The Chaser Report - The Entire Global Banking System in 15 Minutes

Episode Date: March 28, 2023

Charles does the impossible by making the history of the entire global banking system actually entertaining. Hosted on Acast. See acast.com/privacy for more information.

The Chaser Report is recorded on Gadigal Land. Striving for mediocrity in a world of excellence, this is The Chaser Report. Hello and welcome to The Chaser Report. I am Charles Firth. I am still Dom Knight. And we're going to get straight into it because today is an amazing episode where I am going to attempt in 15 minutes to explain the entire global banking system. At last, that last summer. You know one of these people who thinks that like a particular ethnic, group or aliens, reptilians

are behind it all, are you? Because that's going to take less than 15 minutes and be very, very racist. No, no, no. All the banks are collapsing at the moment. So I want to just explain a little bit about why that's happening. Can we do an ad first? Here it is. There you go. But the thing is that it's sort of

like grist for the mill for a comedy podcast, right? Like, you know. The number of emails we get at podcast at chase.com. That are you demanding an episode on the global banking system? We like your jokes. What about banking systems. Yeah, that's right.

Yeah. So it all started about two years ago, right? So what happened was the government, I don't know whether you remember there was a pandemic. Do you remember that? Can I just make an aside here that this topic came up because I asked Charles about two minutes ago. Can you explain that whole thing with Deutsche Bank? He hasn't done any prep. I cannot wait to see how this goes.

Do not submit this as a reference for your economics degree, okay? Charles, yes, I remember the pandemic. So this is why I'm patting for time because I'm trying to remember what I remember. So the thing is, so the pandemic meant that all the governments around the world panicked and they just started giving away free money. Yes, that's right. Right. Yeah. I was very nice of them.

Yes. And not so much to people. No, no, no. Corporations. But yeah, to banks, right, basically. And they had this thing called the repo rate, which actually dropped below zero for a little while, which basically means that you can, you can literally, as a. bank, borrow money, and then you'd have to pay back less money than you'd borrowed.

There was a negative interest trade. What an amazing, oh, that's right. What an amazing deal? Because I mean, just thinking of us as potential homeowners, would it be brilliant to borrow, I don't know, a million dollars and then have to only pay back 900? Not even interest rates, less than the amount you actually borrowed. Yeah, and like over the course of time, every, you'd be given a little bit of extra money every time. Just for the privilege of having bought something. Yeah, yeah. Anyway, so that was

all good. And then, and as you might recall, in Australia, Philip Lowe, the genius of ingenious of the Reserve Bank of Australia, he said, oh, look, and I can't see any way in which we'll possibly raise interest rates well into the future, 24, 25, you know, that sort of time is going to be when we start raising interest rates right. No, that was a classic. moment. To remind me what the Reserve Bank Governor does and the board do, don't they only have one lever? His job is to correctly predict interest rates.

That's the one thing that they do. I read entire articles on this, that the Reserve Bank needs more tools in its arsenal to manage monetary policy, but it only has one interest rates. And it's not very good at using that tool. So by constraining his future options for years ahead, he

basically fucked up his job three years in advance. Let's give him a whole lot of other tools so he can misuse. That's a great idea. Like, no, take that one away. Anyway, so. He gets 900 grand a year, by the way.

So, and yes. For being a tool. Is that what I said? If you're wondering whether, you know, why he's doing 10 interest rate rises in a row, it might be because if you live on $900,000 a year, you don't necessarily think about where your next mortgage payment is going to go. Also, they get discounted mortgage rates, you know, when you work with the reserve bank. You're fucking kidding.

I'm not kidding you. Okay. I'm going to murder. someone. Well, the argument was, let's cut this bit out, but no. He's not, so Philip Lowe, no, don't cut this out. This is staying in. No, no, the theory is that they could earn more in the private sector. So it's one of the benefits that they get, supposedly, is, is access to discount mortgages. It's been in the news that Philip Lowe gets a discount interest rate.

Point is, inflation is out of control. And the reason why inflation is out of control is not because of the normal reason. Like, normally when inflation runs out of control. It's because workers all band together and go, we want a pay rise and the employers have to give them a pay rise. Does that ever happen anymore? Well, it happened once in the 1970s. Okay, okay.

And thereafter, you know, the entire political class learned that you must never give pay rises to anyone ever again. And certainly not let them unionize. Yes. And so they sort of destroyed the unions, destroyed the ability for workers to burn payrises. And so they sort of destroyed the unions, destroyed the ability for workers to burn payrises. And so inflation has started, inflation has started for lots of reasons. Like, if you happen to give a whole of free cash to lots of people that drives up prices, right?

Yeah. But also, it's because, you know, companies are wanting to make more profit. And there's been a lot of consolidation of a lot of industries, which means there's less competition, which means their power to be able to put up prices willy-nilly is actually greater than it used to be. That's interesting. If money is essentially free, if you're the big fish, you'll just eat all the other little fish using the free money to do it. Exactly.

I could run a big company, couldn't I, with that sort of insight? Oh, look, look, you are way too skilled to run a big company, Dom. You'd have to forget everything you know about ethics, morality. I could probably do that for the right, for the right pay packet. Okay, so that's what happened. So all this money's been

sloshing around. So it's been sloshing around, it's got to go somewhere, it goes into prices, suddenly, so everyone, But wages aren't rising. So everyone's just going backwards, right? At this point, you go, okay, so what was happening to the banks during this thing? Now, the really big ones, they've got a whole lot of rules around them that sort of mean that they've got to have the right reserves. The little ones in America had this sensational system where they went, okay, little banks need to have lots of reserves.

After 2008, there was a big banking crisis in 2008. Yeah, I remember. We need banks to invest in really safe assets. Let's just say, you know, government bonds would be a great thing. Famously the most safe asset, yeah, of all. So let's have a look at what's happening. The government has handed out a whole lot of money to the banks, and the banks have gone, hmm, what should we do with all these things?

I know we'll use it to buy government debt, right? Using government money. Yeah, using government money that has incurred a government debt. Like, literally, it's a sort of roundabout, right? Which reminds me a little bit of mortgage-backed securities, but anyway. Yes, the same thing happened? Exactly. So then, but then the government started going, well, as interest rates arising,

this is going to be a fucking nightmare of a problem, right? Because what's going to happen is all this government debt that's like in 30-year bonds and things of that, is going to become less and less worthwhile because it's like, We were handing out this debt at like 1%. You can now get 4% on that money. All those investment decisions by banks on the cheap sort of debt. Because they could have made more money elsewhere. The government bond turns out to be a shit investment.

It turned out to be a bit of a shit investment. The government said, okay, doesn't matter. You know what we'll do? We'll make this new accounting rule, which means that you don't have to mark to market. You don't have to say, oh, what's the true value of that thing if I actually had to sell it today? Hang on, hang on, hang on. Isn't, you know where I've heard that phrase before, the mark to market? Enron.

That's the first. That's the problem with the Enron scandal. They used the wrong form of accounting and didn't actually accurately. So they've just gone, why don't you use Enron accounting standards? No, no, no. I think it's the exact opposite. Enron used mark to market to game the accounting system in one. because they went, oh, well, all the prices are rising, so we're going to mark-to-market.

Oh, we'll factor them in now. And so what the government did was, oh, dear, all the prices are falling. You know what we're going to do? We're going to abolish mark-to-market accounting for small banks just so that it doesn't look like they're all fucking bro. But it essentially still changes the accounting rules to look more favourable. The Chaser Report, less news, less often. And let's be clear, they're not actually insolvent.

So they've got like, so Silicon Valley Bank, which collapsed a couple of weeks ago, it had $200 billion worth of 30-year bonds in the government, right? So if they could have just waited for 30 years, they would have been fine. Everyone could have been made back whole, right? But because they had to, because everyone was going, oh, fuck, I want to get my money out of this fucking bank, it's all a disaster because they've all invested in these shitty long-term bonds that are really undervalue now. There was a run on the bank, very sensibly. and so then

they couldn't have given the money presumably for the moment when there was a run on the bank they wouldn't have had liquid liquid assets because it was all in government bonds so they weren't actually insolvent and they couldn't sell the bonds they couldn't sell the bonds

without making a huge loss because the government bonds if you cash them in early you've got to catch them in at the map then wow so Charles is it just me so then one more step before we you know step down which is

then everyone looked around so Silicon Valley And another bank called Signature Bank both collapsed because of this problem. Right. And then everyone looked around and went, well, that pretty much summarizes pretty much every bank in the world at the moment. Like, they're all underwater from buying long-term government bonds and things like that. Actually, there's an argument to say that most banks, especially the shittiest ones,

are all going to go bankrupt. Right. But also, potentially the most responsible ones that have lots of government. bonds because that was the thing you were supposed to do before. Yes, yes, exactly. And so there's been this amazing outflow in the last week. No, 470 billion US dollars was withdrawn from smaller banks. Shitty little banks.

Shitty little banks and put into the larger banks, right? That type of money flow just doesn't happen in the banking system normally. Like, there's not $470 billion where the cash just lying around to facilitate. Those are like crypto-level made-up numbers. Yeah. So what the government has done is they've invented this new facility, which means that they've just had to print $470 billion worth of money to enable everyone to sort of transfer their money out of these shitty little banks, right?

But the thing is, and this is the hilarious thing of it, is that the whole reason that people like Philip Lowe and fucking Powell and the... PayPal and the US and, like, everywhere, the whole reason that they started raising interest rates was to get rid of this excess money that was everywhere. Like, it was to soak up all that money and stop, have it just printing money and giving it away, right? And what they've done in the last week is more than cancels out all the interest rate rises

that we've had. We're back to quantitative easy. We're back to just printing up money to fucking save a sinking shit. shit. And interest rates supposedly are now going to stop being raised, right? Like if you've got a mortgage or something. Well, no, I don't think that's true. I mean, I presume the consumer won't win.

Because Charles, I'm no expert on finance, but just observing occasionally. Occasionally the industry becomes so big you have to pay attention to it. And the trend that I'm seeing, what seems to happen, Charles, correct me if I'm wrong, is that whenever there's a massive problem, the government steps in and uses our taxpayers' money to fix it. So, for instance, you know, 2008 financial crisis, they short up all the bank deposits and so on. Even now, they've said to Silicon Valley Bank customers, the government in the U.S. Joe Biden said, don't worry, you won't lose any money. So when there's a problem, it's always public funds that are used to fix it.

But am I right in saying that whenever there's not a problem, all the profits stay with the banks? But Dom, Dom, it can't be any other way. So. Because, because imagine if the risk and the reward. remained with the public. And imagine if all the banks weren't in private hands, then you'd actually get the upside for the use of the public money. Yes, exactly.

That's very unfashionable. We can't have that. You wouldn't have the government making a profit out of something. The government can only make a loss. The private sector must make a profit. And then inevitably, all the money the private sector makes, all those profits trickle down so that everyone gets a good standard of living. That's the way it works, isn't it?

Isn't that how we're feeling at the moment? We're all having, everyone's enjoying a wonderful standard of living where you can just afford everything. You can afford to live. The thing is that when you step back and you look at things like the global banking system, you do go, why on earth do any of us go on? Why on earth do we put up with this fucking piece of shit mode of accumulation

that we've got where, I mean, I saw this analysis the other day, which pointed out that if you actually looked at the basic necessities of life, like housing and rent and food and stuff like that, that the average person should be earning about $300,000 a year right now compared to, say, 30 or 40 years ago, right? But actually, all that money has just clumped together and gone to the bankers and the CEO. And Elon Musk, by the looks of it.

Who did you see the other day approvingly tweeted a speech by Senator Malcolm Roberts, by the way? So that's encouraging. So why don't we just sort of, like, do what they're doing in Paris and just burn down the whole city. No, that's, that's, you've got it wrong, Charles, that's, that's backwards thinking, that's socialist, revolutionary bullshit.

What you do is what a bright-eyed, visionary bunch of Sydney Siders did a couple of decades ago. Oh, yeah. You start Macquarie Bank. Yeah. If I can't beat them, I'm going to join my own bank. Chase a Bank. It wasn't until Macquarie Bank existed that someone had the idea of,

why don't we just buy an asset and then sell it, But while paying ourselves exorbitant management fees. And the key is to buy government assets. Yes, you buy the natural monopoly. Then lease them back to the government. That's right. You buy something that can't possibly be replicated like a toll road or Sydney Airport. Airport.

Yeah. And then who's paying for the other airport? Did you know, by the way, that in the deal of privatisation, Sydney airport owners, McCoy's moved on long ago. But the owners of the airport had the right to buy any other airport that was opening in Sydney. You couldn't possibly have a public. airport in Western Sydney. You could not have a duopoly.

Yeah, without the monopolists getting the chance to... And they turned it down. Fuck. Because they're like, oh, Western Sydney, fuck that. But no, that's... So we just need to start our own bank. Okay, well, we have. It's called Chaserbank.

Chaseabank.org. People have been visiting it. Since we last mentioned it a couple of weeks ago, we've had dozens of people fill in the form. Why don't we start it? It's very clear that if we fuck it up, and we're likely to fuck it up, but the government will just bail us out. Yeah, because that is, that was totally my thought was like, but what if we fuck it up?

And you go, oh, no, we should fuck it up. We won't go to jail. The person who go to jail is probably Loughlin. Yeah, yeah, like someone in their 20s, he doesn't know what they're doing. We get the patsy. We'll be fine. Okay, we're going to do it. Yep.

Does anyone know, how do you get a financial services license? I think you've got to be. You don't have to be a good character, do you? I mean, no, you're probably got to be a bad character. You're not going to tell me this is a rigorous process rewarding finance. Seriously. See, facial services licenses? I don't think so.

I think we're overqualified. I think we're too ethical. You just sort of swing by assy. I was only arrested that one time doing a chase of stunt. I'll be the CEO. Surely you've got to have some sort of accounting degree or something. It would only slow you down knowing how to balance the book. They don't balance the books.

They don't. All right. We'll have it coming soon. You can bank with us. Just don't expect to get your money back. If you have lower expectations, no, no, you will get your money back. Oh, yeah, the government will get paid for it by the government. We're the only Chaser Venture ever to make money.

Yeah. All right. Our gear is from Road. We are part of the Icona Class Network, and today's episode was sponsored by Chaser Bank. Coming soon. The bank, you know you can't trust.