Australian Politics General...

[Value Collector]

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.

If all the deposits disappeared and were instead invested into equity, the outcome would be the same.

For example, most companies on the sharemarket borrow to grow, because they don't have enough share holders equity to fund growth, if there was a trend of people moving away from cash into equity investments such as shares, it would mean companies would rely less on borrowing.

e.g., whether a company borrows $1million or issues $1million in new shares doesn't really matter to a companies growth.

But, there will always be people that want higher returns and are willing to take higher risk, and others that want absolute safety, those that demand absolute safety don't deserve high returns.

The current system serves both areas well.

 

[SirRumpole]

But, there will always be people that want higher returns and are willing to take higher risk, and others that want absolute safety, those that demand absolute safety don't deserve high returns.

Of course, but depositors don't deserve negative real returns either for supplying money to investors.

 

[Value Collector]

Of course, but depositors don't deserve negative real returns either for supplying money to investors.

As I said I think a system that pays just enough interest to cover inflation is fine.

Offering a free money storage service, that also protects your money from inflation is a good deal.

as I said, how much would a company have to charge to offer that service if they weren't running the banking side?, just storing cash and operating arms etc.

 

[SirRumpole]

Offering a free money storage service, that also protects your money from inflation is a good deal.

Oh come on, you don't really understand do you ?

It's not the shareholders money that banks lend, it's the depositor's money. No depositors, no lending, no interest margins, no profit for shareholders. If banks want to see depositor's money disappearing into government bonds, then keep ripping them off.

And btw, the government guarantee only goes up to deposits of $250,000. That's a pretty small sum for retirement nest eggs these days

 

[Value Collector]

Oh come on, you don't really understand do you ?

It's not the shareholders money that banks lend, it's the depositor's money.

Yes but its you that doesn't understand.

The bank is offering depositors 3 services.

1, Safe storage of cash
2, Transfering, transactions and access to funds from a system of ATM's
3, Interest that provides an inflation hedge.

(these benefits cost money, a depositor would have to pay for these if they weren't in the banking system, so need to be included in you earnings/benefits calculations)


Yes, the bank makes use of the depositors funds, thats how they are able to offer those services for free, If they want more interest and benefits provided, they can move their funds up the capital structure into other areas that provide more return and benefits.

Listen to what Warren says here at the 1.30 mark.

He would be happy if his cash pile at his company and the insurance businesses could be stored at an after tax rate that matched inflation, thats all he is really looking for on his cash, but its not possible at the moment, in the USA and Europe, Australian depositors have it pretty good.

 

[SirRumpole]

OK, I'll leave it there. Thanks for the discussion, some interesting points raised.

It seems like Warren was advising people to stick their cash in their mattresses. If they did, then there would be a run on banks and the system would collapse.

 

[Value Collector]

It seems like Warren was advising people to stick their cash in their mattresses.

Obviously thats a metaphor, Basically he is saying if the cost of storing cash is to high, you should find a cheaper way of storing it, but thats an admission that the banks are offering a good service, and its just a discussion on price.

Warren only complains when the cost of storing cash is to high, he doesn't complain that the return on ash is to low, because he doesn't really believe cash is an investment.

 

[Ves]

Yes but its you that doesn't understand.

The bank is offering depositors 3 services.

1, Safe storage of cash
2, Transfering, transactions and access to funds from a system of ATM's
3, Interest that provides an inflation hedge.

(these benefits cost money, a depositor would have to pay for these if they weren't in the banking system, so need to be included in you earnings/benefits calculations)


Yes, the bank makes use of the depositors funds, thats how they are able to offer those services for free, If they want more interest and benefits provided, they can move their funds up the capital structure into other areas that provide more return and benefits.

The problem is that banks don't always offer their services for free - both directly and indirectly.

Whilst there are a few accounts around that are 'free' there are many other types of accounts that do have fees.

Your comment about inflation hedging is interesting for two reasons. Firstly, because without an increasing monetary supply (which by definition the banks help create) there would be no need for an inflation hedge. Secondly, whilst I agree, and if you ignore tax (please don't), that having cash in the bank has (mostly) beaten inflation in Australia for the last 20 years, I would be very careful forecasting this into the future. If anything it's hindsight bias. It doesn't always happen (just look at the last 12-18 months).

There's also another indirect cost - whether you are a depositor or not - and that's implicit government assistance in the event that the **** hits the fan and the banks collapse. It's possible that it may not happen, but as with any risk, if it does the cost to the public will be enormous. As the GFC showed us in America and parts of Europe the public had to pay for the greed of a few individuals. That's a very real cost. One that you probably would not see on your bank statement, but it's there.

 

[Value Collector]

The problem is that banks don't always offer their services for free - both directly and indirectly.

Whilst there are a few accounts around that are 'free' there are many other types of accounts that do have fees.

Your comment about inflation hedging is interesting for two reasons. Firstly, because without an increasing monetary supply (which by definition the banks help create) there would be no need for an inflation hedge. Secondly, whilst I agree, and if you ignore tax (please don't), that having cash in the bank has (mostly) beaten inflation in Australia for the last 20 years, I would be very careful forecasting this into the future. If anything it's hindsight bias. It doesn't always happen (just look at the last 12-18 months).

There's also another indirect cost - whether you are a depositor or not - and that's implicit government assistance in the event that the **** hits the fan and the banks collapse. It's possible that it may not happen, but as with any risk, if it does the cost to the public will be enormous. As the GFC showed us in America and parts of Europe the public had to pay for the greed of a few individuals. That's a very real cost. One that you probably would not see on your bank statement, but it's there.

If you are doing enough business with the bank that they are making money from you, eg. Have decent deposits or loans, then you shouldn't be paying any account keeping fees, obviously like a casino in Vegas, the free drinks stop when you stop playing.

The government earns bucket loads of earnings off the banking industry, yet it offers no capital into the system, if all it has to do is provide a guarantee (which is just a piece of paper until it gets used) to keep the tax revenue flowing I think they are getting a good deal.

The "public" actually made a lot of good money due to the gfc "bail outs", they didn't end up being s cost.

 

[luutzu]

If you are doing enough business with the bank that they are making money from you, eg. Have decent deposits or loans, then you shouldn't be paying any account keeping fees, obviously like a casino in Vegas, the free drinks stop when you stop playing.

The government earns bucket loads of earnings off the banking industry, yet it offers no capital into the system, if all it has to do is provide a guarantee (which is just a piece of paper until it gets used) to keep the tax revenue flowing I think they are getting a good deal.

The "public" actually made a lot of good money due to the gfc "bail outs", they didn't end up being s cost.

You opinions about how good depositors and taxpayers are having it over the banks has nothing to do with your bank holdings and the annual gift basket from Commsec, right?

A gov't guarantee isn't "just a piece of paper" dude. It's an insurance, backed by the assets of the Australian gov't... and it's being given for free to the banks.

And no, the RBA and taxes the gov't get from the banks... those are not the premium, the gov't would've gotten those anyway.

I mean, you're saying that an insurance is nothing... that's like saying a house insurance is useless, just a piece of paper. It is, until the house burnt down. And unlike most insurance companies, the gov't tend to pay on their promises.

 

[luutzu]

Yes but its you that doesn't understand.

The bank is offering depositors 3 services.

1, Safe storage of cash
2, Transfering, transactions and access to funds from a system of ATM's
3, Interest that provides an inflation hedge.

(these benefits cost money, a depositor would have to pay for these if they weren't in the banking system, so need to be included in you earnings/benefits calculations)


Yes, the bank makes use of the depositors funds, thats how they are able to offer those services for free, If they want more interest and benefits provided, they can move their funds up the capital structure into other areas that provide more return and benefits.

Listen to what Warren says here at the 1.30 mark.

He would be happy if his cash pile at his company and the insurance businesses could be stored at an after tax rate that matched inflation, thats all he is really looking for on his cash, but its not possible at the moment, in the USA and Europe, Australian depositors have it pretty good.

How many banks and financial institutions - ones that benefits a heck of a lot from low interest rates - does Berkshire owns?

I'd imagine that his holdings in those banks, and the low debt driving the deals his Goldman Sachs, his investment arm at insurance companies etc. Those tend to ease the pain of his $70B in cash that's in low interest rate bank deposits, yah?

I don't think it's possible that Berkshire would just accept whatever rate the bank would give the average Joe with $1000 deposits. Not on Warren's billions mate.

Maybe a radar on how out of touch you are with the normal everyday folks is when you think the depositors are having very good while the banks and their billions of profits are the ones really doing it tough.

I mean, using people's money for less than free; making loans and investments that aren't anywhere free; having the gov't giving free insurance policies... though business to be in man.

 

[Value Collector]

How many banks and financial institutions - ones that benefits a heck of a lot from low interest rates - does Berkshire owns?

I'd imagine that his holdings in those banks, and the low debt driving the deals his Goldman Sachs, his investment arm at insurance companies etc. Those tend to ease the pain of his $70B in cash that's in low interest rate bank deposits, yah?

I don't think it's possible that Berkshire would just accept whatever rate the bank would give the average Joe with $1000 deposits. Not on Warren's billions mate.

Maybe a radar on how out of touch you are with the normal everyday folks is when you think the depositors are having very good while the banks and their billions of profits are the ones really doing it tough.

I mean, using people's money for less than free; making loans and investments that aren't anywhere free; having the gov't giving free insurance policies... though business to be in man.

Capital ratios affect bank profits more than interest rates, and capital ratios have been dropping, I don't think you actually look at banks very closely because other wise you would have noticed their return on equity has been getting squeezed.

Berkshire is currently earning about 0.25% on its cash, So the average Joe Aussie is doing better than Warren.

One thing I hate is people referencing "banks billions in profit" as if earning billions of dollars is some how immorral when you are serving millions of people, in multiple countries, offering multiple different products and services, with billions of equity invested.

I mean how much should Cba report as profit in your opinion?
And how much interest should they pay depositors?

 

[sptrawler]

I know they aren't taxed like that, no one would accept that, but thats exactly how investors are taxed when they get taxed on capital gains.

Depreciation of assets is a real cost, and claiming depreciation on a property increases the capital gain charge later, it doesn't reduce it.

e.g., buy house for $200k, claim $50K depreciation, reduces cost base to $150K, sell it for $300K = $150K capital gain, when before it would have only been $100K

I've only just looked at this thread, but isn't the depreciation a tax deduction?
Therefore why wouldn't that tax deduction,be added to the capital gain?
It's a bit like saying a concessional super contribution, has paid some tax, so why should it pay any more?

 

[sptrawler]

You opinions about how good depositors and taxpayers are having it over the banks has nothing to do with your bank holdings and the annual gift basket from Commsec, right?

A gov't guarantee isn't "just a piece of paper" dude. It's an insurance, backed by the assets of the Australian gov't... and it's being given for free to the banks.

And no, the RBA and taxes the gov't get from the banks... those are not the premium, the gov't would've gotten those anyway.

I mean, you're saying that an insurance is nothing... that's like saying a house insurance is useless, just a piece of paper. It is, until the house burnt down. And unlike most insurance companies, the gov't tend to pay on their promises.

I think the Australian Banking system is the only thing saving our ar$e, they run a very fine line between keeping funds up to borrowers, and giving depositors a competitive return.
They have trillions of dollars on loan and make billions of dollars profit, which 50% gets returned to the economy, check out how much money they have on loan and how much profit they make.lol
If you were lending money you would want some return, they have to get it to keep afloat, look at how much they have on their loan books.
I noticed Pauline isn't screaming for a banking Royal Commission, since she has been given a briefing, only cheap shot Billy keeps rolling that out.
Then guess what if he gets voted in, he will shut up too.
Cheap headlines, for the financial illiterate voter.IMO.

 

[Value Collector]

I've only just looked at this thread, but isn't the depreciation a tax deduction?
Therefore why wouldn't that tax deduction,be added to the capital gain?
It's a bit like saying a concessional super contribution, has paid some tax, so why should it pay any more?

When you claim depreciation it's lowers the cost base used to calculate your capital gain, so you pay more capitals tax later.

For example,

If you buy a house for $200k and sell it for $300k, they use $200k as you original cost to work out your capital gain.

However, if you claim $50k depreciation, the will reduce your $200k original cost to $150k, so the capital gain will be higher than it would be if you never claim the depreciation.

I am not arguing against that, I think that's fair. I am just saying that the capital gains discount is fair, due to all the reason I have mentioned, eg double taxation of retained earnings, inflation not being genuine wealth creation so it's a tax on the original capital not actually earnings.

 

[sptrawler]

When you claim depreciation it's lowers the cost base used to calculate your capital gain, so you pay more capitals tax later.

For example,

If you buy a house for $200k and sell it for $300k, they use $200k as you original cost to work out your capital gain.

However, if you claim $50k depreciation, the will reduce your $200k original cost to $150k, so the capital gain will be higher than it would be if you never claim the depreciation.

I am not arguing against that, I think that's fair.

Well yes, because you have had a tax deduction against the depreciation, same as the Government has a lot of say with regard your concessionally treated super contributions.
I'm sure the Government would love the situation, where there was no depreciation on property and also no tax free super contributions.lol

 

[luutzu]

Capital ratios affect bank profits more than interest rates, and capital ratios have been dropping, I don't think you actually look at banks very closely because other wise you would have noticed their return on equity has been getting squeezed.

Berkshire is currently earning about 0.25% on its cash, So the average Joe Aussie is doing better than Warren.

One thing I hate is people referencing "banks billions in profit" as if earning billions of dollars is some how immorral when you are serving millions of people, in multiple countries, offering multiple different products and services, with billions of equity invested.

I mean how much should Cba report as profit in your opinion?
And how much interest should they pay depositors?

How about they can keep their billions in profits after paying some real interests on depositor's money?

Too much? Money is worthless and "providing" a safe, some guards, ATMs for cheap/free is good enough?

Where in the world is it "fair" to take people's money, lend and play with it, keep the profit... and pay them practically nothing.

Do we really need to examine the bank's brochures and CEO's messages to see how hard the banks are doing?

I actually heard Chomsky saying that the banks actually don't make any money. Not in their actual business of investing and stuff. All the profit they makes come from gov't guarantee and cheap money from taxpayers and depositors.

So you know, maybe they ought to stop playing high risk games with people's deposit and just focus on re-lending it to local businesses and homeowners. that should keep the margin high and fat.

 

[luutzu]

I think the Australian Banking system is the only thing saving our ar$e, they run a very fine line between keeping funds up to borrowers, and giving depositors a competitive return.
They have trillions of dollars on loan and make billions of dollars profit, which 50% gets returned to the economy, check out how much money they have on loan and how much profit they make.lol
If you were lending money you would want some return, they have to get it to keep afloat, look at how much they have on their loan books.
I noticed Pauline isn't screaming for a banking Royal Commission, since she has been given a briefing, only cheap shot Billy keeps rolling that out.
Then guess what if he gets voted in, he will shut up too.
Cheap headlines, for the financial illiterate voter.IMO.

Bank loans out expecting some profit, yes? So why aren't depositors lending out to them not getting any real return after tax? Even before tax in many cases.

Don't know... all I know is that a DollarMite account for kids earn around 2% a year if they do not withdraw anything during that year. But a business loan goes for 5.5% or so; a mortgage about 3.8%.

So if they're not making enough profit, or their margin is so thin... then maybe get back to basics; maybe reduce executive bonuses; maybe stop speculating and losing a bundle here and there.

 

[sptrawler]

How about they can keep their billions in profits after paying some real interests on depositor's money?

Too much? Money is worthless and "providing" a safe, some guards, ATMs for cheap/free is good enough?

Where in the world is it "fair" to take people's money, lend and play with it, keep the profit... and pay them practically nothing.

Do we really need to examine the bank's brochures and CEO's messages to see how hard the banks are doing?

I actually heard Chomsky saying that the banks actually don't make any money. Not in their actual business of investing and stuff. All the profit they makes come from gov't guarantee and cheap money from taxpayers and depositors.

So you know, maybe they ought to stop playing high risk games with people's deposit and just focus on re-lending it to local businesses and homeowners. that should keep the margin high and fat.

Like I said the banks make billions of profits, but they lend trillions to make it and most people feel safe leaving their money in there.
It is a fine balance, but no one has to use them, save the money and buy for cash. Lots of migrants in the 50's did that, I think a lot of Asians do it now, but the Banks do have to make money to lend money and give people confidence to deposit money.
Just check out what happened in Greece, Italy, Spain, U.K, USA, during the height of the GFC

 

[Value Collector]

How about they can keep their billions in profits after paying some real interests on depositor's money?

Too much? Money is worthless and "providing" a safe, some guards, ATMs for cheap/free is good enough?

Where in the world is it "fair" to take people's money, lend and play with it, keep the profit... and pay them practically nothing.

Do we really need to examine the bank's brochures and CEO's messages to see how hard the banks are doing?

I actually heard Chomsky saying that the banks actually don't make any money. Not in their actual business of investing and stuff. All the profit they makes come from gov't guarantee and cheap money from taxpayers and depositors.

So you know, maybe they ought to stop playing high risk games with people's deposit and just focus on re-lending it to local businesses and homeowners. that should keep the margin high and fat.

So how much interest should a depositor earn?

And how much would you have reduced cba's earnings by last year to make their profit reasonable in your view?