Here is a trick

Go into your pocket/wallet/purse and take out a bank note. Make sure it is an Aussie note.

Now look closely at it. What do you see? Do you see the 2 signatures in the corner of one of the sides. Do you know whose signatures they are? They aren’t the signatures of the Prime Minister or of the Governor General. Not the Queen or other representative of the Government or the people.

The signatures on Australian currency belong to the Secretary of the Commonwealth Treasury and the Governor of the Reserve Bank of Australia. The individuals may change, but signing Australian bank notes remains one of the privileges of the office. That with a large salary, generous superannuation scheme and the eventual Companion of the Order of Australia award for …. services in doing the job you are already well remunerated for. Nice work if you can get it.

So basically, Australian currency is signed by 2 senior public servants. How very Australian.

Let’s just segue for a moment.

The ever loved Australian banking systems shares an annual profit pool of over $40 billion and probably more. That $40 billion profit pool is highly dominated by the big 4 banks – ANZ, CBA, NAB and WBC (in alpha order). Throw in Macquarie, SunCorp and Bendigo and you are probably accounting for over 95% of that profit pool.

The profitability of the big 4 Australian banks is the dream of other international banks yet for some reason, they seem impervious to competition. Could it be that the game is rigged?  Could they really be protected from competition by the imprimatur of Government? After all, $40 billion of profit generates $12 billion of company tax revenue.

But let’s just have a look at the membership of the boards of the big 4. Let’s just ignore for a moment the cross pollination of senior executives from one bank being on the board of a different bank.  Who are the standout directors on 4 of the big 5:

ANZ 

  • Jane Halton AO, PSM – fomer Secretary of Commonwealth Department of Finance

CBA

  • Rob Whitfield – former Secretary of NSW Treasury

NAB 

  • Ken Henry AC, Chairman and former Secretary of Commonweath Treasury

Macquarie

  • Gary Banks – former Chairman of the Productivity Commission
  • Glenn Stevens AC – recently “retired” Governmenor of the Reserve Bank and Australia

But hang on. Let’s not forget some of the previous folk:

  • David Morgan was CEO and Managing Director of Westpac.  He was also Deputy Secretary Commonwealth Treasury
  • Ted Evans was Chairman of Westpac.  He was also Secretary of Commonwealth Treasury.
  • Ian Macfarlane was a Director of ANZ.  He was also Governor of the Reserve Bank of Australia.

So really.  What do people expect will happen to the Australian banks?

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25 Responses to Here is a trick

  1. craig

    Cant see the shareholders complaining.

  2. I am Spartacus

    let’s see how happy the shareholder are when the banks are disrupted by Apple or Google or Ant Financial or Tencent or similar.

  3. Leo G

    So basically, Australian currency is signed by 2 senior public servants. How very Australian.

    Not signature facsimiles? Perhaps then, the large salary, superannuation, and AC are warranted for such banknoteworthy achievement in busy beaver service to Australia.

  4. The Vengeful Ghost of Fiona Watson's Moggie

    ‘Let me have about me banks that are fat.
    Sleek-headed banks and such as sleep-a- nights.
    Yon foreign competitor hath a lean and hungry look.
    It crashes too often. Such banks are dangerous.’

    Do we have to have this retarded conversation again?

    You want your banks fat, happy and lazy. It reduces the risk to the financial system. You do not want risks to your financial system.

    Also, the correct way to assess profitability is by rate of return on capital. As far as I can see, the rate of return on invested capital for the banks is quite reasonable and not extortionate. They make large profits because they invest large amounts of shareholder capital.

    I expect better from catallaxy. Well I used to, anyway.

  5. I am Spartacus

    So you see no problem with correlation and concentration risk? Not to mention the implied hidden tax?

  6. closeapproximation

    I don’t think that the massive correlation risk in the system has anything much to do with the composition of the boards…

  7. H B Bear

    Correlation risk and concentration risk with Australian banks is that they are defacto building societies.

  8. The Vengeful Ghost of Fiona Watson's Moggie

    What do you mean, precisely, by correlation, concentration risk, and implicit hidden tax?

  9. What do you mean, precisely, by correlation, concentration risk, and implicit hidden tax?

    What do you know about the Cantellon effect? Basically the banks will fractional reserve money into existence, using capital to leverage the debt. We have a debt based fiat currency, and whoever prints it has first dibs. The composition of the board is important because you know who is shearing you or clipping your tickets. You are a mortgage slave.

    Sure, you want big, fat, happy and stable banks. But how do you think they got that fat?

  10. Howard Hill

    Ah the untouchables.
    Until banks are treated like every other business on this planet and prevented from creating money out of thin air, you’ll have wars, poverty and Socialist, Marxists governments.
    The (((untouchables))) are the root of all evil on this planet.
    That you can take to the bank!

  11. Malcolm

    Not sure of the problem. Secure banks low fees and good returns for shareholders. As for signatures on banknotes – who do you think signs the BOE notes or USD? Yes public servants. We wouldn’t want Trump’s signature on USD would we?

  12. Tezza

    With two possible exceptions (I’ll leave Spartacus to guess which two) these are exactly the sort of people I’d like to have looking after my deposits, and my superannuation investments.
    Who would Spartacus prefer?

  13. max

    BORROWED SHORT AND LENT LONG

    The heart of the modern monetary system is fractional reserve banking. This system is based on fraud. At the very heart of the modern economy is fraud — fraud on a gigantic scale.
    What is the nature of this fraud? Counterfeiting. Banks are government-licensed institutions that issue bogus IOUs. Because these IOUs function as money, they are counterfeit money. This is the heart, mind, and soul of all modern banking.
    There is only one textbook in money and banking that states explicitly that all fractional reserve banking rests on fraud: Murray Rothbard’s The Mystery of Banking. It is not used in any university. It never has been. It was published in 1983. It went out of print almost immediately. It is on-line here.

    https://www.lewrockwell.com/2009/10/gary-north/fractional-reserves/

  14. OzWizard

    Wouldn’t you like to be able to earn interest on your liabilities (as the banks do, when they “lend” them to you)?
    “Acquiring assets by creating liabilities against themselves”, is the name of the bank “lending” game. As much as ~95% of Australia’s “money” supply consists of such bank liabilities (i.e. credit-balances). Only ~5% is in the form of those ‘signed’ notes and coins.
    So the best part of their game is, they are never called on to (and never could) discharge more than 5% of those liabilities – which circulate, just like money.

  15. Bad Samaritan

    rich (9.59pm) and many others over the years; I’m having a lot of difficulty understanding why fractional reserve banking is “bad”. It appears to be what everyone does on their own anyway….

    I get paid $1000 and lend my son $800 so’s he can buy something. He says he’ll give the $800 back on his payday Iat the end of the week. The something does not arrive at the store as it’s been delayed for a few days in transit so he onlends $600 of the $800 I lent him to his son. The grandson wants a new gadget but changes hos mind and further onlends $400 of the $600 from my son to a mate who’s buying something or other.

    OK, so now there are three debts. $800+$600+$400. That’s $1800 in debt. I have $200 cash, as do my son and grandson, whilst the “mate” has $400 cash. So, we know where the original $1000 is in cash. And we also know there are debts of $1800.

    What is the evil problem here?

  16. Tel

    I don’t think that the massive correlation risk in the system has anything much to do with the composition of the boards…

    So at the top level you have a large number of people running the show, with almost identical backgrounds, who all think alike, act alike, and quite likely have coffee together on a regular basis just to make sure.

    It wouldn’t then be possible they all make the same mistake at the same time??

  17. Tel

    OK, so now there are three debts. $800+$600+$400. That’s $1800 in debt. I have $200 cash, as do my son and grandson, whilst the “mate” has $400 cash.

    Right, you started with $1000, so you COULD have consumed $1000 worth of goods, but now you only have $200 to spend until you son gets paid, so you have chosen to refrain from $800 of consumption. This is important because your lending to your son does NOT create any new goods or services so the fact that you refrain from consumption is the thing that makes it possible for your son to consume instead of you. That process goes on down the chain.

    There is no way the family can actually spend that $1800 total debt on anything.

    However, with banking you CAN spend the debt because the same money loops around via electronic accounts (or slightly slower via cash). The banks make the implicit promise that everyone’s entire account balance is “at call” while your debt to your son was on the understanding that is really is not “at call” but he will pay you on a given day. Thus, it’s a different type of debt.

    In practice though, most normal people don’t pull all their money out of the bank on the same day as everyone else and then attempt to spend it. If it happened the banks would call it a “bank run” and would declare a “bank holiday”… that’s because most of that money never existed in the first place, so it cannot possibly be entirely “at call”.

  18. Bad Samaritan

    Tel(7.45am). OK, next step. The mate buys the $400 thingy and repays the grandson the $400 after he gets paid, plus $10 interest. The grandson then buys the $600 gadget and on payday hands over the $600 he owes + $15 interest (of which he got $10 from his mate). The son then gets the item he originally wanted since it’s now in stock, and on payday gives me $800 + $20 interest (of which $15 was from the grandson).

    Now I have my $1000 again + $20 and everyone has bought what they wanted = $1800 worth of stuff = the $1800 spent.

    What am I missing here?

  19. John Bayley

    Fractional reserve banking in itself is not the biggest problem. If we had a free banking system, preferably backed by gold (or something else that can’t be ‘printed’), the system would be self-correcting as those banks that overextend themselves would periodically go out of business.
    However once you introduce a fully ‘flexible’ unbacked currency, which can be generated in unlimited quantities by the ‘backstop’ that is the central bank, you end up precisely where we are – with ‘Too Big to Fail’ banks that can do whatever they want, and with debt so out of control everywhere that interest rates have to be repressed to zero to keep the system staggering on.
    That this is ultimately unsustainable is a lesson we will all learn in the next few years, good and hard.

  20. Tel

    Now I have my $1000 again + $20 and everyone has bought what they wanted = $1800 worth of stuff = the $1800 spent.

    Presumably the son, grandson and mate all got paid, implying that new money came into the family but also implying that real goods and services were created. If they had not been paid wages they would not have been able to repay any of the debt.

  21. Fractional reserve banking in itself is not the biggest problem. If we had a free banking system, preferably backed by gold (or something else that can’t be ‘printed’), the system would be self-correcting as those banks that overextend themselves would periodically go out of business.
    However once you introduce a fully ‘flexible’ unbacked currency, which can be generated in unlimited quantities by the ‘backstop’ that is the central bank, you end up precisely where we are – with ‘Too Big to Fail’ banks that can do whatever they want, and with debt so out of control everywhere that interest rates have to be repressed to zero to keep the system staggering on.

    This answer is a good one. Fractional Reserve Banking can work in a free banking scenario (like there was in Scotland) where competition between banks tempers the creation of credit, and the creation of credit is synchronized to the creation of capital. One of the reasons the USD hasn’t fallen in on itself is the Petrodollar and, being the world’s reserve currency, they effectively clip the tickets of every other country in the world.

    My main objection to fractional reserve banking is that it is built on nepotism, and built on a lie. I will explain it this way.

    Say you have a tractor. You have the tractor stored in a tractor barn owned by someone else. He doesn’t charge you rent to keep it, but can lend the tractor to other people in exchange for storing the tractor.
    Say now, the government wants a big agricultural drive and needs all tractors working, so insists the tractor barn manager must lend out all tractors. So when you go to the tractor barn, the tractor barn owner says, ” you’re not allowed to use your tractor today, it would be a tractor run.”

    Basically, like patent law, it’s the government back stopping the big end of town (such as the banks) with the army. It’s protecting the banks from you claiming your money. This is so the government can use the banks to loan money it has created to itself.

    That is why fractional reserve banking is bad. It’s an extension of the violence of the state. If it wasn’t, there wouldn’t be such thing as a “bank run”, a “bail in” or a “negative interest rate.” They print money, make up numbers and want you to mortgage your labor and be yoked to them. They want you to be a pliant sheep that they can shear. They want you to be voter stock that they can clip the ticket of your productivity as you slave at the coal face. Look at the decadence to which the bureaucrats in Brussels live- that is what is wanted by government backing the big end of town.

  22. Cynic of Ayr

    OK, the Banks are non-government. That is private enterprise.
    Board members are therefor, not in government employ.
    Government pensions only stop if they are re-employed in a government job.
    Government pensions are never means tested.
    Therefor, every one of these rats is on a full government pension, completely and totally free of any means test.
    I can’t imagine how much money they are paid for a few hours a week, or month.

  23. JohnA

    See “The Evil Princes of Martin Place”
    for a book-length explanation of the Tractor example.

    The banks double-count on-call accounts as
    a) your money (Ralph), available whenever you ask for it
    which they record as a liability in your favour, and on which they pay interest
    and then
    b) the non-reserve portion (93% IIRC, based on the reserve ratio of 7%) they regard as their own to invest by lending to others, EVEN THOUGH you could ask for it back within 24 hours.

    The racket is that the banks are technically trading as permanent insolvents, with the permission, protection and backing of the Reserve Bank and the legal power of the government.

    The way to fix the system is to make the Reserve Ratio 100% of all at-call funds for the next month (which would include maturing deposits as well as on-call transaction accounts).

    To avoid the deflationary shock, it would have to be done gradually, say a 1 percentage point increase per month. Even that would take 8 years and three parliaments, so yes, I know it’s a pipe-dream.

  24. John Bayley

    @ rich & JohnA:

    Exactly so, however I agree that ever having a 100% reserve ratio is a pipe dream.

    While the banks are technically private entities, this is a symbiotic relationship: The creation of unlimited credit thanks to the unbacked currency & central bank backstop allows the politicians to keep making promises they know they cannot keep. Those are then ‘funded’ partially by ever increasing debt and partially by ‘printing’ money. The resulting inflation then acts as a hidden tax on the majority, while the bankers & very rich benefit from the accompanying increase in asset prices.

    To see an incontrovertible proof of this effect, just look at the trends in distribution of wealth in the USA over the last 20 or so years. Australia is not too far behind, with our own M3 having almost tripled over the last 10 years and private sector real incomes going backward now.
    As I said above, the current system is not sustainable, but it does work for some. This is why we are more likely to see bans on the use of cash, Cyprus-style bail-ins and an Argentina-type reset rather than full reserves and a return to sound money.
    This is also why Bitcoin and other cryptocurrencies are becoming essential as the next line of defence – as evindenced most recently by Venezuela.

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