Sunday, July 27, 2008

National Australia Bank takes a kick in the CDOs

The sub-prime mortgage crisis which developed in the USA in August 2007 continues to develop.

As noted bourgeois commentator Henry C.K. Liu observed on July 21, 2008: “In a period of less than a year, what has been described by US authorities as a temporary financial problem related to the bursting of the housing bubble has been turned into a fully fledged crisis in the very core of free market capitalism.”

Today, the speculative and parasitic side of finance capital has taken on so many forms that it is virtually impossible for most people to make any sense of the banking and finance sectors. Most people sense that the First World of the filthy rich and the Third and Fourth (indigenous peoples’) Worlds with their poverty, starvation and despair are linked, but the links are not easy to follow.

The commodification of finance capital has enabled speculation at so many levels and in so many ways that a huge house of cards exists on a foundation that grows increasingly smaller in relation to the over-inflated value of the “cards” used to construct the house.

Australia’s National Australia Bank is the latest financial institution to have to resort to some belated financial underpinning.

After having denied for most of the past year that it had any exposure to the US sub-prime mortgage crisis, the NAB has written off nearly $1 billion in mortgage-related assets.

Most of these are tied up in collateralized debt obligations or CDOs. CDOs often attract AAA security ratings from the likes of Moody’s, and Standard and Poors. Financial mythology asserts that AAA-rated securities are so strong that only 1 in 10,000 should ever default. These are houses of cards that quickly become sky-scrapers of cards once things start to go wrong. (My earlier post on CDOs, here, explains why).

In the era of imperialism, CDOs are also an effective means for transferring crisis from the heartland of capitalism, the United States, to outlying dependencies such as Australia. This is so obvious to those in the know that one commentator in a chatroom specializing in stocks and shares said, “It's a sick joke when battling Aussies end up footing the bill for the excesses of the Greedy Yanks.” No doubt this person’s definition of a “battling Aussie” might not be the same as my definition of an Aussie battler, but it’s all relative.

To see how this operates, look at this nifty little power point display (
). Just remember, when you get to slide no. 21 to mentally insert “NAB” as one of the answers and to substitute “NAB” for “Norwegian Village Investment Fund” at slide 31. It’s quite instructive!

Nor is it just the NAB that has been caught holding the burning sheets of CDO investments. On the same day that the NAB wrote off 13.5% of its share value, the ANZ lost 8.75% and the CBA lost 6.8%.

No doubt some big finance companies and superannuation funds will likewise be burnt at the finger tips or further down the arm.

A local radio announcer finishes his program just before 6pm each night with a “blues before the news”. If you found the powerpoint entertaining, you might like to finish off with this bluesy attempt at explaining the sub-prime mortgage crisis:

1 comment:

nickglais said...

Henry C.K. Liu is a very interesting economic commentator.

He cuts to the heart of the new financial architecture of capitalism and shows its profound problems