Financial Armageddon!!

[donna]

Umm maybe that is why we don't leave our money in the bank....and attributes to our low savings mentality. No encouragement to leave $$ in the bank may be the answer.

Cheers,

Donna

[Green Fish]

I share Austrokiwi's concerns. What has happened over the past week is unprecedented, at least in my lifetime.

The problem is that the EU is not like the USA. In the USA, if the "package" is passed by Congress (ie, the Senate and the House of Representatives) then it's law.

Far more difficult on the other side of the Atlantic.

[67910241]

The scary thing is that

The title of this thread does not sound extremely unreasonable anymore.

[roseneath_rat]

If NZ banks fail, who are relatively insulated from the global credit woes, then I think you will have larger problems to consider Austro. The major NZ banks are AA credit rated or better (the big four, Rabobank, etc) which is an honour bestowed to only 23 banks in the world. In times of uncertainty there is a flight to quality. NZ banks are well governed, well regulated, well capitalised, and have good risk diversification.

There is no need to talk ourselves into a worse situation than we are already in. Runs on banks are really caused by loss of confidence, and deposit holders seeing the start of the run start to get worried & try to pull their money out, perpetuating the run. It becomes a self fulfilling prophesy.

The size of asset bubbles and credit issues in NZ are nowhere close to the points that are being suffered in the US. The sky is not falling, the sun will still come up tomorrow, and money will be made by the intrepid.

[Austrokiwi]

In the current environment the major issue that may be facing NZ Banks, is the credit crunch, interbank lending is in trauma and Many Nz Mortgages ( fixed rates) are financed from off shore. This is exactly the problem experienced in Iceland. The Icelandic GVT has acknowledged sovereign Bankruptcy is a real risk.

NZ hasn't been as extreme ( hopefully that keeps NZ away from Icelands fate) as Iceland. The two countries have often modelled each other. Banks in NZ may have difficulty refinancing fixed rate mortgages in which case the problem will be due to a combination of lacking of savings within NZ and expensive external, to NZ, funds. What was Lehman brothers credit rating?

[k1w1]

The voice of reason. Thank you, rat.

[67910241]

So why doesn't Iceland simply get reasonable and start printing kronor like they're going out of style?

Yes it will destroy the purchasing power, but recession there is probably inevitable anyway and it just might keep the country solvent (eh?)

[67910241]

So why doesn't Iceland simply get reasonable and start printing kronor like they're going out of style?

Yes it will destroy the purchasing power, but recession there is probably inevitable anyway and it just might keep the country solvent (eh?)

PHEW! They're already well on their way, nice hyperinflation brewin':

http://s.wsj.net/public/resources/images/NA-AS978_ICELAN_NS_20081005191256.gif

[drelly]

Making sense of what happened

I've found a couple of interesting videos. While it looks like Obama stands a good chance of getting in, it appears that the Democrats and himself are closely tied to the decisions that created this implosion in the first place. The first vid is pretty fast paced so you might need to pause it in places.
House Of Lies: How Congress Failed To Protect Our Economy
What just happened?
Ron Paul on the bail out

[tpr2]

I saw a debate while in Oz with Peter Costello where he used the argument that the banks were not 100% guaranteed because you needed to create a risk vs reward model (he said a whole lot more but in a nutshell this is what he was saying) and that if 100% deposits were guaranteed people would throw away all caution knowing that the banks deposits were guaranteed and opt for the very high return investments rather than the low return ones.

Not bad I thought at the time, now its seems there may be some holes in that argument as it would seem thats a good reason to guarantee the bank deposits but not other investments the banks may offer.

[Badger]

PHEW! They're already well on their way, nice hyperinflation brewin':

http://s.wsj.net/public/resources/im...1005191256.gif

Phew yeah that was lucky

Ssshhhh a rumour has NZ around the 12% - 18% mark for the past 7-8 years...

[tpr2]

your a bad boy badger lol

[roseneath_rat]

In the current environment the major issue that may be facing NZ Banks, is the credit crunch, interbank lending is in trauma and Many Nz Mortgages ( fixed rates) are financed from off shore. This is exactly the problem experienced in Iceland. The Icelandic GVT has acknowledged sovereign Bankruptcy is a real risk.

NZ hasn't been as extreme ( hopefully that keeps NZ away from Icelands fate) as Iceland. The two countries have often modelled each other. Banks in NZ may have difficulty refinancing fixed rate mortgages in which case the problem will be due to a combination of lacking of savings within NZ and expensive external, to NZ, funds. What was Lehman brothers credit rating?

Interbank lending internationally is certainly a concern, but less so for NZ banks than many others. The liquidity premiums being charged across the globe 6 short months ago ranged from 1-3% over the wholesale swap rates. IE- banks were charging each other a significant premium to borrow funds because of the fear of shrinking liquidity. NZ banks were at the low end of this spectrum, because of their higher credit ratings, lower direct exposure to the sub-prime lending implosion, and low exposure to the indirect effects of the sub prime financing (eg- CDOs).

I'm sure since then that liquidity premiums have increased significantly, but again I believe that NZ banks will be better off than most internationally. Around 25-35% of our banks financing comes from offshore funds, because this has traditionally been cheaper than domestic funds. This has become a doubly more expensive source of funds because of the obvious international liquidity pressures but also because the IRD closed a major tax loophole that NZ banks were using to reduce their taxation expense. The IRD helpfully backdated the closing of the loophole (yes they can do this for individuals & businesses too) which resulted in hefty additional tax bills.

The end effect is higher demand for local funds, and thus higher domestic interest rates. Bollard has been attempting to reduce the OCR to balance this & keep net interest costs to borrowers low.

I agree with much of Costello's argument (thanks Terry) that government guarantees has encouraged a moral hazard and lax lending standards in the US, and to implement that in NZ would create a short term boost in confidence but a long term deterioration in the standard of credit & banking in NZ. We don't need more shonky loans and artificial price bubbles thank you.

Oh and you're right, my limited research on the economy in Iceland doesn't look that good. Especially the 12% inflation figure & high government debt. NZ Government is not at risk of going bankrupt, and still maintains a AA+ credit rating.

[Austrokiwi]

I am moving my deposits out of NZ. The situation world wide doesn't look that good, and I believe if I have the choice between cash deposits with deposit insurance and cash deposits with out insurance, the insurance seems a much safer bet to me.

The reason the reserve bank recommended to the NZ gvt that NZ shouldn't have deposit insurance was so that depositors would take the responsibility to check the capital adequacy of the banks they were depositing with............Now isn't the govt looking at tighter finance company rules........ clearly depositors ( and financial advisors) with finance companies didn't pay to much attention to the credit risk of the finance companies they trusted there funds to so I think it extremely unlikely that NZ Bank depositors keep an eye on their banks financial status!

By the way I checked Wespacs credit rating seems to be for the whole world wide group I couldn't find an NZ only rating.

[Badger]

Goldman Sacks is winding up its short position in gold and going long...


Going off the ticker boards and charts, looks like alot of carry trade and margin unwinding at the moment lot of players looking for there cash!