Monday, March 19, 2012

Pigs in Mud

Now, I do not purport to understand banking in its entirety. I don't like them anyway and I try to have as little interaction as possible with them.

Today I see, that in New Zealand, banks have successfully lobbied our Reserve Bank to push the Basel III requirements into the distant future.

Now Basel III was instigated by the lofty G20 after the 2008 global financial crisis. They are standards that banks need to adhere to, with particular reference to requireing banks to have greater  reserve asset ratios with their Central Banks. Basel III was "designed to strengthen the regulation, supervision and risk management of the banking sector in the wake of the global financial crisis".

The reason given by our banks was the rules were too aggressive and could not possibly be introduced next by 2013.

Banks want the status quo, they want things just as they were before the GFC. It appears they have won this fight.

Now I know why I don't like banks.

The goal-posts have shifted again in favour of bank lending. Banks appear to be able to get a hold of as much liquidity as they can get their bubbly little hands on. They are acting like pigs in mud and are feeding on free money with gay abandon. And they have to foister it on anyone who doesn't yet know what their game is.

Then of course there is the other side of the equation. The borrowers. Perhaps they might like to think about what's coming down the track if they continue to take part in the bubbles forming around New Zealand and the globe. The US stock (share) market is fair fizzing along, inflated by Federal Reserve easy money. When this busts, what is next? Gold?  Tulips?

Now Bill English, the NZ Finance Minister, is saying there is no housing bubble forming in Auckland. If you look at the house price v gold ounces chart he may be correct, but there is probably a housing price increase coming if banks continue to peddle this free money. But it probably won't last as long as the 'naughties' housing bubble. This free money will be snatched away by rising interest rates quicker than you can say 'inflation'.

There is simply no way that this type of behaviour can end well. Banks peddling cheap money and then packaging up that so-called good collateral in order to resell it, had it's last stand in 2008. From then on the West has been staggering along with a dagger to the heart.

When will the system fail? With this type of unrelenting cheap credit and with Reserve Banks looking the other way on lending.


Gold in New Zealand dollars: $2014.68 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $39.51 per oz
Previous all-time high: $59.19
per oz (30 Apr, 2011)

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