Category Archives: Banks

Money, money, money…

LET’S assume a man has an income of $2000 per month. Let’s further assume that his income dropped by 50 per cent – he now has to manage on $1000 each month.

What would he do? Well, the logical assumption is that he would cut down on his expenses and manage.

Only a fool would suggest that he keep spending at the level he was when his income was $2000, and pay for it by borrowing.

This would bury him in a mountain of debt and after a while all his income would go on just the interest payments.

Surprisingly, when a country experiences financial problems, what so-called economics experts advise is that they continue to spend. Hell, they are even advised to increase their spending, and borrow to fund it.

There is never any talk of saving, reducing costs, and cutting one’s coat according to the cloth available.

Greece, for example, borrowed for a long time and, because its interest rates were low, people were able to take loans on very good terms, loans that they did not bother to repay. It was easy to keep up with the interest payments.

But Greece is not an island; it is part of the European Union and when interest rates went up, the debt burden became unbearable. It had to go, begging bowl in hand, to the EU and ask for help.

An austerity programme was prescribed but Greeks are not happy. They do not want cuts in many programmes that provide money to the people.

The IMF and the World Bank would prefer if Greece continued to borrow and spend. That’s the only thing these institutions know – spend your way out of trouble.

The US is the prime example of the fact that this does not work – with a national debt of some $US16 trillion that is growing by the minute, it would also be bankrupt if there was someone to force it to declare the facts.

Unlike Greece, which was pushed into a rescue plan by its EU partners, the US can decide its own economic policy. It has decided to keep interest rates close to zero and pump money into the economy by printing more and more.

When interest rates rise – they have to, if the US is serious about an economic recovery – then the inevitable crash will come and it will be ten times worse than what happened in 2008.

Understanding the GFC

IT hit the world in September 2008 but the effects of the financial crisis, that was precipitated by the failure of Lehman Brothers, continue to haunt the world to this day. Apart from a minority of countries that are not closely connected to the global economy – some African countries, for example, the rest of the world took the hit when American financial crooks played fast and loose with other people’s money.

The film Inside Job is an excellent and detailed account of the crisis; it is made so much better by the fact that Matt Damon is the narrator.

Charles Ferguson’s film is a must watch for anyone who is interested in world events and wants to know how greed can spoil the party for everyone – except those who are at the grabbing end, people like those at Goldman Sachs. The film traces the genesis of the problem as it grew, examines the reasons why and talks to people around the globe to provide a broader perspective.

It is well-researched, authentic and gripping even though the main events took place more than two years ago. The film does not attempt to over-dramatise – it does not have to, the events it details are sobering enough in themselves. But hyping up things is a common failing of filmmakers and TV channels and by avoiding this altogether, the filmmaker emerges with a product that provides a more compelling viewing experience.

Telling the truth about the US of A is a difficult job; the country has done a magnificent job of selling itself as the greatest on the earth. Yet what we see in this film is a nation that is corrupt to its very soul, one where money is the only thing and everything, one where seemingly educated men behave like criminals, one where tenured professors turn into professional thieves with not a shred of integrity.

The magnitude of theft that took place to cause the crisis is amazing. Yet nobody went to jail; they were all bailed out and those in favour, like the Goldman Sachs bosses, continue to grow richer. At one level the film leaves one feeling sick inside; at another level, one is left with a profound feeling of respect for the filmmaker, the researchers and the narrator for making the tale one that is easy to comprehend, one that does not trivialise or sensationalise, one that seeks to educate above everything else.

And putting Damon behind the mike adds to the film in no small way – he is one of the few Hollywood stars who has integrity and puts his money where his principles lie. Inside Job is well worth the price of the ticket.

Banks: people love to hate them

THERE are four big banks in Australia – Commonwealth, Westpac, National Australia and ANZ – which bitch right through the year about the rising costs of operating and then report stunning profits. It is the same year after year, no matter if there is a global meltdown or not.

The banks put it down to skillful management. I put it down to gouging.

Given the manner in which these banks rort customers by imposing fees for anything and everything, they are understandably not the most popular businesses in town. But I often wonder why the people do not react by taking their business elsewhere.

It is not as though these four banks are the only ones in town. There are plenty of other, smaller players who offer better terms and conditions, charge half as much or even less, and do not treat their customers as cash cows. One has to exercise one’s choice and switch banks.

This is easier said than done. When one has regular payments being debited to one’s bank account, it is difficult to pick the right time to switch. A single payment cannot be missed and the more such direct debits one has, the more difficult moving from one bank to another becomes.

My personal experience is that it is possible to move, once the move is carefully planned. All one needs is a good reason to move – minor irritants are often not enough to motivate one to take the trouble to organise a move.

The first time I moved, it was from the ANZ to Westpac. I opened an account with ANZ as soon as I landed in Australia simply because it was the one name with which I was familiar. ANZ used to operate in India, Sri Lanka and the United Arab Emirates under the name Grindlays.

I stayed with them less than a year. The day I opened my account, I was asked for my tax file number. I didn’t have one at the time. Later when I obtained one, I did not bother to give it to the bank. The bank did not ask me for it either.

But one day I found that 92 dollars had been deducted from my account; on calling the bank I was told that it was because I had not given them by tax file number. On asking why they had not requested it, I was told ” it is not our role to remind you of government policy.”

That was enough for me. Two days later I closed the account and took my business to Westpac – once again convenience played a role, it was the one bank closes to my home. I overlooked the fact that I paying 20 dollars or a little more every month as fees and charges as the bank had combined my savings and cheque accounts in one. This was the advice they gave me – it was geared towards making money for them, not saving me from paying these charges every month. I even overlooked the fact that on one occasion when I went to make a withdrawal dressed in track pants, the bank asked me for identification; I had gone there in a suit the previous day and not been asked to identify myself.

The years went by and the number of direct debits grew. But again there was a seminal event which jolted me out of my complacency. In the year 2000, I asked the bank for a car loan and it was sanctioned over the phone. I was asked to come and pick up a cheque for the amount on a designated day in the year 2000. The amount was small, just $13,000. The interest rate was around nine percent.

When I went to the bank, they gave me some papers to sign and I noticed that the interest rate was considerably more; I then noticed that the money was being advanced as a personal loan. When I inquired why, I was told that one had to borrow a minimum of $20,000 for a car loan; lesser amounts were issued as personal loans. This was not what i had been told when I negotiated the loan on the phone. I had not asked the phone banking person for her name; when I was asked who had sanctioned the loan, I had no reply.

Given that I had committed to pick up the car that day, I had no choice but to take the loan on the terms that Westpac tricked me into accepting.

That ripoff was what made me move to a smaller bank. I paid off the loan, cursing Westpac every time I had to go to the bank. I planned the move carefully so that no direct debits would be missed and took my business to Bendigo Bank. The process was painful but I was determined to move. I got the right advice about accounts – keep a cheque account and a savings account separate.

Since then, rarely have I paid the bank any charges. The online service works well and the bank serves my needs. But I’m in this position because I was prepared to make the effort to move.