Citizens Electoral Council of Australia

Media Release  Friday, 22 February 2013

Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
Email: cec@cecaust.com.au
Website: http://cec.cecaust.com.au
 

FINANCIAL ALERT

What is the Commonwealth Bank hiding?

The mother of all shocks might be about to hit Australia’s financial system.

The warning sign of this danger is the alarming decision by CBA, Australia’s biggest bank, to hide the full truth about its exposure to trillions of dollars of derivatives obligations.

For the first time ever, CBA in its 2012 Annual Report deliberately omits the face value, also known as notional principal amount, of its derivatives obligations, and only reports the much smaller, and therefore less alarming, “fair value”.

What does CBA have to hide?

When questioned by the CEC, a spokesman for the bank claimed that CBA had nothing to hide, and only omitted the figure because it wasn’t relevant to the annual report.

However, when pressed, he admitted CBA no longer wanted to make public the figure that has been in every annual report for more than 20 years. By contrast, the other three major banks did disclose the face value of their derivatives exposure in their 2012 annual reports.

In the period since toxic derivatives blew up the global financial system in 2008, Reserve Bank of Australia figures show that Australia’s banks have gone on a derivatives binge, massively increasing their collective exposure from $13 trillion to just short of $20 trillion. The vast majority of that exposure is concentrated in the big four banks.

The majority of the growth in derivatives exposure has been in CBA, which has seen its derivatives more than double between 2008, when it reported a face value derivatives exposure of $1.426 trillion, and 2011, when it reported $2.884 trillion.

At this breakneck rate of growth, the level of exposure CBA reached in 2012 is information that is important to the public’s understanding of the state of the bank.

CBA’s derivatives binge coincides with its record run of profits, but raises the question: are those profits real?

Former Morgan Stanley derivatives trader Frank Partnoy in his 1997 exposé of derivatives, FIASCO: Blood in the Water on Wall Street, insisted that derivatives are sold to cover up losses and to make losses appear to be gains for short periods of time (Partnoy got out of derivatives trading because he was convinced he would go to jail if he stayed in it). Partnoy’s admission has been borne out in numerous cases, including the 1995 collapse of the British Barings Bank; the 2001 bankruptcy of U.S. energy giant Enron after years of using derivatives to cover its losses; and the 2008 Lehman Brothers-triggered meltdown of the $1,400 trillion global derivatives bubble that bankrupted not only Wall Street and the City of London, but entire nations, especially in Europe.

[Click here for a PDF copy of What Glass-Steagall Will Do, a dialogue with Executive Intelligence Review Economics Editor Paul Gallagher who explains the continuing danger derivatives pose to the global financial system.]

Citizens Electoral Council leader Craig Isherwood declared today, “The CEC is sounding the warning siren on this issue, because after the carnage derivatives caused in 2008 no bank should get away with hiding its derivatives exposure.

“The fact that CBA would try this cover-up proves the point that Australia desperately needs a Glass-Steagall banking separation which breaks up the big four banks, to keep the banks that hold deposits firewalled off from the financial sectors that are so massively exposed to these toxic side-bets.”

Isherwood concluded, “The CEC is on an urgent mobilisation to get Glass-Steagall enacted in Australia before the next global financial shock wipes out our vulnerable financial system.

“U.S. statesman and physical economist Lyndon LaRouche has just issued a warning, A Bail-Out Was Never Possible: The Intent is Genocide, that has dire implications for the financial system of every nation, including Australia.

“Every concerned Australian should join us.”