Capitalism and democratic choices are a distant memory in Australia

Remember how, back in the mists of time there used to be a clear choice for voters; a party of the free markets and less government spending versus a party representing the working class and unions?

Perhaps we’re looking back with rose tinted glasses and t’was always thus. Nonetheless, Australians were given a very clear glimpse of what lies ahead should the economy take more than a minor dip over the coming months and years; the federal government becomes lender of last resort to crap businesses.

No. Really.

Treasurer Josh Frydenberg and Small Business Minister Michaelia Cash will announce the small business funding policy on Wednesday, promoting the soon-to-be-established Australian Business Securitisation Fund as a way to overcome banks typically only lending to the self-employed when they pledge their personal home as collateral.

To summarise the announcement; “if the banks looked at your business and decided it was a poor bet and you didn’t have enough skin in the game, we’ve just decided the Australian taxpayer and their superannuation funds will lend you the money anyway“.

It’s very easy to be generous with other people’s money, isn’t it?

This is bound to end well.

The irony is that this policy wasn’t announced by either of the openly Socialist parties but by one of the two parties that historically claimed to be champions of free markets and minimal government intervention.

At a state level, similar disconnects have been shown between expressed and revealed preferences. Here’s a “free markets” politician bailing out rent-seeking taxi medallion speculators.

The $2bn fund to lend money to businesses judged by commercial lenders to be poor risks is an interesting development though, coming as it does so soon in to the worst housing crash in a generation, but particularly after this little legislative gem was snuck through onto the statute books with hardly any media coverage or explanation; insolvent banks can be rescued by confiscating deposits.

Bill’s Opinion

Will a “bail-in” of superannuation funds or bank deposits ever happen in Australia?

Unlikely, but not impossible. The risk isn’t zero.

There’s a great and often quoted dialogue in Hemmingway’s The Sun Also Rises;

‘How did you go bankrupt?’ Bill asked.

‘Two ways,’ Mike said. ‘Gradually and then suddenly.’

Perhaps this is the “gradually” part for Australian depositors. If so, it might be an idea to know how quickly you could act to not be caught out by the “suddenly“.

26 Replies to “Capitalism and democratic choices are a distant memory in Australia”

  1. I agree with your overall point, however in my experience “if the banks looked at your business and decided it was a poor bet” doesn’t really happen in Australia. If you want to borrow money, for any purpose, all the banks want to know about is how much “equity mate” you have in your house. A housing correction is at least 20 years overdue to shake all the specufestors out of the system & return them to productive endeavours; sadly it’s unlikely to happen now without taking the rest of the economy down.

    1. Yes, that’s correct. Business investment in Australia has been insipid for years as the money flowed to property.

      I agree that it’s going to be a painful transition, if indeed the will is there for it to happen or, if it isn’t, the sheer incompetency will mean that the transition happens regardless.

    2. Australia has never went into a recession before the US does, sure there is always a first time for everything, but our economy is growing, so it would be near impossible to go into a recession next year. If the US went into a recession say in 2020 and it can’t be any earlier because their economy is growing even faster than ours, then and only then should we be concerned about a recession down under, up until then just chill out and chuck another shrimp on the barby.

  2. It is getting worse and is likely to accelerate from here depending on what sense emerges from the various enquiries. There were previously two broad categories for commercial lending. The first was where you had cashflow and a property; the second was just property, with limited focus on serviceability/cashflow – so emerging businesses could get some debt even if profitability was a bit weak. Hence the popularity of third party guaranteed loans for the kids to start a business as so well illustrated in the royal commission case study. With the new focus on serviceability/cashflow, you now need both cashflow and a property thereby reducing the number of eligible borrowers. Such is the roadway to nirvana laid by the good intentions of responsible lending.

    As someone actively considering a senior approving role in commercial banking at the moment, I’ll report from the coal face what I can.

    While I am all for responsible lending, I do wonder if there should be talk of responsible borrowing from time to time. But that would be victim blaming, or would soon become so in discussion.

    1. Responsible borrowing? Your career prospects in one of the banks isn’t looking too rosy with heresy like that.

      You’ll be telling us you identify as male next. There’s no chance of a promotion in an Australian bank if so.

      1. The role is a sideways move, at best. For a range of reasons. I keep my identity to myself, but I don’t use the female toilets. Yet.

    2. Good luck with the job opportunity.

      I see its commercial so not MacQuarie the millionaire factory that are going gangbusters again always a good bellwether for the future.

      What do you think about the rumours flying around that they will buy AMP? I just chucked my entire IP portfolio over to AMP, great deal, all self financed and interest only to boot.

      1. Macquarie has a decent size SME business. But I am losing respect for their general deal doing.

        If anyone wants some fun, look up Axsesstoday on the ASX.

        Overall, it feels like 2005 v2.0, with some variations. So a year or two to go, and then the real fun starts.

        1. Where do AXL get there funding from, is it from unsecured individuals on high returns?

          It was nice to see the empire striking back the other day with respect to the recent hoopla with the Westpac ASIC nothing burger settlement when:

          “Justice Perram said “admirable ingenuity has been applied” by ASIC and Westpac’s lawyers to drafting the settlement “so as to gloss over the very real differences which exist between them”.

          He also refused to approve the $35 million penalty, asking: “How can the court be expected to assess the reasonableness of the proposed penalty if it be left in the dark about what the actual problem is?”

          I don’t think that cultural sloppiness in the banking industry is unlawful either, no doubt ASIC are shitting their public servant pants again, Captain Bligh to the rescue.

          1. It’s interesting as I don’t think it means that Westpac are out of the woods yet either and I do think that their pooftah leader was hoping to have that behind him before the next round with the RC. Early settlements and enforceable undertakings and the like are generally encouraged by all parties including the judiciary to free up the courts for real criminal trials and also to keep the costs down for running claims and the eventual penalties which tend to be far higher and more protracted if they go to court stages.

            So it could mean that the big end of town has said okay so we got a few cultural issues and a couple of dead guys were sent some bills and we are fixing it, all teh banking CEO’s just got their bonuses clipped, the RC has had its time in the sun, justice has been seen to be done and now it’s time to get back down to business of pumping debt as high as possible and ASIC you can do as you are told and fuck right off. Which is a good thing and Captain Bligh would have done very well for a sheila.

            Or he finds that there is indeed a criminal matter for the bank to answer to and this is a big trial with big penalties, the pooftah might even do some time and the next round of the RC is going to be taking scalps big time and Bill Shorten will have a free run at the aloof evil cigar smoking, dead guy billing, loathsome psychopathic, would be Fred the Shred Bankers, even though he is one of them.

          2. Anyone who tells you they know what’s about to happen in the Australian finance sector is a shyster and is to be avoided.

            Why?

            This is generational stuff. Nobody currently in position in the regulators, government or banks was out of university last time a situation remotely similar to this occurred. This is my point you will have seen previously; every middle manager in Australia, unless they lived overseas in the 90s has any experience of proper downturns. Sure, a couple of industries had their own version of a recession but they were more blue than white collar.

            The “wages data good”, “house price data bad” thing the commentatriat are stuggling with for example. Go on then, Stephen Koukoulas, tell us how this plays out. Oh, you don’t know because you were 18 last time *anything* similar occurred.

            My best guess is that the driving global economy (Trumpland) is in a bull market for maybe 2 years while Australia is going to be flat. The local banks might desperately want to open the spiggots but the funding is not coming from overseas. I don’t understimate the politicians’ ability to avoid their responsibilities and bail out everything that moves with other people’s money, of course. Which is why Steve Keen had to climb a mountain.

            Back to the start of this reply…. if you are an estate agent in an area of Melbourne or Sydney that had zero sales at auction last weekend (there were several), and you’re the main provider to the family unit, what’s your advice to someone expecting a mid 6 figure capital gains on a property they’ve held for 30 years?

            Most agents won’t realise what to do. There will be a couple who will break ranks, however. I know one in Melbourne who did 3 weeks ago and got a commission on a lower figure rather than x% on no sale.

          3. I can also assure that you at the top of the next cycle no one in the UK will remember the bank run on the Northern Rock either.

            On Melbourne real estate, I am thinking about jacking up the rent on my Italianate gaff in Hampton, Melbourne. Glad I got my refinance valuation done about six months ago when I chucked my entire portfolio into AMP.

            Good jobs report out today as well. Is anyone on here recruiting at the moment, you just cannot get an engineer for love nor money, tightest its been since the last time. I can feel significant wage rises coming on.

          4. I took this one out for a test drive today, including the freeway, neat as a pin, only 37,000 on the clock and the interior was delightful. Beige suede ceiling, truly was one of the best drives ever. It’s the deluxe model as well. Get it for $135k with 3 yr warranty, which is very good buying in that range, $250k luxury tax on initial purchase.

            Not buying yet, I just can’t get my working class head around having a car that you don’t drive all the time.

            https://www.carsales.com.au/cars/details/2010-Aston-Martin-Rapide-Auto-MY10/OAG-AD-16356447?pageSource=details&id=OAG-AD-16356447

          5. AXL are funded by CBA, Macquarie, Macquarie securitisation, and two layers of retail funding. It is a complete mess, and it is not alone.

          6. Things that may you go hmm………………

            Extract of transcript of interrogation by Reichsführer Orr on weak Public Servant.

            “As for Shipton, ASIC was a target of Hayne’s ire in his interim report. The commissioner doesn’t like the deals the regulator has been doing with wrongdoers and says more should be taken to court.

            Orr had taken Shipton to a note about Westpac’s exchanges with ASIC in 2017 as part of its review of the banks. Shipton pleaded that it was “difficult for me to have knowledge of each and every paragraph” in the thousands of documents he reviewed before giving evidence.

            Orr asked: “Now that you’ve seen these paragraphs in this document, do you agree that it appears that ASIC does at times discuss the recommendations and findings that it proposes to make in these reports with the entities who are the subject of the report prior to publication?”

            https://www.afr.com/business/banking-and-finance/financial-services/banking-royal-commission-best-blood-sport-in-town-20181122-h188f7

          7. Yes, I found this week’s events amusing. Seems a very cosy relationship for a regulator to have.
            If the fallout is a couple of bankers going to the big house in future, I think we can agree the RC served its purpose.

          8. The other worst kept secret that was revealed this week and is relatively large was the RCR collapse, thank fuck I got out of them on the 19/9/17 at $4.56 for a tidy gain.

            I was talking with a client of a major engineering construction contractor yesterday he runs their NSW business and is based in Sydney and he told me that a huge local authority there were in the poo big time due to the RCR shutdown and he was overnight tasked with finding a whole project team and equipment to take over the contract, now, yes now and before Christmas in a hot market. There will be major reverberations around this one, especially with their very recent cash raising, its only beginning.

            Not sure if you know this but if you were contracting for RCR, had completed the work staisftorily, invocied thme and been paid, you aint home adn hosed. If teh admisnitarore decided that you received preferenatil payment or a payment whne the ywere insolvent he cna leaggly take it back off you. Sacry shit this.

            Like all of these things its the suppliers that will suffer the most, broken businesses, broken dreams, broken families, suicides, what was up until yesterday a good investment now a mal-investment and the next few years of holding out for a settlement in unfounded hope.

            Not nice if it happens to you.

            We settled our issue as well relatively easily and favorable to us, I think he has bigger fish to fry at the moment.

            There is another one on the cusp of going, can’t say who on here, they are a subsidiary of a group that is arguably trading insolvent and the group haven’t manged to sell them, they sold their other subsidiaries, they now have no finance, no cash and it too could be a matter of days before they fold. The subsidiary is a client of ours, they are pretty good and I think that someone will buy them as an ongoing concern for a song.

            See my internal email about this dude from RCR that I interviewed two weeks ago for a senior role who knew and told me this as his reason for looking for a career change “that it was a matter of days before they padlocked the gates”, good experienced Yorkshire bloke but I had already decided that he wasn’t for us, so was quite happy to help him out. I liked him because when I told him during the interview that I had sold my shares late last year he genuinely said that he was happy for me.

            From: Bardon
            Sent: Saturday, 24 November 2018 9:52 AM
            To: xx
            Cc: xx
            Subject: The real reason for RCR’s spectacular collapse revealed

            Tim Treadgold says RCR Tomlinson “did not know what they were doing”.

            By the way XXX the guy I interviewed from XX two weeks ago, called me last week to say that he had as expected received an offer from XXX that he wasn’t keen on because he knows for a fact that they shop every single price that they get from an Aussie contractor around the slums of Bombay for a better deal.

            Plus he doesn’t trust them and there will be a lot of commuting involved between his Brisbane bayside home and Townsville and he would prefer to work for us, for less.

            He asked me what I thought he should do and I said that he should take it, which he did.

          9. Trading whilst insolvent is illegal. You and I both know of large corporates that have done it though, yet nobody was prosecuted. Interesting, no?

          10. My firm did it all the time, we are private and smallish, we had finance on the horizon, we did get it as well. Which is orders of magnitude different from a listed companies annual audited accounts being heavily qualified with the above statements that I mentioned before on the firm that is about to go down. Just that kind of information hitting the market place alone is enough to sink you, and if I know it the market knows it.

            I do think that they will go RCR though, too many haircuts here, too many major projects in limbo, fucked with the state, too many unfinished major solar plants, and the matter of the recent $100m cash raising, enough is enough, someone needs to be made an example of and RCR is an easy take down. Looks like the D&O insurance policy premiums that have been going through the roof of late are about to double.

            Like I said this was the worst kept secret in town. I know a lot of what went on in there how they financed those solar projects, how they hired their enemy to come in and show them how to do it and how they set up internal schisms, just kids stuff really.

            We pulled out a few jobs with them on the cusp of signing, lately.

            The entire solar farm boom that is currently underway in Aussie is mostly privately funded run by the big European nancy boys in town are all train wrecks, all of them, believe me it is a complete mess. There is another big solar player in Aussie they are French I met most of them in their North Sydney office and they all reminded me of a worse version of the pooftah Maricon. We were on the cusp of signing and we pulled out of there too, they are that rubbish contractually that they had no hooks in me to stop me form bailing.

            There French female Australian director called me, we had some phone sex and it took her a while to understand that she did not have the upper hand and in Aussie we don’t enter into contracts under duress and she is lucky that I wasn’t noting this conversation. She came to her senses in the end and asked me what the next step was I told her what our revised offer to sign up was which was costs plus 30% (ridiculous of me) and for her to give me a bell if she was interested (Aussie for au revoir), she never did. That job which is in northern inland NSW is another fucking disaster zone, watch this space.

            Looks like mad made global warming has won this one.

          11. A socialist landslide victory down south of the border in Mexico yesterday, as their victorious and most glorious leader Comrade Andrews proclaimed that they are the most progressive state in the federation. Plus he said that his policies were conservative, yes truly he did say that!

            Sco Mos only chance now is to take a stand and clearly define his polices and they had better be pure and unadulterated conservative ones, including dumping the Paris Agreement, last chance saloon stuff now, with everything to gain and nothing to lose.

  3. I don’t think that any democratic systems have ever been much chop anywhere.

    “In a Democracy, the vote of two idiots counts for twice as much as that of one wise man.” Adolf Hitler

    James Madison one of the founding fathers was quite outspoken of the evil of wide democracies and none of the founding fathers advocated democracies either. I think the US system of voting rights being restricted to men and property owners,with senators being appointed by the legislature and not the “mob”was a far better voting system than any modern democracy.

  4. Vendor trousers $12m a year, for nine years for doing nothing, the Melbourne commercial boom is only getting started.

    The Chapel St and Prahran redevelopment is going to go absolutely ballistic once it’s completed.

    ………………………………………………………………………………………………………………………………………………………………………………….

    St Kilda Rd record smashed as office block soars $100 million in nine years

    A St Kilda Rd office block has smashed the leafy boulevard’s record by $20 million and earned $108 million since it last sold in 2009. And, incredibly, a higher offer was rejected.

    A St Kilda Rd office block has smashed the leafy boulevard’s record by almost $20 million after an eye-watering $163 million sale. And, incredibly, the seller rejected an even higher offer for 509 St Kilda Rd, Melbourne.

    Even so, the Sydney-based Beville Group — an investment firm headed by John Beville — collected a $108 million windfall from the sale after they bought it for $55 million in 2009.

    It works out to $12 million a year.

    https://www.news.com.au/finance/real-estate/melbourne-vic/st-kilda-rd-record-smashed-as-office-block-soars-100-million-in-nine-years/news-story/98969ca5edd2a9bedb74bae96dcec440

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