TOLD YA!

In recent weeks the world wide financial meltdown has brought forth rivers of words from presidents and would-be presidents, prime ministers, other politicians, pundits and prognosticators. There was Mr. Rudd, with his sleeves rolled up, and his economic advisers toiling over the weekend before announcing his $10 billion Christmas present to kick start the economy. As President Bush advised Americans after 9-11: ‘Go shopping’.

TV networks have been running hour long specials on The Crisis. Prime Minister Rudd tried a presidential-style address to the nation and – at the National Press Club he twice invoked the name of President Roosevelt. Even if he did pronounced his name wrongly.

Today he met with business leaders and on Sunday night he’ll appear in a one-hour special on the Seven Network called An Audience With the Prime Minister. Apparently without a moderator the PM will take questions from about studio audience of more than 100 people.

This is all to be applauded. But one question bothers me. Even though I think I know the answer. Where were all the crisis meetings a month ago? Two months ago?  Didn’t the experts and highly paid Treasury advisers to Cabinet see it coming? Didn’t they even see a minor derailment… let alone a train wreck?

Why did the Government wait until the horse had bolted? Obviously they didn’t even know the stable door had been unlocked. Didn’t know the jockey and trainer had run off with all the money.

There were huge storm warnings months and months ago. Back in July
I opened the program with a quote from the head of the ANZ, Mike Smith. I said it was the Quote of the Week, if not the Quote of the Year. He said:  ‘These are not happy, happy times’.

My comment then: No shit, Sherlock. They’re certainly not happy times for people with mortgages and high interest rates and high petrol prices and highway robbery at the supermarket.

They’re also not happy times for the banks and their shareholders because the market is punishing them for getting so deeply involved in the American mortgage crisis and not seeing it coming. The banks are writing off billions of dollars in overseas exposure and Smith says it’s going to get worse.

And back in July I made this prediction:

 Home loan defaults will rise. More people will lose their houses. Smith doesn’t think it will be as bad as what is happening in the United States and Britain but I’m not so sure.

The IMF says the money crisis which started in the US, in the sub-prime market, is now spreading deeper into other countries. Our banks rely heavily on foreign borrowing. How can Treasurer Wayne Swan be so confident that our economy is bullet proof?

Then I followed up on a BBC report out of the US which showed
a massive flaw in the American banking structure which was costing banks billions of dollars and –like a tar baby – I said, will stick to our financial institutions.

It’s called ‘walking away’. In California and other states people with huge mortgages and falling house prices found a legal way out and they’re leaving the banks holding an unwanted baby.

It works like this. And I gave a true example. A couple bought an apartment for $500,000 in 2006 during the boom. Paid for it with a 100% mortgage.

Now their property is worth only $300,000 but their repayments have gone up by $600 a month. They decided to walk away. They stopped paying their mortgage. Started saving the money instead for a fresh start. It took the bank eight months to foreclose. The only thing they’ve lost is their credit rating and apparently it is happening so often that stigma is eroding. It’s being described as ‘a tsunami of defaults’. It could hit the banks for 1000 billion dollars. That’s one trillion dollars.

It all happened. I won’t say the rest is history because, horrifyingly, we don’t know what the ‘rest’ is yet.

Friday, October 17, 2008

© Copyright Derryn Hinch 2008