Observing the Aussies: Banks as robbers...

As an American I just don't get it.

I'm talking about the way Australia banks, arguably one of the most protected sectors in Australia, are allowed to make money off its citizens. No, "make money" is too kind a word: "pillage" is more like it.

For my non-Aussie readers, mortgage interest rates here aren't like in the US where the vast majority of such are fixed rate over the life of the loan. Meaning you can get a 30-year mortgage locked in at the rate the bank initially lend it to you so your monthly payment will never change. Here in Australia, generally the loan interest rate is not fixed and can change at any time over the loan period - even monthly. So if the banks decide to raise rates, then your loan rate goes up as well and so does your monthly payment. Once this rate was loosely tied to the prime rate set by the Reserve Bank of Australia (RBA), but that has gone out the window in the face of the current global credit crisis, as rather than take any loss of profits Australian banks have shown their true colors and unabashedly decoupled mortgage rates from the RBA rate, charging any rate they choose.

So what does that mean? Rather than take any loss in profits due to their misguided quick-money schemes and financial mismanagement, the Australian borrowing public is treated as a huge piggy bank where by raising interest rates the banks bring in more money to cover any shortfalls. How egregious is this robbery? National Australia Bank just announced they would have to take a $1.2Bn write down to cover bad loans and so would raise mortgage rates to cover it. But that's not the whole story: even WITHOUT the rate rise they would be making $3Bn in profit, the rise is just being used to make their projected profit of $4Bn.

Interest rates are now hovering just under 10%.

What's most pitiable is the RBA thinks they actually control the money policy in Australia and the Government thinks they control the economy, keeping it from spiraling dangerously close to what some are calling a recession; completely ignoring that the banks are the ones controlling the money supply and are in truth killing the economy by sucking away its buying power.

Maybe it's because at one time banks were government-owned entities charged with protecting consumers there has been no outcry yet; just the citizenry obediently turning out their pockets to the banks all the while whinging to the Government about how everything is getting so bad.

What's that smell in the air? It's coffee. Time to wake-up Australia.

- Farmer Ted