Posted by John, August 11th, 2010 - under Nationalisation.

Tags: Banks

$5.66 billion. That’s the obscene profit the Commonwealth Bank made last financial year.

Remember back to December 2009? The Reserve Bank of Australia raised interest rates 0.25 percent. The Commonwealth Bank raised its rates 0.37 percent.

Remember back to the start of the global financial crisis? In October 2008 the Rudd Labor Government guaranteed bank deposits and bank borrowing. While it later refined these guarantees, propping up the banks was an important aprt of the Government’s response to the GFC.

The Commonwealth’s $5.66 billion profit during a period of intense financial destabilisation is on the back of its net interest margin gouging and government support.

Bank net interest margins are the difference between what banks earn in interest from borrowers and what they pay in interest to lenders. They increased during the GFC. So while borrowing costs did rise the Commonwealth and other Australian banks increased their lending rates to us by more than their increased borrowing costs. They gouged us, and continue to gouge us.

In part this is to cover their bad debts, bad debts they created. Thus for example the Commonwealth Bank took over Bankwest in 2008. About ten percent of Bankwest’s $60 billion loans are ‘troublesome’. Gouging us helps pay for bank management incompetence. These are the same bank managers who are being paid millions for their ‘performance’.

During the GFC Australian banks didn’t pass on all of the rate decreases to mortgagors. Only some of it. The RBA cut rates by 4.25 percent during the financial crisis. They passed on about 3.8 percent over that time.

The banks used the GFC as an excuse to increase the margins at the time their borrowing costs were increasing. They were increasing because banks didn’t trust each other. They feared other banks might collapse.

It isn’t just customers the banks gouge. It’s their workers too. The Commonwealth bank for example froze salaries of those employees earning more than $100,000 and offered staff on wages below that a 1.5 percent increase. This was in effect a wage cut offer over 2 percent because core inflation was then running at 4 percent. The ultimate increase was slightly more than 1.5 percent but still a real wage cut.

This sort of attack on employees worsens the gender pay gap since the majority of lower paid bank staff are women.

Banks also charge us for using someone else’s ATM. They impose fees when we blink, snore or fart. (I pay lots of fees!) Despite five rate cuts during the GCF credit card rates did not move down.

During the GFC banks also increased rates to some business at the same time the RBA was cutting rates.

So come the ‘recovery’ what they did do? As rates rose they increased rates more, including on business.

All of this gouging during the GFC and after means a profit for the Commonwealth Bank of $5.66 billion.

It’s time to squash these bloodsuckers. A tax on their super profits both relative and absolute would be a good first start.

Maybe we should think about setting up ‘a people’s bank’. No, forget that. It didn’t work from 1912 to 1990, did it?

Finance capital is not productive. It creates no new value.

But it is an important lubricant for productive capital.

It depends for its existence on the creation of surplus value by workers in the productive sector, and then battles, along with the capitalists in the productive sector, the state and the like for a share of that surplus.

State support and a quasi monopoly of the big 4 banks put the banks in a strong position to grab an extra share of surplus.

So while the banks are particularly hated (since they impact directly on most working people) their gouging merely reflects the feeding frenzy of all the bourgeoisie on the profit we create.

Why not nationalise the banks and use their profits for socially useful spending? The case for nationalisation? Ken Henry put it this way in relation to mining companies.

Public production allows the government to control exploration and production expenditure, but may lower the return to the community if public enterprise is less efficient at resource exploration and production due to a lack of expertise and market discipline.

Substitute banking for resources and the point remains the same. In fact given the failure of the banking sector during the GFC the onus should be on banks to show that public ownership wouldn’t be more efficient.

To paraphrase Henry, public ownership allows the government to control finance, and will increase the return to the community if the public enterprise is under bank workers’ control.

$5.66 billion could increase the Commonwealth Bank staff salaries by a minimum 50 percent and still leave enough over for a denticare scheme.

Add in the profits from the other Big 4 banks and a real resource rent tax and we have a good basis for addressing climate change, closing the gender pay gap, ending aboriginal disadvantage, building public housing to end homelessness, fixing public transport, ending the hospital queues, improving education outcomes and paying better wages to the workers in those industries, for example.

None of this will happen because this is a society that puts profit before people. It’s time to turn society on its head and put people before profits.