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Commonwealth Bank profit makes the case for nationalisation

$5.66 billion. That’s the obscene profit the Commonwealth Bank made last financial year.

Remember back to December 2009?  The Reserve Bank of Australia raised interest rates 0.25 percent. The Commonwealth Bank raised its rates 0.37 percent.

Remember back to the start of the global financial crisis?  In October 2008 the Rudd Labor Government guaranteed bank deposits and bank borrowing. While it later refined these guarantees, propping up the banks was an important aprt of the Government’s response to the GFC.

The Commonwealth’s $5.66 billion profit during a period of intense financial destabilisation is on the back of its net interest margin gouging and government support.

Bank net interest margins are the difference between what banks earn in interest from borrowers and what they pay in interest to lenders. They increased during the GFC. So while borrowing costs did rise the Commonwealth and other Australian banks increased their lending rates to us by more than their increased borrowing costs. They gouged us, and continue to gouge us.

In part this is to cover their bad debts, bad debts they created. Thus for example the Commonwealth Bank took over Bankwest in 2008. About ten percent of Bankwest’s $60 billion loans are ‘troublesome’. Gouging us helps pay for bank management incompetence.  These are the same bank managers who are being paid millions for their ‘performance’.

During the GFC Australian banks didn’t pass on all of the rate decreases to mortgagors. Only some of it. The RBA cut rates by 4.25 percent during the financial crisis. They passed on about 3.8 percent over that time.

The banks used the GFC as an excuse to increase the margins at the time their borrowing costs were increasing. They were increasing because banks didn’t trust each other. They feared other banks might collapse. 

It isn’t just customers the banks gouge. It’s their workers too. The Commonwealth bank for example froze salaries of those employees earning more than $100,000 and offered staff on wages below that a 1.5 percent increase. This was in effect a wage cut offer over 2 percent because core inflation was then running at 4 percent. The ultimate increase was slightly more than 1.5 percent but still a real wage cut.

This sort of attack on employees worsens the gender pay gap since the majority of lower paid bank staff are women.

Banks also charge us for using someone else’s ATM.  They impose fees when we blink, snore or fart.  (I pay lots of fees!) Despite five rate cuts during the GCF credit card rates did not move down.

During the GFC banks also increased rates to some business at the same time the RBA was cutting rates.

So come the ‘recovery’ what they did do? As rates rose they increased rates more, including on business. 

All of this gouging during the GFC and after means a profit for the Commonwealth Bank of $5.66 billion.

It’s time to squash these bloodsuckers. A tax on their super profits both relative and absolute would be a good first start.

Maybe we should think about setting up ‘a people’s bank’.  No, forget that.  It didn’t work from 1912 to 1990, did it?

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 create.

Why not nationalise the banks and use their profits for socially useful spending?  The case for nationalisation? Ken Henry put it this way in relation to mining companies.

Public production allows the government to control exploration and production expenditure, but may lower the return to the community if public enterprise is less efficient at resource exploration and production due to a lack of expertise and market discipline.

Substitute banking for resources and the point remains the same.  In fact given the failure of the banking sector during the GFC the onus should be on banks to show that public ownership wouldn’t be more efficient. 

To paraphrase Henry, public ownership allows the government to control finance, and will increase the return to the community if the public enterprise is under bank workers’ control.

$5.66 billion could increase the Commonwealth Bank staff salaries by a minimum 50 percent and still leave enough over for a denticare scheme.

Add in the profits from the other Big 4 banks and a real resource rent tax and we have a good basis for addressing climate change, closing the gender pay gap, ending aboriginal disadvantage, building public housing to end homelessness, fixing public transport, ending the hospital queues, improving education outcomes and paying better wages to the workers in those industries, for example.

None of this will happen because this is a society that puts profit before people. It’s time to turn society on its head and put people before profits.

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Comments

Pingback from Interest Rates » En Passant » Commonwealth Bank profit makes the case for …
Time August 11, 2010 at 11:20 pm

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

Comment from Dave Stalker
Time August 12, 2010 at 10:06 am

Are you surprised beside who runs this country
Government or banks, i will put my money on banks, regulate, regulate.

Comment from George
Time August 12, 2010 at 1:55 pm

John,

I am a small CBA and ANZ bank shareholder and am wondering what price you would give me if you were in charge and decided to nationalise the banks? Would you give me the market rate at the time?

Thanks

George

Comment from John
Time August 12, 2010 at 5:06 pm

George, placitum 51(xxxix) of the Constitution says the Commonwealth has the power to make laws with respect to “the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws.”
So any nationalisation (assuming it is within power of trhe Commonwealth) in the present context would have to make sure it was done on just terms for you.

Comment from Arjay
Time August 12, 2010 at 5:26 pm

Well Keating should never have sold off the Commonwealth Bank.It was generating $ billions via the fractional reserve system whereby banks generate new currency via loans.

The RBA in 08/09 paid the Aust Govt $ 5.9 billion as a dividend.Each year new money is added to our economy to equal our GDP or productivity and inflationary money.Together inflation + GDP averages at about 6.5%.Our GDP according to the RBA is $1.2 trillion.So $78 billion in new money is added to our economy but the tax payer only gets $ 5.9 billion. Who created the other $72 billion? Well our banking system does.It is allowed to create 9 times the amount of money it has in deposits and loan it out as debt.So most of our new money is debt.

Remember this,money only represents human productivity.This new money in reality does not belong to the banks since it represents our productivity and inflation which dilutes the value of our currency.The RBA in reality can legitimately create $78 billion pa and loan it out to our private banks and make a profit not only on the generation of capital but also on the interest.

Even our banks fractional reserve system is not enough for them to generate the new money so they borrow from the global reserve banks.This is why we are in so much debt.

Another reason for debt is that our Govts produce very little paper money.We all now use credit cards so the likes of Visa and Master Card create this once printed cash money as debt.So here agains we see the role of Govt being taken over by Corporate interests.

It is a monumental con and we need to take the RBA to task.Guess who is on the board of tge RBA? Mostly large corporate interests who are able to alter the money supply to suit their agendas.

Now you will begin to realise why your living standards are falling.

Comment from George
Time August 13, 2010 at 11:13 am

Hi John,

Thank you for your comment. As I’m not a lawyer I was unware of the law that you mentioned. You have said that it depends on whether nationalising the banks is within the power of the Commonwealth to enact such laws, so do you know whether is it within it’s powers to do so?

It does make me wonder though: The banks currently have a market capitalisation of more than 100 billion dollars, which I think we all would agree is a huge amount of money which could be spend on roads and hospitals and other things like that. I could understand the drive to buy the banks back if the plan was to use their profits to pay for other things in our society (like roads and hospitals etc), however my reading of your article suggests that you’d want to stop them making profits at all, or at least significantly reduce them. If that’s the case then wouldn’t we all end up paying more tax to pay for the governments purchase? If not, how would the government fund its purchase?

Thanks again

George

Comment from John
Time August 13, 2010 at 7:46 pm

Hi George. Sure you’re not a cross-examining barrister in your spare time? Insightful questions.

Nationalising wouldn’t be about attacking mum and dad investors. It would be about taking over the banks to run them for the benefit of society, not to make a profit. That means you would not be disadvantaged as a small shareholder but big shareholders would.

Nationalisation is not going to happen in the present political and economic situation.

To my mind it is only really going to occur when workers as a class set up their own democratic organisations of rule and take over the commanding heights of the economy. Then the workers involved and their institutions would run finance, the mines, the big factories and so on and you would reap the rewards as would all of society as production moves away from being for profit to satisfying human need.

Comment from John
Time August 14, 2010 at 9:17 pm

George, you’ve got me thinking about what the Chifley Government did for just terms. I’ll have a look. The High Court held his Bills unconstitutional, but decisions since then, especially on the corporations power, might see a different decision today.

Nationalising the banks or even just the Commonwealth bank is not aimed at cheating mum and dad investors. It’s aimed at bringing one of the big players in the economy under community control.
And then using the profit for social purposes not individual profit.

A left wing government with guts would find a range of ways to bring the banks under Government control, including the taxation power.

One simple suggestion would be to increase the tax on banks to claw back any extra money they got from gouging RBA interest rates.

Comment from Adrian aryan
Time August 18, 2010 at 1:17 pm

The CBA was formerly government owned and apparently performed pretty well, I wonder if it was worth what they got for selling a goose that laid golden eggs.