It’s about allowing govt to finance its deficits more easily.

Of course, with free banking there would be no need for these ridiculous, suffocating, mindless, ever-changing, defective regulations. Banks would be free to calibrate their own asset position – and if they got it wrong they would die and the directors and employees would be out in the street.

Simple. Google “Free Banking” to find out more.

I assume you’re referring to the proposed increases in the liquidity requirements for 2011, suggested by APRA and proposed by BIS. The argument is we don’t have sufficiently deep govt debt markets to move some liquidity requirements across from inter-bank to govt debt AND that these changes will cause a credit crunch in Oz.

I would suggest gold be used as an alternative to govt debt to allow sufficiently deep, liquid markets in times of systemic risk. But then no one ever listens to me…

“ABOM, There was no need for the guarantee in Australia.” Now we find the banks racing to issue guaranteed bonds before the deadline runs out.

“As for the idea that a bank cannot be expected to replace the $290bn in guaranteed debt once it comes up to roll, that is clearly not the case for most, if not all, banks.” Hmmm… Have you carefully studied the volatility (in both liquidity and pricing) in the international wholesale debt markets over the last 3 years? Again, if you think it’s “guaranteed” (ha ha ha!) that they will ALL be able to access international debt markets on rollover, you are a very brave man. I’d prefer that they source their funding from good old deposits (attracting depositors with competitive interest rates) rather than rely on the backdoor method of the international wholesale markets. Dumb retailers often find that the wholesale costs of a “precious” commodity can spike without notice. And money is (always) a precious commodity. Especially $290bn of the stuff, when we already have one of the highest private debt levels in the world (see Steve Keen’s debt deflation website for some shocking numbers on private debt – how much debt can the sucker-consumer eat up?). I hope I don’t have to post again on this blog in 3 years…

I’m so worried about these graphs that my hands have been shaking this morning. They can’t be accurate, surely? If so, why isn’t the Dow down to 5000?

http://2020speculator.wordpress.com/2010/01/25/be-close-to-a-food-source-and-far-away-from-other-people/

That’s a brilliant analogy! Govt-guaranteed bond issuance and addiction to a drug. The question is:

Can the banks go “cold turkey” when PIGS aren’t flying?

Of course, you’re right on the termination date of the bonds. My implicit point is that if the GFC kicks in again when the term of these bonds matures, I suspect the govt will do the same thing again. In other words, this sad episode has been a signal to the banks: “Lend recklessly, madly, crazily, insanely and you will be bailed out somehow by the govt. So drown every sucker with a pulse in unsustainable debt, grab the bonuses and let the sucker govt take care of the problem later.”

If you think this is a sustainable financial system, then you’re crazier than I am. At some point, the bonds will mature (around the same time as the borrower’s debt rollovers are kicking in) bad debts will spike and the govt will have to do the same thing all over again. Just like the FHBG, a “short term” expediency becomes a crucial permanenet crutch for the economy or the whole house of cards collapses. As an example, if you half the FHBG and cut the LVR ratio from 93% to 87% (as Westpac is considering) I think you go from being able to borrow $600k to being able to borrow something like $400k. That’s a big reduction in anyone’s language. Something is gonna break this year. I don’t whether it’s going to be the wholesale market (CDS are spiking up again), the exchange rate (how can our banks get access to the wholesale market if the A$ tanks?), or actual house prices (it’s coming eventually). But this thing isn’t going to keep flying for much longer.