(This is (one of many reasons) why we want the major parties out on their ears!)
On 8 May the Senate Economics Legislation Committee released the report of its inquiry into the Banking System Reform (Separation of Banks) Bill 2019, opposing the policy. On 12 May Prime Minister Scott Morrison announced a scheme for first home buyers to purchase a house with only a five per cent deposit. The Labor Party supported the government on both issues. By these actions, as opposed to their rhetoric, the major parties have confirmed that 1) the economy is heading for disaster; and 2) they remain captive to the banks and will therefore sacrifice the livelihoods of the Australian people and economy to protect the banks and prop them up.
Australia faces an unmitigated disaster in the housing market and, consequently, the banks. Every indicator in the housing market is suddenly very bad. What we are witnessing is shaping to be a bigger property crash than the 1890s depression. And like the 1890s land crash, when most Australian banks failed, the banks today are in deep trouble, from their massive exposure to mortgage lending and derivatives on that lending.
With a federal election under way, why isn’t this an election issue? The political establishment is deliberately ignoring it, assuming that the Reserve Bank will magically solve the problem through various forms of money-printing that will be futile but will, as outspoken economist John Adams charges, “rape the dollar”. But be under no illusion: this coming crisis is also the reason the government and Labor rushed through “bail-in” laws in February 2018, which give bank regulator APRA the power, in coordination with the RBA and the Bank for International Settlements in Switzerland, to prop up the banks that will soon start to fail by confiscating the deposits of their customers.
The only reference to this looming disaster in the election campaign is in relation to Labor’s negative gearing policy, which the Liberals claim will crash the housing market. No, it won’t be the cause of a market crash, because that is already happening—right now!
As of April 2019, CoreLogic’s figures show average price falls from the peak of the market in capital cities are 9.7 per cent. The two biggest markets, Sydney and Melbourne, are down 14.5 per cent and 10.9 per cent respectively. Melbourne’s fall started later than Sydney’s but is going faster—in fact, Melbourne prices are falling the fastest in its history.
CoreLogic, the media and property spruikers have jumped on figures that show the falls are slowing down: the national market was down 0.5 per cent in April compared with 0.7 per cent in March, 0.9 per cent in February and 1.2 per cent per month before that. Headlines proclaim the market is “through the worst”. More likely, however, the figures are being distorted by the rise in unreported sales results. Experienced property analyst Louis Christopher of SQM Research tweeted on 4 May: “Don’t be fooled by the artificially high clearance rates, today. Very high unreported rates meant the real auction clearance rate was considerably lower. I think right now, dwelling prices in Sydney and Melbourne are still falling. There remains much uncertainty out there.”
From all other indicators there is no sign of anything that can halt the plunge:
In April, credit growth into housing dropped to the lowest rate on record—just 4 per cent. Because the housing market is already a bubble, this figure needs to be much higher to push up prices, but following the royal commission banks have tightened their lending standards. For instance, according to CBA’s online “how much can I borrow?” calculator, for an income of $80,000 the bank will now lend around $350,000, compared with $460,000 in November 2017. Prices will only grow if the banks are willing to lend higher and higher amounts, not lower. For that reason, APRA is being lobbied to lower the benchmark interest rate at which loan affordability must be calculated from 7.25 per cent to 6 per cent, but that doesn’t mean that cautious banks will suddenly be willing to lend more.
Defaults on greenfield development lots in Melbourne soared to 27 per cent in the March quarter, up from 2 per cent a year ago, and 12 per cent before Christmas; Sydney is almost as bad at 26 per cent. These are investors running away from their deposits, rather than paying the balance on lots that are plunging in value. Ground Zero for the looming crisis in new developments could be the far northern Melbourne suburb of Donnybrook, which has the highest mortgage stress in Victoria and where sales in 2019 have fallen off a cliff—multiple greenfield developments are being laid out along Donnybrook Road that someone has to pay for. Click here to watch John Adams and Martin North’s newest video post: Heaven Help the Poor Souls of Donnybrook!
Dwelling approvals in March 2019 fell by 27.3 per cent from March 2018, and 15.5 per cent from February 2019.
Mortgage stress and mortgage delinquencies are on the rise, despite low interest rates and, supposedly, low unemployment and inflation. ANZ admitted last week to an inexplicable jump in 30-day and 90-day arrears on repayments, with the biggest 90-day increase in Western Australia. Establishment economist Christopher Joye proclaimed in his 25 March great debate with John Adams that “mortgage repayments as a share of income are actually quite low” and that record mortgage “debt serviceability, at this point in time, is perfectly fine”. But a few weeks later Joye revealed on the professional social media platform LinkedIn that his analysis for his clients was that risks on residential mortgage-backed securities (RMBS) are “rapidly rising” and that mortgages have “the highest arrears rates since the GFC”. Meanwhile, over a million households are in mortgage stress, which means they are struggling to meet monthly repayments that are way over 30 per cent of their income.
The number of households in negative equity, meaning that they owe more on their mortgage than their home is now worth, is also soaring. This doesn’t just leave households underwater, but it has a knock-on reverse “wealth effect”, as much consumer spending of recent decades came from homeowners borrowing against the equity in their homes, which they can no longer do. Contrary to the statistics, real inflation as seen in the rising cost of living is not low, and neither is real unemployment when underemployment is taken into account, so the drop-off in consumer spending is going to be devastating to the already fragile economy.
Australia’s major banks have concentrated around 65 per cent of their lending in mortgages, far higher than any other banks in the world. On top of that, they have made trillions of dollars of derivatives bets on those mortgages, which three of the Big Four are trying to hide. They are in near danger of a massive crash, but the only preparation that authorities have made is the bail-in laws they snuck through Parliament in February 2018 so APRA can seize deposits in an emergency to try to prop the banks up.
The government should be tackling this crisis head on, drawing on the lessons of the 2008 crash in places such as Ireland and the United States. If the authorities in those countries could have acted before the crash to avert a disaster, what would they have done?
First, accept the necessity for a major government intervention into the banks, which the government will have to bail out anyway.
Impose a firewall between the banks and the real economy with a Glass-Steagall separation of normal commercial banking from the speculative investment banking where the banks hold their dangerous derivatives—that way the investment banking side can collapse without impacting the real economy.
Scrap any plans for bail-in, and place the banks under government administration to fully protect depositors and the daily business of banking while they are thoroughly cleaned out and reorganised.
Direct the Auditor-General to audit the banks in depth, to ascertain the true size of the bad mortgages and other bad debts, and the nature of the derivatives contracts that will need to be unwound and cancelled.
Enact a moratorium on foreclosures and repossessions of family homes to avert a social catastrophe until house prices stabilise and mortgage debts can be written down to reflect the new, much lower prices.
Start planning and executing changes to the general economy to move beyond its present concentration in housing bubble-related construction and financial services, beginning with a nation-building infrastructure construction program, financed by a national bank, which can revive and revitalise regional industries and towns and draw population growth away from the overcrowded capital cities.
These are policy solutions the Citizens Electoral Council is fighting for, in this election campaign and beyond. Either ignore the crisis at your own peril, or join the CEC today in fighting for these solutions.
What you can do
With the election under way, contact all of the candidates in your electorate to ask:
What are you doing about the housing and banking crash?
Will you oppose and repeal bail-in?
Will you support the CEC’s Banking System Reform (Separation of Banks) Bill 2019 https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=s1172, which is currently before the Senate, to break up the banks?
The Australian Senate committee inquiry into banking separation is being rigged to protect the banks—yet again. It is suppressing the true scale of popular support for the policy by only publishing a fraction of the submissions it is receiving. And it is refusing to hold public hearings to question the growing number of experts who publicly support banking separation.
After the revelations of the banking royal commission proved that the government had covered up bank misconduct and crimes for years, it is unconscionable that it would continue to suppress serious examination of banking issues. However, that is what Liberal Senator and ex-banker Jane Hume is doing as chair of the Senate Economics Legislation Committee, to its inquiry into the Banking System Reform (Separation of Banks) Bill 2019: https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/BankingSystemReform
The Citizens Electoral Council demands that Senator Hume recuse herself as chair of the Senate Economics Legislation Committee, on the basis of her clear conflict of interests, or be replaced. Her Liberal colleague on the committee, fellow ex-NAB banker Arthur Sinodinos, should also recuse himself or be replaced.
If you wondered why the Liberals ignored evidence of banking misconduct for years, and aggressively protected the banks from any inquiry into their crimes, look no further than Senator Hume and the other ex-bankers who dominate the top ranks of the government, including Treasurer Josh Frydenberg, and former Financial Services Minister Kelly O’Dwyer, who take key positions in government and parliament to ensure ongoing protection for the banks. According to Senator Hume’s parliamentary biography, of which her own staff seem to be ignorant as they have claimed to constituents that she wasn’t a banker, she had a ten-year career in banking and investment banking prior to entering Parliament, including as:
Investment Research Manager, NAFM (NAB), 1995-98
Private Banker, NAB, 1998-99
Senior Manager, Rothschild Australia, 1999-2003
Vice President, Deutsche Bank, 2008-09
Upon her election to the Senate in 2016, Senator Hume didn’t have to wait any time for advancement, but was immediately given control of the important Senate Economics Legislation Committee, which analyses all legislation related to banking. As the Liberal Party controls the committee, Senator Hume effectively dictates all of its key decisions.
Hume ran the 2017-18 inquiry into the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill, which rubber-stamped the government’s plans to empower the Australian Prudential Regulation Authority (APRA) to prop up failing banks by seizing the savings of their creditors and customers. The Senator falsely claimed it isn’t a bail-in law (contradicted by legal advice available from the CEC), and she was one of only eight Senators present when it was snuck through Parliament on 14 February 2018.
Now Senator Hume is in charge of the inquiry into the Separation of Banks bill, which Bob Katter MP and Andrew Wilkie MP first introduced into the House of Representatives on 25 June 2018, and Senator Pauline Hanson introduced into the Senate on 12 February 2019.
This is a very important inquiry following the banking royal commission. In his final report from that inquiry, Commissioner Kenneth Hayne did not recommend structural separation of the banks. In truth, this was because the government and banks rigged his terms of reference, which forbade him from investigating structure. Nevertheless, almost all of the misconduct and crimes exposed by the royal commission resulted from the integrated structure of the banks, so while the inquiry was under way, three of Australia’s big four banks announced plans to voluntarily break up. But that was a ruse. In their final submissions to Commissioner Hayne, all of the major banks insisted they should not be forcibly broken up. And when it was leaked that Hayne’s final report did not recommend separation, bank shares soared, and the two-faced bankers who had announced they would demerge started finding excuses not to—as every bank critic had predicted they would.
This rigging of the royal commission triggered a massive backlash, however. Most of the anger has been levelled at Hayne’s failure to break up the banks, including by former prime minister Paul Keating, leading financial commentators Alan Kohler and Michael Pascoe, former ANZ director John Dahlsen, and many others. Amid that uproar, Pauline Hanson introduced the Separation of Banks bill into the Senate and got it referred to the Economics Legislation Committee for an inquiry.
This inquiry should be the investigation of banking separation that the royal commission wasn’t allowed to be. It should take as long as necessary. It should publish all of the submissions, which demonstrate both public support for the policy and the level of expert support. Most importantly, it should hold public hearings, so the Senators can question all of the experts in depth and thus get a full understanding of the issue, and not just the bankers’ and Treasury’s biased view.
On behalf of the banks and their protectors in the government, however, Senator Hume’s task is to kill this inquiry, and that is what she is doing. As well as suppressing the publication of submissions and refusing to hold hearings, she appears to be sticking to the original scheduled reporting date for the inquiry, of 13 May. Yet that means the inquiry will have to be conducted in the middle of the impending election, which is an impossibility. It will be a farcical inquiry that just goes through the motions, which benefits nobody—except the banks.
The CEC demands:
that Senator Hume recuse herself or be replaced as chair of the committee;
that the committee publish all of the submissions it receives;
that the scheduled reporting date be extended until well after the upcoming election; and
that the committee hold proper, in-depth hearings to listen to the views of experts who can explain the benefits of separation, including former competition regulator Professor Alan Fels, former ANZ director John Dahlsen, former APRA Principal Researcher Dr Wilson Sy, banking expert Martin North, the CEC, and others.
What you can do
Make sure you make your submission to the inquiry by the deadline of this Friday, to maximise the public support for this bill. If you haven’t made your submission yet, include the demand that the committee hold public hearings.
Call or email committee chair Senator Jane Hume and deputy chair Senator Chris Ketter to demand they publish all submissions; extend the reporting date until after the election; and hold public hearings. They are in Canberra this week, so call their Parliamentary offices:
Sen. Jane Hume
(02) 6277 3123
Sen. Chris Ketter
(02) 6277 3065
An Australian housing and economic bust is reality—time to act
Australia’s housing market is tanking fast and the economy is facing an Ireland-style economic bust. We must act, now, to avert a social catastrophe and restructure the financial system to fix the cause of this crisis.
Australia’s big four banks account for 80 per cent of the financial system, and mortgage lending is around 65 per cent of their business. This concentration on housing is the highest by far of any banks in the world. Thanks to decades of deindustrialisation, financial services is the biggest sector of the economy, and, thanks to the housing bubble, construction is second. A crash in housing is economic Armageddon.
The fall in house prices that started in late 2017 continued all through 2018, and has now accelerated in 2019, with the biggest falls in the biggest markets of Sydney and Melbourne. Melbourne is experiencing the fastest falls ever recorded. The real estate sector is desperately trying to talk up the market by wheeling out improved auction clearance rates and highlighting one-off large sales, but the auction figures are distorted by very large numbers of auctions that are not being reported, and real estate reporters have been caught out faking claims.
The downturn is being blamed on bank lending, but that is only half the story. The real issue is the borrowers, the Australian people, who are saturated in debt.
Banking and real estate analyst Martin North of Digital Finance Analytics, and economist John Adams, have recently posted important video presentations on YouTube which expose the reality of where Australia is at, and how bad it can get based on the Ireland precedent.
In “Just How Much Trouble Are We In?”, North reports the latest Bank for International Settlements (BIS) statistics on household debt. Australia’s household debt-to-GDP is now 120 per cent, higher than all equivalent nations and second only to Switzerland, and far higher than the USA, UK, and Ireland were in 2008 when they all experienced devastating housing bubble crashes. Australia’s household debt service ratio is also the second highest in the world, which is a measure of the mortgage stress being experienced by over a million households which are struggling to meet their repayments, despite record low interest rates.
We know from the banking royal commission last year, and the work of Denise Brailey of the Banking and Finance Consumers Support Association, and Lindsay David and Philip Soos of LF Economics, that the only way the banks were able to push the market up over the last decade was by ignoring household debt and committing outright fraud in their mortgage lending, based on grossly understated living expenses. It would seem they can’t do that now. As prices are still not back to affordable levels, though, where are the buyers going to come from to stop the price falls?
Economist John Adams tweeted the news on 7 March that the giant American bank JP Morgan last week flew its top housing experts in to Melbourne for a conference, and is telling its clients to get out of Australian real estate. This is ominous, as a 2017 report by the US Studies Centre at the University of Sydney, “Indispensable economic partners: the US-Australia investment relationship”, revealed that the United States has been the “overwhelming” source of the funding for the Big Four banks.
The fall in house prices, combined with the fall in the number of house sales, is hitting the stamp duty revenue of state governments. Stamp duty revenue almost doubled in the four years to 2018, such was the frenzy of buying in the housing bubble, providing a windfall to state governments. That’s now over. On current trends, Victoria could suffer a $1 billion hit to its budget this year, and NSW will also take a big hit.
Out of options?
The last time house prices were falling like this, back in 2008, prices were lower than now, and interest rates were far higher—the Reserve Bank’s cash rate was 7.25 per cent. In response to the falls, which threatened a banking crash, the RBA slashed its cash rate from 7.25 per cent to 3 per cent within a few months, which averted mass foreclosures and, combined with the Rudd government’s tripling of the First Home Owner Grant, drew a lot more people into the market. But that means that to save the market they created a lot more household debt, and effectively only “kicked the can” of a crash down the road. The can has now stopped, but this time the RBA rate is 1.5 per cent, so it doesn’t have the option of cutting rates by 425 basis points to save the bubble.
Another Martin North video, “A First Hand View from Ireland”, is a confronting account of the Irish housing bubble and banking crash in 2008. Financial commentator Eddie Hobbs relates the disturbing similarities between Ireland and Australia, which many expatriate Irish who migrated to Australia as economic refugees after 2008 are starting to see here. In a third video, “The Document that will Shock You”, Martin North and John Adams reveal that in 2007 the IMF had stress-tested Ireland’s banks for steep falls in house prices and large withdrawals of deposits, and announced they would survive both. Ireland eventually suffered house price falls of 50 to 70 per cent, and a massive exodus of bank deposits, and its banks collapsed, plunging Ireland into deep economic and social misery. Indebted Irish homeowners suffered through a hellish bankruptcy process, and the nation witnessed a spike in suicides.
Australia’s government, financial authorities and banks are right now desperate to prop up the bubble again, but that would be insane, if it would even work. It’s time to acknowledge it’s a bubble and let it burst, but implement measures to protect the economy. The CEC is fighting to:
restructure the banking system to protect the public and stop such bubbles recurring, through a Glass-Steagall separation of banking from speculation, and a national bank to regulate banking and credit;
avert a social catastrophe with an immediate moratorium on home and farm foreclosures (not investment properties) to stop families being thrown out on the streets;
launch an infrastructure development program to create jobs and restructure the economy and employment back on to a productive footing.
Join the CEC’s fight!
What you can do
Get involved in the fight, starting with the immediate campaign for a Glass-Steagall banking separation. The CEC drafted legislation that Pauline Hanson introduced in Parliament on 12 February, the Banking System Reform (Separation of Banks) Bill 2019, into which the Senate Economics Legislation Committee is now conducting an inquiry. Make a submission to that inquiry in support of banking separation today.
Click here for instructions on making a submission. http://cecaust.com.au/releases/2019_02_18_Submission.html
The Senate has launched an enquiry into the breakup of the banks. You can learn more on it here: http://cecaust.com.au/releases/2019_02_18_Submission.html
Here is my submission. Please add your voice to protect our bank deposits.
I would like to address the desirability of separating the deposit/lending activities of banks from the investment/insurance/advice activities.
I consider it mind-bogglingly unconscionable that parliamentatrians elected to represent the people should have allowed the possiblility of depositor’s funds to be stolen to support the investment activities of a commercial bank.
That the IMF should be promoting this misuse of depositor’s funds is completely wrong.
Separating the investment and deposit taking activities of the banks is the sanest guarantee that those deposits will not be used without the consent or permission of the depositors.
A corporation is by nature a risk taking venture and the rewards and losses of that venture belong primarily to the shareholders, secondarily to debenture holders. Not the depositors. Not the government. Not the public. The shareholders. Period. Anything else is a perversion of the construct of a corporation.
Providing the banks have securities against which they lend the depositor’s funds there is no honest reason at all the depositor’s funds need be placed at risk.
Depositors partake of neither risk nor reward in the investment activities of a commercial bank. No depositor I know of asks to see the commercial portfolio of a bank prior to making a deposit. That risk was not part of the explicit or implicit contract the depositor effected with the bank on depositing his funds.
The risk should lie where it naturally falls, with the alternative of reward, at the shareholder’s feet. And depositor’s funds should be completely removed from that arena.
Failure to do so is an irresponsible act of gross negligence towards depositors.
The farce of bail-in is playing out in Australia right now, with the banks complaining to the regulator that they can no longer find suckers to buy the bail-in bonds that are supposed to be their buffer against a crash.
It’s the latest example of why the whole bail-in system should be scrapped, in favour of Glass-Steagall laws that keep deposit-taking banks safe by separating them from risky investment banking and other financial services.
Bail-in is the scheme concocted by the Bank of England following the 2008 banking crash, and implemented through the Bank for International Settlements (BIS) and Financial Stability Board (FSB) based in Basel, Switzerland. Stripped of all of the confusing technicalities, their plan amounts to protecting banks from crashes by increasing their capital buffer against losses, instead of requiring them to stop the reckless financial gambling that causes crises in the first place. The buffer is called Total Loss-Absorbing Capacity (TLAC), at the centre of which are pernicious instruments known as “bail-in bonds”—hybrid securities that are sold as tempting, high-interest bonds, but which, when a bank runs into trouble, convert into effectively worthless shares in the bank.
Bail-in also includes deposits, which the FSB mandates can be written off or converted to shares to save a failing bank. The bail-in systems legislated in the USA, Europe, UK, New Zealand and Canada all include deposits in a bail-in; the Australian government snuck bail-in legislation through Parliament in February 2018, which they denied includes deposits, but which has loopholes big enough to drive a truck through that in an emergency can allow deposits to be bailed in. However, the government doesn’t deny that its legislation includes bail-in bonds.
On 8 November 2018, the bank regulator, Australian Prudential Regulation Authority (APRA), issued a paper that said the banks should raise $75 billion in extra TLAC capital by selling more so-called “Tier II” bonds, a.k.a. bail-in bonds.
On 14 January, Jonathan Shapiro reported in the Australian Financial Review that in their responses to the paper the banks asked APRA to reconsider the plan, because it would be too difficult to sell bail-in bonds in the current market.
Shapiro reported: “Westpac treasurer Curt Zuber said he supported the APRA proposal to build a large buffer in the form of Tier II capital in principle but said the global fixed income market had moved away from buying Tier II bonds. ‘As we go through cycles, it is potentially problematic for the banks to get the volumes they need in an economic way for the system which allows for the balance we want to achieve,’ he said.”
This is a major admission, which reflects the growing concern that the financial system is in danger of another crash. With APRA’s encouragement, Australia’s banks were able to sell around $100 billion worth of bail-in bonds over the last 6-7 years. These bonds were very tempting to investors, for two reasons. First, they carried interest rates of up to 8 per cent, offering unbelievably good returns in the post-GFC low-interest environment.
Second, and more importantly, the investors assumed that because the bonds were being issued by Australia’s major banks, which were touted as the strongest in the world, there was no risk that they would be bailed in. That’s assuming they were even aware that these hybrid bonds could be bailed in. While the Bank of England, for instance, forbade British banks from selling bail-in bonds to retail investors, so-called mums and dads, on the basis that they might not understand their full risks, APRA allowed Australia’s banks to aggressively target mum-and-dad investors, to whom they sold bail-in bonds amounting to $43 billion.
The Citizens Electoral Council was the first to warn investors that, contrary to their propaganda, Australia’s banks weren’t safe, and that they were being set up to wear the banks’ losses. In an 8 July 2016 release headlined “Warning to Australian investors: Beware hybrid securities, a.k.a. ‘bail-in’ bonds!”, the CEC warned:
“Australia’s big banks are careening along a cliff’s edge at breakneck speeds with ordinary investors strapped to their bumpers as human shock absorbers. Bank regulator APRA is allowing the big banks to sell to unsuspecting Australian investors products that are illegal for banks in other countries to sell to anyone but other financial institutions.”
On 26 October 2017, Greg Medcraft, the outgoing boss of the Australian Securities and Investments Commission (ASIC), warned in testimony to the Senate that bail-in bonds sold to mum-and-dad investors were “a ticking time bomb”. Medcraft said most investors would not believe that they would be bailed in, but, he emphasised, “Yes, they’ll be bailed in. … Basically, they can be wiped out—there’s no default; just through the stroke of a pen they can be written off. For retail investors … these are very worrying. They are banned in the United Kingdom for sale to retail. I am very concerned that people don’t understand….”
Now, following the revelations of the Hayne Banking Royal Commission and with property prices plunging, the banks are effectively admitting that the market has less confidence in them—there aren’t as many suckers willing to be human shock absorbers. Investors are more aware that if they buy bail-in bonds, there is a very real danger they will be bailed in.
It is past time that we end this farce of bail-in, which is nothing more than a scam to prop up banks’ gambling debts with their customers’ and investors’ savings, and instead impose real restrictions on financial gambling. And that means breaking up the banks along the Glass-Steagall division of commercial banks from investment banking and other financial services.
Glass-Steagall works! It protected the USA’s banks from systemic crises while it was in force from 1933 to 1999, and it’s what Australia needs to protect the people from the risks building up in our banking system. Whether or not the Hayne royal commission’s final report due 1 February recommends it, the CEC has legislation in Parliament ready to go, the Banking System Reform (Separation of Banks) Bill 2018, that will do the job.
What you can do
Phone, email or write to your Member of Parliament to demand they:
Break up the banks, by passing Banking System Reform (Separation of Banks) Bill 2018.
Audit the Big Four banks, using the Auditor-General, to assess the risk of a banking crash.
The government should direct the Auditor-General to conduct an independent audit of Australia’s Big Four banks, in light of the collapsing property bubble to which the major banks are massively exposed.
Presently the banks are not independently audited. There is an even bigger “Big Four” that sign off on the banks’ books, the Big Four global accounting firms, an accounting cartel which audits 98 per cent of the world’s largest banks and corporations, and actively covers up the fraud and dodgy bookkeeping that has become the defining feature of the global financial system. The four firms are PricewaterhouseCoopers (PwC), Ernst and Young (EY), KPMG, and Deloitte.
An explosive new report commissioned by the UK Labour Party’s shadow chancellor of the exchequer, John McDonnell, called Reforming the Auditing Industry, exposes the Big Four accounting firms as complicit in the crimes of banks and big corporations. These Big Four are supposed to conduct the independent audits of companies mandated by law, but they make two-thirds of their tens of billions in revenue from consultancy services to those same corporations. The banks that triggered the 2008 crash in London and on Wall Street had all received clean bills of health from Big Four auditors—some, like Northern Rock in the UK, just days before they collapsed. The report also documents a “parade of scandals” involving UK and multinational corporations which have collapsed after being looted by their management and major shareholders, robbing employees, pension funds and small creditors of enormous sums of money owed to them. In every case, the Big Four firms covered up the looting. And the Big Four firms have captured governments and regulators, the most glaring example being their influence over tax laws, which they help to write so that they can help their corporate and super-rich clients avoid paying them.
(Click here to read the full report, Reforming the Auditing Industry http://visar.csustan.edu/aaba/LabourPolicymaking-AuditingReformsDec2018.pdf. For a summary of the report click here to read a two-page article in the 16 January 2019 issue of the CEC’s Australian Alert Service, “Criminal masterminds: the real Big Four” “Criminal masterminds: the real Big Four”,http://cecaust.com.au/aas/AASVol21No03_real-big-four.pdf, by Robert Barwick.)
The report calls for the establishment of a statutory (public) auditor, to conduct truly independent and honest audits of all financial companies and the largest corporations, to which the regulators would have complete access. It also calls for the Big Four and all accounting firms to be broken up, to end the conflict of interest of firms that audit companies also providing consultancy services.
Independently audit Australia’s banks!
The Big Four global accounting firms also dominate Australia’s financial system. Most worryingly, PwC audits CBA and Westpac, EY audits NAB, and KPMG audits ANZ. Given their track record laid bare in Reforming the Auditing Industry, the Australian government and public can have no confidence in the Big Four auditors’ reports of Australia’s Big Four banks. Last year’s banking royal commission has already shredded confidence in the major banks, proving that they are not the best banks in the world as was claimed. It’s a small step to go from lying about their behaviour to lying about their financial position, assisted by their corrupt auditors. As the four major banks control 80 per cent of the banking system, and each have over 60 per cent of their assets concentrated in mortgages, with house prices plunging the government must direct the Auditor-General to conduct independent audits of each of the Big Four, to ascertain their true financial position and the level of risk facing the Australian economy.
Such audits would also expose more details of the criminality of the Big Four global accounting firms in Australia. On 29 November 2017, the Greens and the National Party agreed to include the Big Four auditors in their terms of reference for a banking royal commission to investigate; the next day, 30 November, a panicked then-Prime Minister Malcolm Turnbull hurriedly called the royal commission with different terms of reference, approved by the banks, in which the Big Four accountants were not included.
Conducting audits of the private banks was once a standard function of the Auditor-General. It was recommended in the report of the 1937 Banking Royal Commission, and first legislated in the 1945 Banking Act, and reaffirmed in the 1953 and 1959 Banking Acts. It remained a function of the Auditor-General until the establishment of the Australian Prudential Regulation Authority (APRA) in 1998, when the Financial Sector Reform (Amendments and Transitional Provisions) Act amended the 1959 Banking Act to allow APRA to appoint any firm to audit the banks. And which auditors has the failed and discredited regulator APRA chosen to use? You guessed it—the Big Four.
The reason the 1937 Banking Royal Commission report recommended the Auditor-General regularly audit the private banks was so the government bank, the Commonwealth Bank, would know if it needed to take over a failing private bank to protect its deposits, by either fixing up the private bank or closing it down and taking over its customers. Australia must face the reality of likely banking failures today: Australia’s banks are more exposed to the collapsing housing bubble than their US, UK, Irish and Spanish counterparts were in 2008, when they were wiped out in large numbers. No other banks in the world have come close to having 60 per cent of their loans in mortgages; before their crashes, US and UK interest-only lending peaked at 25 and 18 per cent respectively of all mortgages, compared with almost 50 per cent in Australia in 2016; and Australia’s household debt at 190 per cent of household income is much higher than in those other countries in 2008.
The Citizens Electoral Council has issued a five-point program for Australia to survive economic catastrophe, which includes a call for a moratorium on home and family farm foreclosures, to stop the banks from executing a US-style mass-eviction of homeowners in a housing crash. The policy would require the government to take the measures recommended by the 1937 Banking Royal Commission and know if it needs to take over the banks to protect the public’s deposits, and either reorganise them or shut them down. Accurate audits of their books are therefore essential.
Demand your MP support independent audits of the Big Four banks!
Forward this release to your local MP and Senators with the message that they must demand an independent audit of the banks. (Follow up with a phone call to make sure they received it.)
Labor MPs especially should be challenged: with the ALP expected to win the election this year, will they follow the lead of their UK counterparts and take on the real Big Four, or will they let this global criminal racket go untouched?