Rudd has made a mistake today by announcing there will be no cap on bank deposits if the banks get into trouble - unless he's decided to use the "future fund" as the government's insurance.

He's also guaranteed to honour all foreign loans.  

Rudd is trying to stop the panic because Australians are beginning to withdraw their savings and we are still being warned to spread any cash we have around with different banks.

Although a lot of cash is apparently being invested by foreigners in our banks at present and that is good, there are some economists who are saying that we don't really know yet how much trouble the big 4 are in and this is only the beginning.

Something isn't right.  I believe a couple of our banks are stumbling - in particular the Commonwealth, who convinced many customers with term deposits to invest in shares and invested huge amounts in foreign corporations, which are now collapsing.

Turnbull is trying to take credit for Rudd's backing of the banks - but his directive would have come from the G7 and the IMF.  

Their countries have run out of money - so they want ours to feed into the black hole.  

We can thank George Bush for this and his easy come - easy go extreme capitalism.

If our banks were doing well - why were they given $4 billion last week and another $4 billion today?

I think the aussie banks are in fine form mantra.
We have a very well regulated banking system.

As I see it, the problems with subprime loans in US sent a few banks to the wall.  Banks were hesitant to lend liquidity to other banks.
This led to they system slowing rapidly.

Aussie banks have very few low doc loans. The rules in Auss are different in regaining funds from delinquent borrowers.
In US, the banks can't and don't. IN Aussie, banks can and do..

Rudd put money into the Auss and a group of countries to assist in liquidity.
It is not a gift.

rudd has done ok here.

The original reason our banks were in trouble is because they bought a lot of those sub prime mortgages from the American banks.

I think history will see that more as a trigger than a cause.

Quote:

Rudd put money into the Auss and a group of countries to assist in liquidity. It is not a gift. rudd has done ok here.

I disagree.  Rudd has committed every Australian man, woman and child to $600,000 each ($1.2 trillion - if my maths is right) to guarantee any unforeseeable IOU's which is a strong possibility.  Governments shouldn't interfere.  Rudd should have remained strong under pressure from the G7 & IMF.  We're not even members.  We are a little country, who might be healthy - according to the government - but if we're not - where do we get $1.2 trillion from?



THEIR word may be their bond, but the world's top finance ministers and central bankers must quickly deliver on their plan to jump-start the seized-up international banking system with the mother of all government promises.

In effect, it's a promise of a government guarantee for the debts of the world's banking system.

It's a promise to "take all necessary steps" using "all available tools" to rescue global capitalism from what the International Monetary Fund calls "the brink of systemic meltdown".

So get ready for urgent detailed announcements from the major financial powers to try to prevent another week of financial market turmoil like the past two. If this won't work, what will?

Global financial capitalism got too big for national regulation during the credit boom. Now the boom has bust; the markets have been panicked by the lack of a credible global authority to clean up the mess and sort out which banks could be trusted.

The source of the crisis, the US, is in a presidential power vacuum. And European nations have squabbled among themselves.

The weekend plan aims to end the debacle of national governments announcing unco-ordinated rescue plans that have simply destabilised other national banking systems.

Kevin Rudd's guarantee over $1.2 trillion of bank deposits for three years, his guarantee over the wholesale term funding of Australian banks as long as the crisis lasts, and his plan to inject another $4 billion from the budget surplus into the stalled residential mortgage securities market normally would be seen as radical, even reckless.

Only weeks ago, the Prime Minister and Wayne Swan were bashing the big four Aussie banks.

Now Mr Rudd and the Treasurer are exposing taxpayers to more than a trillion dollars of liabilities of those same banks as part of the five-point G7-IMF emergency plan to:

Stop systemically important banks from failing.

US Treasury Secretary Henry Paulson's mid-September decision to let Wall Street investment bank Lehman Brothers collapse sparked the current panic.

So no more bank collapses, whatever it takes. So far, that hasn't been a problem here.

Unfreeze money markets and ensure banks have access to liquidity and funding.

The Reserve Bank has pumped billions of dollars of extra liquidity into the short-term markets.

As The Weekend Australian reported on Saturday, Australia's big four bank chiefs are worried that an international package that guaranteed bank debt would disadvantage them if Australia didn't do the same. Hence Rudd's move to guarantee the wholesale debt of Australian banks.

Ensure national bank deposit schemes are consistent and maintain the confidence of retail depositors.

Ireland is also blamed for much of the recent panic by suddenly guaranteeing all the deposits of its six big banks almost two weeks ago.

Britain and other European nations complained this threatened an outflow of deposits from their banks.

Rudd's three-year guarantee of all deposits in Australian banks, building societies and credit unions goes way beyond Australia's existing system of giving depositors first call on bank assets over creditors and shareholders. And it goes well beyond Swan's scheme to guarantee quick payment of $20,000 per depositor in case of bank failure.

The big banks don't need the extra government guarantee as deposits are flooding in. But this might help regional and second-tier banks.

Ensure banks can raise public as well as private capital.

The US and British plans include using taxpayer money to help recapitalise their banks.

Australia's big banks don't need or want the Government - other than perhaps its Future Fund - to buy their shares. And the big four are buying up second- and third-tier finance outfits that have been weakened by the crisis.

Restart markets for securitised mortgages that have been frozen by the crisis.

Last month, Swan said the Government would put $4 billion of the budget surplus into AAA-rated mortgage securities.

Yesterday's move puts another $4 billion into the mortgage securities market, this time for non-bank lenders as the government tries to keep fringe non-bank lending competition alive.

http://www.theaustralian.news.com.au/story/0,25197,24486157-7583,00.html

Fair calls F/d and mantra.

I heard some Aussies had bought subprime mortgages.
Also heard Aussie banks had 1% or less in low doc loans.

Your maths is probably right. The 1.2 trillion would be every dollar in every bank.
It is to stop a bank run, which is NOT every dollar in every bank. And is only a fleeting temporary thing.

Is this the first time I have suported rudd ??

It is mistake to dwell in horrors of the past and to panic when there is a profit to be made if you keep positive outlook. Last week I bought some ANZ shares when they were down and sold them today at good profit when they went up in the morning trade.
IMHO, Rudd has done very well.

I would like to hear from all the forum people what bad or good things happened to them personally this far and why. Maybe such a list would help them to avoid future mistakes.

tallow, I am an active investor and use oldfashioned simple rules.

Buy the winners and sell the losers.  
ie, buy when they are going up, sell when they are going down.
I miss out on the lows and sell losers quickly.




Have had no holdings for about 6 months. It's very boring.

Quote:

Last week I bought some ANZ shares when they were down and sold them today at good profit when they went up in the morning trade. IMHO, Rudd has done very well. I would like to hear from all the forum people what bad or good things happened to them personally this far and why. Maybe such a list would help them to avoid future mistakes.

Good for you Tallowood.  The international "lucrative" company my daughter works for terminated the employment of half of its professional & admin staff of 120 today.  The remaining 60 have no idea if they will have a job next week.

This company was still employing until a week ago.  Consumers have lost confidence in spending and yes it's good if you are stockmarket savvy.  Great to see you've got some gambling money left to play with.  

mantra - ouch !!
That may be the part where we all get hurt.
Good luck to her

Sprintcyclist wrote on Oct 13^th, 2008 at 4:24pm:

tallow, I am an active investor and use oldfashioned simple rules. Buy the winners and sell the losers.   ie, buy when they are going up, sell when they are going down. I miss out on the lows and sell losers quickly. Have had no holdings for about 6 months. It's very boring.

This makes it pure guesswork and contributes to market fluctations. The only useful 'old fashioned rule' is to buy shares when they cost less than what their true value is. If you don't know how to figure out their true value, you are gambling.

How do you figure out if a stock is going down? They go up and down cosntantly. The only way to know for sure is when it has already gone down a fair way, by which time you have done your dough, and by which time it may be a good time to buy.

I don't think I'm "stockmarket savvy" just don't go with a crowd's panic, take it as it comes and keep positive. A jobs is not a life and loosing one is not a death, "been there done that".

Quote:

A jobs is not a life and loosing one is not a death, "been there done that".

That is true Tallowood.  Nonetheless there will be plenty of workers who depend on their weekly wages for their mere existence.  Australians in general have spent a lot more than they've earnt over the past decade.  

Nonetheless there will be plenty of workers who depend on their weekly wages for their mere existence.

None do, in Australia. Only their lifestyle is at risk.

Ya have to give credit where it is due.  Labor cannot claim any concerning the accepted capacity of Australia to largely withstand the current problem.

Howard/Costello, and China, can take the kudos.

Yet, then again, it was Hawke.............

People still have to eat and be clothed and sheltered; they will not give up on loving and laughing. That’s why the economy is not going to die because media of exchange losing its meaning. It will temporarily change to more natural and basic things like it always had done before but it is actually not bad for small communities to have some degree of barter going on. It makes social life better and brings back humanity. Hopefully it will stop globalization for a while too.

freediver - oh, my system is not ....... perfect in any way at all.

It's pretty easy to work out if a stock is going up or down. There are many ways.

eg, suppose I buy a share for $1.00 and it goes to $1.15. It is going up and is a winner.
If it goes to $0.89c, it is a loser - sell it.

I am not entirely comfortable with concept of taxpayers propping up private companies.  

I can certainly see why it is done, but I do not like the idea at all.

Good news: Rudd has done a backflip on his policy of uncapped guarantees for bank deposits. Swan was caught out on Monday saying that the RBA did not want a cap. The RBA released written advice on Friday (though not directly to Swan) that a cap was necessary.

I read up a complex (for me) article in the australian about how/why the banks are in trouble.
It is to do with CDS (credit default swops) and a more retail version.
I'm not sure how they work, so can't explain  it here.

Seems to be a sort of intrabank method of paper (money) shuffling so institutions get what they want, without having to show a debt for it on their books.
As it is not on their books, unsure how much of it anyone has !!!!!!!!!!

It sounds a bit like the first insurance policies - agreeing to share part of each other's risk - in this case the risk of a home loan defaulting.

They did mention that it is similar to an insurance.
Only these ones are not technically/legally insurance, therefore do not have to be regulated :-).

The more of the CDS people wrote, the more they got paid. How alluring !!!!

ANZ have reported to the market first decline in profit for a decade.

"ANZ has reported its first annual profit fall in 10 years, after its bottom line was hammered by the global credit crisis and the bank ramped up its provisioning.

But chief executive Mike Smith said Australia's fourth largest bank was "looking pretty good now" and could look forward to profit growth in the new fiscal year if financial markets settled down.

ANZ today posted a net profit for the year ended September 30 of $3.319 billion, down 21 per cent from fiscal 2007.

Cash profit, which is adjusted for none-core items, was $3.029 billion, down 23 per cent on the previous year.

The results, which marked ANZ's first profit fall since 1998, were impacted by a $1.426 billion increase in credit impairment charges on lending to $1.948 billion, along with a $700 million charge for credit risk on derivatives.

As well, ANZ's gross non-performing loans rose from $666 million in fiscal 2007 to $1.750 billion.
Mr Smith said while the growth in credit losses was "disappointing", the bank's "ability to manage and absorb this shows a high level of resilience."

Looking ahead, Mr Smith said market conditions around the world remain difficult and he expects those condition to continue.

"Market conditions globally remain difficult and unpredictable," he said.

"While we expect choppy conditions to continue in 2009, ANZ is well positioned to manage this cycle, to continue to invest and maximise the opportunities which arise."

But Mr Smith told journalists that if markets settled down, ANZ would see profit growth in fiscal 2009.

"If everything stabilises, and we get back on track, then I expect to see an increase in earnings," he said.

In fiscal 2008, revenue rose four per cent to $11.485 billion.

ANZ's cost to income ratio was 47.4 per cent, up 2.5 per cent, and its net interest margin declined 18 basis points.

Mr Smith said the bank's collateralised debt obligations (CDO) exposure was now out in the open.

"The (CDO) exposure is now all in the open and has been for some time," he said.
"This bank is actually looking pretty good now.

"We have liquid assets of about $50 billion, which equates to all of our wholesale funding for a year."
Mr Smith also said Australia was likely to avoid a recession and that the Federal Government had acted swiftly to shore up the banking system.

"Ratings of the whole Australian banking system might (have come under pressure) because of the reliance on wholesale funding, and that was exacerbated when countries around the world started guaranteeing funding," he said.

"Australia was left out in the cold but the government reacted quickly and that was sensible.

ANZ is looking for economic growth of 1.8 per cent, annualised, in 2009 and seven per cent growth in Asia ex-Japan.

"We will not go into recession, we will definitely slow on the back of the global slowdown but it's better to be aligned with China and Asia than with the US or Europe," Mr Smith told journalists.

Mr Smith also said ANZ's so-called "super regional" strategy, which involves the bank's expansion into Asia to tap into deep pools of liquidity, was still the right strategy.

"I am pleased that we are in this region. I still believe our strategy to create a super regional bank is the right one."

ANZ's Asia Pacific business grew net profit by 52 per cent in fiscal 2008, following its investments in AMMB Holdings Berhad, Shanghai Rural Commercial Bank and PT Bank Pan Indonesia.

But its institutional business suffered a 65 per cent fall in net profit as he global credit crisis impacted.

ANZ's core personal banking arm grew profit by 12 per cent, on the back of strong deposit income and lending.

"Delinquency rates while tracking above last year are being tightly managed," it said.

In New Zealand, net profit fell by 12 per cent.

ANZ declared a final dividend of 74 cents, taking the total payout for fiscal 2008 to $1.36, which was unchanged from fiscal 2007."



http://www.news.com.au/dailytelegraph/story/0,22049,24540045-5014099,00.html

We know now Rudd & Swan have stuffed up with these bank guarantees and the panic has started with people rushing to withdraw funds from smaller institutions and deposit them with the big 4.  Daily we are hearing of more and more mortgage trusts and lending houses freezing their funds or closing their doors because of the uneven playing field.

Those with the lesser ratings will no longer attract small depositors - and the taxes imposed on the larger investors will incur double the deposit fees.

We are going to be left with 4 banks only who will begin to swallow each other up as this crisis worsens.

It's incredible how our dollar has fallen to 62 cents - while the US currency remains the same and while we indulge in this currency swap with them - our dollar will take a further battering.

While the G7 & IMF run around like headless chooks demanding other countries obey their instructions to prop up the US economy - the quick downhill slide continues.

God Save America.

overall rudd did ok withthe guarantees.
The institutin NOT covered are investment funds - they are of a higher risk style, so should not be guaranteed.
it'ld be akin to guaranteeing investments in shares.

Cash deposits are guaranteed.
The currency drop is due to the commodities boom finishing. There is less demand for the Aussie dollar.
This helps our exporters - which is good !!!

Are credit unions covered by the guarantee?

I had to have a look for that one. Apparently yes.


"Credit unions and mutual building societies welcomed today’s decision by the Government to guarantee deposits with all of Australia’s credit unions, banks and building societies.

"The Government is reassuring Australians that their credit union, building society or bank is a safe haven for their savings," said Ms Louise Petschler, CEO of Abacus – Australian Mutuals, the industry body for credit unions and mutual building societies.

"We’re pleased with the Government’s strong and decisive move, which is supported by the soundness of our financial system," said Ms Petschler.

"The guarantee removes any worry for Australians and means that every deposit with a credit union, bank or building society has full Government support."


http://www.encompasscu.com.au/campaigns-campaign-2008-encompass-credit-union-welcomes-government-deposit-guarantee.html

Sprintcyclist wrote on Oct 22^nd, 2008 at 10:14pm:

They did mention that it is similar to an insurance. Only these ones are not technically/legally insurance, therefore do not have to be regulated :-). The more of the CDS people wrote, the more they got paid. How alluring !!!!

They are not deemed to be insurance policies even though they act like them, because you do not need to own that which you are insuring. Essentially, you are betting on the credit worthyness of a CDOs and CMOs (collateralized debt obligation and collateralized mortgage obligation), without actually owning any of the toxic debt. If a CMO has what is called a 'financial event' such as restructuring or defaults, for example, then the holder of a CDS matures and is to be collected upon. The premiums and value of the CDS is set by the Hedge Fund that issues them.

This is all well and good during boom times as few CDSs are collected upon... but, the moment there is an economic down turn, which in itself a 'financial event', those nasty toxic CDSs come out of the wood work demanding payment.

This then creates a solvency problem for those who have to pay out on these CDSs as well as the debt default itself.

In essence then... we have more debt than we have the cash to pay for it.

Quote:

In essence then... we have more debt than we have the cash to pay for it.

Yes and this is the worry Sappho. It's good that Rudd is guaranteeing building societies and credit unions - I didn't know that - but that would be his limit.

Any other institutions (and banks) - have to pay insurance on deposits over $1 million and depending on their rating - it could be double that of a bank.  There is no security for lesser amounts - which means it won't be long before many of them go out of business.

Any insurance charges on deposits would be applicable to customers.
There would be no difference between banks an building societies. It depends where the money is held.

ALL cash deposits are guaranteed.

The sky is not falling

mantra wrote on Oct 26^th, 2008 at 9:30pm:

Quote: In essence then... we have more debt than we have the cash to pay for it. Yes and this is the worry Sappho. It's good that Rudd is guaranteeing building societies and credit unions - I didn't know that - but that would be his limit. Any other institutions (and banks) - have to pay insurance on deposits over $1 million and depending on their rating - it could be double that of a bank.  There is no security for lesser amounts - which means it won't be long before many of them go out of business.

All of this is only one aspect.

Don't forget that rudd also promised to underwrite interbank lending to free up the market. What happens then if ANZ lends to oh say... some Icelandic Bank... and that bank does not pay them back? Australian Tax payers pay back that loan... that is what it means for a govt to underwrite the interbank lending.

Yes it does appear to be fraught with difficulties. It is handing out free insurance. In a liquid market like finance, everyone will move to take advantage of that free insurance. The more risky their venture, the more the incentive to get free insurance at our expense.

It also sounds like for large deposits the government is forcing the banks to insure and pay for it themselves. Why not just tighten the standards for holding cash in the bank to cover deposits? Maybe it's effectively the same thing. Either way it probably reduces the interest you get on your deposits.

What it does do, is stop a run on any bank.

A corelated article.




"THE Australian dollar has suffered its biggest sell-off since it was floated in 1983.

The dollar closed down in US trade on Friday at US61.78 cents, down US4.5 cents and down 37 per cent from the high of US98.49 cents it reached three months ago.

London's Financial Times says the Aussie dollar has become a "whipping boy" after noting that the currency was "once the darling of the foreign exchange market".

"It's just strange. It's just weird," BT Financial Group chief economist Chris Gaton told Fairfax.

"There's no rational reason for us to be at 62 cents."
Dr Gaton said about a third of the drop could be explained by the recent surge in the US dollar, which has risen against major currencies such as the euro and the British pound.

But the confounding drop is not all bad news, with economists saying it would provide a much-needed boost to exports amid a slowing domestic economy.

"It's something we shouldn't fear here in Australia," Commsec chief equities economist Craig James said. "


http://www.theaustralian.news.com.au/story/0,25197,24556799-12377,00.html


Of course there is a rational reason for the $A to be at $0.62 US.
Cause that is exactly the price people are willing to buy and sell it for.
Call it fear, call it greed, the price is right.

America's biggest problem for the last few years has always been their dollar as so many European countries are only trading in euros.  Our dollar is low because we are propping up the US dollar.  Why is their dollar surging and ours dropping?  

A low dollar might be good for exports - but it has made all our imports so much more expensive and unfortunately a lot of our manufacturing has gone overseas - we rely on our imports very heavily.

This is why inflation is so high at present and still creeping up.  

Small businesses who import their products are suffering because people just can't afford the increases in prices.

There was a high demand for the $A cause it was needed to buy the expensive resources.
we are the worlds supplier for resources
The demand for resources has dropped. The price for resources has dropped
The demand for the $A to pay for the resources has dropped, the price of the $A has dropped.

More expensive imports helps our balance of payments, our companies operating overseas have been greatly advantaged by the weaker $A. They now bring back many more $A to aussie than before.

Sprintcyclist wrote on Oct 26^th, 2008 at 10:41pm:

What it does do, is stop a run on any bank.

Actually sprint it appears to be causing them.

Yes they are!