Sunday, November 7, 2010

Let's just be clear, it's not that I love the banks......

The first Tuesday in November has been famous in Australia for 150 years as the date the Melbourne Cup, that Race That Stops A Nation is run, and in recent years it's been just as in the news in Australia because First Tuesdays are when the Reserve Bank of Australia releases it's monthly pronouncement on official interest rates.

Then, as happened last Tuesday, the Big Four major banks respond publicly, typically changing or not changing their lending rates accordingly.  It's become a weird ritual.

Last Tuesday the Commonwealth Bank did something that sparked no small measure of piss and vinegar in our reportage by raising their rates well beyond the increase made by the RBA - 0.4%, as compared to 0.25%.  And yea, there was much wailing and gnashing of teeth across the land, and mortgagees were seen to lament and rend their credit card statements.  The whingefest commenced and the cries of the people for the government to "DO SOMETHING!" resounded from every second soundbite over the airwaves.

It's a business, people.  The banks are not here for you, unless you are a shareholder.  It looks to me like a sensational triumph of branding.

Where I grew up on the lovely Northern Beaches area of Sydney, there was (and probably still is) a real beach culture.  We kids were at the beach every chance we got, and being able to surf was nearly as compulsory (for a boy) as being able to swim was for everyone.  we were really used to the shark alarm going off, and having to all get out of the water until the Surf Lifesavers could confirm that Jaws was no longer lurking about.  Shark attacks happened just as regularly as they do now, but these days the consensus attitude has changed.

Back then, when a large shark attacked someone in the area, or any other popular swimming areas about the coast, there was a hue and cry and a hunting party was raised to rid ourselves of the brute.  The voices against this knee-jerk ridiculousness were there, but small, and drowned out by those who preferred to see us as masters of our domain, who sought perhaps some vengeance and balm for their fearful souls.  Over time though, we know this has completely turned around.

Now when someone is taken, we keep a better eye out for a while, but what we mainly hear in response are things like how the person involved always respected that this is the shark's home, and we are the visitors.  That sharks are carnivorous hunters, and that we might just be tasty.  That this is the natural order and we are rightly humbled in our place in it.  This is a good thing, that we have come to respect the shark's right to behave like a shark and do what we can to protect ourselves - we've grown out of our childish anger and punitive tantrum-throwing destructiveness.

Why is it then that we expect a business, whose reason for existing is by definition to make profits for its stakeholders - in the banks' cases their shareholders - to behave in any other fashion than that which it is designed or born to do?

It's 'reporting season' now too, and yep, the Big Four are all showing us their record profits.  They are also telling us that they have done a poor job getting their customers to understand that their 'cost of funding' has risen due to other factors.  We dummies out here just see more bank profit + higher interest rates = cause and effect.

OK, sure, there are all sorts of ameliorating arguments; for example it's an unfortunately perpetuated myth that the RBA cash rate is the main determinant of the banks' lending rates.  It's a major factor of course, and the banks' habit of using the RBA rate rises as cover for raising their own rates has not helped the public decouple a cause-and-effect theme in their minds.  Lots of thing affect a bank's ability to make a profit.  they are very complex businesses.  Well, it's true that most of us shall never understand fully the labyrinthine machinations of the globalised finance sector and precisely how it impacts our home loans but it doesn't have to be that hard.  They make more money, and we are paying more.  Looks simple enough from out here, yes?

Yet here in the modern commercial world we have chosen to accept a bizarre situation - that corporations are somehow a part of society; that they are essentially citizens like us with social responsibilities.  The banks do a super job of telling us in their marketing that this is *exactly* who they are, because the choices we make (or at least, the choices many of us make, to date) about who we do our banking business with - who we trust with that most crucial element of our self-value, our money - are not based solely or even mainly on hard-headed maths or pecuniary self-interest, but on *feel*.  We want our financial affairs to feel, above all, safe.

Banks are NOT people.  The profit motive will only be subservient to other social motivations insofar as it can be seen to support profit.  It's a circle.  Money spent on environmental programs, charity, all that - recouped in the power of their image and the continued success of their branding - their branding that makes us think that they do in fact support us.  Banks support business, of course they do - like bison support the great plains.  They must have a rich environment in which to feed, yes?

So there's a mighty disconnect here.  The larger and more successful a bank is the more likely we are to see it as a worthy entity to do our business with, but of course they got there by making more profits than their competition.  And apparently we don't like that.  Because we think they've done it by taking money from us.

And oddly, there are so many better options than the big players out there for home lending (just as an example) yet very few take up these different opportunities.  Doing so is not only the best, it is perhaps the *only* way to change the ways the banks operate in their treatment of customers.  We all know that in the Australian environment that the small-pond syndrome of having only four major players leads to price collusion (go ahead, sue me) as surely as we know we're being ripped off mercilessly by encouraging the situation where 75% of our grocery market is owned by just two players.

Democracy has been just a little bit crippled here, but we've let it happen.  We've bought the fallacies we're sold ($10 Coles meal anyone?) and dimly lie down to let them have their way.  We can't see a way to smash the status quo so we have our whinge, blame the government if at all possible, and bend over for some more.

What if, instead, we just used the system as it is?  Bank with an institution that behaved a little better, or at least gave us a better deal?  Grew a few more veges rather than buying lemons imported from the USA?  Used the local shop - paid a little more for the local milk from the corner store to support local jobs and the industry outside of the monopolistic players?  And on the larger scale, engaged with politics is a way that made our concerns about the government's useful roles in changing all this actually heard by both those who represent us, and by our wider community?

If we pressure the system to make it more competitive - to act 'rationally' as the free marketeers say we apparently do - and the institutions thus drive their rates down to win or win back our borrowing business, then that is where we are successfully engaged in the ecosystem of finance, as symbionts.  Right now most of us are just behaving like prey or worse; like a domesticated herd.

No use railing against the banks, really.  They're just doing what they're designed to do, and they're doing it very, very well.  Let's look more closely at this cause and effect stuff before we waste all that energy we could use for useful change on railing against something that is how we made it in the first place.  Let's not be those folks who buy a house at the end of the airport runway and then complain about the noise.

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