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Interest rates: what now Wayne?

David Penberthy

by David Penberthy

10 Nov 10:45pm

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Filed under: Banks, Gillard Government, Interest Rates, Mortgages

34 comments

Wayne Swan has a problem.

Now guys, if I've told you once I've told you 34 times…Photo: Ray Strange

The banks think he’s a pushover. Several hundred thousand home-owners agree.

Now that the ANZ has joined the Commbank in defying public opinion and overshooting the Reserve Bank’s official interest rate increase, the federal treasurer finds himself in familiar territory. He’s really, really angry.

It’s cream-puff stuff - c’mon fellas, can you please stop putting rates up? Please?

The past week has shown that the banks couldn’t care less if the Federal Government uses the bully pulpit to shame them into restraint on rate hikes.

As far as tactics go, it’s pretty hard to shame the shameless. Despite wallowing in multi-billion-dollar profits the Commonwealth stumped for a .45 per cent increase and as of today the ANZ has gone for a marginally less offensive .39 per point hike.

We know that Wayne Swan doesn’t like it. Well, nobody does. The question the Gillard Government has to answer - and fast - is what are they going to do about it?

The poor showing of Labor in this week’s polls reflects the success the Coalition and shadow treasurer Joe Hockey have had in capitalising on public anger over bank megaprofits and rate hikes.

The ANZ’s act of defiance today only piles more pressure on the Government.

So far the Government has indicated it is cracking down on exit fees to make it easier for mortgagees to switch banks.

But what else should they be doing? Should they let market forces prevail? Should they step in? We throw this post open to our readers for their suggestions.

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34 comments

Show oldest | newest first

    • Puppy Dogs says:

      10:05pm | 10/11/10

      Both Wayne Swann and Grahame Samuels don’t have the fortitude to do anything.

      Reply

    • Anthony of WA says:

      10:30pm | 10/11/10

      What are the interest rates around the world for home loans? lower than here! so how can those banks borrowing in the same places as ours are, justify their low rates?
      If our banks are so strong why do they need the tax payer backing them up?
      We need more banks and the competion that they will bring and this government needs to get off it’s ass and make it happen.

      Reply

    • Craig Mc says:

      11:05pm | 10/11/10

      Perhaps if the government wasn’t so hell-bent on borrowing and spending - well past any excuse of a recession - there might be some cheaper credit for the rest of us.

      Reply

    • Joolz says:

      11:10pm | 10/11/10

      Or did the RBA put interest rates up to attract the US investment dollar?????

      Yeah… I’m just a conspiracy theorist.

      Reply

    • Shane From Melbourne says:

      11:53pm | 10/11/10

      If they hadn’t sold off the Commonwealth Bank, they wouldn’t have this problem. The short sightedness of privatization…..

      Reply

    • Dash says:

      12:29pm | 11/11/10

      If the government hadn’t overheated the economy with the unnecessary second stimulus. And if they weren’t following policies which threaten to increase inflation (e.g. carbon price and water allocation), they wouldn’t have this problem.

      If Swan hadn’t reduced competition in the banking sector by approving 2 mergers whilst treasurer, things might be different.

      How the hell is public ownership the answer in a deregulated finance system?

    • sam says:

      03:43am | 11/11/10

      Encourage some international banks to enter the market? See how the ‘big’ four like it when real international banks get in their market?

      Reply

    • Lee-Anne Hayes says:

      05:44am | 11/11/10

      We all know the banks are out of control, however aren’t they all products of deregulation…..part of the market economy which is banged on about so much! You can’t have both folks!
      The government is being criticised for not following economicss 101 as it’s called (economic fundamentalism) but expected to whack the banks as well. Great retail politics Joe.
      BTW I think the banks are greedy so and so’s and need a reality check, but people need to understand that the banks are a product of deregulation, part of neo liberalism. Protectionism is supposed to be ‘out of vogue’.

      Reply

    • Mr. Fixed says:

      05:55am | 11/11/10

      Possibly Swan could create the solution from within the corridors of power. Abandon the N.B.N. and use the 49 billion to create a new bank,called the Federal Wealth Bank. Now the big difference between the F.W.B and the others is the abandonment of the variable interest concept. I borrow at the fixed interest rate of 6 percent, thereby undercutting the others and gaining their customers by the droves, or they in turn would have to lower their rates to remain competitive. Now some folk will say it is not the role of Government to create banks but in reality they are the budget makers and therefore the ultimate fiscal controllers. The variable rate should be outlawed,it,s like buying an apple for 1 dollar on friday and being told on sunday that you owe another 10 cents,after the deal had been struck and the apple eaten.

      Reply

    • Super D says:

      06:27am | 11/11/10

      Fixed rates are available now.  The fact that most Australians choose a variable rate because its often lower is their decision.  With a fixed rate the bank wears the risk of changes in interest rate markets.  With a variable rate the customer does.  Unsurprisingly the bank gets paid to take on the risk.

    • Super D says:

      06:37am | 11/11/10

      The questions what can Wayne do also needs to be accompanied by what can’t Wayne do.

      On the can do side the most important banking reform is account number portability.  With all the direct debits and transfer access people have set up these days changing each one is an absolute nightmare - the financial equivalent of having to inform everyone you have ever known that your phone number has changed.  If the government needs to set up some sort of transaction clearing house to facilitate this then done correctly this would solve the problem of portability without the need to change the banks archaic software. 

      The payments and transfer system which has developed is a key piece of national economic infrastructure.  The role of government is to ensure its robustness and enable access to it, thereby reducing barriers to entry and increasing competition.

      On the can’t do front - the government cannot guarantee the pricing or availability of credit.  No one is entitled to a loan at a reasonable price.  The choice is to not take the loan.  Cheap finance is not a fundamental human right.  While the US banks deserve the bulk of the blame for the GFC, the seed from which it grew was government directed lending to low income households.

      Reply

    • Shane From Melbourne says:

      08:26am | 11/11/10

      Absolute Rubbish- A full 50% of sub prime loan defaults came from institutions exempt from the Community Reinvestment Act while only 25% came from institutions covered by the CRA. Go peddle your Republican myth elsewhere. A more likely culprit is Collateralized Debt Obligations which contaminated good loans with bad and the credit rating agencies who failed to adequately assess the risks of such CDOs

    • Super D says:

      09:31am | 11/11/10

      So you’re saying that if not for government intervention in credit markets there would have been 25% less dodgy loans.  I’m not sure how that refutes my point.  I credit government policy as having a small role, not a dominant one.  Frankly for as big a cock up as the GFC to occur everyone needs to have been working together!  My point is that governments should not be manipulating credit markets at all.

    • Shivo says:

      06:49am | 11/11/10

      Support the credit unions and building societies when borrowing for housing purchases, withdraw the federal support for the banks and then see who has the best deal. Credit unions and building societies profits are for the benefit of their members, banks profits are for the benefit of the “almighty” shareholder. Let the games begin…

      Reply

    • incervisiaveritas says:

      07:18am | 11/11/10

      The best comment I have seen on Wayne Swan’s relationship with the “Big Four” came the other day on the Letters page of The Australian. It went something like this:

      “In this age of digital communications Mr Swan’s finger wagging at the banks was answered by them by another form of digital communication.”

      Reply

    • MarK says:

      07:18am | 11/11/10

      I propose he and Gillard get angry.

      That will show them. Look what it did when they got angry at the CBA. It took ANZ a week to put its rates up. Clear evidence the angry policy is a winner.

      Reply

    • TimB says:

      07:57am | 11/11/10

      Everytime I see it written that Gillard is “angry” at the banks, a scene like this plays in my mind:

      Banks: “Oh no, Juria Girrard!”
      Julia:“We must be firm with you. Stop raising rates. Or else”
      Banks” Or else what?”
      Julia” Or else we will be very angry with you….and we will write you a letter telling you how angry we are.”

    • The Badger says:

      09:19am | 11/11/10

      Why doesn’t Hockey just give up this childish game and show Swan where he hid the levers?

    • James Mc says:

      11:57am | 11/11/10

      Someone please do a you tube version of this

      Hans Blix ...

    • thatmosis says:

      07:26am | 11/11/10

      Ive said from day one of this illegal government that Swanny was a useless tool. he wouldnt be able to run a raffle with only two tickets in it correctly. But this is typical of all the Ministers ( and i use the term lightly) in this so called Government, incompetant and clones of their mistress who when a Minister couldnt run her policies without stuufing them up and costing Australians Billions in overruns. What else can one expect from a bunch of Union string puppets

      Reply

    • iansand says:

      07:28am | 11/11/10

      He should use the levers available to him in the Parliament.  Joe knows where they are.  Or he could announce a 9 point plan to investigate a few options.  That will scare them.  Although a quiet signal sent to the banks that the next bailout will depend on their ongoing good corporate citzenship may be something that will grab their attention.  It would have to be bi-partisan as the next bailout may be decades away, if it is ever necessary.

      This genie is out of its bottle, and putting it back will undo the reforms of decades.  That may become the latest international economic fad, but it is not yet.

      Reply

    • Jordan Rastrick says:

      08:13am | 11/11/10

      And I’m sure this is going to be another thread of astute analysis of the financial sector and intelligent microeconomic reform suggestions.

      Or….. not.

      Seriously Penbo isn’t there anything else to write about?

      Reply

    • 4leaf says:

      08:16am | 11/11/10

      Wayne’s problem is he didn’t come out months ago and tell the fools who keep pretending governments can/should control free market banks that they are just that - fools.  He’s now bought into the idiotic notion that it is for an elected government to tell private enterprise how to set its prices in a market economy.  If you apply this reasoning to any other area of the economy, its stupidity is obvious.  Should the government step in to force Holden to make Commodores cheaper?  What about fruit and vegetables - should the Federal Treasurer be introducing legislation to prevent price hikes for capsicums?  Should our governments re-buy public transport companies because bus tickets are too expensive?  The media and this columnist are complicit in this absurdity.  Instead of penning a column about why it’s all Wayne’s fault David, how about writing a column reminding people they live in Australia, not Zimbabwe, the DPRK or Soviet Russia.

      Reply

    • Peetme says:

      11:36am | 11/11/10

      With the greatest of respect 4leaf, the government couldn’t step into these areas,that is, capsicums, Commodores and the like for two very simple reasons.

      The first is supply and demand, that is, capsicums, and the second is Commodores, that is, competition.

      The banks are in the position where neither of these conditions apply and so they don’t have to worry.

      It’s not very likely that Swanny would understand this anyway and so there is no fear that he would take any action even if he could, so you don’t have to worry

    • Fog Badger says:

      08:30am | 11/11/10

      @ MarK - They could also ask the UN to write a letter to the banks, telling them how cross they are too.

      Reply

    • Ross says:

      08:35am | 11/11/10

      Look at the big picture:
      - Why is the RBA raising rates? To curb spending and in turn try to keep inflation in its target range.
      By the banks passing on further rate rises, it improves the effectiveness of the initial RBA rise. This may lead to improved results or the same results just achieving them quicker.

      What difference does it make if the RBA raises rates and then the banks add some and achieve their goal, or if the RBA raises rates twice and the banks raise rates in line with the RBA to achieve their goal?

      Everything happens for a reason.

      Reply

    • Fiddlesticks says:

      09:03am | 11/11/10

      Ross is on the money.

      And the RBA does factor in the retail banking (eg housing mortage rate) effect.

      The current cash rate is just nudging up above the normal (neither easing nor squeezing) range. The rise of the $A also counts.

      We don’t all have home mortgages.  Many of those that do, don’t finance through a bank. And most sensible borrowers don’t over-extend themselves.

    • Dash says:

      12:23pm | 11/11/10

      Hmm Fiddlesticks, now you seem to agree that spending and inflation are problems that the RBA is trying to control. Last week you hounded me that they weren’t.

      Or was it just that you’re in denial that the governement can use fiscal and monetary policy to influence demand, inflation and therefore rates?

    • Fiddlesticks says:

      07:19am | 12/11/10

      Complete misrepresentation by Dash of this and earlier posts.

    • Ask a stupid question says:

      10:06am | 11/11/10

      What does “step in” mean ?

      Reply

    • Rick says:

      01:50pm | 11/11/10

      There is a massive disconnect going on in this country.  The mantra is that the government should never have debt, deficits are bad and we should constantly be in surplus.  On the other hand everybody is happily putting themselves massively in to personal debt of historic proportions. Whether it be through the credit card - ‘maxing out’ - to ensure we have the latest gadget or clothing that we could do without or excessive mortgages for the house with at least 4 bedrooms, at least 2 of which have to have ensuites, together with all the latest appliances plus a garage for 2 cars. 
      Cutting ones cloth to fit the material available wouldn’t go astray.
      In any case interest rates are a two edged sword.  Those who have saved for retirement look for a good return on their investments - investments it must be said that those ‘maxing out’ on their debt can’t wait to get their greedy, grubby little hands on as soon as they can - to have the lifestyle they want to relax and enjoy.  These retirees have paid much higher interest rates in earlier times.  It is high time the whingeing stopped and people purchased what they can afford - not what the ‘simply must have’.
      Surely if government should not have debt and deficits then individuals shouldn’t either.  if governments have to live within their means so should individuals.

      Reply

    • hot tub political machine says:

      02:37pm | 11/11/10

      Yeah, very simple. Time for the government to start offering home loans and reserve bank rates. Yes it unjust for the government to compete with banks…..but they deserve it.

      Reply

    • Holly says:

      03:44pm | 11/11/10

      I suppose this must mean Peter Costello became a serial “pushover” during the period of the previous Coalition government, when interest rates were in fact higher than they are now.  Come on aren’t we over all this hysteria yet.
      Stop shouting and whingeing and go into the bank people.  See what you can do.  My CBA mortgage rate is still below standard variable rate of 10 of the 20 mortgage providers ( including big banks, little banks and credit unions) listed in our local paper today - and that is after last week’s increase.  In the past I have always ignored term deposit rates advertised and gone and asked for discretionary rates - take the oppostion information with you.  Deals can be done.  They don’t like writing out cheques to other banks.  Believe me you don’t have to scream, or wear a suit or be rich.  Take some responsibility instead of criticising Wayne Swan.

      Reply

    • tell the truth says:

      06:52pm | 11/11/10

      Penbo - how about a balanced, unbiased journalistic piece from you about why a smallish section of the community are screaming out about historically very small interest rates rises.
      If the stats are true that only 30% of Australians are mortgaged, why is this presented as such a majority issue?

      Reply
 
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