Comments on: Government Stimulus Programs Make Life Harder For Banks

By: victorjet

victorjet — Sun, 04 Oct 2009 23:46:39 +0000

Just about every day there is a news release of the increase in value of property.A combination of agents,banks,and government agencies,news media, keep pumping the market and blinding everyone that Australia is different!!!
A lack of general economic education in what makes an economy run, means that people live under the misconception property investment will improve the balance of payments!!!

By: mike

mike — Sun, 04 Oct 2009 19:59:03 +0000

...just what shade of recovery is your lipstick if it isn't rose-tint tepid...?...have a confident new look...smile...

By: tar and feathers

tar and feathers — Sun, 04 Oct 2009 09:39:59 +0000

I remember a cartoon of the 'four pillars' (highly secure Aus banks) and their four CEO's laying on four pillows. Sure these guys are really special, fine upstanding corporate citizens, NOT.

By: Dan (no, not Denning)

Dan (no, not Denning) — Sun, 04 Oct 2009 02:45:43 +0000

Dear Tim, good luck with $50 NAB. It may get there, but will it be supported by incomes? Unlikely. Australia has very close to the most expensive housing in the world, measured as the difference between average income and average house prices. If any asset is not supported by appropriate income, IT IS A BUBBLE. The question re bubbles bursting is when, not if. The fact that we only have full recourse mortgages in this country makes things worse, not better, as people hold on to their debts (houses) until they have absolutely nothing. Once they start to default, they really have nothing left, and their contribution to the economy is effectively over for years, possibly decades. If our default rate was even a quarter of the USA's that would be just terrifying. Couple this with reports from major reposession companies that 3/4 of repossesions are not reported as such (banks "suggest" that people sell voluntarily as a mortgagee auction adversely impacts on the price), and we have a real problem on our hands. Banks conducted capital raisings because eventually they will really need that capital, not just for the fun of it.

If you think Australia can permanently borrow more than it earns, and spend that money into the economy with no consequences, then go right ahead. Buy $50 NAB. Having said that, I think it's unlikely the big banks will go under, given the worldwide precedents for bailing them out. Rather they will become zombies, as the market for debt shrinks. When Australians realise that enormous debt for a non-productive asset is a stupid way to get rich, they will be as keen to go into debt as to kiss a tiger snake. All the capital tipped into the banks will be needed to keep them alive.

By: John

John — Sat, 03 Oct 2009 10:06:30 +0000

Great article Dan - I could not agree more. I am completely unconvinced by the media reporting of the state of affairs both here and globally. Government spending (borrowing) does not equal real growth. Governments do not produce anything and they do not create wealth but as you point out they do compete for Capital and are not under any pressure to produce measurable (any?) returns. This 'recovery' is an illusion. If you filter out all the media rah-rah most entrepreneur's statements about the state of play are full of caution - they know that this is too good to be true.

By: Tim Lamb

Tim Lamb — Thu, 01 Oct 2009 06:55:39 +0000

Dan
you have got to be kidding ... are you smoking dope? Did you write this 6 months ago and then forgot to post it? You know that Aussie mortgages are the lowest risk in the world ... just look at the default rates relative to anywhere else. This makes our banks OVER capitalised relative to US banks (ie where mortgagors get a free option 30 year fixed rate NON RECOURSE mortgage), as their mortgages are higher risk but the same Basel risk weighting ie 50% of face value.
Secondly, Aussie banks have no competition AND a government guarantee (the Aust govt will not let them fail and has already demonstrated this witness Suncorp).
Thirdly, with rates so low homeowners' equity %s are increasing (assuming constant repayments), likewise lending risks to corporates are decreasing as banks demand more security.
Finally, in a rising interest rate environment banks make a killing .. on their cost free funds (equity, cheque accounts etc).
I suggest you get long before NAB is $50.