Panic breaks out over Aussie banks—about time!

IMF warning

The International Monetary Fund (IMF) last week practically ordered the Australian banks to squirrel away billions of dollars in extra capital reserves, to prepare for what one U.S. analyst called an impending “bloodbath” in the Australian property market.

The IMF was acknowledging two things: that Australia’s banks are dangerously exposed to property values; and those property values are wildly overvalued, i.e. the market is a bubble.

In other words, Australia’s financial system is in exactly the same mess as those of Ireland and Spain before their banks blew out under their debt burdens.

Petrified bankers

An even more telling insight into the state of the banks came from a chorus of bankers themselves this week, in the lead-up to the monthly Reserve Bank meeting on interest rates.

“Bank bashers ‘risk economy’” accused a headline in The Australian on 30^th January, summing up the message of bankers such as former NAB CEO Don Argus, current NAB chairman Michael Chaney, and Future Fund chairman and former CBA boss David Murray.

The bankers are anticipating that the Big Four banks will almost definitely not pass on in full any RBA interest rate cuts for the foreseeable future, and are hyperventilating to pre-emptively defend them, in a backhanded admission that if the banks behave as nicely as the public might expect, they will go bust.

In the current monetarist financial system, that is absolutely true.

The reason why is that the government-guaranteed loans taken by Australia’s panicked banks (including the very desperate Macquarie Bank) at the height of the “GFC” in late 2008, without which they would have been “insolvent sooner rather than later”, had maturities of three, four and five years.

The first of those, the three-year loans, fall due this year; by 2014 at least $65 billion in government-guaranteed loans must be repaid or refinanced.

Because the banks must refinance these loans without the government guarantee, which expired (the government must now wish they hadn’t believed their own propaganda about the crisis being over), the refinancing on the banks’ own double-A credit rating, rather than the government’s triple-A rating, is much more expensive.

In fact, the interest rate they’ll have to pay to roll over is almost double what they paid under government guarantee. For that reason, the banks are determined not to pass on any RBA rate cuts in full.

Weighing in to also lobby for the banks under the headline “Bashing the banks could end up bashing you”, Murdoch finance spruiker Terry McCrann revealed in Melbourne’s 31^st January Herald Sun that the CBA owes $631 billion. Roughly half of that is in the form of low-interest customer deposits, but the balance is in higher-interest loans, including from foreign investors, and it completely dwarfs the bank’s capital base of $37 billion.

Glass-Steagall

Citizens Electoral Council leader Craig Isherwood today noted that the panic about Australia’s banks is long overdue:

“For years the authorities have either been lying about our ‘sound’ banks, or in denial, but now reality is sinking in,” Isherwood said.

“The question is, what do we do about it? The Australian people must not allow the bankers and their agents in the major parties to dictate the response, or else the people will be slammed with austerity budget cuts to prop up the banks’ bad debts, just like we are witnessing in Europe.

“The only solution to the world banking crisis is Lyndon LaRouche’s call for a global Glass-Steagall: separate commercial banking from investment banking, and write off the trillions of dollars in gambling debt and derivatives obligations that are sinking the world economy.”

Isherwood urged people to watch the CEC’s 2009 video, The Homeowners and Bank Protection Bill—The Only Solution, which documents how accurately Lyndon LaRouche forecast the current global banking crisis, and details the steps that would be taken under the CEC’s proposed legislation, the Homeowners and Bank Protection Bill 2008, to solve the crisis.