Masters of the Universe

Today’s AFR has a nicely worded piece by American academic Harold James entitled “Superbanks are not economic visionaries”.  Following a bit of a history lesson James concludes as follows:

…even for the US, the notion of a world held together by Citigroup’s business plan is simply too costly.  There is a danger that in the push to nationalise banks as a consequence of the financial crisis, governments will see it as their duty to implement strategies .

The strategic vision of a bank shaping the economic fortunes of a country, or the whole world, is as flawed as was the idea of central economic planning.  In this sense, 2007-09 is the capitalist equivalent of the communist demise of 1989-91.

James’ article reminded me of Tom Wolfe’s classic The Bonfire of the Vanities, and the “masters of the universe” who were in fact anything but.

Gottliebsen was Spot On

Robert Gottliebsen, writing in the Business Spectator yesterday, made comment on the unique way in which government is pressuring the banks to pass on cuts in the official cash to their home loan borrowers straight away and in full, while no mention is made of how and when rates are cut for the biggest employer in Australia, the small business sector.

The RBA’s Statement on Monetary Policy issued today not only bears this view out, it reinforces it.  The Statement devotes considerable space to the topic of how well Australian banks have done in passing on rate cuts to home borrowers, in comparison with banks in a number of other countries (who have by and large retained huge margins for themselves).  Alas for small businesses around the country (and by extension the people they employ, the people they might have employed and the people they used to employ) the story hasn’t been so kind, as the following extract from the Statement shows:

Split Infinitives and the Bank of Queensland

Some inspired reporting from the AFR yesterday, touching on a Bank of Queensland guidance update:

“…the bank heartened investors by reiterating that impairment charges for the 2009 year remained in line with 2008, despite the rapidly slowing economy causing other banks to raise dramatically their own provisions for bad loans.”

This raises three important issues:

1. The AFR clearly trains its journos well in avoiding split infinitives.
2. Presumably if BoQ had cut their bad debt provisions investors would have been deliriously happy.
3. If this constitutes good news I wonder what constitutes bad news?

A Big Iceland

Some sobering thoughts from the Business Spectator on the drama unfolding in the UK.  Click here for the full article.

Odds on a Depression, or Depression Odds-on?

While Centrebet here may be running a book on the chances of a recession in Australia, Intrade has gone one better by doing the same thing for a depression.  I’m a bit confused about the definition they’re using for Depression, but the really depressing thing is the way the odds have moved in recent times, as the graph demonstrates.  Note that the prices on the right hand scale (currently 55.5) represent the likelihood of a depression (around 55% based on these numbers).  Click the graph to see contract specs etc.  It’s also worth having a look at Calculated Risk here for their summary of the definition of “depression” and why it’s flawed.

Closer to home, it’s encourage to see that Centrebet punters are taking a slightly less jaundiced view of the Australian economy, with the price for an Australian recession in 2009 drifting out to  $1.27 from $1.20 in mid-December.  Click the graphic for more info.

 

 

Alas there seems to be a bit of a disconnect between Centrebet and the SFE – the mid 2009 cash rate implied by bank bill futures prices clearly suggests a fairly serious recession in the offing.

First Home Owners Grant Inflates Housing Prices!

Who would have thought it?

Read the Crikey story here.  And how’s this for a wrap up?

“If the Government really wanted to help first home owners they would remove the Howard Government’s grant altogether, but who are we to let a sound economic policy get in the way of a populist vote grab?”

Kevin ‘07 Christmas Card

Subprime in a Nutshell

  …or as Basil would say: “Nutcase more likely”.

 

 

 

This is a very neat one page summary of the subprime fiasco and subsequent global financial crisis.  It ties together the roles played by the lenders, borrowers, investment banks and rating agencies, although there’s no mention of how or why the regulators went missing in action.

Click here to read the article.

'Greenspan Put' May Encourage Complacency

Terrific article from the FT warning us that the infamous "Greenspan Put" may encourage complacency and create moral hazard.

That was in December 2000, a mere eight years ago.  A nice call there by Peronet Despeignes.  Not so nice call by Big Al Greenspan, whose aura was so pronounced back in 2000 that it can be seen clearly in the photo to left.

Click on the article for the full story.

DIX Index Update

Here's the DIX index updated for the December 2008 forecasts.

For an explanation of how this is calculated see here.

Things have improved a bit, but there's still some wild variances in forecasts for the cash rate, the biggest being a range of 2.75% to 4.75% for the Dec '09 rate.