Headline could easily read

Treasurer: ‘Truth is a Weapon of Mass Destruction’ for Australian banks

But the AFR in its reportage of Scott Morrison’s comments came in with a more sedate

Scott Morrison says bank royal commission a ‘whinge’ that undermines confidence
http://www.afr.com/news/scott-morrison-says-bank-royal-commission-a-whinge-that-undermines-confidence-20160807-gqmsre

Treasurer Scott Morrison has accused Labor’s Bill Shorten of undermining confidence by continuing to call for a royal commission into the banking sector, saying it was a “populist whinge” that would “start a fire”.

Treasurer Scott Morrison has accused Australia’s banking system of being so feeble and averse to examination that the slightest thought of looking at what it does could bring the lot crashing down, and the ancient trick of screaming ‘fire’ to try and get everyone looking somewhere else.

Mr Morrison said international leaders had quizzed Kelly O’Dwyer on the strength of Australia’s banking system when she was at an International Monetary Fund meeting earlier in the year after the opposition had called for the inquiry. “They were wondering if there was something wrong with the underlying integrity of our banking and financial system. Now that is a fire that you don’t want to start,” Mr Morrison told Sky News.

He said International leaders from money printing nations getting a yield in Australia they couldn’t get elsewhere were wondering how long the Australian golden goose would continue to give them some golden eggs in recent meetings with Kelly O’Dwyer, as they were too polite to ask if  Ms O’Dwyer had bullshitted the Australian public about foreigners buying Australian houses illegally for a number of years, while she was a party to doing nothing about it, and wondering exactly how that sort of economy could work.

They wouldn’t be the only ones wondering if there was something wrong with the underlying integrity of our banking and finance system.  Some easily accessible charts will give rise to quite a few questions of the ‘is something burning?’ variety.

mortgagestolendingSMH Feb 2016

This cracker of a chart (from the SMH back in February) tells us that Australia has the only banking and finance system in the world which lends 2/3 for mortgages and 1/3 for something else.  It doesn’t tell you that anyone in the banking sector and most economists will call non-mortgage lending ‘productive lending’. 

private sector credit Australia

Next is one of my favourite charts from Leith van Onselen over at Macrobusiness.  It tells us that any time forward of the year 2000 Australian banks have been lending more for housing than anything else.

house prices since 86

That of course brings us back to house prices.  This chart from earlier this year certainly suggest that house prices have outstripped all the fundamental factors contributing to them since the mid 1980s, and blind Freddy can see they really took off once business and mortgage lending went their separate ways circa 2000.

Oz House prices since 1880

This chart from Phil Soos and Lindsay David shows more clearly the gravity defying aspect of Australian house prices since the early 2000s.

bank offshore fudning

Back to Macrobusiness for this chart which shows us Australia’s banks have funded all that lending for mortgages with offshore borrowing, with the assets they are using to back their borrowings (to lend to you) the mortgages you are servicing.

Australia-outstanding-housing-credit-yy-growth-v-rba-cash-Sept-2015

That of course brings us back to the ‘hog wild’ behaviour of borrowers for housing as RBA have dropped rates in the last 3-4 years.

Westpac-Wage-Price-Index-and-ToT

Ultimately we come back to wages growth to service that outstanding debt.  And as we can see over the last 17 or so years of the housing boom wages have moved in lockstep with  the Terms of Trade.  Which is sort of OK until you find yourself looking at where we are on the terms of Trade.

Australia ToT

For we have a considerable drop still before us, to ensure our wage growth is fairly lacklustre.

“Now that is a fire that you don’t want to start,” Mr Morrison told Sky News.

Mr Morrison isn’t kidding.  He could just as easily have said, ‘no matter what you do, don’t look down’.

Banks are under renewed fire after ignoring calls from Prime Minister Malcolm Turnbull and Mr Morrison to pass on the full rate cut last week.  The government announced that banking chief executives will be compelled to front the House of Representatives economics committee annually to explain their rate-setting policies.

Banks have been given the full lettuce leaf this week after deciding their profits were of greater importance than stimulating domestic demand, especially seeing as that demand has been smothered in debt they have been happily and profitably selling for a number of years, and they don’t hold out much hope for it from here. The government announced that bankers have been asked to provide a sacrificial ridiculee for an impotent parliamentary meow down later in the month.

A spokesman for Mr Morrison confirmed his comments regarding passing on the Reserve Bank’s cut to the cash rate also applied in the case of smaller lenders, such as ME bank which only cut interest rates on variable home loan by 10 basis points – while all the major banks except for NAB passed on more than 10 points.  Another smaller bank, Bendigo, also only cut its residential mortgage variable interest rate by 10 basis points.

At this point it is difficult to escape the idea that the Treasurer needs to get on the phone to some of the organisations he is trying to protect with suggestions of fire, and asking them not to appear anywhere near the public with matches, small twigs, or hay.

The Australian Bankers Association head Steven Munchenberg said  the fact that  some small lenders only passed on part of the 0.25 percentage point RBA cut showed all banks are facing the same pressures. “The focus has been on the major banks but all banks are in the same situation and interest rates are set depending on bank funding costs,” he said. “Particularly the smaller lenders fund a lot of their lending deposits, there’s been a lot of pressure to raise deposit interest rates over the last few months.”

The roadie for the Australian Bankers Association seems to be suggesting that the band is completely united and everyone is playing the same tune, but he doesn’t pass comment on the idea that this may not be a basis for the band to avoid experiencing some form of public examination (much less a Royal Commission) for their activities over a number of years, and the relationship of these activities to the economic cul-de-sac the nation finds itself in.

Mr Morrison said the first public hearing could be as soon as when Parliament returns next month.

Mr Morrison said the first public performance would be timed to get maximum exposure on the news cycle and would be sponsored by the Real estate Institute of Australia, and be opened by a contestant from ‘Australia’s got talent’

“We can have the banks in before the House of Representatives committee after the Parliament returns. We can implement the financial systems inquiry now and [Labor] can vote for them in the Parliament,” he said.

We could have a very large stage with some skimpily attired young women cavorting provocatively in front of flame throwers. We can have some trained seals, a dancing elephant, and we can have a flypast from the RAAF.   We can have pretty much anything as long as we accept we can’t have meaningful questions being asked of the banks in an arena where peoples bonuses may be allowed into the light of day, or where this is related to the living experiences of ordinary Australians – that would be just ‘distasteful’ and we are told would contravene the privacy of the individuals affected’

Mr Morrison said the call for the royal commission was reckless and a “populist whinge”.

Mr Morrison said the “populist whinge” driving calls for a Royal Commission reflected nothing more than a lot of people having legitimate questions to ask about the behaviour of the banks, and the role of the banks in an economy which is behaving increasingly as though someone has put sugar into the petrol tank. He added that ‘Just because there are more people who want a banking scalp than don’t doesn’t mean we just do it because they are a majority, because that majority doesn’t control the finance or the democracy of this nation, and the politico-housing lobby which doesn’t want a banking Royal Commission does control the economy. So the population will just have to suck it up’ .

“I think there is the great risk that if the opposition continues to engage in this recklessness that the only product of that approach could be to undermine confidence in the banking and financial system,” he said.

“I think there is the great risk that if people of Australia continue to engage in this recklessness then the banks – which go to great effort to bullshit everyday Australians, as well as offshore capital markets about what they do with the funds they borrow there to nail the Australian dollar to the roof – will find themselves having to explain things to a lot of people whom they would rather not go anywhere near without being in a position of having a signed contract imposing costs on anyone wanting information, and this could affect morale of banking and real estate identities.’ he told Sky News.  Mr Morrison said the banks could be called as soon as they have negotiated the public ridicule provisions with their PR teams.

After recent scandals involving banks, shadow treasurer Chris Bowen hit back, saying Mr Morrison did not understand that Australian people have lost confidence in the financial services sector, and the government’s actions were adding to that.

“The Liberal Party’s complete mishandling of this issue is what is undermining confidence in the financial services sector,” he said.

The Shadow Treasurer would, no doubt be enthusiastic about the prospect  of the entire financial system malaise being attributed to the Liberal/National coalition in government, and desirous of avoiding any substantial contemplation of the role of 2007-2013 ALP government – deposit guarantee and First Home Buyer stimulus front and centre – in promoting debt fuelled housing speculation by ordinary Australians and their banks. 

Mr Morrison conceded it was frustrating that banks had been reluctant to argue their case in public for holding back some of the rate cut.

Presumably said with the wistful resignation of a man acutely aware that he was trying to fend off a significant sentiment for examination of banking activities on the part of a very large number of Australians wondering if their mega – mortgages had strapped them into the barrel of an economy going over the falls which they probably don’t have much scope for exiting from here and aren’t all that confident about their surviving without getting at least wet, and are wondering if the man touting the tickets is possibly bullshitting someone somewhere.

Mr Morrison also attacked Labor for not having laid out terms of reference for a potential inquiry. Labor has said it would do this with the assistance of the Attorney-General’s Department when in office.

Mr Morrison also attacked those calling for a Royal Commission for not providing the questions they want answered in advance – this would enable the politico-housing complex to reduce the cost of providing answers in advance and obviate the need for the banking sector to provide sacrificial identities who can think plausibly enough on their feet to avoid impairing the public’s impression of an intelligently run banking system’