Bishop accuses Swan of cosying up to banks

Federal Treasurer Wayne Swan is under increasing pressure for refusing to demand the banks pass on any interest rate cut in full to consumers.

Mr Swan has again urged the banks to pass on the "maximum possible" amount if the Reserve Bank cuts rates this week.

But because banks' borrowing costs have gone "through the roof", he says that amount will not necessarily be as much as the central bank's cut.

But Opposition treasury spokeswoman Julie Bishop says Mr Swan must explain why the banks should be protected from the global financial crisis at the expense of mortgage holders.

"Wayne Swan needs to explain what level of record profit he believes the banks should be maintaining at this time," he said.

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Gus: One could be tempted to agree with Ms Bishop. But no.

The situation is not so simple. The rich man in the street seems to know that the four major Aussie banks are in debt and very soon will have to decide upon a mini rescue package. There is an urgent 250 millions AUS$ to take care of, and possibly another 500 millions later on. That's why the treasurer Wayne Swan is inviting the banks to pass on as much as possible of the interest cut "if there is one". Should the banks pass on the full amount, they will go further into debt and the banks might have to stop lending money or restrict the lending in a way that would be detrimental to the economy.

Costello and Howard lived on the super-inflated price of Australian real estate. Unsustainable — we're paying for it now. Costello sold most of the Aussie gold reserves back then for around 250 US dollars while now its worth about 3.5 times that much after currency adjustments. Talk about making a bad deal. Ms Bishop is a Howard follower and will play the instant populist card to the hilt while it's detrimental in the long run. She should be very careful in what she says, as the next few days — a fortnight at the most — will be crucial for the Aussie banks...

Presently, politics should be played out very quietly, Ms Bishop... Money markets are walking on eggshells...  The Aussie banks are in a better position than most, yet they have to be very very careful...The media should also be careful to in the way they write or expose the news. The federal government is 100 per cent right on this one...

Top government officials are refusing to provide details on a secretive deal it made to manage billions in assets from an earlier bailout. 

Sen. Charles Grassley, R-Iowa, has been pressing top officials for months to provide details on a deal the Federal Reserve made for a private firm to manage $30 billion in financial assets from the collapsed investment bank Bear Stearns, as part of an arrangement to facilitate J.P. Morgan Chase's purchase of the bank in March. 

The Federal Reserve announced at the time that it had contracted with BlackRock Financial Management Inc. to manage the assets. Since then, it has declined to share any further details on the arrangement with anyone – not reporters, not the public, and not Sen. Grassley.  

Officials Refuse To Provide Details On Secret Previous Bailout

The Reserve Bank of Australia (RBA) has cut interest rates by 1 per cent, taking the official cash rate to 6 per cent.

The surprise 100 basis point cut is the second rate cut by the RBA since the start of September.

The last time the RBA cut rates by 1 per cent was in May 1992.

There has been a significant turnaround on the Australian share market in the wake of the RBA's decision.

After falling more than 3 per cent in early trade, the ASX 200 is now up 1 per cent to 4,586.

The All Ordinaries index has gained 22 points to 4,566.

The banks have climbed, with Westpac up nearly 3 per cent.

The Australian dollar fell after the announcement and at 2:50pm AEDT was trading at 71.74 US cents.

RBA governor Glenn Stevens says some governments have taken action to restore stability following recent turmoil in financial markets, but uncertainty remains.

"Financing is likely to be difficult around the world for some time ahead," he said.

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Gus: It would have been better had the RBA not lifted interest rate so much in the first place... Having to reduce it by one full per cent shows the board got it wrong in the first place or they had no idea that the credit crunch was on its way, which is not good for financial wizards... The credit crunch, especially in the real estate was sumpthin' we at least predicted for the last three years. Not because of wishful thinking but the figures under Howard did not add up... Credit was out of control, inflation was low, while creaming at the top was at an all time high. Something had to give.

Hopefully, the banks will be able to pass on at least 75 per cent of the fall. The rest will help them sort out their little spot of bother without wreaking the joint.

The Reseve Bank will have to cut interest rate by another one percent soon.

Australia Guarantees Bank Deposits to Combat Crisis

Filed at 3:46 a.m. ET

CANBERRA/WELLINGTON, Oct 12 (Reuters) - Australia and New Zealand gave a blanket guarantee to all bank deposits on Sunday in a move likely to raise pressure on other economies to do the same, amid a crisis of confidence in the global financial system.

The two neighbours, both dominated by Australia's four major lenders, had portrayed themselves as having strong bank systems, especially Australia whose government and regulators gave repeated assurances it was well placed to weather the storm.

But Australian Prime Minister Kevin Rudd called a snap news conference on Sunday to say his government would guarantee Australia's entire deposit base of A$600-A$700 billion ($386-$450 billion) for three years and guarantee wholesale bank funding.

"We are in the economic equivalent of a national security crisis, and the challenges are great," Rudd said.

He referred to recent moves by other economies, such as Britain, Germany and Ireland, to extend guarantees or state aid to their banking systems and said Australian banks could be disadvantaged if his government failed to act.

"I don't want a first-class Australian bank discriminated against because some other foreign bank, which has a bad balance sheet, is being propped up by a guarantee by a foreign government," Rudd told reporters.

The country's top four lenders are: National Australia Bank (OOTC:NABZY) , Australia and New Zealand Banking Group (OOTC:ANZBY) , Commonwealth Bank and Westpac Banking Corp (NYSE:WBK) .

New Zealand Prime Minister Helen Clark announced her deposit guarantee scheme moments later, though she gave no time frame.

"Our government has agreed to implement a deposit guarantee scheme which will provide New Zealand depositors with additional confidence," Clark told broadcaster TVNZ at the launch of her ruling Labour Party's campaign for the Nov. 8 election.

The New Zealand scheme charges a guarantee fee of 10 basis points a year for institutions with deposits exceeding NZ$5 billion ($2.97 billion).

PRESSURE FOR OTHERS TO FOLLOW

Both countries said their guarantees should not be taken as a sign of weakness in their banking systems.

Rudd quoted local regulators as saying bank finances remained in good order. "Right now, the balance sheets look great," he told reporters. "Our banks and our financial institutions are in first-class financial order.

"This measure puts our banks on a similar footing to other banking systems around the world."

Australia would also make an extra A$4 billion available for mortgage-backed securities market to help maintain liquidity for non-bank lenders, Rudd said, adding that the measures were part of an international response to the crisis.

Paul Xiradis, managing director of fund manager Ausbil Dexia, said the moves by Australia and New Zealand just made it more likely that other economies would have to do the same, or risk being overlooked by investors shopping around for security.

"The government is not reacting because it needs to, it's being proactive to make sure it takes a positive step," he said.

"It is likely that all government's will do so and this step by the Australian government is simply aimed at ensuring that everyone is on an even keel."

The Abbott Government wants us to work more but who really benefits? Economist Warwick Smith argues that instead of handing more of our money over to the big four banks, we should follow the Swedish example where a 30 hour working week barely caused a blip in overall productivity.

ABBOTT AND Hockey’s 2015 budget continues their efforts to increase "workforce participation”. This is just another way of saying they want Australians to work more. Why? We’re told it’s to repair the budget and to maintain economic growth in the face of an aging population.

They are pursuing increased participation on multiple fronts including assaults on penalty rates, increasing childcare support, punitive measures against the unemployed and reduced family payments.

Whether or not we want to work more is not of interest to the government but we should be asking ourselves this question because there are alternatives to increasing participation.

read more... https://independentaustralia.net/politics/politics-display/the-coalition-want-us-to-work-more-so-we-can-give-more-to-the-banks,7817

Meanwhile the banks have an "unlimited" kitty to play with. The derivative market gives them a potential of more that 1000 trillions clams (or US dollars), while the total currency in circulation is worth 120 trillion. The GDP of the world is worth no more than 80 trillion per annum... The natural environment of the planet is ... PRICELESS.