The spin continues.
Today’s The Age reports, “ANZ bumper proft [sic]”.
Source: The Age
We assume a “proft” is the same as a profit.
The paper explains:
“ANZ Bank has posted a record first-half profit of $2.664 billion, up 38 per cent on the corresponding period last year…
“Mr Smith said Australia’s economy was now entering a ‘new normal’ phase and the impact of the global financial crisis had largely washed through…
“Mr Smith said, while the housing market was not in a bubble, housing affordability was still a concern.”
We won’t even bother commenting on the last statement. We’ll just show you a picture instead:
Source: ANZ Bank
The light blue area is ANZ Bank’s exposure to the residential mortgage market. 59% of ANZ’s loan book is exposed to residential mortgages. [cough]
The dark blue area represents “institutional” lending, the medium blue “commercial”, and the olive colour “other retail & wealth”.
In other words, just 17% of ANZ’s lending is directed towards commercial enterprise. The majority of its lending goes towards propping up the housing bubble.
Yet if you listen to most mainstream commentators, they’ll tell you how important a strong banking sector is… and how if it wasn’t for Australia’s strong banks, the economy would be in a dire condition.
While it’s true the inevitable banking collapse will be pretty miserable, the ultimate outcome will be for the better. Because the current banking set-up inhibits the economy from growing.
Besides, holding gold and silver will provide some insurance against the meltdown.
While we’re on the subject we’re wondering if Australia has found its own Peter Schiff.
Over the weekend we stumbled across our old pal, Wesley Legrand from Grand Private Equities in Adelaide, schooling Sky Business Channel host Peter Switzer on the value of gold. You can catch the interview here.
Anyway, back to our point. The fact is, the banks are false prophets. They do nothing more than gain central bank and government support for their activities, and then once they’re established they ensure continued support by warning of the consequences of withdrawing the support.
It’s similar to US Treasury Secretary, Timothy Geithner’s series of letters to the US Congress. He warns about the dire consequences if the US government is denied the ability to go further into debt!
In reality, banks aren’t the economic saviours they’re made out to be.
The banks and the people who run them are just bean-counters and pen-pushers… they’re long on bureaucracy, but short on initiative.
Think about it, when was the last time a bank identified and supported an innovative new business? And I mean properly supported it. I don’t mean giving a business a loan where it has to post residential property as security.
Because as a Money Morning reader recently pointed out to us, that’s just another housing loan disguised as a business loan.
And it’s true. When a bank asks you to post a property as security, what the bank is really saying is, we don’t like your business idea, but we do like your house… so have the money and we’ll take your house if you fail.
And why do banks favour housing? Because it’s backstopped by the government of course. Unlike businesses which can be much harder to stop from collapsing.
Trouble is because the banks know this, it concentrates their loan book. Rather than diversifying their exposure to naturally lessen risk, the banks take advantage of their special gift from the government and central banks – that is to take as much risk as they can reasonably get away with. Because the taxpayer will ultimately provide a bail out.
The concentration of risk has resulted in the current house price bubble. If they hadn’t shifted so much of their lending towards housing the bubble wouldn’t have been created and the collapse of the property market needn’t happen.
But that’s not all. There’s also the missed opportunity.
Thanks to the banks only lending about one-sixth of their loan book to commercial enterprise, entrepreneurs find it hard to gain access to capital.
Let me show you what I mean. Remember the graphic I showed you above. Here it is again:
Source: ANZ Bank
From left to right you’ve got institutional lending, commercial lending, residential mortgages and finally other retail and wealth loans.
Now take a look at this interesting snapshot. It’s from the 1978 ANZ Bank annual report:
Source: ANZ Bank
You’ll notice that just one-quarter of the trading bank lending in Australia was to persons – we’ll make a guess this includes mortgages. In New Zealand it was even less – about one-sixth.
But look at the rest of the numbers: manufacturing alone accounted for 17% of the bank’s lending. Today the bank’s entire commercial loan book accounts for 17% of all loans made by the bank!
In 1978, total lending to the business sector made up over half of all the bank’s lending. Yet today it’s a pathetic 17%.
It’s a perfect illustration of how the banking sector has all its eggs in one basket – the house price basket. No wonder they’re so keen to downplay the idea of a housing bubble.
The result is less credit flows through to business, including entrepreneur
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