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The Forum > Article Comments > Why Australian banks are standing strong > Comments

Why Australian banks are standing strong : Comments

By Saul Eslake, published 8/10/2008

Australian banks have generally avoided writing mortgages at extremely high loan-to-valuation ratios.

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Yesterdays 1% interest rate reaction is panic inspired and akin to throwing a stone into a tsunami.

In my semi-imformed and under-educated opinion if our net debt goes over $1 trillion it would be reasonable to expect a foreign run on overseas investment in Australia and even with only their current debt, some of our Banks will collapse.

I believe with our current and even falling terms of trade, with the now expected reduction in imports and exports and even with a falling dollar our Banks $0.60 Tillion debt is still manageable. With a foreign debt at $1.06 Trillion our Banks won't be able to repay for years, if at all, and no amount of taxpayer bailout ... well work it out ... we'll have become Keating's banana republic.

Deliquencies and defaults will arise in that climate but not from the family home. It will rise from negatively geared rental properties and incomplete development housing projects, with the possible exception of retirement complexes. Simply interest rates will go up as rent returns trend down and as unemployment employment increases ...

Support the Banks margins? It is a mistake and utter rubbish. They are a greedy bunch of bastards who might well have let greed get the better of them and might well have sent anyone who owns Australian assets or debt broke. Swan and Rudd are perpretrating a false support for the banks and it is akin to the Democrates in the US who initiated Fanny Mae's lending policies and refused to rein them in. As the dishonesty spread in the US the same will happen here if Rudd and Swan's, at best error or at worst outright dishonesty, aren't challenged. I give them the benefit of the doubt, because of their inexperience and reliance on advice from Banking experts, and think error not dishonesty.

When our interest rates go up over double in the next few months we'll all realise the true extent of the problem ... we won't be able to avoid seeing it, as do most of the current commentators and spinmisters.
Posted by keith, Wednesday, 8 October 2008 2:51:59 PM
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The way to go is to avoid the mantra of globalisation and stick to fundamentals like manufacturing and sound ecomomic principles.

Its sad to see what derugelation has done to the world economy. The "free trade" is not about being free and fair, it is about the big corporations coming together to suck as much as they can from the the public and poor countries.

The present bail-out is nothing but more than “socializing the costs while privatizing the profits. The bail-outs appear to help the financial institutions that got into trouble (many of whom pushed for the kind of lax policies that allowed this to happen in the first place)".

Watch or read Lori Wallach on "free tarde" and Martin Khor on the debt crisis.

http://www.globalissues.org/video/728/lori-wallach-free-trade-how-free-is-it
Posted by Philip Tang, Wednesday, 8 October 2008 7:34:16 PM
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Top post from ansza - West was vindicated completely. The real clinch is the line containing "we have another four years or more of [bank borrowed} mortgage money being called in". Such cute squeaky elephants as those just never turn up in the graphs or news photos of the markets. Ssssshhhh! Don't wake the elephants - they're napping in that remote cabin with a certain Sir Alan Greenspan.

Still, Saul's just doing his job really. Pity the same cannot be said about the established petals in government and diplomacy. This seems set to become a major issue now that non-British EU states are already jumping out of Maastricht like rats from the good ship SS Globalization.

Notice the recent overtures about wanting to insulate Oz within some China-based economic orbit? This after repeated efforts to the contrary in trying to interdict Chinese dealings with Indonesia, East Timor, PNG, Solomons, Vanuatu, etc. Then there are those lovely free-market, neolib enterprises targeting Zimbabwe and Sudan. Hmmmm, nice!
Posted by mil-observer, Thursday, 9 October 2008 9:53:38 AM
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There are so many differing opinions in all this and I find it all a bit scary. I don't have a mortgage, but I'm not sure that matters if things are going to get as bad as some people think.
Posted by jen81, Thursday, 9 October 2008 9:59:08 AM
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Unlike many government economists, Saul Eslake has a clear-eyed understanding of how cross-country comparisons of output should be made. Speaking on ‘China and India in the World Economy and its Implications for Australia’ at Monash University on 29 September 2005, Saul pointed out that China’s economy, correctly measured using purchasing power parities (PPP), was the world’s second largest economy in the world.

In that context he had the good sense to cite a paper by Ian Castles and David Henderson (‘International Comparisons of GDP: Issues of Theory and Practice’, ‘World Economics’, Jan-Mar. 2005) which asserted that exchange rates are not relevant to cross-country comparisons of output. We documented the fact that the contrary belief had led to serious errors by, among others, the IPCC, World Bank, IMF, OECD, IEA, UNDP and UNEP.

It is probably not a coincidence that Eslake’s presentation was made just a fortnight after Prime Minister Howard had told the Asia Society in New York that ‘Japan remains the world’s second largest economy and Asia’s largest economy by a substantial margin’, and that ‘China WILL likely surpass Germany to BECOME the third largest economy after the United States and Japan’ (EMPHASES added).

Surprisingly, Ross Garnaut is also a victim of the exchange rate fallacy. His Review’s Draft Report, released on 4 July, asserted that:

“In the first quarter of this year for the first time since the beginning of the First World War average incomes and output in Australia measured in the standard ways were higher than in the United States.”

Since the first quarter of 2008, the exchange value of the $A has declined from 91 to 68 US cents, so according to Ross Garnaut’s ‘standard ways’ of measuring output, our economy has just suffered a massive reverse.

The PPP-based estimates of Angus Maddison (the best that we have) tell a very different story. They don’t exhibit such huge short-term fluctuations but they do show that Australia’s output per head has exceeded that of the US since World War I - in 1933, the year that FDR took office as President of the United States
Posted by IanC, Thursday, 9 October 2008 12:45:14 PM
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Keith, up till 'oo2 I myself as a learner was taking groups on a study from Murdoch Uni' called The Changing Global Political Economy which changes its focus gradually every year to naturally keep in touch.

Though increasing age and my wife very ill and her death over two years ago, has left me less interested, I have just discovered that I had filed three years of the course up till 'oo2.

Would you beieve the first file I pulled out is headed -
The Dangers of Economic Globalisation, and points out how with free-market linkages a financier like Soros could bring the whole financial world to ruin.
Posted by bushbred, Thursday, 9 October 2008 12:54:26 PM
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