Page 1000 - Week 04 - Wednesday, 31 March 1993
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MR DE DOMENICO (3.44): Madam Speaker, I heard a funny little ditty that goes this way: If Al Capone had come to Australia, he would not have robbed a bank; he would have opened one. I think the comments made by Mr Stevenson, Ms Follett and Mrs Carnell are testimony to that. In summary, Madam Speaker, banks do what banks do, and that is make money. There is nothing wrong with that. I believe that it is up to individuals to find ways of working the banking system to change the structure of their financial affairs and create for themselves the wealth needed to fund them in their retirement and to invest in Australia.
There is no doubt, though, that the debt-to-equity ratio that the vast majority of banks hold is too extreme. I give a good example - a property worth $200,000 with a mortgage of $50,000. The bank holds the title for the whole $200,000, even though it has issued only $50,000. Therefore, the owner has no access to the equity which they actually own. Legally, the bank holds the title and uses the equity that the owner has paid for to take advantage of investment opportunities.
Say a bank takes a person's investment money. The bank will take, for example, $100,000 from a customer to invest and then lend it out several times over. The scenario is that the investor may make, say, 5 per cent on their $100,000 investment - that is not too good, but still - but the bank will make 10 per cent on every loan it makes, perhaps as many as nine. So the investor makes $5,000 and the bank uses his or her $100,000 to make $90,000. When one subtracts the investor's cut, the bank is still ahead by a very comfortable margin of $85,000. Madam Speaker, if you think that is where the bank stops, think again. The bank then lends out the $85,000 several times again. The money is creating money, but in most cases it is not creating jobs, factories and manufacturing products, all of which are desperately needed. Even the bank staff at the local coalface do not understand the system.
Then, if an individual wants a loan for something else, let us say a car or an extension, the person has to go back to the bank, cap in hand, and ask for another loan. There is no consideration for the already held equity of $150,000 in the house. The bank, instead, gives them an additional loan at a different and, in most cases, higher interest rate. That is a bit unethical, especially considering that there is a better way. Some people might think that the word "unethical" is not the correct word. We might say that it is immoral or we might say that it is unfair. If one looks up the dictionary, one finds that the definition of "unethical" is in fact "immoral". What the banks are not promoting is their all-in-one accounts, or line of credit, which have come into existence only as a result of deregulation. Only foreign banks are actively promoting this facility.
What about some case histories, Madam Speaker? Let us look at the cafe owners who were present at the meeting that Mr Stevenson and I attended. A nice young couple run a cafe. They started three years ago with a $75,000 loan which was attached to their parents' $200,000 home as a form of security. The loan was for 20 years. After three years the balance of the loan is $35,000. The couple want to buy their first home. The bank wants to retain the full mortgage on the parents' home, which is worth $200,000, as well as the title for the new home at $150,000 and the title for the cafe, now worth $250,000. The bank wants all this to raise a $100,000 mortgage for the couple's dream home, which is valued at $150,000.
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