Tuesday, November 30, 2010

The RBA's RMBS anxiety

The RBA appears to be running interference against interests in favour of a Budget guarantee for securitisers.

From a speech today by deputy governor Guy Debelle:
In thinking about the AOFM support for the RMBS market, I believe the AOFM program has a number of advantages relative to alternative means of support: it can be easily tailored to help specific types of institutions; it can be phased out easily; the likelihood that the Government loses money on its investment is very small; and there is no ongoing contingent liability to the Government from providing the support. If instead a government guarantee of RMBS were provided, it would be difficult to phase out, creating a commitment that could generate a large contingent liability for the Government.

As well, the entire tenor of Debelle's speech was aimed at reassuring investors that Australian securitisation doesn't need extra support.

Last Friday we had Glenn Stevens tell us that:
In many areas it is probably the case that more competition is always better for consumers, but in banking more competition is good to apoint but beyond a point more competition is not good, because the bankers can be led to do things that ultimately cause a lot of subsequent damage. I think we have to understand that. That is not to say that the current amount of competition we see in any particular market is necessarily enough, but there is a point beyond which extreme competition in lending money leads to problems.

Whilst this blogger is far less sanguine about the stability of market-mediated credit than either of these statements, it is clear that the RBA is pretty uncomfortable with the idea that we return to the wild days of non-bank credit cowboys, especially, it would appear, wielding the badge of the sovereign.

That anxiety is well-founded and should be congratulated.


PeterJB said...

From my view on th ground in Perth, I am seeing a strong resistance to lending by the Banks and financial institutions, for any size and whatever context and, despite solid security offered, or held.

The NAB technical glitch doesn't make sense to me so I am curious as to what is really going on. No backup system, no redundancy servers, no independent archive - IOW, a computer glitch is not what has taken this system down for more than a few days and nights (Techs work 24/7 - it comes with the territory).

House sales appear to be getting rejected by the Banks despite initial agreements with borrowers.

Prices of goods and services are escalating significantly.

MSM appears very quite on all things socio-economic.


Anonymous said...

Is it just a coincidence that two of the top headlines on my Bloomberg terminal this morning are "Canada's third quarter economic growth slowed to a less-than-estimated 1%" and "Australia's economy likely entered 'soft patch' on higher rates, currency"?