For any ex bankers retired and into astronomy

[xelasnave]

Inflation theory.

John I thought you may like to bite

Is inflation not the condition of things getting dearer when income can not keep step… yes simply put that is it…

So how does a Government meet this challenge…

By legislating to hold down prices?

No by increasing prices by increasing interest rates and saying it was the Reserve Bank that did it and we have no control ..we are only the Government real money matters are best left to someone else.

Well who the heck is the Reserve Bank and who gives them authority to regulate what should be a matter for Government exclusively…Why do we accept the elevated position of importance and know all understanding that the Reserve Bank assigns to its existence??? Why because that’s the way we have always done it.. yes what better reason could we have..

What a great system whereby hundreds (thousands) of folk lose their jobs, homes and businesses because the reserve bank has decided its time to rein in the unfetted borrowings that leave folk exposed to losing their jobs homes and businesses.

AND talking of Banks other than the Reserve what a great system when incompetent bankers after running up loses simply pass on their economic ineptitude via higher rates to their captive consumers… how sick I get of the cry that interest rates have to go higher (than even what the Reserve bank has nominated) because that bank invested very unwisely.
Such losses should come from their capital as is the case for all other businesses.

Why do we let the banks enjoy a win win win and more win situation unavailable to any other part of the economy. It’s the Golden Rule thing they have the gold they make the rules.

At the risk of being innovative could we not find a system that allows for economic growth that does not demand at a point many of the gains be cut off by a grab for interest by the banks??? This two steps forward and one step backwards approach to economic management needs review and abandonment…

Why have we got inflation anyways.. because the banks let folk borrow so they can gain rent on their money… so we suffer to allow the banking system to profit…

AND they claim…. the market.. the market… all will be taken care of by the market… well if that is the case let the illicit drug problem be taken care of by the market… would not work would it?

Yet we buy this BS that the money market takes care of all..depends on who you include in the term “all” ..seems to me it includes only the few who wrote these rules of sound economic conduct. AND why should we pay more for capital because banks have lost money on unwise purchasing of mortgage funds.. why should the consumer pick up the tab for their gross mismanagement of shareholder funds…must be some sort of market thing I guess.

If one looks at any business a large component of cost is the cost of capital so what sense does it make to increase its cost…that will never reduce the cost of production…never..ever.

Are we to think that such a method of cure can reduce costs overall..yes they say of course it does..why? well many businesses will have to lay off workers because of the reduced demand and therefore they will have less money going out and therefore reduce expenses and therefore costs… and by this clever approach we stop inflation..well if the Banks were more responsible maybe the problem would not be a problem at all.

It would seem sensible that to reduce costs of production one may think that rather than increasing substantial costs like the price of renting capital one could reduce costs by actually reducing some of the input costs… mmm capital cost and fuel…

This approach is taken if one raises the prospect of an increase in labour costs… want more money get more productive is the demand by those who do the opposite… could this relating income to productivity gain work for a bank as well? Seems like a double standard somehow not to apply the principle evenly.

What a stupid system of economic control .. raise the cost of capital so folk lose their jobs and thereby reduce demand and thereby lower the rate of inflation…it is a seriously flawed although accepted approach.

Whilst we are on the subject does increasing the cost of fuel lower the costs of production…no?

Well one wonders why the Government could not adopt a different approach to the taxing of a major component of production such as fuel and that rather than being a party to the crime they take a more reasonable approach and remove all taxes from fuel and fund revenue from taxing profits not by taxing costs of production…

…

Anyways just a thought.

alex

[GTB_an_Owl (Geoff)]

the words "Credit Squeeze" come to mind Alex

geoff

[Kokatha man]

Alex, Alex, relax brother, you're getting worked up trying to apply reason to irrationality: just reflect on the inferred aspersions you're casting on all those good folks who spend their waking hours speculating on the relative merits and value thereof of currencies - just calm down my good friend; our financial institutions are there to grease the cogs of our existence. What's that you say about grinding - carefull, none of this New Age Pseudo-Marxist dogma here bro!

The majority of us rejoiced and sang fullsome praise as these institutions slashed their services and personnel; put a stop to that old nonsense about receiving interest on our savings unless we locked them into conditions and timeframes of their choosing, and decided that "caveat emptor" was something about having our caviar and them eating it too! These, along with "role-modelling" in the form of executive salaries and bonuses et al have helped us to appreciate our lowly positions in the great scheme of things, and enabled their profits to continue to spiral, albeit with well-intentioned and constant exemplifying of the hiccups and foibles associated with the onerous social responsibilities they undertake on our behalf.

[GTB_an_Owl (Geoff)]

the day they took away our right to be paid in "CASH" was the day the banks started laughing

geoff

[Glenhuon (Bill)]

Alex, the term usury comes to mind, something I believe in ages past they used to hang Jews for. Nowadays its legal no matter what creed you are. Except of course Islamic banking where interest (usury) is a no no. Its a form of fixed interest in a way (to my understanding). You want to purchase a property, the bank buys it and sells it to you for a sum which gives them a fixed profit. No increase/decrease over the life of the transaction. You know what your up for from day one. Sounds much fairer to me.
The atitude of banks in the last couple of decades reminds me of generals in WW1. Factoring in "acceptable casualties" to their plans and blaming inept junior commanders when questioned about them.
I've had conversations with people who worked in the finance sector and their attitude is unbelievable, its a big game of monopoly, they sit there juggling figures with ne'er a thought that they are dealing with real peoples lives. Government loses touch with real people regularly, but bankers have lived on a different planet for a very long time.

Bill

[xelasnave]

Now my friend what makes you think I am getting worked up...my level of cynicism and indignation with hypocracy (other than my own) is always at a comfortable level...

it does not rise or fall so my mood is stable on these matters...

but I am old and as such have reached that happy stage of life where not being able to contribute meaningfully all I am left is to grizzle..it suits me well and rather than raising my levels of stress I can honestly say I am very laid back about everything...

I always say things just "are" and it is the observer who qualifies what is before them..as good or bad...now there are others who have made a science of the idea that it is the observers view that is all that is relevant .. but even so my observations are not really relevant things still just "are"....

in truth the victims of the banking system are either young and foolish or old and foolish..it would seem a moral duty to cull them ....bankers are like preditors in the wild ..their role is to cull the species of the weak and the frail and in so doing see the evolvement of a stronger more capable self reliant people... if not for the banking system we would probably still all be serfs depending on a Lord to rule us..

Natures way is to reward the strongest with survival and so why should one expect more from humans than any other animal for to do so would place too high an importance upon them in the history of living things...


alex

[Glenhuon (Bill)]

Originally Posted by GTB_an_Owl

the day they took away our right to be paid in "CASH" was the day the banks started laughing

geoff

I was pretty upset about that one too when my employer announced no more cash payments. I wasn't asked if it was acceptable, it was just done without consultation or my consent. Yes GTB, they were laughing all right. Now every time I paid a bill or bought groceries I had to use their facilities instead of just handing over some notes, and got charged a fee for the "priviledge". Stiil makes me angry how we got conned with that one.

Bill

[xelasnave]

Originally Posted by Glenhuon

Alex, the term usury comes to mind, something I believe in ages past they used to hang Jews for. Nowadays its legal no matter what creed you are. Except of course Islamic banking where interest (usury) is a no no. Its a form of fixed interest in a way (to my understanding). You want to purchase a property, the bank buys it and sells it to you for a sum which gives them a fixed profit. No increase/decrease over the life of the transaction. You know what your up for from day one. Sounds much fairer to me.
The atitude of banks in the last couple of decades reminds me of generals in WW1. Factoring in "acceptable casualties" to their plans and blaming inept junior commanders when questioned about them.
I've had conversations with people who worked in the finance sector and their attitude is unbelievable, its a big game of monopoly, they sit there juggling figures with ne'er a thought that they are dealing with real peoples lives. Government loses touch with real people regularly, but bankers have lived on a different planet for a very long time.

Bill

Bill I think the problems arise from corruption of a good idea by those who scam the system..prime loans is a re run of a re run of a re run..each time it comes up the name is changed but it is the same deal..and it is always to hel[ out the folk that eventually get evicted...the loans are not for them but to fund the lawyers, builders, real estate agents, accountants builders etc etc who are the ones who come awy better off as well as the banjkers... and when no more can be lent the portfolio holder on sells to some fool who thinks because they are buying million dollar portfios of mortgages all is OK...

But why should they care it is the small investors life saving they spend... the result is always the same ..or as Geof puts it a credit squeeze..sounds nice and economic but this means fanmilies destroyed... I have seen how these events destroy families and lives..it is heartless....and as you observe the real sorrow is those dealing in this business work on the basis that there will be victims.. the current problem is simply they piled up too many victims before the axe fell...

I said some time ago here this problem would grow and it did and it is still growing ..I said gold wopuld hit $1000 per oz not because of any other reason than to appreciate that is where the smart money goes when the crap hits the fan... we are only dealing with the mortagage problem at the moment..the credit card chooks are yet to come home...

and at the high end of town higher corporate income equates merely to being able to borrow more... so what happens when all realise the debts will not get paid off like the directors said..everything is too high geared to be safe ... and if history is anything to go by such a situation heralds a major war some little time after the colapse... and so once the US gets the current presidential thing out of the way look out... even now the war mongers howl for action... anyways I dont care I am just stating a view which is mine and that does not mean it is correct by any means.


alex

[mark3d]

economics is not an exact science but its not voodoo either.. a lot has been learnt and demonstrated particularly over the last century. economies are cyclical - peaks and troughs of growth.

the reserve bank is not a privately owned bank it is a statutory body - like the ABC - that exists to help smooth out the peaks and troughs by influencing the availability of money.

when there is too much money flowing around they need to cool the economy down by restricting the supply of money. the way to do that is raise interest rates - increase the cost of money, to reduce the demand. conversely when the money flow slows down they drop the cost of money to get it flowing again.

japans economy slowed down for a long time. they were lending money out at 0.1% interest to try to kickstart things.

one of the big reasons the great depression was so bad is because there were no things like pensions or the dole, so as people started losing their jobs, the supply of money dried up. the problem compounded as more people lost their jobs.

thats the sort of thing the reserve bank tries to prevent. its harsh that the result means peoples home loans cost them more. banks probably over-lend knowing they cant really lose with a house as security.

the reseve bank needs to be independent so it can make decisions without interference. the last election showed that.. with a rate rise a few weeks before the election.

im sure things would be a lot worse economically without them.

the argument ive seen lately is whether their target of 3-4% inflation is too conservative - that the couple of extra % inflation may be acceptable.

[xelasnave]

Great input Mark... there is little one could say is incorrect..as I said it is allowing the system of boom and bust to florish by supporting lending programs that can only end in pain for the last ones on the bus.\

alex

[Dujon]

No, Alex, I won't bite from the view of a banker (long ex).

I will though comment on the current attitudes of both the banks and borrowers.

Looking in from the outside it appears to me that the banks have become far too lax in their quest for profit (and there's nothing wrong with profit as no business will survive without such) by allowing customers to borrow sums of money the repayment of which will absorb a significant percentage of the customer's income (private or business) whilst at the same time the customer having little equity in the purchase (whatever it might be). Perhaps there should be an equity requirement of ,say, 15% and a commitment of income no more than 25%.

Then there's credit cards. Oh dear!

From the customer's point of view surely it should be the equivalent. Don't over commit, take into account changes in interest rates - probable, possible or unlikely - allow for the cost of, say, owning a home (insurance, rates, utilities, maintenance) and servicing of all debts.

That's the micro level.

To answer the question of the macro level controls "I don't know". Simple.

The Reserve Bank, as already observed in this thread, is (theoretically) an independent body charged with the responsibility of economic control. As far as I am concerned that is the way it should be.

One of the problems with interest rate 'fiddling' is that it can, and does, affect the dabbling in currency by various traders (internal or external). This in turn affects our importers and exporters who, generally anyway, tend to use contracts based on U.S. of A. dollars. Either (but not both) could benefit or lose from that situation. Given the gold price variation over the last couple of years (+250 to +300% is it, Alex?) I'm quite happy that it is not used as a base.

I am not an economist. There are undoubtedly nuances of fiscal policy of which I am unaware. Given that the Reserve Bank is not accorded the power of a government what other choices does it have?

[GrahamL]

I'd like to see the banking industry heavily regulated again like it used to be ......The curent situation is akin to putting the fox in charge of the chicken coup and hopeing everything turns out right ..My personal favourite was being sold loan insurance in a local branch and when browsing the fine print a while later discovering the policy wasn't valid in my state
anyway

[tbentley]

Frankly I'm sick and tired of hearing people whine about the evil banks and how they are robbing people of their houses. No-one that has borrowed within their means and considers future possibilities has ever had to sell their house or have it repossessed.
When I bought my house I set myself a borrowing limit which I believed I could manage to repay back at up to 12% interest rates. I also factored in reasonable increases in salary over coming years which would extend my capability to 20% interest rates in the next ten years. I hope that they don't get anywhere near either of those figures but I know that I can manage it if they do. I did all this with the view that my wife's salary would not be contributing to our living expenses as we wanted to have children.
All of this meant that we bought a very modest three bedroom one bathroom house in an outer suburb of Perth, nowhere near the coast. It is a little squeezy at times and we can't fit in a plasma TV or any of the other niceties. Owning this small home has actually helped us live within our means by constraining our capacity to store these things.
Our house is ex-government housing. Almost identical to many that I lived in growing up with my father a country cop. I remember having a wonderful childhood. I never felt that we were missing out on anything, even though we kids had to share bedrooms. Truth be known I can't remember having any friends with better houses than ours.
Would I like a much bigger house with all of the mod-cons? Sure I would. Could I afford it if circumstances didn't change? Absolutely. Would I risk my happy marriage and the welfare of my beautiful baby girl to achieve it now rather than wait a few years? No way in hell.
Any one who is in a position of stress because they have borrowed too much has options. Change your lifestyle (i.e. sell the big screen, get a more modest car, etc.) so that you can afford it, refinance over a longer term to make payments more manageable, or sell and either buy smaller or rent.
The banks are no more at fault for people being in mortgage stress than the man who sells a car is for the owner driving into a tree. They may enable the act. They may not protect us from our own stupidity or naivety (in this age of easy information there is little excuse for either.) But they are not responsible.
Travis

PS - I have no affiliation with the banking industry in any way. I just think people need to take some personal responsibility for the consequences of their decisions.

[xelasnave]

John I was particularly interested in your views as you have been on the inside and the outside so thanks for your input ..very well considered and I thank you.

Travis if only folk could follow your approach but I fear few have your ability of such rational consideration of the situation they think they face.

Many years ago there was an Act called the Money Lenders and Infant Loans Act which in effect upped the level of disclosure for loans over 12% (when it was common to have money available at 6%) ...

It seemed that the idea behind that legislation was to protect borrowers from themselves and place the burden upon the lenders to disclose all in the transaction. The main area was to describe a flat rate (the one advertized) as what it worked out as a reducible rate (the one if your worked out what you actually paid).. A flat rate when expressed as a reducible rate is roughly double...so when folk boasted a cheap 7% rate the act made them show that the borrowers were in fact paying more like 14%.

However I still think there is a preditory approach by lenders and I site as evidence the fact that I get offers from credit card folk unsolicited in the mail offerring me up to $150,000 in credit... (you could sell me up a couple of times over and not get near that cash from my meager assetts) so one wonders if I could get the cash but we hear stories about some kid who gets a card application and applies for it and gets credit...

The prime loans thing is a recurring scandel in my book and the outcome is always the same..we will see this crisis pass but it will emerge again in about 8 to 10 years I bet..and it will be the same misery for some whilst those who engineered the program make millions..

I guess I am an idealist and hope for a world where there is no difference between that "crime" and one where one holds a gun to another and takes their cash by force...trickery is worse than robbery in my view... and when I think hard about the world and history I doubt if such will ever happen.

I also am perhaps a little sensative to the credit issue because of the folk I have seen get sucked in and foolishly trusted the nice salesman that what they were getting into was "normal"

Whilst there is no restraint upon the propostion of borrowing short and lending long we will continue to see these horrible boom and bust movements in credit..I just think there must be a better way and in such an enlightened age one wonders why a better way can not be used.

The issue of personal responsiblity is a difficult one... on the one hand we must assume folk can guide their own direction in matters of credit but on the other one must recognise that someone who is in the business on a day to day basis can assure folk that all is OK when in fact all they care about is the immediate sale and their immediate commission on setting the deal up..

Lets face it a mortgage broker is simply interested in selling you a loan..which loan will be determined by the commission rate paid to the broker I feel...and there are very few (if any) who will forgo their commission and warn someone that what they are doing is madness..

I feel to take personal responsibility away from folk who can be made victims so easy would be good Government.
If not one could say well lets make all drugs legal and leave the matter to the personal responsibility of the victim to decide if they ruin their life by using the stuff or not...

anyways it is still a wonderful world....

alex

[tbentley]

I like your analogy with drugs Alex. I'd never really thought of it that way but you're right, we'd (probably) never make the decision to legalise drugs but we'll let people ruin their lives with easy credit. Makes you think doesn't it.
Of course if we did limit access to credit someone would jump up and down saying it was infringing their rights. It's strange how some think that we are in a "big brother" nation and others think we need more regulation to "protect" us from harm. Most I imagine would like to see less regulation for individuals and more for corporations.
I guess no matter what we do in the future the one truth will remain about that fool and his money. As Mulder would say "trust no-one."
Trav