Friday, September 26, 2008

Malcom Turnbull is Wayne Swan's pacemaker

At the start of this week I wrote:

The Opposition Leader Malcolm Turnbull has stepped up debate on the health of Australian banks suggesting that the Prime Minister follow the lead of the US President and use public funds to help them out.

Over the weekend President Bush unveiled the largest financial rescue in American history, asking to let the Treasury buy as much as $700 billion of bad mortgages from financial institutions in trouble.

In an Australian television interview Sunday Mr Turnbull called on Mr Rudd to consider doing the same thing.

“We know that it has been very, much harder for banks, particularly the second-tier banks and financial institutions, to re-finance mortgages,” he told the Nine Network.

“In the US, the government is taking a role, proposing to buy some of these securities, in effect to provide additional liquidity to take the pressure off mums and dads.”

“We've got the capacity to do that through the Office of Financial Management.

That's something I'd like to talk to the Prime Minister about to see if we can agree on some bipartisan measures.”

The Treasurer Wayne Swan immediately rejected the idea, labelling it “either a monumental gaffe or intentionally irresponsible”.

Now Swan's gone ahead and bloody done it!!!...

"AUSTRALIA'S Treasurer has said the Government will invest in residential mortgage-backed securities to boost competition.

Wayne Swan today said that the Australian Office of Financial Management, which manages the country's debt program, will invest in AAA-rated RMBS.

The AOFM will invest in 2 tranches of $2 billion each of RBMS, the Treasurer said, speaking after the Australian stock exchange had closed.

“The actions are about making a strong banking system even stronger and about making our banking system much more competitive,” Mr Swan said.

“Boosting competition is something the Government has been emphatic about.

“We need to have a competitive mortgage market so people under financial pressure can get a fair go.

“This is an important measure to introduce competition into the mortgage market over time.”

Joshua Williamson, TD Securities, writes:

News just to hand is that the AOFM will invest up to $4.0 billion in RMBS in two tranches. The funds for the investment will come from the 2007-08 Budget surplus, which has come in $2.9 billion higher than expected at the time of the Budget, totalling $19.7 billion. The initiative appears designed to shore up mid-tier banks and non-bank lenders and politically at least shroe up the Government against criticism that competition in the mortgage sector is diminishing as non-bank lenders find it harder to obtain funds in wholesale markets. Note that these devlopments do not require parliamentary approval but it would typically take around four weeks to get this deal up and running with two weeks for documentation alone.

TD Securities doubts whether the Government would be willing to put tax payers funds at risk if the Australian banking system was in as much risk as the US system. In this regard, it is not surprising that this initiative has come about after the RBA's positive financial stability review.