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John Passant

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October 2009



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Me interviewed by Sharon Firebrace on Razor Sharp on Tuesday 18 February. (0)

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Banks and interest rates

Remember when the Reserve Bank here in Australia was cutting official interest rates?  The Bank cut deep to help stave off the impact of the Global Financial Crisis on Australia.

Australia’s banks claimed at the time that they couldn’t pass on all of the rate cuts because their cost of borrowing had gone up. 

The RBA cut rates by 4.25 percent during the financial crisis. The banks passed on about 3.8 percent over that time.

They argued that the global financial crisis had increased the cost of borrowing and so they couldn’t give borrowers the full benefit of interest rate cuts.

Indeed for business borrowers they increased some rates. 

It is true that borrowing costs went up.  Banks around the world were petrified to lend to one another for fear that some of them would collapse overnight.

But the banks used this as an excuse to gouge more money out of borrowers.

They have used the global financial crisis to increase their share of the wealth we create.

Banks have what is called a net interest margin.

This is the difference between what they earn in interest from borrowers and what they pay in interest to lenders. 

To understand what this is about let’s have a look at two banks who reported their profits this week.

National Australia Bank’s net profit dropped markedly because of bad loans and a one off item of over $500 million in a court rejected tax arrangement. 

If we exclude these, NAB’s cash profit only went down a little under 2 percent.  

The bank increased its net interest margin. In other words it slugged other businesses  by actually increasing business rates and hit  home owners by not passing on all of the RBA cuts. 

The story is even better for ANZ shareholders. Its cash earnings increased 12 percent. Again bad debts dragged down its net profit. 

Both ANZ and NAB increased their net interest margin to help recoup some of their bad debts and tax losses from other businesses and home owners.  That margin is now at its highest since September 2002.

We pay for their bad loans and in the case of NAB their tax scheme debacle.

Finance capital is not productive. It creates no new value.

But it is an important lubricant for productive capital.

It depends for its existence on the creation of surplus value by workers in the productive sector, and then battles, along with the capitalists in the productive sector, the state and the like for a share of that surplus.

State support and a quasi monopoly of the big 4 banks put the banks in a strong position to grab an extra share of surplus.

So while the banks are particularly hated (since they impact directly on most working people) their gouging merely reflects the feeding frenzy of all the bourgeoisie on the profit we have created.

Every other boss is a ruthless as the banks in their pursuit of profit.

Rather than singling out banks and indulging in soul destroying hate, we should realise that every boss needs us to make profits.  We don’t need them.  

We can begin a fight back against higher interest rates and prices by striking for more wages and so winning back a little of the profit we make for bosses.

That way we can pay the banks and all the other capitalist bloodsuckers back with interest.



Pingback from Interest Rates » En Passant » Banks and interest rates
Time October 29, 2009 at 11:32 pm

[…] Read the rest of this great post here […]

Comment from Marco
Time November 3, 2009 at 5:58 pm


As it appears my comments are no longer welcomed at the National Times blogs (SMH online), I was wondering if I could send this one here, until I start my own blog.

It goes without saying that you are not obliged to post it, if you consider it in any way objectionable, provocative or otherwise reprehensible.

I was replying to Tim Colebatch (Numbers just don’t add up, 03/11/2009):

“Congrats all and Tim, good posts.

The RBA is increasing interest rates, although it discourages employment, while the rationale for doing so is unclear. From the minutes of the Meeting of the Board (06/10/09), available at the RBA website: (…) “The forecast trough in inflation was not as low as previously expected, and by 2011 inflation could be rising again”.

That is, the RBA has been lifting interest rates, with growing unemployment, on the expectation that inflation might rise in over a year’s time!

That would seem a remarkable forecasting feat; unfortunately, the RBA’s record doesn’t seem exceptionally convincing.

Digging a bit on the news archive: on the 08/08/07 (4 months after the US-Fed bailout of Bear Stearns and Merrill Lynch), the RBA increased interest rates (merely a month before the Fannie Mae/Freddie Mac intervention; a month and a week before the Lehman Brothers collapse).

While the effects of the housing bubble and the credit contraction spread worldwide, the RBA again lifted interest rates (to 6.75%, 07/11/07).

Furthermore, after signs of slowing global economic conditions, by 17/12 the best the RBA managed was to maintain interest rates unchanged, with two increases following in the first half of 2008 (05/02 and 04/03). The interest rates remained at 7.25% for five months, until 02/09 (nearly a year after the Lehman Brothers collapse), when the RBA finally started lowering interest rates, for which it must be rightly praised.

That performance, in my opinion, is not just dubious in itself, the RBA recent decisions fuel expectations that the stimulus must be cut short, giving ground to the Opposition’s claim that “all debt is bad”, while the Government, to show they are “fiscal conservatives”, finds it politically convenient to back down.

All the while, the unemployed/partially-employed are left to fend for themselves”.

As I was already accused by other posters of being a “commie fellow traveler”, I signed MarcoTheCommie, from the People’s Republic of Sydney.

Thanks in advance,


Comment from Marco
Time November 11, 2009 at 8:19 pm


Thanks for hosting my message. I set up my own blog and, if possible, I would like to post this message there.

It goes without saying, you are most welcome to visit it.

It is at “aussiemagpie DOT blogspot DOT com”.

I am not yet too familiar with this business of blogging, but I would like to link my blog to yours. You are free to do the same, if that is your wish.

Thanks again,


Comment from Marco
Time November 15, 2009 at 7:43 pm

John and readers,

After re-checking the dates in my first comment in this thread, I’ve found several mistakes that invalidate my point.

I sincerely apologize for this embarrasing situation.

John, feel free to remove it. And, once more, my apologies to you.


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