I hope you feel good now

For those inclined, the RBA press release can be viewed here and more specific details of the swap facility and auction can be viewed here.


NB:

• Any member of the Reserve Bank Information and Transfer System (RITS) is eligible to participate in the US dollar term repo operations, provided that entity - (a) has treasury operations in Australia; (b) is able to execute and settle both Australian dollar and US dollar transactions with the RBA in an efficient and timely manner; and (c) satisfies the RBA’s legal requirements set out below

• the RBA will provide US dollar liquidity to eligible counterparties for term against the provision by counterparties to the RBA of eligible Australian dollar securities as collateral

• It is envisaged that each operation will be for a term of around one month. The operation to be held on 26 September will be for a term of 28 days

• A minimum bid rate will apply. This will be set at 50 basis points above a reference US dollar OIS rate for the term of the operation. The minimum bid rate will be published at around 10.15 am on the day of each operation on Reuters (RBA33) and Bloomberg (RBA20)

• Each operation will be conducted as a variable rate auction

• For each bid, participants must specify both the US dollar interest rate and the US dollar amount

• Interest will be calculated on an actual/360 day basis

• Sufficient collateral must be provided at the start to cover the US dollar value of the funds advanced by the RBA. The RBA will use the 10.00 am WM Reuters Australian fix on the day of the operation to establish the Australian dollar equivalent value required

• An additional initial margin of 10 percentage points will be applied to all collateral to mitigate foreign exchange rate risk

Hardly sounds like charity to me.

In fact, it could be quite a moneyspinner.

As I have often said:

CBs have three basic rules (in no particular order, save for rule 1):

1. Protect the system (that is the #1 rule)
2. Let the imprudent fail
3. Lend freely, but at a high rate


This is #3 in practice.

Sunfish said:

We're old mates Mark. Please call me Thommo.

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Sunfish said:

Can you tell me if this loan is interest bearing and inflation adjusted? There is a lot of toxic debt around at the moment and the US$ is high on my list.

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Hopefully the posts above answer that question.

WinstonWolfe said:

stuff that winston said.

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I expect that the RBA's own words will answer many of your questions.

As friends are inclined to on occasion, it seems the purpose of the facility is lend a hand (and make a few bucks too).

I think the RBA is a bit smarter than you give them credit for and you ought to put more faith in them and less in commentators who have all care, but no responsibility.

Unfazed said:

I think the RBA is a bit smarter than you give them credit for and you ought to put more faith in them and less in commentators who have all care, but no responsibility.

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hey hang on. Didn't you say the other day the $1B (so far) NAB losses on US sub prime were commercial losses, and shouldn't be bailed by the RBA?

Now we have the RBA lending the US Fed 12B, AND the NAB saying they are going to try and get their 1B back via the US Fed rescue package.......

hahahahhaaa......why doesn't the RBA just bail NAB directly.....

all those smart cookies at the RBA never saw sub prime coming.........no warning to Aussie banks not to get involved in dodgey US securitized products, cdo's and cds's. though some of those commentators you are dumping on did. and my cfo (of NTI) mate did.

WinstonWolfe said:

hey hang on. Didn't you say the other day the $1B (so far) NAB losses on US sub prime were commercial losses, and shouldn't be bailed by the RBA?

...and now the NAB saying they are going to try and get their $1B back via the US Fed rescue package

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I don't appreciate you twisting my words (not for the first time either) - for the record my exact words were:

Imho, the government would only ever provide financial assistance to banks who incurred losses as a result of those (abovementioned) actions only to the extent it threatened the system (which is to say that those losses would have to be MASSIVE and threaten the commercial viability
of a large trading bank before the RBA could even consider action)


Firstly I was talking about the RBA, not the Fed.

If NAB want to put their hand up for a share of the US Fed's $700bn assistance scheme, then that is between them and the Fed. It has diddly to do with the RBA.

Back to the Fed - they want to restore confidence to their system. The NAB losses in the US are part of a systemic problem.

Afaik, the details of the $700bn package are far from set in concrete and if the NAB's issues fall within guidelines then the Fed is only doing what is in the best interests of the system by letting them participate.

WinstonWolfe said:

Now we have the RBA lending the US Fed 12B,

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Lending the money to banks actually, in exchange for security and a nice fat interest rate margin.

Incidently Winston, I have also frequently said that central bank's #1 concern is the system.

They'll break rules #2 (firstly) and #3 (secondly) if it means adhering to rule #1.

Unfazed said:

I don't appreciate you twisting my words (not for the first time either) - for the record my exact words were:

Click to expand...

and included:
Bank losses in themselves are not indemnified (that's business).

so you should have added the proviso, unless those losses threaten the 'system'.

BUT, there is no separate system to 'business'. Risks to the system start within business, not on Mars.

If the rba was so concerned about protecting the system, they'd understand a hell of a lot better the origins of risk to the system.

This unfolding credit crisis is indicative they don't. They just react after the damage is done. No genius required for that.

Further, I doubt the RBA have made it their business to quantify sub prime losses incurred by Australian majors. They just sit on their collective a$$3s waiting for the banks to inform the market in their own sweet time. Maybe in 3-6 mths, the RBA might wake up and say, wow, the major's losses are now, all of a sudden like, so big they represent a threat to the system. Gee, if only we'd known about this 6 mths ago.

And could you rely on the majors to inform the RBA as soon as possible? No. Would the RBA inform the public if they knew? No.

Take as example- NAB, several weeks before announcing to the market a further 800m provision for sub prime exposure, went to the market on an 800m capital raising expedition. That is outrageous. As one irate shareholder said, the NAB obviously suppressed full information from the market when attempting to raise that capital.

As things stand, NAB's exposure is looking worse every week and the other majors are disclosing nothing to their share holders or the market, except reassuring empty rhetoric.

SO when you ask Joe Average to have faith in the RBA, just rethink what their mandate is, and whose interests they'll put first....and how informed they are about what is going on inside the majors.....not very. bank business is all commerical in confidence stuff. asking Joe to trust in the RBA, is asking Joe to trust in the commercial decisions of the majors. fat chance....

the way I see it, the RBA is all about spreading risk and losses. That's what protecting the system amounts to. It disperses losses associaed with poor market decisions by the few, to the many.

Hence, the RBA stands for capitalizing profits and socializing losses.
And that's why I refuse to follow your zealous decree to have blind faith in the RBA.

Unfazed said:

Incidently Winston, I have also frequently said that central bank's #1 concern is the system.

They'll break rules #2 (firstly) and #3 (secondly) if it means adhering to rule #1.

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You seem unwilling to admit that central banks are privately owned. The closest you have come to this is to assure us that (unlike in the USA) the RBA board is appointed by the government.

What I love about the Americans is their openness and willingness to publish what they see to be the truth, therefore I know a lot more about their Fed than our RBA. And I know, absolutely that the US Fed and the BofE are private entities, and pretty sure that they are answerable only to their shadowy boards which are puppets of the House of Rothschild.

With this in mind, I maintain the right to question the ethics and motives of everything to do with them. You are clearly unable to do so because you are professionally committed to the system as it exists.

The Wall St bankers sold billions of dollars of "junk" bonds around the world and thousands of banks and investment funds have taken a hit. This was a deliberate theft. Now the victims are chipping in to help out. If you were to make the case that the US is just too big to fail and that this "loan" is "distasteful but necessary" I could accept that, but reserve the right to have a whinge about it.

I hope we taxpayers will be paid back interest in AUD. Cos it looks like the US bailout is going to significantly erode the USD, just as non central bank commentators warned. And you'd expect the US Fed to borrow as much as possible from OS, then increase their money supply to devalue the debt.

Sunfish said:

You seem unwilling to admit that central banks are privately owned. The closest you have come to this is to assure us that (unlike in the USA) the RBA board is appointed by the government.

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You asked me once if the RBA was private, I sought clarification, you clarified, and I then confirmed the RBA was not private. There was nothing unwilling about that.

Sunfish said:

And I know, absolutely that the US Fed and the BofE are private entities, and pretty sure that they are answerable only to their shadowy boards which are puppets of the House of Rothschild.

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I did some research:


In regards to the Fed:

The Federal Reserve System is an independent government institution that has private aspects. The System is not a private organization and does not operate for the purpose of making a profit. The stocks of the regional federal reserve banks are owned by the banks operating within that region and which are part of the system. The System derives its authority and public purpose from the Federal Reserve Act passed by Congress in 1913. As an independent institution, the Federal Reserve has the authority to act on its own without prior approval from Congress or the President. The members of its Board of Governors are appointed for long, staggered terms, limiting the influence of day-to-day political considerations. The Federal Reserve System's unique structure also provides internal checks and balances, ensuring that its decisions and operations are not dominated by any one part of the system. It also generates revenue independently without need for Congressional funding. Congressional oversight and statutes, which can alter the Fed's responsibilities and control, allow the government to keep the Federal Reserve System in check. Since the System was designed to be independent whilst also remaining within the government of the United States, it is often said to be "independent within the government."


See: Wikipedia


Regarding the Bank of England:

As a public organisation, wholly-owned by Government, and with a significant public policy role, the Bank is accountable to Parliament. The Bank’s Annual Report and Accounts are laid before Parliament each year before they are made available publicly

See: The Bank of England

The inflation target is set each year by the Chancellor of the Exchequer

See: Bank of England

The Treasury, after consultation with the Governor of the Bank, may by order give the bank directions with regards to monetary policy if they are satisfied that the directions are required in the public interest and by extreme economic circumstances.

Source: Bank of England Act, Part 1, (19), 1, see page 12 here

Ultimate responsibility for authorisation of support [to the financial system] in exceptional circumstances rests with the Chancellor [of the Exchequer]
Source: Bank of England, MOU between HM Treasury, the BoE and the Financial Services Authority, pp. 4-5

In summary

Niether the Fed nor the BoE sound particularly private sector to me. In fact they sound very much like how the RBA operates (dog on a leash).

So what else do you "know absolutely" that is incorrect??

WinstonWolfe said:

I refuse to follow your zealous decree to have blind faith in the RBA.

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Again, a misrepresentation.

My (ahem) "blind faith" in black and white -

Unfazed said:

As for the RBA and their recent interest rate activities. I'm not overly impressed either, fwiw. I commented recently on this forum that they need to be as forward thinking on the way down as they were on the way up.

The CPI band? I've long disagreed with the 2-3% (incidently that is 2-3% over the course of the business cycle [medium term]).

I even went so far as to say recently (could have been here or on another forum), that I thought inflation targeting (central bank modus operandi) was passed it's use-by date and that they needed to instead focus on the bigger and far more important goal of economic growth.

So don't make me out to be some blind government stooge.

I've got the benefit of knowing how it works (and I take considerable time trying to explain it to people who often seem incapable of listening), but at the same time I am the first to admit I disagree with certain aspects of the system.

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Evidently I am not as one-eyed as you accuse me of being. Far from it.

But, if I was, I could be forgiven for being one eyed since, unlike yourself, I actually have the benefit of knowing what I am talking about (Master of Economics degree, ex Financial System Division in the Commonwealth Department of the Treasury, part of the team that worked on the CBA-Colonial merger for the ACCC, and involved in the clean-up post HIH collapse).

I'm sorry that my educated and practical experience enlightened posts don't float your boat Winston, but truth is I don't spend hours posting on this website for your benefit.

I do it so that the 99% of people reading who have an open mind can benefit from some real insight into the workings of central banks and financial system regulation.

Unfazed said:

AI'm sorry that my educated and practical experience enlightened posts don't float your boat Winston, but truth is I don't spend hours posting on this website for your benefit.

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Fair go UF. All you've done today is cut and paste details of the 10b from the rba website.

A second example of your 'impartiality' - Your first response to anyone concerned re the safety of bank deposits was they were panicking. And yet you can only guess why the RBA won't guarantee deposits beyond 20k, even after vowing not to let the bank fail........wow save the bank but not poor Joe Forumite's deposits.....that's fair....NOT!

A third example - you have no response to my point the rba knows bugger all about the sub prime risk exposure of majors, and therefore must twiddle their collective genius thumbs until it is brought to their attention by who? the banks themselves...hahahaha......same ol same ol as the US of A over the last 2+ years. When exposure is brought to their attention, in dribbles, the Fed's (and RBA's) only choice is to 'save the system', in a big panic....why the panic? cos the banks haven't wanted the truth to get out beforehand, and now, time is so tight Congress has to urgently do a snow job on Joe to claw out 800 Big Ones.

Which means what UF? it means socializing the major's private losses. Hey...what a great deal for Joe Forumite.

So, if anyone should be kissing RBA a$$, it is the majors....moral hazard acknowledged or not.

Meanwhile Joe Forumite can suck eggs, and pay off that debt via ageing public infrastructure and services (cos all that taxpayer toil goes towards inflatoin tax and writing off majors' bad paper). Open your eyes UF. See the bigger picture. You don't seem to have an appreciation for loading the nation with ever increasing debt, whether by increasing money supply or burdening taxpayers with bad paper from majors.

Maybe once you've seen as many broken govt promises and failed initiatives, and the tragedy up close and personal of what happens when two cars collide on an undermaintained public road, you might realize the RBA's priorities are determined by a view from an ivory tower.

You might be an expert on central bank procedures, priorities, and policy, from 5 years ago. But whatdya reckon the chances central banks everywhere will radically overhaul their diehard philosophies before this sub prime and debt binge is through?

Maybe you need to go back to the books for a refresher....maybe Minsky (seeing you are unfamiliar with him), the Austrian school and more recent Libertarian developments of such on the pitfalls of fractional reserve banking in relation to their amplification effect on economic cycles.

Then, maybe you'd like to enlighten us in less than 200 words, why Keen is wrong in his view that private debt to gdp ratio is unsustainable at current levels, and the implications of that for property prices.....Is your view going to be, yet again, "Hi HO....stop panicking....the RBA is riding Silver to the rescue".

If you care so much about Joe Forumite's wellbeing and general edification, a lot of us would like to hear why Keen's view is that of an economic quack, cos he never worked at the RBA.

Would Glenn Stevens be any less 'shocked' than Bernanke that "too big to fail widened more than we anticipated"

Yeah Ben, you didn't anticipate it because the banks snowed your naive a$$.

WinstonWolfe said:

Fair go UF. All you've done today is cut and paste details of the 10b from the rba website.

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Actually I spent quite alot of time digging around, in particular the BoE site (the wiki information on the Fed was obviously a gold nugget lying on the ground) to prove to both yourself and sunfish that the BoE and the Fed are not instruments of the private sector.

You've become boring, mundane and, frankly, a bit disturbing Winston.

I'll leave you and your small band of equally conspiratorial followers to yourselves.

You'll believe what you want to believe whether it is from the Austrians, Steve Keen (essentially Keen's name is as an economist-anti-economist-hero), Santa Claus or Satan, but the vast majority of intelligent adults realise that, while they aren't perfect, central banks aren't instruments of the devil.

Enjoy your panic.

Unfazed said:

but the vast majority of intelligent adults realise that, while they aren't perfect, central banks aren't instruments of the devil.

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neither are the regulators or the credit rating agencies I suppose.....you know...the ones that allowed the AA/AAA credit ratings on sub prime and the banks to make record profits...until 707.

Interesting.....NAB announces its full year results on 31.10.08.
Will be interesting to see if they make an announcement about further provisions for bad conduits before then, and after the announcement below....



Regulators in pact to respond to any financial crisis

David Uren, Economics correspondent | September 25, 2008

AUSTRALIA'S financial regulators have forged a pact for a joint response to any financial emergencies that emerge.
The move is designed to avoid the lack of co-ordination that has hampered efforts in the United States to respond to the crisis.

The agreement struck between Treasury, the Reserve Bank, the Australian Prudential Regulatory Authority and the Australian Securities and Investment Commission says that private sector or market-based solutions are the preferred means of responding to financial system distress.

“However there may be circumstances where a public sector response is required in order to satisfactorily resolve a financial distress situation,” the agreement says.

What S.H.I.T.S me about this stunt by Lapdance Kev is that the majority of Yanks couldn't give a flying f.u.c.* about Australia and Aussies.

Most of them don't even know where it is (this is true!) and I'm 300% sure they won't know who Kev Rudd is either.

Actually, I'm 1000% sure.

BayView said:

Most of them don't even know where it is (this is true!) and I'm 300% sure they won't know who Kev Rudd is either.

Actually, I'm 1000% sure.

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The galah was just on ABC news whinging about how no one would listen to him about climate change today, in the face of the world's greatest financial crisis since the great depression.

Can't understand why the Opposition didn't take that tack today when criticizing him.

If there is this much money in banks in the US,then why did Rudd-Galah just give Tax Payers money away,American households have $7.4 trillion in checking, savings and other bank accounts and money market fundsThey have another $4.1 trillion stashed in Treasurys and other bonds. That $11.5 trillion, up from $8.9 trillion (in constant dollars) in 2000, is nearly enough to buy every company in the Wilshire 5000. It's more than enough to pay off every home mortgage,so in money terms it's not as bad as everyone seems to think it is,only my opinion but some investors need some foward thinking because the market will turn,just the time it takes is the question,afterall this is the start of the next cycle..imho..willair..

The RBA reckon they prefer a free market solution to any problem that develops here. So why don't they prefer a free market solution to the US's problem? Buffett, the South Korean's, Japs, and the Chinese were all prepared to buy troubled US banks.