Yesterday the ANZ reported another huge profit even with very large write downs and provisions for bad debts. A mere $510m for the six months to date is not too shabby though we can expect 2008 to be much harder going as loan demand (and supply) falls and consumers pare back on expenditure. We are already seeing signs of that with credit card spending falling along with credit card balances increasing.

But what really stands out is the $3.2bln the banks made in New Zealand in 2007. That is a lot of dough, the majority of which comes from the ability to create money into existence via interest bearing loans.

In the last 10 years loans have risen from $127bln to $323bln an increase of 154%….in 10 years!!!

In that time house prices (from QV data) have risen 178%.

It’s good to see Kiwibank taking a bigger part of this market because at least the profits stay with the taxpayer. And of course the right to create money is a sovereign one so why not have a “national” bank. That’s something worth thinking about.

Following on from their generous bail out of Northern Rock, the UK Government, otherwise know as the taxpayer, has opened its arms to any old piece of paper banks have sitting around on their balance sheet.

Or to be more accurate, the Bank of England will accept mortgage backed securities in return for government bonds. Nice trade if you cant get it. The amounts mentioned are 50 to 200bln pounds (where the hell is my pound key?) but basically it’s a free for all.

Now we can expect to see banks reaching for the refinancing button in order to take advantage of this. RBS has already put its hand up for 10 to 12bln of fresh capital plus a 6bln write down.

Ok so its just more mess. The markets may rally on this hoping it can help clear the looming crisis in the mortgage market but the numbers are really starting to mount up and this is just very bad news indeed.

The key issue here is the capital adequacy of the banking system. It’s proven to be the achilles heel which is why the authorities have had no option but to underwrite the system.

Given this exposure of the fragility of the banking system it is time to ask questions about capital adequacy and the way banks are regulated and allowed to operate.

Jim Anderton, a senior member of cabinet and supporter of Helen Clark, has had a good crack at the NZ banks calling them “authors of their own misfortune”.

With lending up 14.3% in the last year he’s not wrong.

And with Lombard the 17th NZ finance company to hit the wall some serious questions must be asked about the health of the NZ financial system.

Deborah Hill Cone , the Hermione Granger of NZ journalism, has been banging on about this for many years now focusing mainly on the Hanover Group which surprisingly hasn’t gone under….yet.

Back in March 2004 she wrote a big piece on it for the NBR which prompted me to write to various MPs and the Finance Minister to express concern about the finance company sector as a whole. The only MP who took interest in it was John Key, the then shadow finance minister, whilst Michael Cullen, the current one, gave the standard response that the system was well regulated.

We also hear that Tower has closed a mortgage fund after a run on funds on a day that centre left leaders met in London to discuss urgent reform of global financial markets. Helen Clark was there and no doubt expressed her concern.

Perhaps her focus should be a little closer to home?

Following on from my piece on the AMRA, I’m posting a message from Stephen for all Washington D.C. locals who can attend his meeting below. Spread the word if you cannot.

Dear Friends of the American Monetary Institute

Please take a moment to concentrate on this message, and consider the very particular action it asks of you, to help our nation achieve meaningful change to assure that no “Wild West” banking system ever again despoils our people.

Place: Busboys and Poets Restaurant (Langston Room)
2021   14th St.   NW,    Washington DC  20009

 Date:  Thursday, April 10, 2008                  Time: 6:00 PM to 8:00 PM

Late arrivals OK                 Dress: Informal; all are welcome

 

Reservations not necessary but really appreciated 

Call 224-805-2200  or email  ami@taconic.net

RETURN TO AMI HOME PAGE

This is in response to Dave’s post on a new wave of financial regulation. It’s a great 5 minute potted history of money to a stunning tune from Prince Charles and the City Beat Band. They rock!

Watch it here

With the financial system gutted and exposed like big swordfish from the Grand Banks, it’s time to have a look at a proposal for monetary reform. Stephen Zarlenga from the American Monetary Institute has put together a proposal that rests on the US constitution no less.

As many people are starting to learn, the 1913 Federal Reserve Act “effectively ceded the sovereign power to create money delegated to Congress by the Constitution to the private financial industry”. It was led by none other than JP Morgan himself. There is some interesting history of how the Act was actually passed during the small hours of the morning whilst no one was looking.

As Jim Rogers suggested yesterday, the Fed could be abolished or as Stephen proposes, be purely a bank of issue, supplying money as required by the government.

Now there are many ways to approach the issue of interest free money into an economy but for now I would just like people to read through the proposal and see what they think. Pass it to friends, schools and universities. People should be discussing this openly.

The AMI hold talks around the US all year round so get in touch and find out when they are coming your way.

Its your Congress and its your money.