39 thoughts on “Monday Message Board

  1. Why are interest rates always higher under Labour?

    http://www.abc.net.au/insidebusiness/content/2007/s2261579.htm

    “ALAN KOHLER: So how much has the mortgage business changed in Australia?

    MIKE TILLEY: Well, if you go back to 1994, you really had the big banks at that time dominated the mortgage market. They had close to 100 per cent of the market and consumers paid the price for lack of competition. Mortgages in those days had a margin over the Reserve Bank cash rate of about 4 per cent. During the 90s the non-bank mortgage segment started to evolve, and you also saw the merger of a whole lot of building societies which eventually went on to become banks.

    ALAN KOHLER: And what did that drive the margin down to?

    MIKE TILLEY: What happened? Yes. Well what happened was the margins were driven down to a point where say twelve months ago, they were at about one 180 basis points over the Reserve Bank cash rate…

    ALAN KOHLER: Or 1.8 per cent.

    MIKE TILLEY: So consumers got 2.2 per cent benefit from competition in the market. What we’ve seen in the last twelve months with dislocation in capital markets is that the large banks have gone back to almost 100 per cent market share again and we’re already seeing margins go from 180 basis points over to 320 basis points over and you can, you only have to look at the graph to know they’re heading back to 400 over, that’s 4 per cent above the Reserve Bank cash rate. So there’s a real issue out there in terms of whether or not these markets will open soon enough to ensure that there’s a continuing competitive market for mortgages. And it’s a real national interest issue for the Government.

    ALAN KOHLER: Well, most of the other mortgage originators have gone.

    MIKE TILLEY: Yes.”

  2. Low interest rates over an extended period made cheap money available to ‘mortgage originators’ and others. Now only the big banks with lots of loyal (if that’s the right word) depositors have safe-ish, cheap-ish money and they have destroyed what was left of the interloping innovators’ business.
    But it’s not a problem government can solve, is it, except by letting lots more overseas banks in? Again.

  3. Well mitchell, with April prices rising by 0.3% and now April retail sales showing a 0.2% fall we’ll all keep our fingers crossed Steve Keen’s not too right. However a good prolonged bout of stagflation should sort it all out.

  4. “it’s not a problem government can solve”

    Isn’t that what Krudd said about petrol prices as he set about destroying competition in the petrol retail sector with FuelWatch?

    The government are the ones that are restricting competition in the banking sector, allowing the banking oligopoly to double margins.

    Is Krudd aspiring to turn the banking sector into a duopoly like the retail sector?

  5. Tony, I’m unclear whether your comments are just trolling or whether you really misunderstand the issues as badly as you seem to. As the interview you quote makes clear, the increase in margins we’ve seen over the past year has very little to do with government policy, a point that lots of people made in respect to claims about the Howard government’s influence on rates.

  6. JQ

    What does this mean?

    same interview

    Tilley

    “So, you know, what we have here is not a credit crisis. Australian mortgages have the lowest default rate in the world. At the moment there are only 15,000, and for those 15,000 people who have defaulted and who are having their houses sold, that’s a shocking thing, but there are only 15,000 out of more than seven million mortgages that are actually in default today in Australia. And that’s a very low level by any standard in the world.

    Especially this bit;

    “So, in other markets, governments have stepped into the secondary market or into the primary market and said, “The market’s not working properly, it’s in the national interest to ensure it does.” In Australia, the Government hasn’t stepped up yet, but, we’re wondering whether or not the Australian Office of Financial Management, which is the bureaucratic organisation that’s going to be responsible for the Government’s decision to make new issues of Australian Government bonds, Commonwealth bonds, whether or not there’s not a possibility for them to step in and bring some normality back into the secondary market.”

    They haven’t stepped up to the mark yet and Krudd won’t and we will be paying 400bp over the cash rate Déjà Vu 1994 Labour interest rates

  7. Tony, do you understand what issuing new Australian government bonds mean?

    Do you really see no contradiction between your complaints about the size of Australian government and urging the Australian government to borrow more?

    Do you understand why there’s a lack of Australian government bonds in the secondary market.

    Hint: it has something to do with the Howard government’s laudable repayment of Australia’s public debt.

  8. Why the mantra of Working Families?

    Are working singles, or child-free families to be specifically excluded? Are students, unemployed people, retired people, people not working due to chronic illness or disability, non-working single parents all unworthy suddenly? Surely the above add up if not to half the country then something close.

    What happened to Labor’s concern for the disadvantage, or is this a specific ploy to disavow it? Why pick such a bizarre buzzword?

  9. Because it appeals to the swinging voters.
    It’s been doing the rounds elsewhere in the world politically for years if not decades.

    As for the ALP’s supposed concern for the disadvantaged – I suspect they saw exactly how successful Howard was at marginalising the disadvantaged and decided it was folly to attempt anything else.

  10. Working families gets a bit tiresome so they intersperse it with ‘Australian families’ now. Bad luck if you’re a single orphan I guess, but it is more inclusive.

  11. I reckon a lot of us will be reading James K. Galbraith’s Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too when it is published soon. From a review ,”the “industrial stateâ€? has been replaced by a predator state, a coalition of relentless opponents of the very idea of a “public interestâ€?, whose purpose is to master the state structure in order to empower a high plutocracy with nothing more than vile and rapacious goals.”

    On a different subject, Terry Tao has a blog on Mathematics in Australia

  12. I notice that the Australian withdrawal from Iraq has seen the force hand over their base, and presumeably the job, to the US forces.
    I thought we were there, training the Iraqis to take over/take back their own country.
    I recall the British forces in nearby Basra handed their base over to Iraqi forces as the Brits withdrew to the airport. So what gives? What was the point of it all especially as now the locals are said to be fearful of what the US forces will be like. I would be interested to know if any MSM journos have quizzed ADF high command or Rudd on reasons why.

  13. Ian,
    Is it me “misunderstanding the issues�?

    Tilley is not calling on the Government to issue new bonds or increase debt. What he is alluding to is the market for high quality securitised Australian mortgages – which was largely offshore – is as dead as the market for US securitised mortgages infected with sub-prime risk.

    Tilley;
    “The market’s not working properly; it’s in the national interest to ensure it does.” “In Australia, the Government hasn’t stepped up yet, but, we’re wondering whether or not the Australian Office of Financial Management….. can step in and bring some normality back into the secondary market.â€?

    Isn’t he calling on the government to enhance the eligibility of domestic-issued residential mortgage-backed securities (RMBS) so as to add liquidity to the primary & secondary markets here in Australia? (this will facilitate a market for smaller mortgage originators)

    http://www.rba.gov.au/MarketOperations/Domestic/eligible_securities.html

    Because the market for residential mortgage backed securities remains dormant it has been impossible for many smaller mortgage originators to continue to compete. They can not obtain funding for high quality securitised Australian mortgages.

    The consequence of the primary & secondary markets for mortgage back securities becoming dysfunctional, is that the last remaining smaller mortgage originators can no longer get funding on commercially viable terms. This has put any competition to the Labour promoted 4 pillars out of business. The effect being the oligopoly banks can charge what they like and it will shortly be 4% over the cash rate; the same as it was in 1994 the last time labour was in power or should I say in the banks pockets.

    Yes JQ
    “the increase in margins we’ve seen over the past year has very little to do with government policy�

    True, but it is “the governments policy� of promoting the four pillars at the expense of EVERYBODY else that will keep margins heading to 4% over the cash rate.

    http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2008/062.htm&pageID=003&min=wms&Year=&DocType=

    http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2008/062.htm&pageID=003&min=wms&Year=&DocType=

  14. I’ve been wondering if there are any polarised debates currently raging where – when you very (very!)roughly simplify the two sides – you get Science vs. the Left*?

    Global warming seems to be Science vs the Right*, what about Science vs. the Left*?

    So far I can think of these debates:

    1. Immunisation
    2. Phonics

    Can anyone think of any others? I’m interested because I think that drawing these analogies once you have a few of them, might be useful for deflating the polarising aspects in some people’s minds, and getting it back to a fuller, less polarised discussion.

    * Of course i’m not trying to say that all AGW sceptics are on The Right (whatever “The Right” is) or that all people on The Right are skeptics, and I’m not saying that all people on The Left (whatever that is) are skeptical of phonics and immunisation and pharmaceutical corps, or are completely credulous when it comes to global warming. I’m just assuming broad simplifications because my aim is to refute such simplifications where i see people subscribing to them.

    For example: suppose Karl was a passionate and highly partisan supporter of “The Right”, and for this reason was biased towards AGW scepticism. Also because of his political biases, Brendan is suspicious of alternative medicine, dismissive of anti-immunisation ideas, and dismissive of popular critics of phonics.

    I want to be able to draw analogies between his pro-mainstream-science attitude to immunisation and his anti-mainstream-science attitude to global warming to provoke a discussion about political biases, that I hope will end up being de-polarising.

    Any ideas/thoughts? Is it a fools mission to want to try and “depolarise” someone?

  15. “I’ve been wondering if there are any polarised debates currently raging where – when you very (very!)roughly simplify the two sides – you get Science vs. the Left*?”

    Genetic engineering comes to mind as does the drive to eliminate every chemical that’s even vaguely suspected of being carcinogenic.

    Tony G, I’ll have to read the interview and them comment. I may have misunderstood the section you quoted.

  16. ‘the “industrial stateâ€? has been replaced by a predator state, a coalition of relentless opponents of the very idea of a “public interestâ€?, whose purpose is to master the state structure in order to empower a high plutocracy with nothing more than vile and rapacious goals.â€?’

    Well Joe, that’s why some of us still cling to the idea of a Constitutional Marketplace with a level playing field for all the players under its umbrella, and under which there are no deliberately obvious structures to facilitate economic rent seeking, special pleading and empire building from the usual suspects, both left and right. Yeah I know, that makes us eternal optimists generally, but pessimists specifically that the current CM can be incrementally salvaged, not least by tacking on more such vulnerable structures like cap and trade knee jerk.

  17. Steve.
    You could add IVF to your list though it might come under the genetic engineering umbrella. Also some aspects of biodiversity like the role of zoos in threatened species. Nuclear engineering beyond its AGW role.

  18. JQ

    Did you see the reporting of your carbon taxand transport work on Lateline last night? The reporting seemed accurate but I wasn’t sure if teh context was as intended though? There seemed to be almost a “straw that might break the camels back” approach to carbon taxes adding to already high fuel costs. A lot of questions about compensating people followed, which I found odd.

  19. Tony G,

    Stating that the consumer benefited by a 2.2% reduction in interest charged is a bit disingenuous, because it ignores what happened to banking fees and charges under deregulation. We all know how the big banks maintained their hefty profits during a time of greater competition.

    The biggest failure of deregulation was that it did not encourage savers to move their business elsewhere, and it seems to be the reason why the big banks are now profiting.

  20. Smiley,

    The way to circumvented a lot of banks fees was by getting a loan with a non bank lender at a low rate and structure most of your transactions with an offset account. You can get an offset account with a bank today, but you are paying a higher premium to do that because the competition has gone.

    Unfortunately the banking oligopoly have most of the savings, that is why they are fast becoming the only show in town.

  21. I’m not expert on banking but, if changes such as electronic banking mean that economies of scale now favour a smaller number of larger monopolistic banks, is there now a case for at least partly reregulating the banking sector?

  22. Socrates I would have thought the opposite – there’s now scope for online-only banks that are surely far less costly to set up and run.
    I’m not sure if there are such things.
    I’d think the biggest problem with the bank market is above all people want their money to be safe, so they want known brand names.

  23. As Rudd stubbornly persists in his plan to introduce daily price controls on petrol stations across Australia Victoria is selling itself as an emerging front-runner in the telematics sector, in particular vehicular telematics. Amongst the services that vehicular telematics can provide are

    “ enhanced navigation with optimised local search featuring dynamic points of interest such as fuel prices, parking space availability and speed traps.
    Other real-time information, such as traffic and flow data, satellite imagery, online map updates and even full off-board navigation, can also be included.�

    If you don’t have a car with telematics capability you will be able to use your mobile phone.

    Sit in your car and source the nearest best petrol price, plus the route to, with advice about traffic, why would you want to go on the web to check out Fuelwatch. Can Fuelwatch tell you where the nearest coffee shop is. Why if you were the Victorian government would you want your cutting edge technology to be supplanted by a rigid already outdated system which seems to deliver little in the way of competition or price reductions. Why would a government that is enabling a technology that can claim to assist in reducing Victorian car drivers’ carbon footprint welcome Rudd’s attempt to meet his implied core promise.

    Whose system will have more appeal, hitwise finds that the biggest users of Fuelwatch are ‘Privileged Prosperity’ – the most affluent households in the most desirable locations, and ‘Family Challenge’ – mixed families with stretched budgets in outer suburbs. Not hard to guess which system the most affluent will favour.

    While currently cost is an issue the US approach, no doubt to the horror of some, is to include advertisements or corporate sponsorship. McDonald’s for one is interested.

    FuelWatch in a couple of years will seem like an interesting anachronism.

  24. Socrates I would have thought the opposite – there’s now scope for online-only banks that are surely far less costly to set up and run.
    I’m not sure if there are such things.”

    ING and Members Equity (the joint-venture run by the industry super funds)come close to being virtual banks. ME operates a few branches but mostly relies on direct marketing to super fund members.

  25. wizo;

    http://news.theage.com.au/national/university-vice-chancellors-earning-big-20080603-2l1u.html

    Unlike university vice chancellors I am poor and only have $20k to invest. Now I do not have to care about the brand name of the bank I put my money into.

    As it is the governments intention to tax everybody to the point where they can only accumulate $20,000 in savings, it is fitting that they have now introduced a government guarantee of bank deposits for up to $20,000.

    http://business.theage.com.au/swans-promise-is-ready-cash-but-not-full-protection-20080602-2kuy.html

    Gee I love supporting the public sector with responsible spending on schools and universities.

    Thanks Swanny

  26. Steve,
    What do you make of this one-
    http://www.news.com.au/story/0,23599,23807753-23109,00.html
    Generally the lefty Peta-heads are against animal cruelty but Muslim cruelty seems off limits cf infidel muelsing, fur seal clubbing, whaling and the like. Ms Bardot cops a fine for speaking out against the former, but you can actually act in sorts of normally illegal ways with impunity on the latter.

  27. Wait for the law of unintended consequences to kick in Tony. Although you could presumably get around the guarantee limit by placing $20k with as many banks as you can, watch the banks quickly introduce 2 levels of interest for deposits above and below $20K

  28. The way to circumvented a lot of banks fees was by getting a loan with a non bank lender at a low rate and structure most of your transactions with an offset account. You can get an offset account with a bank today, but you are paying a higher premium to do that because the competition has gone.

    Therefore… you would think that the big banks would have lost a lot of customers… but they didn’t… which again points to a failure of deregulation. Obviousely something other than deregulation is required.

  29. “it is fitting that they have now introduced a government guarantee of bank deposits for up to $20,000.”
    On second thoughts and given financial events OS, perhaps Swanny knows something I don’t and I’d better take my own advice pronto, irrespective of the banks’ new interest rates on up to $20k amounts. The rest of all you vice-chancellors, as you were, of course.

  30. “Obviousely something other than deregulation is required”.

    Yes a mattress, it has been proved to be safe over time.

    “The rest of all you vice-chancellors” and federation fellows, especially the ones at UQ who are not as hard up as their contemporaries in the other states, will need a king size one.

  31. Historically, similar initiatives in the US, with the now privatised government sponsored enterprises, Fannie Mae and Freddie Mac, and in Canada, with the government-owned CMHC, were created with precisely the same mandate that we have in mind: ie, to “stabilize mortgage markets and protect housing during extraordinary periods when stress or turmoil in the broader financial system threaten the economy.�

    If you saw the graphs that Alan Kohler presented a couple of nights ago on ABC News, showing house prices in various US cities in free fall, you’d have to question if Fannie Mae and Freddie Mac have achieved outcomes quoted.

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