Five little boys

[octave]

I agree, but I have to admit, I still don't get cyber-bullying. What people say behing the protection of a pseudonym (sp?) shows how cowardly they are. Although, the only social network we allow our daighter on is instagram and there was a bit of an online fight going on. I doubt if it were in the playground, the insults traded would have been any different. In fact, at least the cyber-spat wasn't accompanied by fisticuffs.

There is usually a moral panic around any new technology. For my generation, the panic was around television. "you will damage your eyes" they said. With social media there is, of course, legitimate concerns about how we handle this relatively new technology. I suspect that the stories we hear about bad experiences whilst newsworthy, they don't report the vast majority of good relationships on social media. "200 hundred dead after airliner crashes" is a headline you that you may see but "6000 airliners arrive safely at their destination" is one that you would not see. This is not to trivialise the very serious cases of bullying that do occur. The young people I deal with seem to be getting more net savvy and better at dealing with this sort of thing.

 

 

[old man emu]

You've also got to take into account that kids these days are subjected, rightly or wrongly, to very much more psychological attacks than we ever were.

 

Consider that when we were at school, there would have only been one or two class bullies. That would make a maximum of 10 to 15 bullies in a pretty rough school. The rest of the bullies' hangers-on didn't get actively involved. Nowadays, the bully picks out the target and the hangers-on can throw psychological punches anonymously. And it's not just the kids in the same class who are involved. Due to the web of connections through 'friending', kids from all over the district can get in on the act. That's where the massive volume of hate posts is created. "Your enemy is my enemy"

 

The next thing to discover is the source of this hatefulness in children's society. Once again I point the finger of blame towards the culture of the USA. Ever notice how frequently the locker room bullies, or the plastic princesses are major components of programs allegedly depicting the early adolescent school years?

 

We need to curtail the broadcasting much of "entertainment" programming emanating from that perverse society.

 

 

[Marty_d]

Ah, the good old "dole-bludger" bashing, a well-respected national pastime legitimized by such compassionate souls as Little Johnny and Smokin' Joe.

 

As a parent of 3 ankle biters I have to say that anyone who thinks that looking after kids is less effort than doing a day's work is sadly mistaken.

 

Even for those who are on welfare by choice, I don't mind too much my tax dollar being spent on them. They tend to spend 100% of what they're given in the local economy.

 

What I find objectionable is my tax dollar used for upper class welfare. Tax breaks for miners. Tax cuts to multi-million dollar companies, which far from being spent on wages or infrastructure, will go to boosting dividends in order to up the share price. (Oh, and let's not forget remuneration increases for the Board!) Propping up banks during crises of their own making, but doing nothing to regulate them despite behaviour bordering on criminal. Government work being outsourced to multinational companies which make obscene profits, none of which go towards pay rises for their workers. Spending millions on useless schemes like trade agreements that even the Productivity Commission say will do exactly jack sh*t.

 

There's a lot of welfare out there. Only a bit of it is for the people who have nothing else. Most of it's for the rich.

 

 

[Jerry_Atrick]

I am not sure about the Aussie banking scene during the GFC, but I do know that the big Aussie banks weathered it pretty well and in the post-mortum, both the PRA and the Aussie banks were held up as a bit of a beacon about how financial services regulaton should be. And I joined investment banking (in projects - so OK paid but not the massive bonuses) in late 2007. Talk about perfect timing. The banks were propped up.. probably wrong to prop up the whole bank, but investment banking was not necessarily the cause of teh GFC - there was a lot of stuff going on in the commercial banking world as well. Many of the banks that received bailouts were exposed to the long term credit markets (think loans, bond underwrites, etc) but relied on short term money markets to fund it (money markets can be anything from overnight cash to around 3 months borrowing for financial institutions). This meant many banks were financing long term lending/credit exposure with short terms funding. As balance sheets were ballooning, many banks were hedging their interest rate and currency risks with currency swaps, interest rate swaps and the "pernicious" credit default swaps (see below for a very short intor to swaps for those who don't know what they are). These swaps are in effect unregulated insurance - the real problem one in the GFC being credit default swaps.

 

Anyway, I can't speak for the Australian banking system, but I will speak for the UK banking system (or what I knew of it). The GFC was preceded by an unprecendented period of light touch regulation by New Labour - the business friendly party. The idea was the market would sort itself out and there would be no requirement to enforce what little regulation there was. And then, as in aircraft accidents, the holes in the swiss-cheese started lining up.

 

Banks were making an enormous amount of paper money and remunerating their sales people with huge bonuses - no doubt. But there were a few things happening..

 

Firstly, 2007 saw a hugh global economic recessions - moer than 2 quarters of negative growth is the definition as I recall. Many organisations were highly leveraged and the higher rates they were leveraged at combined with lowering revenues put a squeeze on a lot of companies. Also, there was transformation from bricks and mortar to clicks and mortar and this hurt many large company. Result - lots of defaults and this had two major impacts - firstlyy the banks weren't getting money they had lent out (or facilitated the lending out) of debt. Secondly, this triggered payouts under credit default swaps and the banks that underwrote them weren't sufficiently capitalised to sustain them.

 

Secondly, there were a few shennanigans going on in the retail banking sector - sub prime - anyone remember that? I am not sure what happened in Aus, but in both the US and the UK, governments were pressurign the banks to lend to the subprime market. So they were removing regulatory hurdles to do it - which simply meant they were lowering capital requirements to be held for risky loans (although, they did it through a veil by allowing some dodgy assets to be counted as capital).

 

Then, there was a bunch of insurance scams (PPI and auto gap insurance in the UK) being sold by banks - not insurance companues...

 

Then came along Lehmans with their repo 105 scam. I won't go into detail, but they basically lent out their dodgy loss making "assets" at the end of the month giving the borrower 105% of the vale when they redeemed (same as the bank lending you 100K and paying you 5K to pay back you 100K). They did this to get their assets off the balance sheet at reporting time every month to cook the books. Well, it doesn't take too much to work out what happened to them. They went bust and as this is effectively a money market transaction (as it is very short-dated), the credit markets dried up - no bank was trusting any other bank and therefore those banks that had long term exposures funded by short term debt suddenly found themselves running out of cash.

 

As I understand, there was not one UK based bank (as opposed to credit society) that did not receive support from the Bank of England - two were bailed out and 1 received a private bail out by some rich middle east sheiks, which defrauded shareholders and I believe the architects have gone to jail for.

 

One of the problems for governmens is your standard retail/commercial banks have now got investment banking and treasury offices - to let them go to the wall would have been catastrophic for global economy. However, there was a better way and indeed, although I would have been promptly put out of a job, my preference would have neen to ring fence the retail and small/medium business deposits because these people/organisations don't have the credit risk expertise to assesss their holdings - and let the rest go to the wall. It would have been a bloodbath but cleaned up much quicker than it has.

 

* A swap is a trade (not in the sense of a high-intensity equities trade on an exchange) between two counterparites where they reference some financial instrument/index/rate and at set intervals a cash payment is made by one counterparty to the other based on the value of the referenced economic factor and their position in the swap. For example, say a company borrows at the RBA Cash Rate + 3% - this means the borrower is exposed to whatever the RBA set the interest rates, which if we go back to the early 80s, it was quite volatile - hit something like 15%. That would mean my loan would be 18% (note, mortages hit about 17% in this time). I don't want this.

 

To take out the volatility risk, I can get a bank to write me a float (the floating rate of the RBA cash rate) to fix (a fixed percentage) swap, in which at set intervals (usually the same intervals as my loan is in) we will swap the difference between the RBA cash rate and the fixed interest rate. I do this to take my floating rate loan to a fixed rate.. So, for example, say the RBA cash rate is 1.5% and my loan is RBA Cash Rate + 3%. I am happy to pay a total of, say 6% throughout the life of the loan as I am worried the RBA Cash rate over the life of the loan will spike well above 5% (taing my rate to 8% and beyond when it does). So I write a swap where I pay the bank 6% of the value of the loan I took out (notional amount) and the bank pays me the RBA cash rate. We don't physically pay each other that; either the RBA cash rate is less than 6% and I have to pay the bank the difference between the 6% and the cash rate or the RBA cash rate is > 6% and the bank pays me the difference (if the cash rate is 6% we don't pay each other anything). Note, I still have to pay the interest on the loan, so I am using the cash flows in the swap to take the loan effectively to a fix of 6%.

 

A credit default swap is where one pays a (usually) bank a set premium for a set period of time and the "trade" names a 3rd party.. and if that third party defaults within that period of time, the bank pays the "one" a set amount of money. It is usually used by a lending bank to insure against to whom they have loaned money defaulting on their obligations.

 

Swaps are usually used for risk management where lots of money is at stake. [edit] or traded where big money can be made...

 

 

[Bruce]

Thanks for that Jerry. Here's something I have wondered about which I'm sure you know... Does the Reserve Bank lend to the private retail banks at say 2% and then they on-lend that to house-buyers at say 6%?

 

If so, then is this not corrupt?

 

 

[Jerry_Atrick]

@Bruce - thanks.

 

As far as I am aware, the RBA would function much like the bank of England and the answer would generally be no. They can act as a lender of last resort for banks that face a liquidity crisis, but there would be ropes, rather than strings attached. The rates that the RBA set are the rates that the banks would get if they deposited some of their cash with the RBA. In the old days there were statutory reserve deposits and some other type of deposit - it was mandatory for banks in Australia to keep a certain amount of their cash in these deposits to prevent a failure should there be a run on the bank. I am not sure these exist today.

 

Banks fund their lending in three ways - using depositors cash, short term money markets or issuing bonds (banks usualy issue covered bonds - which is a form of secured lending to the banks). Something you should know is when you deposit money in a bank you are no more than an unsecured creditor to the bank. There is a guarantee scheme the banks pay a premium to the government to guarantee your money - but it is only for licenced banks, which is why there was a fracas when Pyramid went under and political pressure forced I think ti was Joan Kirner to bail out depositors in the scam.

 

There is something else called asset backed securities (residential/commercial/credit card/motor vehicle are the common ones) where loans are pooled into a special purpose vehicle and bonds are sold using them as collateral and teh cash flows (payments) fom the loans are used to provide the returns to investors. That is not technically a way of funding lending, but a means to get them off the bank's balance sheet so they can lend more, however, I think it is Aussie Mortgages uses that method to fund the lending.

 

 

[spacesailor]

As a Victim of Keating's, Recession we have to have. 17.9% interest on my house mortgage. I would love to see at least a couple of our banks go to the wall, just as the hundreds if not thousands of mortgagetee's lost their assets.

 

I / we wouldn't have shed one tear for any bank's share holder's loss.

 

spacesailor

 

 

[octave]

As a Victim of Keating's, Recession we have to have. 17.9% interest on my house mortgage. I would love to see at least a couple of our banks go to the wall, just as the hundreds if not thousands of mortgagetee's lost their assets.I / we wouldn't have shed one tear for any bank's share holder's loss.

 

spacesailor

I also bought my first house when interest rates were 17.5 %. Whilst this sounds high it was still easier to buy a house then compared to now. The dirty little secret is that governments have less control over interest rates than they would like to believe Although Keating did say it was the recession we had to have it was not only Australia that had high-interest rates. Regan and Thatcher also presided over high-interest rates. As someone who owns their home and is contemplating retiring on my super investments, I would not be too averse to interest rates of 17%

 

 

[spacesailor]

Sorry Octave

 

The high interest rate's are for their mates, always that way to keep the peasants under the thumb.

 

spacesailor

 

 

[octave]

Sorry OctaveThe high interest rate's are for their mates, always that way to keep the peasants under the thumb.

 

spacesailor

High-interest rates disadvantage home buyers or anyone with a loan but advantage anyone with super, interest-bearing accounts or investments even ordinary people. By the way, although I bought a house at when interest rates were at their highest I would never refer to myself as a "victim" I just did what I needed to do

 

 

[Jerry_Atrick]

@spacesailor don't confuse the "poor" banks with causing high interest rates - that was the work of Messrs Hawke and Keating. The banks merely charged what they needed to to provide people some money and make a return on it. If they went to the wall and get bailed out, it is the shareholders who get smashed. However, if they have sufficient capital to absorb losses, then they don't need to go to the wall. As with everything in economics, ultimately, the consumer pays, otherwise there would be or profits. I may seem a little heartless, but it is true. There is a wider ethical question about whether monetary institutions should be incorporated for profit or that they should chase their high returns on equity. But they are not the cause of high interest rates themselves. The gross interest rate margin scales up slightly with increasing base rates to cover the cost of funding.

 

And @octave is right - the governments have less influence than we all think. In I think the early 90s, Aussie banks and mortgage companies were famous for selling off loans to the US though asset backed securities and secondary loan trading as the Ausie interest rates were higher. If your loan was in one of those pools and the rate didn't drop when the bank rate dropped, it was because some investor in the US owned and funded the loan - and he or she couldn't give a flying flip about what interest rates were doing in Aus.

 

 

[spacesailor]

"The banks merely charged what they needed"

 

They charge whatever the market can sustain. and will foreclose on any defaulter's, thus maximizing their returns with-out pity..

 

spacesailor

 

 

[octave]

"The banks merely charged what they needed"They charge whatever the market can sustain. and will foreclose on any defaulter's, thus maximizing their returns with-out pity..

 

spacesailor

The high-interest rates of the 80s were not simply a matter of banks deciding to put up rates in order to make lots of money. Banks also borrow money and the reserve bank decides on interest rates in order to control inflation etc.

 

 

[Jerry_Atrick]

I have to clarify post #81 above - I can't speak for the RBA, but the Bank of England, the European Central Bank and the Federal Reserve (US) partake in what they call quantitative easing, which is effectively where the central banks buy up the government bonds when the markets are thin. This was required after the GFC to stabilse thei respective economies and have a soft landing, after a long, long, long time in the doldrums. The Euo Central Bank decided it would not only buy government debt, but would also buy corporate and finaincial institutions debt. I wasn't that close to the program at all (as I don't work on the buy/investor side of the business), but I would imagine some of those financial instituions bonds were issued to shore up their balance sheet, in other words effectively fund the loans they had on the books and therefore give capacity to make more loans. But, this is not the general rule and can be considered a long-running exception.

 

 

[old man emu]

Shylock was a gentleman.

 

 

[spacesailor]

AND NOW

 

Ladies & Gentlemen.

 

There's to be a big $multi-million, enquirery into how bad the Assie banks are. I hope, but acknowledge the futility of bettering the bankers, that heads will roll.

 

One upper director was paid a salary of $53 million per annum, He left with an undisclosed golden handshake.

 

spacesailor

 

 

[spacesailor]

And no comments,

 

anyone ?

 

$70 million to white wash the financial sector!

 

spacesailor

 

 

[old man emu]

And no comments, anyone ? $70 million to white wash the financial sector! spacesailor

Aren't you glad to see your hard-earned tax dollars at work for the betterment of the community? Quit bitchin'! One day you'll blow your stack and end up in one of our fully-staffed, fully-equipped, government-financed hospitals.

 

 

[nomadpete]

Are you threatening him?

 

If the day comes when I'm getting forced into one of the aforementioned fine, caring government financed institutions, I'll shoot myself.

 

 

[old man emu]

My wife tripped over the front-door step last night and hurt her back, knee and ankle. My son and I couldn't get her up, so we called an ambulance. The crew checked her out, gave her pain medication then carted her off to a fine, caring government financed institution, where she was examined, diagnosed and monitored throughout the night. Luckily she was not not injured any greater than strained muscles and a bit of bark off. I was able to bring her home this morning, and she is just about back to norma....

 

Coming, Dear!

 

 

[Bruce]

Well it could have been a lot worse OME. Like a broken hip. Getting old is not so good huh.... but the working hours are ok.

 

My wife has arthritis and sometimes this makes her grumpy and guess who is in the firing line when that happens.

 

 

[old man emu]

I think the wife was more frightened and embarrassed than badly injured. She had a couple of Advils about lunchtime, and put herself to bed for the afternoon. I don't know if her body is sleeping off the hurt or making up for last night's lost sleep. I think she'll be much better if we ever get some rain in Sydney west of Bankstown.

 

 

[spacesailor]

We, at Toongabbie had a good ten drops of rain last night!.

 

spacesailor

 

 

[Jerry_Atrick]

And no comments,anyone ?

 

$70 million to white wash the financial sector!

 

spacesailor

Sorry - been busy lookign for work and I can write a book on this... Well from UK/US eyes anyway.

 

The problem is there are very big incentives in the banking world if you're in the right roles/professions. It's bluddy hard work, even for the senior guys, but ut is self-perpetuating. The margins in banking (including simple lending through intermediation - taking lots of relatively small, short term deposits and lending the money out in bigger, longer-term chunks) has traditionally far outstripped that of other industries. I haven't checked NABs accounts, but I have heard they had something like an average 60% margin at one stage - that is a big whack.

 

So, the problem is, you get some fellas running the show who are heavily incentivised to exceed their already large profit budgets. And you have the younger set, mid 20s, who are set high targets and told if they hit them the bonuses are life changing. Anything to get that bottom line as high as possible. Now, one story I heard from an Excel developer of mine was, when he worked at a different bank to the one we were working for at the time, he was working with a pricing quant (the mathematician who develops models to predict future prices of financial instruments), when an email popped up (for the quant). The quant read the email, sighed bemusedly while throwing back is chair and angrily marched into his manager's office. The Excel whizz read the email and it was his bonus email - only £1million! And his salaray at th time would have been aruond £70k - £80K. So you can see, if they are disappointed with that bonus even when they don't have to generate revenue themselves, it is easu to collude with couterparts at other banks to righ the system, generate prices that match their models and walk away with big bucks and suddenly, the algorithms change and the markets come crashing down in a heap.

 

No imagine how much the star traders and sales people are getting. They are generating the big bucks, and so they collude (was found to be a huge problem in the UK with LIBOR and FX rate rigging - which by the way had far less impact, if any, on your mortgages or the FX rates than the press made out - but notching the inter-bank wholesale rates made them 10's of millions.

 

In the retail and commercial space, banks branched out to more products than savings and loans: Insurance, investment products that are based, ironically, on derivatives, FX loans, swaps to hedge interest rate rises, etc. The money made on these products tends to be twice the money made on simple cash products. So, naturally, the banks start pushing them even though the customers don't understand the products (allthough, it is not always the case). Recall the FX loans made to small businesses in Australia in the late 80's/early 90's? The Aussie dollar crashed making some of these loand unmaintainable to the businesses they were lent to and boom.

 

Anyway, the good thing about the Aussie banking system is, as mentioned, it is pretty well regulated.. So there was this bit of misconduct, but at least, unlike the UK, it didn't involve shenanigans that sent the banking system broke - and the banking system was in the UK. So, only misconduct prevails in Australia. I am not intending to diminish it's severity, but want to ensure Aussies understand the relative mischief Australian banks imposed on their communities copared to rest of the western world (BTW, although I speak of the what I saw happened in the UK; it can be extended to Europe, but as London is the European financial hub, it was far more pronounced).

 

So, what has all this to do with the 70m inquiry? Well, I can almost predict what will happen. It will finf there were a few*, rotten to the core apples and that they were able to grroma few others. They will be hung out to dry - who knows, they may even face criminal sanctions by both ASIC and the PRA. And the press will focus on that. What they will notfocus on is the vast majority who a) were doing as ordered and gained little if anything (how many branch tellers, what's left of them, do you know are wealthy? How many branch investment sales people are wealthy? Unless they have inhereited it or married to it, non, de nada, zip). Also, even ithe senior roles, most actually wanted the best for their clients even if it meant they earned less commission - the long term relationship was far more valuable. This doesn't make the news, unfortunately. Sure, they made hansomely compared to other industries (medical and law, excepted), but their clients also did very well. Of course, there's no socialsm in banking ands their clients were already well off.

 

Again, I can't speak fo Australia, but what I have read about the banking scandals is that they hit the retail and small corporate customers most. In Europe and the US, despite the implosion of the wholesale credit markets, rendering baking insolvent, after billions thrown at ivnestigations, the fines levied were not for practices in investment banking and wholesale financial markets - but the retail and small medium enterprise sectors on a scale of something like 10:1 Jyst search PPI mis-selling and you'll get an idea.

 

Those FX loans to small businesses in the late 80s, early 90s were based on future economic predictions that were accepted industry wide and would have allowed the borrowers to profit from a strong AUD that was prediced to continue over a 5 year horizon and lower interest rates. Unfortunately, any future economic model is educated risk taking and sometimes things happen that are totally unforeseeable. I can't recall the circumstances, but the AUD plummeted unexpectedly. Similarly, the swap missellign controversy here was not as bad as the press portrated - the banks took huge risks on their capital for 5 year interest rate swaps to effectively lock in their clients to a reasonably low rate. Who could have predicted the GFC and interest rate meltdown for so long? Yet for some reason, this was deemed enough not to inform the clients enough about the risks and hold the banks accountable. I am sure there was some glossing over of the potential unexpected risks, but seriously? If ineret rates had of followed almost the unanimous preditions of abnking and non-banking economists and quants, the banks would have made slender margins at best.

 

To summarise yep, there were rotten apples - but not as many as you think and the vast majority work very hard for their clients (my last job in Aus, I was working with a stockbroking firm and heard one of the brokers say, and I quote, "I can do it and I will make much more money out of it. But f I were you, I wouldn't".

 

So it will be a whitewash of sorts but it won't find the system as being fraudlent as a whole - though the press will latch onto the rotten cores.

 

 

[Old Koreelah]

Well it could have been a lot worse OME. Like a broken hip...

Not always so bad, Bruce. After a lifetime of toil on dairy farms, my mum fell in the garden and broke her hip. The next day she was walking on a new artificial one, with less pain than she'd had for decades. She joked that she felt like breaking the other one. Thank god the good old days are gone!