By: almurrie1@y7mail.com
16/05/2008
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Pol
I guess these answers are available somewhere but the point I was making was that there are new possibilties for cash strapped banks to convert their long term housing loans (with all the risks involved) into secure US treasury bonds which can then be traded for cash if needed. The fact that they did not take advavtage of the full amount available means they are now betting their loans will outperform US bonds. (Either the worst of the housing problem is over or bonds aren't as secure as people think and the US is in for more hurt). This would give the banks options to either issue more secure loans, or use the money to retire debt. Either way they are in a better position to make huge profits when the interest rates on their past lending goes up, which WILL eventually happen in the US, and then the banks will again shift money from the poor and middle class into the pockets of the rich. Like what is happening at the moment in Australia. In Aus I would have thought some sort of regulation on how much lending banks could do is best to slow inflation, rather than up the interest rates on loans. This just gives the 2/3 with money in the bank more to spend, which must hurt inflation more than a little, and also pushes up CPI for housing, rents etc which actually made inflation worse. Like pouring petrol to put a fire out. Crazy.
Al. |
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By: pol_pak
16/05/2008
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By: almurrie1@y7mail.com
In the US the Fed is "auctioning" off bonds in exchange for mortgages, ie turning 25 years of future payments into liquid cash ($835 billion in the last round).
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What are they getting for these bonds ?
Assumption unlikely to be for all repayments to be recovered.
What risk allowance factored in compared to received if these repayments were like US Gov Bonds guaranteed fixed income over a period of time ? |
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By: pol_pak
16/05/2008
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Stevens' speech sparks rate rise talk
Friday May 16, 2008, 12:12 pm
Reserve Bank of Australia (RBA) governor Glenn Stevens' reminder about the damage high inflation caused in the 1970s suggests the central bank remains ready to lift interest rates further, an economist says.
Mr Stevens said the RBA's target to maintain inflation with a two to three per cent range over the course of the economic cycle was the best system to keep prices down.
He said Australia's price pressure problems now were not as bad as in the 1970s.
"Even with the recent surge in consumer prices taking the inflation rate to a bit over four per cent, things are not like there were in the 1970s," Mr Stevens told a University of Sydney alumni dinner.
Mr Stevens said inflation could rise to 1970s-type levels if a target band was not obeyed.
"It's easy to say `why not raise the target?'," Mr Stevens said.
"That was the previous thinking of the 1970s. That's how we got 10 per cent (inflation), it's too big a liability."
Between 1970 and 1979 the average rise in the CPI was 10.7 per cent a year, which eroded the value of money by 60 per cent over the period.
JPMorgan chief economist Stephen Walters said the governor's speech indicated rate cuts any time soon were "out of the question".
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Read rest of article !
http://au.biz.yahoo.com/080516/2/1qt9c.html |
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By: contratrad
16/05/2008
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Hello AL,
Thanks for You assistance in explaining the overall situation to s step000.
A very concerned ,
contra |
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By: almurrie1@y7mail.com
16/05/2008
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Hi Step,
love your he he!
Did you see in the Courier Mail Friday that Australian banks have made 10.5 billion "profit" from the increase in fees for credit cards and loans! The credit crunch has come directly from the banks themselves not allowing other banks to get away with shifting the cheques around in circles, never turning them into cash. Now they don't trust each other, no one wants to be caught holding uncashed cheques issued by a bank that has gone belly up. So they can't get away with lending on a promise as easily, and by the way where is all this money coming from that is so called being "lent" to the Banks? In a complex round-about from the printing presses owned by the governments of the First World, because all the "corporation cash" is already promised for their own projects. This equals world INFLATION, the same as Robert Mugabe did to buy arms - print money, 1000% inflation! The idiot masses feel richer, but have to pay twice as much for a loaf of bread!!!!
Wait and see if I am right. The credit crunch will be over soon but inflation will become "acceptable" at 6% or more.
In the US the Fed is "auctioning" off bonds in exchange for mortgages, ie turning 25 years of future payments into liquid cash ($835 billion in the last round). So Step you are not quite right about the conclusion you made about the prepaid interest. Australia is part of the world banking system and so is also partaking of this particular pie.
Also the banks get away with holding little cash, by the idea that they are protected by the reserves deposited with the Reserve Bank, but apparently this is no longer a requirement, so the Reserve really holds no reserves, only what the governments allows the mint to print and give to them.
Contra is right on the money only explained it less well.
Sack the RBA board and Glen, and take back control.
Al |
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By: s_step000
16/05/2008
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Hehe
Requote as my prev quote is wrong.
Contra's argument, is that Banks can lend to customers simply by relying on fees and depositors and loan interest repayment which I think is totally wrong.
Here u exclude the biggest variable, that is money market and capital market for raising money for banks. 50% of the fund is obtain this way. This is the reason banks raises rate out of control. |
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By: contratrad
16/05/2008
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Hello AL ,and thanks for Your very informative Posting.
S step000 You are quoting me incorrectly because You are leaving out the fact that I have always said the Banks also obtain Funds from loan Interest Repayments or do You include Loan Interest payments in ' fees'.
Your Quote ---' Contra's argument, is that Banks can lend to customers simply by relying on fees and depositors which I think is totally wrong' .
Anyway, I think AL 's informative Posting has cleared the picture up for You !
A very concerned,
contra |
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By: s_step000
15/05/2008
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"They are about creating money from nothing"
Here, you are implying if the customer of Banks A, say C want to buy a house from me, I did not receive money at all?
they have no real money at all to invest in "money markets".
I did not say they invest in money markets. You said that. Banks raises capital from money markets from investors. That is borrowing. They then lend this money to their customer.
Contra's argument, is that Banks can lend to customers simply by relying on fees and depositors which I think is totally wrong.
I am using the post to show that Banks relay on investors willingness to lend money. When investors are less willing to lend money they raise the lending rate to banks. Banks will then pass on the rate increase to the customers. |
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By: almurrie1@y7mail.com
15/05/2008
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S Step
Credit Unions can only lend their members' deposits. Not so for Banks.
Transparency in Banking, now that's a novel idea. They hide their figures so well that not even other banks trust each other any more. No one knows what they are doing with their creative accounting but I can guarantee that they have no real money at all to invest in "money markets". They are about creating money from nothing. What they do is write a promisary note backed up by their reserves to the effect that they will honour a cheque if it is presented. No cash changes hands at all. This means the numbers go around and around and they charge 9.5% for this privilege for home loans and up to 20% for cards + fees. Again and again. Leverage. So they hold a couple of billion, lend it out up to 11 times, and make more like 90% on it! How else do you get to make 2 billion in 6 months! And in the mean time if any one actually wants that bit of paper turned into real money (which less than 10% ever do), they just slice into the interest payments they are getting, to pay up. And if there ever was a run on the banks you would quickly find that they have no actual cash at all. Technically this makes them bankrupt. Like you would be if you lent money on just a promise to pay. As long as everyone believes you can do this it is fine!! When this fails, (eg in G.B. recently) it is in their interest for governments to just crank up the presses and print money to bail out the bank (or let the Reserve increase the interest rates). The latest from the USA is that the Fed wants to "give" interest to the banks on the reserve funds it holds, so the banks can be more liquid. Fed doesn't do this at the moment so wants the law changed in USA to allow it.
And we wonder about 4% inflation. The government is printing money for all the loans that have been given on a promise. And of course the Reserve knows this very well, and pretends, along with the Government to blame bananas etc, anything but the truth. |
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By: s_step000
15/05/2008
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"It all works like the old Chain Letter System, s step000 -----as the Retail Banks receive Interest Payments in , they have those Funds available to Lend out again. "
Hmm does not make sense. From previous post, Banks has an income of 100 billion from fees, interest, and termination fees. NOW, Banks need to loan 350 billion out (buying 350 billion asset for customers).
I dont understand how if u only have 100 billion you can lent 350 billion to ur customers without borrowing from others. |
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By: contratrad
15/05/2008
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Hello s step000,
It all works like the old Chain Letter System, s step000 -----as the Retail Banks receive Interest Payments in , they have those Funds available to Lend out again.
A very concerned ,
contra |
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By: s_step000
15/05/2008
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"Repayments to the Banks and You will find that the Banks are receiving appprox $1.90 in Interest for every $1.00 they lend out for a 30 Year Housing Loan."
This figure does not make any sense. Above scenario, indicates banks only get about 3% pa for lending. They get much more than that (current rate is 9.5% pa). Investing in money market give u much better return than loan. Unless Banks' CEO are morons, they will not lend money to anyone. :)
The key here, NOW banks need the AUD 350 billion. Your 30 years interest is not prepaid in advance now. So bank cant use this interest.
Anyway I guess to argue you need to provide figures and show the figures tally.
I have not doubt banks make money from fees which I reckon is about AUD 3 billion per year.
The problem here is that, your numbers do not add up and tally at all :) |
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By: contratrad
14/05/2008
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Hey S step000,
Please go back to my Posting which shows a comparison of the various Housing Loan Repayments to the Banks and You will find that the Banks are receiving appprox $1.90 in Interest for every $1.00 they lend out for a 30 Year Housing Loan.
I wonder how much the are receiving for each Dollar they are Lending out on Credit Cards ?
A very concerned,
Contra |
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By: unclefatso01
14/05/2008
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| Of course they should be sacked. They have gone back to using the Keynesian economic model that got us in to trouble when dipstick Howard was treasurer. Upping rates to cut inflation is a miserable failure. Keatings J curve might not have been popular but his modelling was much improved over the Keynesian crud. |
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By: s_step000
14/05/2008
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"'Australian mortgage loan from banks is about AUD 700 billion. The deposit in the banks are not even half of that amount. Here, you are saying the remaining AUD 350 billion is funded through fees'.
Now, My friend please add, Interest Payments which I mentioned in my Posting. "
Hmm does not add up still. If banks charge 10% pa interest. Banks will have additional 70 billion. There is 280 (350-70) billion has not been accounted for. Where the banks get the 280 billion?
It is easy to say abstractly and vaguely that interest, fees etc will cover the amount of banks lents. If u want to justify ur argument, u need to provide exact details in $. Based on figures above the sum does not add up :) |
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By: chellins2002
14/05/2008
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| As long as they are not favouring the current Goverment by trying to keep the interest rates low and make them look good. Because we know what the interest rates were when Labour were last in Goverment.$96 Billion in Dept what short memories people have. They have started already with their so called Budget slug anyone who is trying to make a go and is working hard, like before the have an angry side to anyone who works hard and makes money.So in short keep the reserve bank as long as they are not in Rudds pocket |
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By: contratrad
13/05/2008
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Hello again s step000,
Quote from Your Posting:-
'Australian mortgage loan from banks is about AUD 700 billion. The deposit in the banks are not even half of that amount. Here, you are saying the remaining AUD 350 billion is funded through fees'.
Now, My friend please add, Interest Payments which I mentioned in my Posting.
A very concerned,
contra |
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By: s_step000
13/05/2008
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"). Here is a little Quote from the Wizard Website to back me up as to just how Greedy our Retail Banks etc. are ( The Second last Figure in the examples is the total Repayments and The last figure in each example is the life on Loan Savings by having the Rate Breaker Loan with Wizard, Quote:-"
Actually I dont understand why u make a lot of fuss about banks. Your statements here, indicates there is a lot of choice. If u dont like banks then go to others. It is that simple. For example, I always look for a free annual fee credit card :) |
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By: s_step000
13/05/2008
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Australian mortgage loan from banks is about AUD 700 billion. The deposit in the banks are not even half of that amount. Here, you are saying the remaining AUD 350 billion is funded through fees. Assuming OZ population of 25 million people and each person has 2 accounts, u pay banks (350 billion/50 million) AUD 7000 fees. That means 600 AUD per month fees. Only moron pay that kind of fees to banks. If banks only charge $50 per month they will not be able to fund the mortgage. They need to search money from the market.
Your statement does not hold. It is too abstract and without any justification. |
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By: muzza43767
13/05/2008
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| thank god for credit unions, Seemless busines always. |
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By: contratrad
13/05/2008
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Hello again s step000, Answers:-
1). Loan Interest Repayments in the main,then Savings etc. Deposits, followed by their Excessive Fees (Retail Bank fees are higher than Fees at Wizard etc. and Credit Unions; Examples A bank I know of charges $2.50 for B-Pays where at a Credit Union I deal with B-Pay is Free etc..
Overdraw Fees - for a late direct debit etc., Bank $50.00, Wizard and Credit Unions something like $30 and $15 respectively).
2). Here is a little Quote from the Wizard Website to back me up as to just how Greedy our Retail Banks etc. are ( The Second last Figure in the examples is the total Repayments and The last figure in each example is the life on Loan Savings by having the Rate Breaker Loan with Wizard, Quote:-
You Entered: Basic Loan, $200,000 over 30 years.
Rates
(%) Upfront
Fees Monthly
Fees Monthly
Repayment Total repaid
over life of loan Potential savings
with Wizard
Wizard
Rate Breaker Loan
7.88
7.92
$760.00 $0.00 $1,450.83 $523,059.86
ANZ Bank
Money Saver Home Loan
8.77
8.91
$500.00 $10.00 $1,586.26 $571,553.07 $48,493.21
Aussie Home Loans
Basic Variable
8.93
8.99
$600.00 $0.00 $1,599.18 $576,305.54 $53,245.68
Commonwealth Bank
Economiser Home Loan
8.93
9.07
$700.00 $8.00 $1,607.18 $579,285.54 $56,225.68
Bankwest
Lite Home Loan
8.98
9.02
$500.00 $0.00 $1,606.37 $578,792.46 $55,732.60
AMP Banking
Basic Variable Rate
8.82
8.82
$600.00 $0.00 $1,583.41 $570,627.74 $47,567.88
// End Quote
P.S. By the way just have at look at how much Money people with Loans are paying out in Interest etc..
Enough for now,
A very concerned ,
contra |
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By: s_step000
12/05/2008
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Actually the one I am worried about is that after credit crunch is over, Banks will maintain their high spread margin rate. Theoritically they should bring it back, since the money market rate will be back to normal.
However, I believe this is not the case. Thus making OZ banks even more profitable. :) |
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By: s_step000
12/05/2008
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"Answer; The Greedy Retail Banks make their Money and more by Increasing the Interest Rates on Existing Loans.
(Yes less people will be able to afford to take out new higher Interest Loans ). "
2 questions:
1) Where do you think the Bank get the money to loan the people?
2) If u think Banks anyhow raise rate, why dont u take the loan from somewhere else say WIZARD etc. Ample of choice there?
Banks definitely are greedy. It is a company aim to make profit!!!. If I am a shareholder, I will be very angry if the banks did not raise rate. |
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By: contratrad
12/05/2008
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Hi Al, I'm with You 100% on Your last Posting here.
A very concerned ,
contra |
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By: almurrie1@y7mail.com
12/05/2008
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Contra, I have been thinking about how banks operate and is it beyond all probability that they are still financing loans from 25 years ago through money markets? The billions of total interest they have got over the years would quickly write down these loans, and then they could lend that money again and again. Compound profit taking if you like. That means every interest rate rise gives them a huge increase in profit. Only the more recent loans would cost them more, but they say this increase is so expensive for them that each and every variable loan has to increase. What rubbish. Only new loans should carry the higher rate. This begs the question that they have actually been lending money on promisary notes and have been lying to everyone where they source the loans. Now the crunch has come they are cashless, that is until they get a free kick from their banking cronies in the Reserve, through rate rises, which suddenly gives some of them record 6 month billion dollar profits and takes them out of bankruptcy!!
Al |
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