Archive for May 3, 2012


Ariely: So the first thing I want to ask you is: How do you pick your topics?

Gladwell: I don’t really know — I mean, desperation? … I see things and I collect them, and I think they might be interesting. But there’s no theory or system. I go to the library sometimes, and I just sort of roam around; or I go on the databases and I just type in things at random, or I get articles and read through the bibliography…. But there’s no rhyme or reason. Someone will say something to me interesting, and I’ll follow up on it or something. To be a writer I think you’re kind of constitutionally disposed toward optimism…

This fascinating conversation between Duke University behavioral economist Dan Ariely and New Yorker writer Malcolm Gladwellcontinues at the Journalism Resource organisation

Australian banks have once again failed to reduce their rates in line with the rate reduction by the Federal Reserve Bank. They are now hitting the media blaming the government and making excuses for their profit gouging. Meanwhile the gap between the rate the banks charge us to borrow and what they pay for money continues to grow and has become a permanent feature of Australian banking.

The issue is, is this fair and if not, what can we or the Government do about it?

The big banks claim that due to the Global Financial Crisis, a shortage of money to borrow has pushed up the prices they pay for their borrowings. If this is correct it is indeed a problem largely of the Banking industries making. The GFC  was bought about by huge investment in sub-prime mortgages, the highly unethical bundling of sub-prime debts and shonky derivative trading by large banks and traders, mainly to pass off their bad debts to others.

In Australia any possibility of the failure of our major banks was averted by swift action from the Rudd Government which included the backing of the major banks solvency with a government guarantee. Because the Australian Government had a Triple A credit rating this enabled the banks to access funds more easily and at a cheaper rate than most overseas banks.It also gave the big four banks an advantage over smaller banks and credit unions.

Despite this advantage the building societies and credit unions have still been able to provide cheaper mortgage rates than the big four. Clearly this would indicate that the banks are pushing for greater profits and/or are less efficient than the credit unions. No doubt there is a great disparity in the salary packages as well.

The  banks have already forgotten their role in the GFC and that excessive greed was their motivation. So what can be done to bring the Big Four into line? The reserve bank and its interest rate setting is independent of government. It is also unlikely that the reserve bank could give cheaper rates to credit unions and building societies due to it being anti-competitive. (Although the current system gives a financial advantage to the Big Four)

But there is an answer. The federal government is not obliged to provide a solvency guarantee to the Big Four. They could refuse to give the guarantee to banks that refuse to reasonably follow the lead of the Reserve Bank with interest reductions. The guarantee could be reinstated if they provide the Reserve with documentation showing reasonable cause for maintaining high interest rate charges to its customers. Perhaps the government guarantee should be given to approved building societies and credit unions to give them the same advantages as the big banks and this would create competitive pressure for rate reductions.

Finally you can help bring change by moving your business to cheaper institutions and banks.

The InterpretOr has found this site to check out the best rates. http://www.canstar.com.au/interest-rate-comparison/compare-home-loan-rates.html

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