knees, in deep debt, with a bare cupboard, China in decline and a sense of hopelessness. This coming budget will make no attempt to even begin to address this Labor induced disaster because an election will be held soon after and the Libs will refuse to give Shorten a dozen free kicks. This is a classic Turnbull stuff-up.

To understand where Oz stands internationally its fiscal dilemma should be compared to the US fiscal dilemma of a $20 trillion debt. To compare Australia to the US everything must be multiplied (or divided) by ten.  

Despite Obama’s worst efforts, the US is still the world’s leading economy and has the capacity to recover relatively quickly from recession due to its middle economy of 30 million small businesses that produce 46 percent of private non-farm GDP and 14.3 million of the 22.9 million net new jobs between 1993 and 2013.

Australia has only two and a quarter million small businesses to rely on and that figure has diminished since 2011 with over 60 per cent of small businesses having no employees.

All small businesses have only a 10 per cent success rate, (nine out of ten fail within the first two years.) Large successfully established businesses can take advantage of myriad global tax avoidance schemes that administrations don’t dare deal with.

The US has over 20 major banks while Australia supports four majors that consistently outfox every Australian government. An RC into Banking in Australia is a bit of an over-reach but Shorten is right in that they must be reformed and no-one believes that ASIC is capable of reforming anything, not even itself. ASIC is currently gun shy, losing millions in poorly prepared court cases.

Australia’s largest bank is NAB with almost 13,000,000 customers world-wide. Last year, NAB earned $30,778,000,000 in income interest alone and generated a final net interest income of $13,739,000,000.

During the latest Global Financial Crisis (a “crisis” Australia was only marginally affected by) our major banks, who were not embroiled in the sub-prime rate, sought and received unwarranted guarantees from the Rudd Government. So our banks are a protected species and far too big to fail.

But now is not the time to be attacking bastard banks. With international economies unravelling, we are financially exposed, and this time our AAA rating is under pressure, especially now that the upcoming budget will not be addressing our debt and deficit.

A downgraded rating means real trouble with lenders demanding increased rates and making servicing of our debt even more difficult.

Anyone with a bank home loan should be aware of what the banks are capable of and those thinking of taking out a bank loan on 5 per cent deposit should be certified.

The RBA can’t Iift interest rates right now due to low inflation and a cold economy so at a two per cent cash rate there is almost no room for the RBA to move in any direction that can possibly make a difference, so banks have been raising and lowering their own rates embarrassingly independent of the RBA.

There is at least a mild recession on the way and this time, thanks to Rudd and Gillard, we have nothing in the kitty for a firewall of protection.

Bastard banks have been throwing money at borrowers like confetti on 5 per cent or less down-payments. Flashing red lights and sirens should be going off all over the joint as this bank tactic caused the 2008 sub prime rate catastrophe on Wall Street.

John V. Duca, Federal Reserve Bank of Dallas, Texas, explains it this way (the US Federal Reserve is a private bank owned by Wall Street banks and not a government agency):
“The sub prime mortgage crisis stemmed from an earlier expansion of mortgage credit, [for Australia read now] including to borrowers who previously would have had difficulty getting mortgages, which both contributed to, and was facilitated by, rapidly rising home prices.

"Historically, potential homebuyers found it difficult to obtain mortgages if they had below average credit histories, provided small down payments or sought high-payment loans. Unless protected by government insurance, lenders often denied such mortgage requests. While some high-risk families could obtain small-sized mortgages backed by the Federal Housing Administration (FHA), others, facing limited credit options, rented. In that era, home ownership fluctuated around 65 percent, mortgage foreclosure rates were low, and home construction and house prices mainly reflected swings in mortgage interest rates and income. 

 “In the early and mid-2000s, high-risk mortgages became available from lenders who funded mortgages by repackaging (hiding) them into investment pools that were on-sold to investors. New financial products were used to apportion (obfuscate) these risks, with private-label mortgage-backed securities (PMBS) providing most of the funding of subprime mortgages. 

“The less vulnerable of these securities were viewed as having low risk either because they were insured with new financial instruments or because other securities would first absorb any losses on the underlying mortgages. This enabled more first-time homebuyers to obtain mortgages and homeownership rose. 

“The resulting demand forced up house prices, more so in areas where housing was in tight supply. This induced expectations of still more house price gains, further increasing housing demand. Investors purchasing PMBS profited at first because rising house prices protected them from losses. When high-risk mortgage borrowers could not make loan payments, they either sold their homes at a gain and paid off their mortgages, or borrowed more against higher market prices.

On a practical level, risk was “off the radar screen” because many gauges of mortgage loan quality available at the time were based on prime, rather than new, mortgage products.

 “When house prices peaked, mortgage refinancing and selling homes became less viable means of settling mortgage debt and mortgage loss rates began rising for lenders and investors. In April 2007, New Century Financial Corp., a leading subprime mortgage lender, filed for bankruptcy. Shortly thereafter, large numbers of PMBS and PMBS-backed securities were downgraded to high risk, and several subprime lenders closed.

“Because the bond funding of subprime mortgages collapsed, lenders stopped supplying subprime and other nonprime risky mortgages. This lowered the demand for housing, leading to sliding house prices that fuelled expectations of still more declines, further reducing the demand for homes. Prices fell so much that it became hard for troubled borrowers to sell their homes to fully pay off their mortgages, even if they had provided a sizable down payment.

 “As a result, two government-backed enterprises, Fannie Mae and Freddie Mac, suffered large losses and were seized by the federal government in the summer of 2008. Earlier, in order to meet federally mandated goals to increase homeownership, Fannie Mae and Freddie Mac had issued debt to fund purchases of subprime mortgage-backed securities, which later fell in value. 

"In addition, the two government enterprises suffered losses on failing prime mortgages, which they had earlier bought, insured, and then bundled into prime mortgage-backed securities that were on-sold to investors. 

“In response to these developments, lenders subsequently made qualifying even more difficult for high-risk and even relatively low-risk mortgage applicants, depressing housing demand further. As foreclosures increased, repossessions multiplied, boosting the number of homes being sold into a weakened housing market. This was compounded by attempts by delinquent borrowers to try to sell their homes to avoid foreclosure, sometimes in “short sales,” in which lenders accept limited losses if homes were sold for less than the mortgage owed. 

“In these ways, the collapse of subprime lending fuelled a downward spiral in house prices that unwound all of the increases seen in the subprime boom.” End J. V. Duca quote.

When interest rates rise substantially in Australia, and demand falls off ,as it must do, those who borrowed at the record lower rates will have a serious equity shortfall in their homes and banks will demand massive cash adjustments or will happily foreclose on a previously booming, and now falling, housing market.

Mortgage holders will be reticent to throw what could be good money after bad as they have no idea how far the market will keep falling.

Under these circumstances the banks will be seen for the ruthless operators they have always been. And a falling housing market has a disastrous flow-on effect to every other economic sector.

A perfect storm is on the horizon for those who hold cheap mortgages in a boom market and neither Turnbull nor Shorten has the ability to chart Australia through it.

Banks’ borrowers and clients have no standing when it comes to shareholders’ interests so the little guy again runs last.     



Comments

Gees I'm glad I owe nothing.

Why do you blame the politicians? The people vote for the stupid clowns , they are supposed to be working for the people ... ( still can't convince the people of that ) and as much as the thieving bastards are to blame for the fiscal mess,, why not blame the ones who put them there? After all, isn't it everyone's country? and if they want a good country , they should put in , instead of ticking a box every 4 bloody years , then going to the footy and having a beer. No good whining after the horse has bolted , so they say , you left the bloody gate open.

It is today's society - take out a 30 year loan to buy a house. Problem is that you are a 30 year slave. As ninety percent of small businesses fail (people trying to get ahead) debt from that business enslaves you. Minority survive this debt trap - then taxes get you. Never ending cycle unless you know what to do and when to do it - break the law.

APRA seeks banks to increase reserves by 40 percent to counter what is coming. Problem though is the Tier 2 capital - invested in so called foreign AAA bonds. It will not be just Non Performing Loans it will be capital destruction of sovereign states due to debt and currency wars. A lot of banks hurting now due to stronger AUD.

Let’s see, we have infanticide, suicide, patricide, homicide, if you don’t want international boarders we need a new word! I’ve got it Countrycide. What you are suggesting is Countrycide.

maybe the Donald is our Antichrist....oops shouldn't really say that

Next time around there won't be bail-outs, but bail-ins. Depositors, not half-bankrupted governments, will pay for the (global banks - for they ALL have strong Wall Street/City of London connections/antecedents) that claim liquidity crises. The agreement with governments on this has already been made - after the Cyprus bail-in model. e.g. http://www.abc.net.au/news/2016-04-04/apra-report-warned-lax-lending-could-lead-to-banking-crisis/7296956

MalScum our self elected one, being previously in the Banking Racket, would no doubt know all of the tricks of relieving the average Joe out of his hard earned Dollars. The Goldman Sachs BagMan.

Praise the Lord or is that Praise the Trump ?

"Turnbull nor Shorten has the ability " to do anything, both are limited by ideology, Shorten by the left andTurncoat by the far left...

"The Budget should be balanced, the Treasury should be refilled,
public debt should be reduced, the arrogance of officialdom should be
tempered and controlled, and the assistance to foreign lands should be
curtailed, lest Rome will become bankrupt. People must again learn to work
instead of living on public assistance." - Cicero , 55 BC

So, evidently we've learned bugger all over the past 2,069 years.

Thanks for that comprehensive article. A couple of years ago i think on the abc a doco was run which explained the whole global financial crisis from go to whoa. The final emphasis - at that stage- was that it's not over, and beware, the world is in for a bad time (including Australia). I'd say, if you have a mortage of any kind, use whatever honest means you can to pay it down, pay it out, as quickly as you can or sell, bank your safe cash & rent to ride it out. I thank the Lord on my knees that I managed to 'make and scrape' and go without, until i owned my own extremely modest house. It's nothing to boast of, but it's mine.

LOL Luv it

He could be the chosen one. Or one of the ones.

I have been saying that for a long time Larry because the idiots from the unions ie Rudd Gillard ran up such a massive debt , the gov does not now have the money to stimulate the economy, which is the classic labour way , tax and spend,except, of course if they borrow more , however we are not containing our spending and barely repaying the debt , the interest is rumoured to be a billion per month , and that with barely any reduction in the total!

Took his time methinks?

If Labor get back in Australia will be destroyed which is what they want.

I guess his Cabinet insisted before it was too late and the election was lost.

The Great Depression, one theory claims, came about because a majority of wage earners could not afford to purchase the goods they were producing. The *cure* for that as we well know was mass unemployment, years of it that only came to an end with a world war & even with the war there was still an appreciable number of unemployed until even 1941/2. I experienced the situation were one virtually had to prove the mortgage loan you were applying for, wasn't really needed. Since to supposed GFC banks have given money simply for the asking which is, I think part of a long term strategy to keep almost everyone in debt, virtually for life. We have a banker (of the worst sort) for our PM & he obviously intends to continue growing the debt the 2 amigos Rudd & Gillard inflicted.

Here is something for you to mull over , Coolum resort had the same mob go through them like a dose of the salts and now we find the same carnivorous bone thrashing Administrators going for the jugular of Nth Qld Nickel so I am wondering why they didn't say something about the influx of money from Nth Qld Nickel when they did the books of Coolum Resort ? The administrator is getting paid twice from the same money they reckon was taken from Nth Qld Nickel .