Isherwood: Apply Angelides lesson to save Aussie economy from banking meltdown

The lesson from America’s Angelides Commission (Financial Crisis Inquiry Commission, see www.fcic.gov), that the global financial crisis was avoidable, must be applied to Australia’s banking system now, to avert a total collapse of Australia’s economy, declared Citizens Electoral Council leader Craig Isherwood today.

“Australia’s banking system is on the verge of a meltdown,” he warned. “To feed its addiction to the speculative property bubble, it is looting the real economy by starving productive sectors of credit, to funnel billions of dollars into hyperinflated mortgages.

“The property bubble will burst, because the banks can only continue to feed it with loans by bankrupting the people in the productive economy whose work earns the income that repays those loans.

“When it bursts, it will annihilate the nation’s entire banking system,” he said.

Mr Isherwood detailed the banking system’s terminal addiction to the property bubble:

• Well over half of the business of each of the Big Four banks is mortgages, which are overvalued at hyperinflated bubble levels; consequently, the banks, the regulators and the government are extending every effort to keep the bubble growing.
• The bank regulator, APRA (Australian Prudential Regulation Authority), knows the banks are bankrupt, and so allows them to engage in blatant “Enron accounting” to meet minimum capital reserve requirements. A bank’s capital reserves attest to its solvency—its ability to withstand losses. The regulatory minimum is 8 per cent, but APRA lets the banks treat mortgages as super low risk, and against $1.157 trillion in Australian mortgages, only hold $24 billion, or 2 per cent in capital reserve.
• Because the rest of the banks’ lending requires much higher capital reserves, to lower their capital ratio the banks are withholding credit from other, more productive sectors of the economy, such as agriculture, to put into mortgages, the devastating impact of which is dramatically illustrated by the Murray-Darling Basin Authority’s Rizza Report.
• Furthermore, APRA lets the banks reduce their capital reserves against mortgages even further, if the collateral—the property—increases in value. In other words, the more the banks lend as mortgages to expand the property bubble, the more capital they free up to lend as mortgages to expand the property bubble even more.
• On 16^th February, the Moody’s ratings agency announced a shock review of Australia’s supposedly “sound” Big Four banks, for a possible credit rating downgrade, due to their enormous foreign liabilities, which are 43 per cent of total bank liabilities. The banks incurred these foreign liabilities over the past decade, as they sourced more and more funds to pump into the property bubble. By the banks’ own admission, these liabilities are unpayable, and except for the guarantees provided by the Rudd-Gillard government in October 2008, they would have already collapsed. In recent months, the banks have sought to reduce their foreign loans, but source foreign funds for deposits instead, by paying high deposit interest rates, to draw in even more money from overseas, in a “carry trade” (borrow cheap, lend dear) similar to Brazil’s.

Mr Isherwood continued, “America’s FCIC chairman Phil Angelides declared about the global financial crisis, ‘The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done. If we accept this notion, it will happen again.’ His commission’s report then blamed the crisis on the very causes identified and fought against at the time by Lyndon LaRouche and the CEC: the 1999 repeal of the Glass-Steagall banking regulations, and the banning of the regulation of derivatives in 2000.

“This time the authorities had better take notice,” he concluded. “Before any more lies are told that Australia’s banks are ‘sound’, and before those actually bankrupt banks are allowed to do any more damage to the Australian economy by starving productive sectors of credit to shovel in to the speculative bubble to which they are addicted, the government must act to reorganise Australia’s banking system the way LaRouche and the CEC prescribe: enact Glass-Steagall-type regulations to protect the productive economy from speculative looting by banks; enact the CEC’s Homeowners and Bank Protection Bill 2008, including its provision for a farm debt moratorium; and establish a government-owned-and-controlled national bank, like ALP legend King O’Malley’s Hamiltonian Commonwealth Bank, to direct credit into productive industries and nation-building infrastructure projects.”