Australian Politics General...

[luutzu]

tax payers don't actually hand money over.



The reserve Bank pays its profits to government, so the government is extracting profits from the banking system, not to mention all the stamp duties on loans, and the countless other benefits to society by having a properly functioning banking system.



where is the risk?

What is the risk compared to say just storing the $100K at your house? the bank has far less risk, and the interest you get even gets rid of inflation risk.

Banks offer a free or low cost place to store your money (so you don't have to buy a safe), gives you free options to transfer it around the country, protect it from inflation via a nominal interest payment, and guarantee it with their entire balance sheet and the government guarantee it to.



No the government doesn't really guarantee the equity holders of any business, hence why I think its fair that investors in equity deserve a much higher return than depositors.

What does the RBA's profit got to do with the gov't guarantee? Nothing.

The gov't doesn't guarantee the bank's shareholders, but there's no difference in it guaranteeing the depositors. Serve the same purpose as far as the shareholders are concern.

Say I run a bank... the gov't guarantee that any deposit [up to $100K or something] will not be lost even if my bank goes broke.

Doesn't that just mean my bank is more attractive to depositors now? That all the potential risks my customers and lenders would face, the gov't will cover me for it? Same thing man.

You can dance around how nice it is that the banks are keeping my deposit safe, saving me the trouble of buying a safe etc.... Dude, when people make a deposit at a bank, it is just common sense that their cash be kept safe. That's just a given.

Now, what price should be paid for using people's money is also another given. And if you think that keeping it safe and paying jack for their money is fair... well, that's just the bankers talking.

It's incredible that somehow it's fair for banks to pay diddly on people's savings.

First, most of the depositors are what we'd call widows and orphans yea? Poor people. People without a portfolio or a trust somewhere.

So they put what little savings they have into the bank, the bank pays them practically zero, and are saying that these depositors should be grateful for it as they're not taking on any risk.

There are risks... just that the gov't, using taxpayers money, will bail the bankers out if the risk materialises.

anyway.

 

[SirRumpole]

tax payers don't actually hand money over.

The tax intake is reduced which means government has to make up money another way like hiking the GST.

 

[Value Collector]

So you think it's fair that a depositor would put their savings into a bank and be happy and thankful that their deposit is safe? Everything else is a bonus?

Sure why not?

safety is usually exactly what they want, they don't want any business risk or fluctuation, they want to be assured their money is there when they want it, they aren't investors.

If they want investment returns they an move up the capital structure of the bank, into other deposits such as bonds, hybrids or other debt securities with higher interest.

Then out of the bank's generosity, they'll pay an interest somewhere slightly below inflation. What more should be asked for.

well compare that to putting it in a safe at your home, you wouldn't earn any interest, you would have much higher risk, and the cost of buying a safe.

Would you deposit money into my account on the same term? That if I invest, the profits I get to keep. But if I were to lose it, the gov't [using taxpayers cash] pay you for me.

look at the question from the other side.

If me and you had an investment operation e.g. a pizza shop.

We put in 50% of the capital each, but I had a prior claim to the real estate and all the equipment and any other assets if we had to shut down, would you accept that we should split the profits 50/50 if the venture goes well?.

Given that I am in a far more secured position, I think my profits should be limited and you should earn a higher return for the added risk you have taken on, maybe give me a preference share that earns say 10% and any profits in excess of that accrue to you.

Sounds fair yea?

Fair enough to say that that's how to world works. But honestly, the banks and the gov't are screwing the poor over in more ways than one. Legal, sure. Fair it is not.

You are yet to show how any of the things we are discussing are "the banks and the gov't are screwing the poor"

 

[Value Collector]

The gov't doesn't guarantee the bank's shareholders, but there's no difference in it guaranteeing the depositors. Serve the same purpose as far as the shareholders are concern.

Thats not true, its easy for the banks share holders to lose equity, while the depositors lose nothing, the risk is all on the shareholders.

Say I run a bank... the gov't guarantee that any deposit [up to $100K or something] will not be lost even if my bank goes broke.

Doesn't that just mean my bank is more attractive to depositors now? That all the potential risks my customers and lenders would face, the gov't will cover me for it? Same thing man.

It doesn't stop you losing your capital

Dude, when people make a deposit at a bank, it is just common sense that their cash be kept safe. That's just a given.

security guards aren't free, neither are vaults, if it wasn't for the banks lending operations, how much would the banks deposit keeping service cost?

Considering depositors currently get it for free, thats a good service in my eyes, its a real benefit,

 

[Value Collector]

The tax intake is reduced which means government has to make up money another way like hiking the GST.

didn't you just admit before one guys expense is another guys revenue.

e.g., that "loss" the silly negative gearing guy experiences is adding revenue to the income statement of the banks, banks staff and depositors, where it will be taxed

 

[luutzu]

Thats not true, its easy for the banks share holders to lose equity, while the depositors lose nothing, the risk is all on the shareholders.


It doesn't stop you losing your capital



security guards aren't free, neither are vaults, if it wasn't for the banks lending operations, how much would the banks deposit keeping service cost?

Considering depositors currently get it for free, thats a good service in my eyes, its a real benefit,

So you got a big chunk of the banks stock ey?

No, the risk is also on the depositors... just it's removed because the gov't guarantees it. That mean the banks can risk depositors' cash, make and keep profit while they can. And if it crashes, the gov't steps in.

And the gov't don't just guarantee deposits. There's an underlying assumption that if the bank is big enough, it will never fail. Not because it won't, but because the gov't will bail them out.


Security guards aren't free... sure. But that doesn't mean the bank can pays depositors nothing and calls it fair.

it's their costs of business to keep the cash safe. That's why people put cash with them. And that's also why people do not expect the earn the same rate of interests the bank does when it lends their cash out to others.

But a real zero interest rate? Come on mate. That's eating people's lunch and asking them to be thankful for it.

 

[luutzu]

Sure why not?

safety is usually exactly what they want, they don't want any business risk or fluctuation, they want to be assured their money is there when they want it, they aren't investors.

If they want investment returns they an move up the capital structure of the bank, into other deposits such as bonds, hybrids or other debt securities with higher interest.



well compare that to putting it in a safe at your home, you wouldn't earn any interest, you would have much higher risk, and the cost of buying a safe.



look at the question from the other side.

If me and you had an investment operation e.g. a pizza shop.

We put in 50% of the capital each, but I had a prior claim to the real estate and all the equipment and any other assets if we had to shut down, would you accept that we should split the profits 50/50 if the venture goes well?.

Given that I am in a far more secured position, I think my profits should be limited and you should earn a higher return for the added risk you have taken on, maybe give me a preference share that earns say 10% and any profits in excess of that accrue to you.

Sounds fair yea?


You are yet to show how any of the things we are discussing are "the banks and the gov't are screwing the poor"

Even my 7 year old knows the banks are screwing people. That's why she doesn't want to deposit her savings at the bank.

She was like, what? The bank take my money and lend it to people so they can make money, but they're only paying me $2 a year?


Deposits are quite different to the pizza shop example though.

Depositors aren't expecting all the profit the bank makes on their money, just maybe a little bit above zero real interest. Asking for too much?

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How aren't the poor/savers not being screwed?

Businesses tend to borrow more than they lend. Who does it profit to make the costs of borrowing practically zero?

 

[Value Collector]

So you got a big chunk of the banks stock ey?

Nope, except indirectly in an asx200 index fund and through Berkshire Hathaway.

No, the risk is also on the depositors... just it's removed because the gov't guarantees it. That mean the banks can risk depositors' cash, make and keep profit while they can. And if it crashes, the gov't steps in.

The risk is reduced due to depositors being in the most senior position, with all sorts of equity holders and debt holders sitting below them in the capital structure, and then the guarantee practically eliminates the remaining risk.

And the gov't don't just guarantee deposits. There's an underlying assumption that if the bank is big enough, it will never fail. Not because it won't, but because the gov't will bail them out.

So what, that doesn't provide protection to equity holders or stop bond holders etc taking haircuts in the reorganisation

Security guards aren't free... sure. But that doesn't mean the bank can pays depositors nothing and calls it fair.

they don't pay nothing, they pay interest.

But can you estimate how much a company that provided all the cash handling and storage services a bank does, would have to charge customers if it didn't operate the other areas?

because that cost (saving) plus the interest earned is the depositors benefit.

But a real zero interest rate?

I never said a zero interest rate, I said enough interest to cover inflation.

 

[Value Collector]

Depositors aren't expecting all the profit the bank makes on their money, just maybe a little bit above zero real interest. Asking for too much?

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How much do you think the banks earn after all their costs?

Have you ever seen the net interest margin? CBA is considered one of the best run banks and its 2.11% and the they have to pay all their expenses from that interest margin.

So tell me again, how much you want to increase the depositors interest?

 

[SirRumpole]

Have you ever seen the net interest margin? CBA is considered one of the best run banks and its 2.11% and the they have to pay all their expenses from that interest margin.

You are not seriously complaining about bank's profits are you ?

 

[Value Collector]

You are not seriously complaining about bank's profits are you ?

Thats not the point, the claim being made is that the interest paid to depositors is not high enough, I am simply saying the net interest margin is only 2.11%, and from that the bank has to pay all its expenses.

Ofcourse bank profits are large because the banks are large businesses, they serve large amounts of customers, in multiple countries, earning revenue by providing many different services, but to say profits come from ripping of depositors is just wrong.

As I said, imagine how much a company that provided all the cash handling/storage services that banks do would have to charge to customers if it didn't operate the bank lending side of things.

Depositors are getting a good deal

 

[luutzu]

Thats not the point, the claim being made is that the interest paid to depositors is not high enough, I am simply saying the net interest margin is only 2.11%, and from that the bank has to pay all its expenses.

Ofcourse bank profits are large because the banks are large businesses, they serve large amounts of customers, in multiple countries, earning revenue by providing many different services, but to say profits come from ripping of depositors is just wrong.

As I said, imagine how much a company that provided all the cash handling/storage services that banks do would have to charge to customers if it didn't operate the bank lending side of things.

Depositors are getting a good deal

I know right? Having a bank keeping their money all safe, and paying them enough just to maybe make up for inflation.

Would any banker make the same deal with another banker? Why not?

It's a bit better to take deposits, paid 1.7 to 2%, then charge a small business some 5%, a long term mortgage 3.8%.

 

[Value Collector]

I know right? Having a bank keeping their money all safe, and paying them enough just to maybe make up for inflation.

Would any banker make the same deal with another banker? Why not?

It's a bit better to take deposits, paid 1.7 to 2%, then charge a small business some 5%, a long term mortgage 3.8%.

Actually they do, the deposits banks make with the central banks sometimes make no interest or very little.

Sometimes the government bonds they are forced to hold as capital actually have negative interest rates.

In fact due to the negative interest rates some of his insurance companies like Munich RE are facing, Warren Buffett was discussing taking physical cash and putting it in a vault some where rather than have it in government bonds.

So yes, you can bet MUNICH RE, wishes it could find a place to store cash with enough interest to cover inflation.

You have to remember not all those small businesses are going to pay the loans back, and depositors aren't going to want to hear about those losses, so to get a net interest margin of 2.11%, you are going to have to have a much wider interest margin on loans, especially considering you can't lend out all the cash you hold, and some of it is lent out interest free.

 

[luutzu]

Actually they do, the deposits banks make with the central banks sometimes make no interest or very little.

Sometimes the government bonds they are forced to hold as capital actually have negative interest rates.

In fact due to the negative interest rates some of his insurance companies like Munich RE are facing, Warren Buffett was discussing taking physical cash and putting it in a vault some where rather than have it in government bonds.

So yes, you can bet MUNICH RE, wishes it could find a place to store cash with enough interest to cover inflation.

You have to remember not all those small businesses are going to pay the loans back, and depositors aren't going to want to hear about those losses, so to get a net interest margin of 2.11%, you are going to have to have a much wider interest margin on loans, especially considering you can't lend out all the cash you hold, and some of it is lent out interest free.

Alright, I'll have to look more into this because you're making shedding a tear or two for the banks now.

I mean, them making billions of profit a year is razor thin margin it's a miracle they're still in business.

 

[SirRumpole]

So the depositor is taking no investment risk, so earns no investment return, but they get interest it offset inflation.

If you are talking about risk, investors who borrow money to start businesses are risking other people's money not theirs. Those other people are the bank depositors.

If the business goes belly up they just declare themselves bankrupt and walk away, leaving the banks (with their depositor's money) to fight over a few crumbs of assets that may be left.

So therefore if the depositor's money is at risk, they should receive an interest rate in proportion to the profit that the bank makes.

 

[Value Collector]

If you are talking about risk, investors who borrow money to start businesses are risking other people's money not theirs. Those other people are the bank depositors.

If the business goes belly up they just declare themselves bankrupt and walk away, leaving the banks (with their depositor's money) to fight over a few crumbs of assets that may be left.

So therefore if the depositor's money is at risk, they should receive an interest rate in proportion to the profit that the bank makes.

If a Company goes bankrupt, the losses follow a set order something like this follows.

1, Ordinary Share holders will absorb all losses until their equity is 100% wiped out

2, preference share holders and other equity holders then absorb remaining losses until their equity is wiped out 100%

3, Company bond holders then absorb remaining losses until their equity is wiped out 100%

4, Unsecured debtors then absorb remaining losses until their equity is wiped out 100%

5, Then after all those other levels have been wiped out the losses pass to the Bank, where it would be absorbed by the banks operating income.

If the loss was bigger than could be absorbed by the banks operating income, the process starts again at the bank.

6, the banks capital is drawn down and Bank shareholders then will absorb all losses until their equity 100% wiped out

7, Bank preference share holders and other equity holders then absorb remaining losses until their equity is wiped out 100%

8, Bank bond holders then absorb remaining losses until their equity is wiped out 100%

9, All the other types of unsecured bank funding absorb remaining losses until their equity is wiped out 100%

10, Now the deposits are at risk, but the government guarantee kicks in and the government absorbs losses

11, Now only after all those other levels have been wiped out do the depositors face losing some of their deposit.

 

[Value Collector]

So therefore if the depositor's money is at risk, they should receive an interest rate in proportion to the profit that the bank makes.

Given the outline of the way losses are absorbed by the capital structure in order of seniority that I listed above. do you really think level 6 (bank shareholders) and level 11 (depositors) deserve to earn the same amount?

It's the banks shareholders taking most of the risk, they are the first to lose, then there is all sorts of other levels (even the government) that take losses before a depositor.

A depositor does not want to take any losses, ever, which is fine, we have set the system up to give them that security, but due to that security they do not deserve to earn "Investment returns"

I mean look at all the levels in between level 1 (company shareholders) and level 11.

If you own Woolworths shares (or any other), you are operating at level 1, the first to lose, a cash deposit is level 11, the last to lose, the system needs people investing at all levels, but level 1 needs to have the highest possible return, other wise the economy doesn't function.

 

[SirRumpole]

but level 1 needs to have the highest possible return, other wise the economy doesn't function.

The system won't function either if depositors take their money out of banks and invest them in government bonds or the sharemarket as there will be less money to lend and interest rates for borrowers will rise.

Quid pro quo.

 

[Tisme]

You guys see any end in site with this one, or should I just ignore it for a while?

How about some good 'ol fashioned polly bashing instead?

 

[SirRumpole]

You guys see any end in site with this one, or should I just ignore it for a while?

How about some good 'ol fashioned polly bashing instead?

I've just about finished, but VC can't help himself.