Sir Allen Stanford, Who?
Sir Allen Stanford: how the small-town Texas boy evaded scrutiny to become a big-time ‘fraudster’
For a town of just 10,000 people, it is remarkable that Mexia – motto “a great place, no matter how you pronounce it” – should throw up two larger-than-life characters: Anna Nicole Smith and Sir Allen Stanford.
On Friday, as the ECB sheepishly announced it had severed its ties with the 58-year-old banker following allegations that he carried out a $9.2 billion fraud Read more
Tips to Get Yourself out of Credit Card Debt
1. Consolidate debt. If you love credit cards and have more than one fix the one with the smallest interest one and get rid of all the rest. You’ll save lots of money on annual fees.
2. Transfer a balance transfer to a new card on a low rate. Choose the zero per cent credit cards. Be careful tand close down all cards with have debt on them.
3. There’s also a new reproduce of card message a low rate for the life-span of the balance. This is worth considering if you can’t respond the debt in the fleeting quantity.
4. Change to a debit card, where you someone the flexibility of using a card but you are spending your own money.
5. Try and pay the minium payment as soon as possible
6. Beware of cash advances, because interest can accrue quickly. Usually no interest-free life distribute on cash advances. High fees may also allot on cash advances.
7. Always Check if electronic bill payments (BPAY) are regarded as cash advances by your businessperson.
8. Pay cash advances off as shortly as achievable, but tab how often you necessary to pay — you may want to offer to pay the untasted balance, as any payments you micturate may be practical to purchases original.
10. Set up a forthright debit from your account to pay the credit card. Going beyond the due date will bring late payment fees as much as $35.
Visit Credit Card Offers for more information on Visa Debit Cards
Escaping the debt trap
THERE is a debt crisis among Australia’s young people. The “buy now, pay later” culture promoted by retailers and lenders is impacting heavily on consumers with the least experience of credit and debt.
Just over 40 per cent of all debt agreements are signed by people under 30. A debt agreement is a low-cost alternative to bankruptcy that more and more people are agreeing to undertake.
Making money from bear share markets
IF history does indeed repeat itself, now is the moment when a lot of investors will amass great fortunes, UBS wealth management head Liz Cacciottolo says.
By last week, “the general feeling from clients was that it has got to such extreme levels that value is there, and we saw a bit of cautious buying”, she told The Australian.
Credit Card or a Loan?
IT IS the twelfth round and both fighters are on the ropes.
Credit cards, popular with the crowd, have been through a lot of fights and are a little punch-drunk.
Personal loans may not be as popular but their lower interest rates are keeping them light on their feet.
OK, it’s not quite a sweat-laden title fight, but you can win if you know their game plan.
Why a credit card
Australians had 12.3 million credit cards in their wallets in July, carrying $40.4 billion of debt. We clearly like them, Zobel Finance manager Simon Burgess says. Read more
The high cost of credit
Interest rates on some cards are rising, putting debt-laden users under more stress, writes Lesley Parker.
You may well know your mortgage interest rate to two decimal places – before and after the recent rate cut – but chances are you don’t know the rate on your credit cards.
Amid all the hue and cry about home loan rates going up over the past year – when lenders decided they’d go even further than the central bank – not much was heard about cards.
Read more
Patience the best pathway to wealth
INVESTORS who are seeking the secret to becoming rich are likely to be disappointed to find there is no secret.
Rich people invest most of their money in the same assets as everyone else, financial experts say, but there are two key differences: A different mindset to investing and different structures to hold their investments. Read more
Dollar’s big drop could save us from recession
DOLLAR has become a dirty word for many people planning to take an overseas holiday soon.
The dramatic descent of the Australian dollar over the past month – from almost US98.5c to US85c – has severely dented their buying power on several continents.
However, the slumping currency could be a key factor in preventing Australia from following much of the Western world into recession.
“For the economy as a whole it’s good news, even though it’s bad news for travellers,” says AMP Capital Investors chief economist Shane Oliver.
Just over a month ago many economists were predicting our currency was about to reach parity – where one Aussie dollar buys one American dollar.
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Now there are predictions for it to fall further in the short term, down to about US80c. Yesterday the Aussie dollar was buying US85.4c.
So what has caused such a sharp U-turn?
Firstly, the Reserve Bank of Australia has been making serious noises about lowering the official interest rate, with its first cut expected today. Second, commodity prices such as oil and base metals have dropped heavily amid fears of global economic slowdown.
“The Australian dollar is still seen as a commodity currency,” Dr Oliver says.
Third, the US dollar has bounced back against most other countries’ currencies in recent weeks.
These factors have combined to force the Aussie dollar to a seven-month low, although it should be put into perspective. A US85c exchange rate is still much stronger than the levels below US50c it hit in 2001, back when it earned itself nicknames such as “Pacific peso” and “little Aussie bleeder”.
While overseas travellers might wish to protest, the latest drop in the dollar creates more winners than losers.
“At US98.5c it was bad for the competitiveness of Australian companies,” Dr Oliver says. Now, exporters will find customers can better afford their goods.
Farmers will get more money for their crops, miners will get more money for their metals, and even local tourism operators will find their sector becomes more attractive to foreigners as travel to Australia becomes more affordable.
Just as Aussies heading offshore have lost up to 15 per cent of their purchasing power in a month, many travellers coming to Australia now get 15 per cent more.
Prescott Securities chief economist Darryl Gobbett says wine exporters and motor vehicle manufacturers will also benefit from the local currency’s fall.
“A lot of exporters would be pretty happy about it,” he says. With businesses benefiting from these improved terms of trade and being less likely to slash jobs, the risk of Australia sliding into recession is reduced.
But AMP’s Dr Oliver says we are not out of the recession woods yet.
He still thinks there is a 40 per cent chance of Australia going into recession, up from a 20 per cent chance at the start of the year but less of a chance than it would have been had the Reserve Bank not suggested that interest rate cuts are on the way.
“The Reserve Bank has started to head off the risk,” he says. “Lower interest rates will certainly help, but they haven’t improved in the US, UK and Canada.
“There is still a risk. At last count there were 12 significant economies around the world that have recorded negative gross domestic product (GDP) growth in the March and June quarter.”
Australia’s annual economic growth has slowed sharply from 4 per cent, and figures due out tomorrow are expected to show just 0.3 per cent GDP growth for the June quarter and an annual rate of 2.8 per cent.
“We are probably on the way to about one or 1.5 per cent over the next 12 months,” Dr Oliver says.
“Obviously the mining sector is still keeping us afloat. The consumer side already seems to be in recession.”
Mr Gobbett is more confident that Australia will avoid a recession.
“I don’t think too many economists would see a classic recession of two quarters of negative growth,” he says.
“Most see the economy growing in 2008-09 at 2-3 per cent.” He points to a “huge” pipeline of infrastructure development in Australia.
“There’s probably 12 to 15 desalination plants built over the next year or so,” he says.
“Some commodity prices have taken a hit but copper prices are still quite strong and a lot of the big commodities – iron ore and coal – are staying quite strong.”
The commodity story, driven by surging demand from China, which still has growth rates three and four times bigger than Australia, is expected to continue to be a positive one and is a key factor why many economists expect the long term trajectory of the Australian dollar is upward.
“The currency likely has more downside ahead of it over the next six months or so, possibly to around US80c,” Dr Oliver says.
“However, the long-term trend in the Australian dollar is likely to remain up in response to the long-term rising trend in commodity prices.”
With more short-term weakness tipped, there are two messages for would-be overseas travellers. Number one, be thankful it’s not 2001.
Number two, remember that not every country’s currency is based on the U.S. dollar. Large parts of Asia and Africa – and of course America – are, but Britain is not.
The British pound is currently at a two-year low against the U.S. dollar and 47 pence against the Aussie as it flirts with its own recession.
A holiday in the Old Dart is becoming more attractive by the day.
news.com.au
A foolproof guide to the credit crunch, Credit Crunch Explained
THE global credit crunch was a year old last week, a very unhappy birthday for the world economy and one whose repercussions could be both historic and far-reaching.
Many fantastic figures about the crunch have been bandied around, often expressed in trillions of dollars, so it is difficult to get a realistic grip on what caused it, what it actually means for ordinary Australians and whether it really is — as some would have you believe — the end of the world as we know it.
So, here’s a foolproof guide to the crunch: something everybody can understand — though you may find it depressing reading.
( Q ) What caused the credit crunch?
( A ) OK, it all goes back to the US property market and some very sloppy lending practices.
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Banks and unscrupulous mortgage brokers were giving mortgages to so-called sub-prime borrowers — people who clearly could not afford to pay; but the banks and brokers didn’t care because (a) house prices were rising, so they could repossess and sell for a profit; and (b) the brokers were being paid huge commissions for arranging these loans.
( Q ) And what happened after that?
( A ) Well, suddenly, the bubble burst. Property prices had been rising at an unsustainable rate until a combination of oversupply, rising interest rates and increasing defaults burst the housing bubble.
Banks quickly realised many borrowers couldn’t repay their mortgages, especially those sub-prime borrowers.
Crucially — unlike in Australia and the UK, where you are liable for the debt — in the US you can just hand back the keys and walk away, leaving the bank to worry about the house and the mortgage attached to it.
In the past year, property prices in the US have fallen in some areas by as much as 50 per cent and are still falling, with people throwing keys back to the banks by the thousand.
( Q ) Why did big US banks — such as Bear Stearns — start going bust?
( A ) Because this was no ordinary house price crash. Like the treacherous rocks that are exposed when the tide goes out, falling US house prices revealed a hellishly complex and unimaginably valuable series of investments — all linked to the US housing market — that had enticed investors, including banks, from all around the world, including Australia.
( Q ) What were these investments?
( A ) This may sound like jargon, but bear with me — I promise, it’s easy to understand. The most popular investments were credit default swaps (CDSs). CDSs are a form of insurance linked to a company’s debt.
For example, say an airline wants to raise money to buy more planes: one way of doing this is to sell corporate bonds.
Investors buy the bonds, but want to hedge their investments, in case of default by the airline. So they buy a CDS, which will pay out if the company defaults. The seller of the CDS promises to pay the airline’s debt if it goes bust.
All types of companies issued bonds — including mortgage companies, such as Fannie Mae and Freddie Mac — and CDSs attached to these companies’ bonds soon became huge for investors trying to lower their risk in the market.
But CDSs soon became a speculator’s dream because — and this is the really mad part! — you do not need to own the bond or debt to take out insurance against it.
It’s a bit like buying insurance on somebody else’s house and getting a payout when it burns down. If the house burns, you suffer no loss — you just get a big payout like the owner. And because you don’t need to own the house to take out insurance on it, there could be 20 or 30 or even 1000 people who have insurance policies against this one house — and that means payouts in the event of a catastrophe could be unimaginably huge; big enough to bankrupt big banks.
( Q ) OK I’m beginning to understand now … but what else?
( A ) It gets worse, because banks that sell CDSs usually try to buy CDSs from other banks to hedge their own bets — and that means that if a big payout is needed and one bank can’t pay, the next bank down in line is in big trouble, because it then can’t pay the next bank it owes money to and so it goes on — a terrible domino effect.
The sums of money involved are huge. Fannie Mae and Freddie Mac in the US sold bonds against half the mortgages in the US — and nobody knows how much insurance that banks have bought and sold to each other, and which is linked to those bonds.
( Q ) How big is the market for these CDSs?
( A ) It has grown massively in the past few years, as people realised what a low-risk way it was of making a killing, at other people’s expense. In 2001, the market in CDSs totalled $918 billion — that has risen to a mind-boggling $62 trillion today.
That equates to $10,000 for every man, woman and child on the planet.
( Q ) So, how does all this affect me?
( A ) Well, given that almost all banks invested in these CDSs and that nobody knows how much they may have to pay out, banks simply stopped lending to each other and that, in short, is what led to a massive drying-up of global credit. Nobody trusted the next bank down the line, so everybody stopped lending money — or, at least, charged a much higher profit margin to compensate for the higher risk.
( Q ) Are Australian banks affected?
( A ) Yes, in two ways. First, there is the increased cost of credit filtering through to mortgages. Australian banks get half, or even more, of their mortgage funds from the international money markets and this source of funds has become more expensive since the crunch. That has led to the banks hiking rates, separately from any rises by the Reserve Bank (RBA). In the past year, the RBA has raised rates by 1 per cent, but the banks have added about an extra 0.5 per cent of their own.
Secondly, there have been banks, such as ANZ and NAB, announcing big provisions for bad debts, linked to the US sub-prime meltdown. That’s bad for shareholders, too.
However, Gavin White, of derivatives trading firm City Index Australia, says it’s difficult for banks to say exactly how much they may have lost.
“Banks only have to own up to their losses if they think it will have a material effect on their share price. ANZ and NAB have both come out and said they have got losses related to the US meltdown and Westpac and CBA both said losses were small,” he said.
“The problem is, its very difficult for anybody to value these investments, particularly CDSs, because you don’t know the value of the debts that they are linked to. It’s a nightmare.
“It will be some time before all of this is cleared up. In the meantime, borrowers have to live with increased mortgage costs and the very real possibility that banks won’t pass on any interest rate cuts by the RBA because, they argue, their funding costs have gone up so much.”
( Q ) So, will all this business end soon?
( A ) There’s no end in sight yet. One legacy that we can be relatively sure we’ll be living with for a long time is a dislocation between the RBA’s cash rate and mortgage rates.
Already, NAB, Westpac and CBA have said they may not pass on any rate cuts, irrespective of any action by the RBA. And the increased cost of funding has had the other side-effect of pricing many non-bank lenders out of the market because they simply can’t compete — they don’t have the luxury of having savers’ deposits to draw on, to lend out.
Also, a big source of funds for all lenders was raised by a process called `securitisation’, whereby a bunch of homeloans were packaged up by lenders and sold to investors. Investors liked these deals because they got a good cashflow from mortgage interest repayments.
But after the crunch, the market in securitisation dried up.
So, until funds become cheaper, banks look set to dominate. While banks around the world write off billions of dollars in losses, Australian banks might actually end up regarding the credit crunch as the best thing that could have happened to them, because it has wiped out their competition.
Big banks now account for 90 per cent of all new mortgages. And that could mean their profit margins will get bigger.
However, as somebody recently said, there’s one thing worse than a greedy bank with huge profits — and that’s a poor bank that won’t lend.
In the UK, more than three-quarters of all mortgages have disappeared in the past year as banks struggle to find the money to lend: in the UK, the banks’ exposure to CDSs was much, much bigger than in Australia, so banks there still don’t trust each other enough to lend money.
That is causing house prices in the UK to fall at the fastest rate on record.
We must hope there are no skeletons in the cupboards of Australian banks, otherwise the same could happen here.
www news.com.au
Most petrol-hungry cars named and shamed
THE Holden Commodore has been outed as the most petrol-hungry of Australia’s big-selling cars, as motorists mull over how to combat high fuel prices.
The Federal Government has released a list of which cars use the most petrol to inform consumers – and it’s bad news for Commodore and Falcon owners.