Thursday, October 30

Parish Musical Fun Night

We recently attended a parish Musical Fun Night which included questions from 14 tracks previously available for those attending. It was a great nights entertaining, complete with a succulent 4 course Slovenian cuisine by courtesy of our gracious hosts, one chef and an extroverted husband who created our night’s entertainment; MC/ Quizmaster/ Music master. Progressive scores were paraded throughout the night with prizes given out mixed with good cheer and boundless hilarity.
At a cost of $32 per person where would one go to have a 4 course meal, whilst having so much fun amongst good company? But from those modest contributions the night still raised over $600 to be spread equally among 3 of our very active parish groups, namely the Social Justice group, St Vincent’s de Paul and the Malawi Support Group.
The tracks from which the questions or suitable lines / imitations requested were taken from :
Octopus garden – The Beatles
When I’m 64-The Beatles
A Backstage Pass – Johnny Cash
The Battle of New Orleans – Johnny Horton
Cotton eyed Joe-The chieftains
Home Among the Gum Trees –John Williamson
The Little White Duck –Burl Ives
The Red Rose Café. The Fureys
What’s up –Beccy Cole
Happy Jack – The Who
Old dogs, Children & Watermelon Wine -Tom T Hall
Sultan of swing –Dire Straits
Penny Lane- The Beatles
Okie from Muskogee - Merle Haggard

Above are some photos of some of the happy folk.
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Monday, October 27

More Photos of our 50th year celebrations





More Photos of our 50th year celebration; singers in colourful garb and another once disrobed with musicians and producer, planting a commemorative tree and pictures drawn by the school children in the art competition.
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Sunday, October 19

Revelling in Religious Reminiscences

As part of our 50th year parish celebrations we staged a light hearted evening of catholic bingo and refreshments followed by a floor show. After the Bingo and suitably refreshed we all changed into appropriate colorful garb to sing all of the old hymns up to the present day interspersed with some jokes and lively banter.

An overhead power point presentation provided the words for most of the hyms so that the audience could join in.
One segment involved singing in Latin and during this segment I sang Panis Angelicas with my wife. The recording is rough, taken on the night from a digital camera and we both look rather comic in our overweight costumes but it does give you a flavor to the evening. Imagine 5 other singers in the same attire.

I’m afraid we are both getting too old to reliably remember all of it in Latin, so we had our music on hand for just this number.

You might think singing all of the old hymns and few modern extracts from religious musicals might be a tad boring but from all accounts everyone thoroughly enjoyed themselves.

Wednesday, October 15

Banking on the community

One thing is certain; things will never be the same. The model of Wall Street investment banking is no longer viable. None of the previous top 5 Investment Banks now exist, except Goldman Sachs which is now operates as a traditional bank within regulatory constraints. Whilst excessive compensation has not been eliminated its means has been curtailed since borrowing capacity has been reduced by 67% as average leverages reduce from 30 to 10, a principal driver in credit markets turmoil.

Future banking is now more of the old garden variety of taking deposits and lending them back at higher rate of interest, augmented by banking services.

Hence the successful model of the mutualised local bank, where local communities own the bank and lend locally can flourish in a similar way to the big banks whose global services will continue to service the larger populated areas. I see no reason why the mutualistion process for banks will not accelerate and particularly in the developing world such as China. Maybe as the Chinese economy is pausing for breath, due to the tightening of the government’s monetary policy, it might be well advised to consider alternative models available.

A good example in Australia of a viable alternative is the Bandito Bank which operates 350 branches, with over 220+ Community Bank branches, the latter 100% owned by each local community. These community banks pay modest fees for their infrastructure and systems support but take full responsibility for loan approvals and the integrity of all of the banking services.

How does it work?

Let’s say I am part of a community which is not serviced by one of the big banks and I have to drive to the nearest regional centre for banking requirements. After a meeting you find there are many people willing to invest the minimum of $1,000 each for a shareholding and a few willing to outlay say $10,000 which soon adds up to the requirement to raise say at least $ 300,000 for it to become a viable local bank.
The next step is to incorporate the Company, set up the facilities, recruits staff and soon you’re open for business.
The bank can undertake all of the traditional banking services using existing banking infrastructure but the owners (the community) take responsibility for its integrity and services.
It’s banking on the community.

The same principals apply to just about every activity where a service is required, the incorporated mutual venture can set up a secretariat or administarion and leverage from the infrastructure already created by the larger entities. It means like minded folk of modest means can prosper through local co operatives where they are not represented or poorly serviced by the larger institutions.

Monday, October 6

Where to next

Following on from my previous post, and, after noting approval of the $700 billion rescue package, the question arises ‘where to next?’ The Rescue package itself will not materially have any effect for several months and in the meantime gloomy economic news will dominate commentaries.

So we witness the NY stock exchange emulate a series of ‘dead cat bounces’ which are quickly soured by woeful economic news such as 159,000 jobs lost last month, capping off 9 consecutive monthly reductions.

The Government has also admitted the economy in the USA is in recession, evidenced by 760,000 jobs lost so far this year. Its contagion spreads to overseas markets captive to this continued gloomy sentiment and building in expectations of a severe downturn.

In fact in a sample of the 88 largest economies the USA is ranked 22nd in terms of market indices, ahead of countries like Australia whose economies remain resilient and well regulated according to the International Monetary Fund. But markets are driven by sentiment not logic and panic sellers build in future reserves of anticipated gloom and doom, to cause minor apoplexy over here since most retirement schemes for all workers are generally heavily market linked.

We continue to see markets and consumers rattled and worried about a run on the banks simultaneously in many different countries. I notice Germanys Finance Minister Peer Steinbrueck has announced an unlimited guarantee for all personal savings and checking accounts. It was designed to win back confidence as the global financial crisis spreads and equates to about $1 trillion. A moral hazard? bear in mind that perhaps in that country it was too much of a reminder of those similiar events of the great depression; run on the banks and unrest that enabled the Nazis to come to power.

Hopefully all of this interventionist’s actions should help avoid past mistakes such as what happened to Japan in the 1990’s. Japan's reckless lending during the eighties led to the Asian crises but its Ministry of Finance failed to intervene. Many thought its banking system was insolvent, but the Banks refused to acknowledge their portfolio of non performing loans and write off the bad debts. What followed was an unnecessarily long period of vicious stagflation, which saw a 3 fold increase in unemployment and misery with property prices reduced by 70%, until it finally recovered a few years ago.

What can be done?

There is no short term fix but I think sensible measures could see a gradual improvement to avoid a fully blown deep recession. The curent crisis provides a catalyst for a systemic change to a better regulated and transparent financial services section, rejected by either political party over prior decades.

What is currently plaguing the system is the scarcity of credit as world wide deleveraging unhinges the ability to continue to trade on the diminished capital base. Overnight facilities, which are the only facilities available to many, are rolled over each day to have a destabilizing effect combined with severe illiquidity as others hoard previouly available cash in the climate of fear.

The $ 700 billion rescue package will help alleviate this unstable situation gradually and help secure more long term facilities underwritten by the improved Balance sheets once the toxic debt is removed. The amount of debt removed should 3/4 times the original value, since the securities to be disposed of through the reverse auction system will be at a fraction of their original value. Bear in mind the same amount has already been written off

So in total in round figures you are eliminating about 6 trillion in value. No small beer!! although this still only represents a fraction of world liabilities. However we should not include derivatives which have a zero sum outcome, (a buyer and seller of an outcome attaching to a security which cancel out to zero if they were simultaneously collapsed) in assessing the extent of these liabilities.

What does remain however is a diminished capital base to undertake the herculean task ahead and hence more help will be required from Central banks and from holders of cash and government securities to invest.

Although Central Banks throughout the world have given the impression they are improving liquidity by increasing the total money supply, official figures indicate this is clearly not the case. The reason they have not acted is out of fear such action will ignite inflation, particularly with loose worldwide monetary policy represented by average inflation of 5.5% versus official interest rates average at 4.5%.

However with weaker demand and a recent hefty fall in commodity prices including oil I think there is ample scope for further easing and injection of much needed liquidity, to coincide with reduced world wide inflation. The easing will mainly be at the behest of those economies outside the USA, to additionally include accelerated technological transfers of expertise to improve employment prospects.

What I also think needs to be done is a further reduction in interest costs to ease the burden with taxpayers on mortgages and on commercial loans. This will be appreciably easier as the inflationary outlook becomes more benign. The spreads that currently exist between the borrowing cost of Freddie and Fannie (Government treasuries and mortgage rates) give ample scope for reduction in interest rates.

So far this year there have been over 2 million foreclosures so it makes sense for these service providers on behalf if their security owners to be more flexible and proactive. Significant progress over and above the 400 000 targeted for help should be possible.

The rebuilding of the USA capital base will require infusion from overseas. This will not happen until Investors are convinced of a more transparent and improved regulatory system. Nether party has announced what it will involve, other than talk about the need for an improved single regulatory authority. Once this happens overseas investors I think will be persuaded to part with their equally hard earn money to invest in the USA.
It should be welcomed as it will add stability and diversity.

Finally from a political point of view there is a need to harmonize respective economic policies between countries, an urgent requirement for the incoming incumbent to the white house.

We are one global village; one that is currently devastated by a tidal wave of worries but can refloated with agreed sensible policies and to avoid the mastakes of the past.

The USA as the world largest economy, with 25 % of worlds trade needs to work with its partners to regulatory reforms and improved economic ties as priority for its hard working citizens and those who are equally affected overseas if we are to avoid a deep recession.

Thursday, October 2

Restoring confidence

The $US300 billion government sponsored program has just kicked off in the USA; swapping current housing loans for more affordable ones.
Lenders have an option to take a loss on the initial loan and accept a new insured loan as effective payment in full for previous indebtedness.

E.g 1. Authorizes FHA to insure up to $300 billion of fixed 30 year refinanced loans up to a max of 90% of current assessed value for those borrowers in arrears from October 1 up to September 2011.

2. Existing mortgage holders take the proceeds of the insured loan in payment in full of all pre-existing indebtedness.

This 3 year legislated program seeks to assist 400,000 households who have negative equity; whose indebtedness exceeds house valuation.

It makes sense but is it too little too late?

This fiasco has created a different structure. In the past the traditional lender and householder would have worked together to avoid foreclosure to renegotiate a compromise or accommodating reset.

But the bundled mortgages transferring ownership to unrelated parties left loan servicing arrangements with trustee companies. So far these service providers appear to be lagging in their efforts and in the early days adopted the role as disinterested reactive foreclosure processors.

Here are some extracts from the State Foreclosure Prevention Working Group (a group of state attorneys general and state banking regulators working to prevent home foreclosures) recent 3rd report in relation to this aspect.

“Too many homeowners face foreclosure without receiving any meaningful assistance by their mortgage servicer, a reality that is growing worse rather than better, as the number of delinquent loans, prime and subprime, increases.”

“While some progress has been made in preventing foreclosures, the empirical evidence is profoundly disappointing.”
“Servicers appear to have reached the ‘low-hanging fruit’ of subprime loans facing interest rate resets, while not developing effective approaches to address the bulk of subprime loans which are in default before interest rate resets,” the report said.

“Based on the rising number of delinquent prime loans and projected numbers of payment option ARM loans facing reset over the next two years, we fear that continued reactive approaches will lead to another wave of unnecessary and preventable foreclosures.”

Are they now preventable?

The Securities of parcels of some of those bundled mortgages are being sold for as little as 5 to 25 cents in the dollar. It’s a lot cheaper to offer another loan at an affordable rate to the householder currently in arrears and write off the current indebtedness and illusionary higher future interest rates. You also avoid the subsequent costs of foreclosure and dislocation.

Apart from that a proactive approach is essential to help contain its consequences and engender confidence. Bite the bullet and employ more people to get a better handle on it!

I think the government owned Freddie and Fanny also need to reduce interest rates on mortgages (very small reductions have already happened) to stimulate demand which will also help get a hold on the plummeting house prices.