Australian financial vested interests move to gorge themselves on taxpayer bailouts once the credit expansion contracts. They make the money we take the risks. They get the bonuses we get the bills. Elect idiots and they will make us pay. On covered bonds we previously stated:
Covered bonds are the canary in the coal mine for Australia. If a bank issuing covered bonds became insolvent the holders of the covered bonds will receive money from the sale of assets covered by the bonds before depositors get their money. Currently the government insures most depositors. Basically covered bonds help stop investors taking a loss and increases the chance the taxpayer will pick up the tab.
In Australia there are still strong institutions working for the public good:
The RBA Prudential Regulation Authority have warned that covered bonds could threaten both depositors and existing debt investors. Source: The Australian
But the financial vested interests are making their move:
Borrowers may face higher interest rates unless Australia’s prohibition on covered bonds is lifted, allowing banks to compete more easily for funding when a global debt refinancing wave hits in 2012, analysts say. Source: The Sydney Morning Herald
The ABA (Australian Bankers Association) supports the development of a covered bond market in Australia and supports more reforms to boost securitisation markets. Source: NineMSN
The RBA is enormously influential in Australia. Normally one would not bet against it. But the lure of lucre and the appeal of jobs in investment banks will seduce many. It will be interesting to see what happens. The financial sector has not captured government in Australia to anything like the extent it has in the USA.
Well at least as far as the Australian Labor-Green government is concerned the question is answered:
Allow Australian banks, credit unions and building societies to issue covered bonds
The Government will amend the Banking Act 1959 to allow Australian banks, credit unions and building societies to issue covered bonds, to secure the long-term safety and sustainability of our financial system so it can continue to provide reasonably priced credit to Australian households and small businesses. Source: Treasury
And to make sure that when it does blow up the taxpayer is liable to the maximum possible extent:
Confirm the Financial Claims Scheme as a permanent feature of our financial system. Source: Treasury
The Gillard Government will invest a further $4 billion in high-quality, AAA-rated RMBS. Source: Treasury
The Gillard Government, not the Government! – That’s how it appears on the Treasury website. It looks like the labor spin doctors have well and truly penetrated the Treasury, as if we were in any doubt. Either that or it’s a Freudian slip on the part of some Treasury official. The decision is manifestly against the best interests of the nation. Even the Treasury econocrats can’t miss that. But he who pays the piper calls the tune
This takes government exposure to non-bank players since the onset of the global financial crisis up to $20 billion. Hat tip Business Spectator. $20 billion may not seem like much, but there are only around 20 million Australians. It’s around $1,000 for every Australian or nearly $2,000 for every working Australian. That’s equal to about two weeks of total average Australian earnings. Way to go government. We will thank you for it when our property bubble eventually pops.
If that’s not enough exposure for you, there is another $150 billion in large deposits and wholesale guarantees as well. That’s around $7,500 per Australian or $15,000 per working Australian. Approximately 15 weeks of total average Australian earnings.
Apparently this represents 6.6% the value of the scheme. I’m not even going to try and calculate what that adds up to. But it’s a lot of risk to have taken on board since the financial crisis. Particularly as most people do not even realize they are exposed to it.
If your exposure through your government is not enough, they have changed the rules to increase your exposure through your superannuation fund:
Financial institutions have expressed interest in using this bullet structure to raise funds. A recent Commonwealth Bank issuance included a $210 million bullet tranche. The success of that deal further demonstrates the viability of the bullet RMBS concept, with more bullet issuances expected over the coming months.
Bullet issuances can be structured to be eligible for inclusion in certain bond market indices, such as the UBS Composite Bond Index. Many institutional investors, who invest on behalf of Australian superannuation funds, are required to replicate or invest in the securities contained in these indices. This additional structural demand and diversification of investors has the potential to make RMBS more reliable and cost effective. Source: Treasury
Are we really gong to live a comfortable retirement selling houses to each other? How’s that working out in America? At least it is possible to create a reasonable sounding argument for selling our houses to the Chinese. Sure it priced us out of decent property, but at least it would be foreigners left making the losses when prices eventually collapsed.
If someone has to be hurt, I’d rather it was not my fellow citizens. But if citizens must suffer, it should be those responsible, and those who knowingly took the risk. Although it could be argued that Australians took the risk of electing the Labor government. It’s their incompetence that will cost us dear. So many voters are not blame free. But as with the US, we are effectively selling our unborn children into debt bondage. It’s either that or trashing our reputation for paying what we owe.
Also the Treasury has not thought through the web address when posting the extracts, unless they never intend to issue another banking report:
Bright boys in Treasury, our national finances are in good hands. Sigh. For when the extracts disappear the full report is available from here. Note the usual Orwellian name “Competitive and Sustainable Banking System”. That’s as opposed to “How to Shaft the Taxpayer when all our Dodgy Loans Come Home to Roost”. As they inevitably will when our credit induced expansion reverses itself.
Poor old Glenn Stevens, a good man in a tough spot. He may have to follow the Chinese example and raise reserves. That will be politically popular. I can just imagine the vested interests taking that quietly. And we now know how powerful they are. His successor, who knows? He might be cognitively captured. I’d say the same about Swan, but I am not sure he has much by way of cognition to be captured.
Not that the Opposition are looking much better. Initial media reporting suggests Hockey has not grasped the problem with covered bonds. As for Malcolm Turnbull, the former Chair and Managing Director of Goldman Sachs Australia, he will look out for us. People never have a tendency to believe in the merits of whatever they do.
I’m optimistic on Abbott, his opposition to carbon trading cost the financiers dearly. He saw the truth then, he may do so again. As for the “independents”, who knows? There is always a chance they can be made to see sense, particularly as the Reserve Bank is probably still against allowing banks to issue covered bonds.
If ever there was a tea party moment for all Australians, this is it. The rebellion against Turnbull’s ETS shows that the grass roots of a political party can get active and make a difference. But this needs to extend beyond that into the midst of those not normally involved in politics. I don’t think things are obviously bad enough in Australia to energize the masses of decent law abiding citizens. Those focused on making a living and looking after their family, friends and neighbors.
We will have our tea party moment, just as Ireland will have its Guinness one. That’s if the Irish have not had one, or two or three or…. already. Imagine fighting so hard for for so many centuries for independence from England, only to give it up to the EU a couple of generations later. Is that what their forebears died for? Remember it’s better to laugh rather than cry.