Bank holdups to be certified A-OK? (Part 2)

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(Image via @isCommBankRogue)

Dr Evan Jones continues his six-part analysis on the series of parliamentary inquiries into systemic bank corruption as the victims of fraudulent foreclosures continue to wait for justice.

Read the other parts of this series:

Part 1

Part 3

Part 4 

Part 5

Part 6

A PARLIAMENTARY Joint Committee, under the rubric of “The Impairment of Customer Loans”, is investigating the mass default of Bankwest commercial borrowers after its takeover by the CBA in late 2008.

The seeming incomprehension of the Committee members

The details of bank victim stories, highlighting the extent of the corruption and depth of amorality, always shock. But the most depressing aspect of the 13 November hearings of the current inquiry was the input of the Inquiry Committee members.

Of the ten PJC members, present at this hearing were Senator David Fawcett (Liberal, chair), Senator Deborah O’Neill (ALP), MP Philip Ruddock (Liberal) and Senator John Williams (National).

Senator O’Neill was the most conscientious of questioners amongst the Committee, having done some homework. Senator Fawcett as chair played a straight bat and was rarely heard from.

Fawcett did put to Rory O’Brien the claim/question:

“… the Commonwealth Bank is a commercial entity and it would want to minimise any losses. Having realised that it could not go for, in your words, the easy option, why would it not go for the loss minimisation option of working out …”

The “easy option” here refers to the CBA’s attempt to obtain an offset from HBOs for the O’Brien loan, supposedly impaired. The “loss minimisation option” refers to the notion that the CBA should rationally see through the O’Brien to successful completion.

Fawcett’s claim/question exposes his naivete as to a bank’s modus operandi. Fawcett imagines that banks operate according to a strict pecuniary-driven rationality.

Bank management is also driven by hubris, the love of power for its own sake, and by sadism when the opportunity allows. The takedown of Trevor Eriksson after his submission to the 2012 inquiry evidences a sadistic streak (as does the entire operation after the Bankwest takeover).

If a bank was genuinely oriented to “loss minimisation” it would uniformly be working to ensure the sustainability of commercial borrowers, and it would certainly not be selling foreclosed properties under value (ridiculously under value in many cases) and throwing a motza in legal bills to destroy its customers.

There are clearly no Members of Parliament, none, who have deigned to get interested in how banks actually operate — this in spite of some of their misdemeanours having been splashed across the business pages for decades.

In his numerous interventions on 13 November, Philip Ruddock appears stuck on the idea that Bankwest was a lender of last resort for borrowers. Thus were the borrowers’ activities intrinsically dodgy, which the GFC brought undone on a mass scale. End of story.

Ruddock to Rory O’Brien:

“One of the arguments that I understand is put is that, of course, there were many more impaired loans in Bankwest because they were at the fringe and essentially they took the most risky customers, whom you would expect would be in default. Presumably you went to Bankwest because you would find it difficult to get money anywhere else. …”

O’Brien responded:

“So any inference … that we were somehow a desperate customer who got last-minute desperate financing is absolute nonsense. It is merely smoke and mirrors and a post-rationalisation and reverse engineering to justify what they have done.”

Undeterred, Ruddock later repeats the assertion to victim Iyad Rafidi:

“You may have heard me question earlier about the strategy of Bankwest. To get business meant that they took on clients who were higher risk. The argument is that the four major banks get the best clients and the next level of banks get the clients who are riskier. Bankwest was with a number of other banks receiving riskier clients.”

As O’Brien had earlier intimated, this claim is bullshit —  a canard pushed by the CBA.

Ruddock keeps at it with the next victim appearance, Trevor Eriksson:

[Eriksson:] Why would they sell my property for 45 per cent of four independent valuations that were all current?

[Ruddock:] I do not know. I am looking at what is happening in the housing market at the moment in Sydney. It has come off very significantly. You might have got a very big price last week, but this week it is down.

[Eriksson:] Not by 65 per cent.

[Senator Williams:] Or 55 per cent.

[Eriksson:] What I am saying here is that you could not justify a 45 per cent sale when the valuation is only four months old.

[Ruddock:] I do not know. If there were a global financial crises that was impacting on the Australian market, it might well come off more than that.

It is transparently clear that Ruddock does not know, and appears doggedly reluctant to raise himself from that state of ignorance. We have businesspeople with a solid commercial history behind them offering chapter and verse of a heinous crime and Ruddock apparently prefers the fairy tale fabricated by the CBA.

Is Ruddock playing the devil’s advocate, hiding his own views? If so, it has been a consummate performance.

Ruddock was also involved in an ill-informed discourse on the evident failures of the relevant regulatory apparatus.

In exchange with Romesh Wijeyeratne, sometime ASIC staffer, Ruddock opined:

…  I am interested in the conflicts between the functions of the different regulatory agencies. ASIC has been given, as I understand it, the responsibility for ensuring that the banks remain viable — in other words, protecting the depositors and their interests. The ACCC, normally, would be dealing with the protection of the customers to ensure that contracts were not unreasonable and the conditions under which people are being dealt with are fair and appropriate. But, as I understand it, ASIC has been asked to deal with both.

“In relation to these issues, I am trying to understand whether there was in fact a substantial regulatory requirement to ensure the viability of the banking system that required the Commonwealth Bank to behave in this way in relation to Bankwest loans. In other words, were we dealing with a bank, Bankwest, that had a whole lot of largely impaired loans that needed to be cleaned up, and the Commonwealth Bank had the hard job?

This is a mess. There is again the “fact”, that Ruddock cannot relinquish, of “a whole lot of largely impaired loans”.

Responsibility for customer protection in financial dealings did pass from the ACCC to ASIC in 1998 for retail customers and in 2001 (operational 2002) for business/farmer customers. But the responsibility for “ensuring that the banks remain viable” lies not with ASIC but with APRA (and, subsidiarily) the Reserve Bank.

Ruddock should know that ASIC has systematically ignored its acquired responsibilities. The authorities delegated to the CBA the responsibility to ensure continuity of operations of Bankwest in the face of a failing parent bank, but the government did not consciously delegate to the CBA “the hard job” of fraudulently foreclosing on a swathe of Bankwest commercial customers.

Nationals Senator John Williams is a rare Member of Parliament who has interested himself over the years in the rough treatment of commercial customers by the banks.

Williams claims:

“I do a lot of work with the banks in my office. I know there are farmers and landholders in Western Queensland who have been in severe drought for coming up to four years. I know some of the banks have stuck with them all the way. In fact, they have been very good to them. Then I see what has happened in this case we are talking about, with CBA taking over Bankwest. I know people personally who had never missed payments to the bank but who were put under tremendous pressure.”

Williams acknowledges the qualitative significance of the CBA’s takeover of Bankwest, but the presumption that this behaviour is atypical is absurd.

Williams has undoubtedly helped, on the margin, some farmers in trouble with their banks through personal intermediation, but he hasn’t changed the culture of the sector or any particular bank one iota. The banks continue to default and foreclose farming families at their discretion. The evidence does not support Williams’ claim of perennial bank support for farmers in distress through the drought years.

Williams’ evident belief that he can change banking culture through personal links with senior banking executives is misplaced. He has such links with senior CBA executives and it hasn’t made a damn bit of difference. (And remember that Williams’ own family was a victim of CBA bastardry during the foreign currency loan saga, so Williams’ exposure to bank corruption is of long duration.)

In spite of this history, Williams’ interventions during the 13th November hearings were mostly perfunctory, concerned with marginal issues. Remarkable really, given that, as a member of the Senate Economics Committee, he sat through the 2012 so-called Post-GFC Banking Inquiry and the testimony of Bankwest victims (which report, as noted, completely ignored the Bankwest debacle).

The submerged iceberg of victim stories neglected

In short, at the 13 November hearing, there was manifest amongst the PJC members a particular and surprising lack of familiarity with the subject matter and the scale of the crime.

It was as if the Committee members had read none of the copious submissions from victims. Of course, Parliamentarians are busy people.

At one stage, Senator Williams commented:

“I have not read everything. If I read everything that comes into the committee, I would do nothing else but read 24/7, I can tell you!”

Quite. But doesn’t the Committee Secretariat summarise the content of submissions for the busy Committee members?

Moreover, a random delving in the odd submission would not take the busy Parliamentarian too much time and would give her/him a ready feeling for the nature of the beast, and instances of the losses and the personal suffering involved.

Apart from the submissions of those who have appeared before the inquiry, one could pick out, say, Rigg (no.15, a 1980s victim), Kelgon (no.24), Wallader (no.52), Burge (no.63), El Khoury (no.71) and Evanian (no.124).

Readers might also profit from checking the Hearings transcript of the PJC’s visit to Brisbane, 19 November. The testimony of Colin Powers, long time hotelier, is instructive. It is also heart-rending. But it is not exceptional.

Powers had strategically avoided borrowing from the CBA because of his father’s adverse experience with that bank. Thus he banked with Colonial First State. But we know that the CBA took over Colonial First State. So Powers moved to Bankwest. We know of course that the CBA took over Bankwest.

Thus Powers’ reaction:

“When I heard of their takeover of Bankwest, my words to my wife were, 'This is the beginning of the end of us.' Two times I ran from them and I got away from them. They are barbaric. They were impossible to deal with.”

And the outcome?

“I will number in order the procedures they executed against me to leave me living in a garage for 12 months, with $32 left to my name and on the dole when I had an asset value in excess of $14 million in 2009. I lost my marriage, my children to another man for a while — who was a violent alcoholic — my family home, my beach-side unit and many other components. My wife and I had worked for 55 years of our lives to enable our children to benefit from their studies at the private school where we had them enrolled and from universities for their own choice to launch into professional careers.”

Powers has evidently been a beneficiary of what economists call the merits of “competition”! But ivory-towered economists, and kindred spirits in the bureaucracy and regulatory agencies don’t care to examine how the beatified competition works in practice.

None among the PJC members appears to have read my submission to this inquiry (no.83). Or, indeed, any of my submissions to previous cognate inquiries, not least the submission to the 2012 Post-GFC banking inquiry (held in camera, i.e. censored, but which drew extensively on my 'The Dark Side of the Commonwealth Bank'), and the submission to the 2013 ASIC inquiry.

These submissions deal with the big picture, highlighting the long history of CBA criminality and the general complicity which allows bank criminality in general to continue unopposed. If the PJC members had read these submissions, Mr Powers’ testimony would have been readily comprehensible.

This inquiry is not just about the CBA, but the CBA as representative of the bastardry and criminality. Belatedly, ANZ has been brought into the loop. The 16 February hearings that were intended for the re-questioning of CBA executives instead witnessed the testimony of the “colourful” Rod Culleton and a fellow WA victim of ANZ, and Culleton’s barrister Peter King.

In late 2009, ANZ acquired the financing subsidiary, Landmark, of the Australian Wheat Board as the AWB was being fully privatised. Landmark, like other strictly rural lenders (all now history), had special financing arrangements with its borrowers. Upon the purchase of Landmark, ANZ readily began imposing “conventional” conditions (i.e. unsuitable for farmer borrowers) on its new customers, soon foreclosing on many.

The ANZ takeover of Landmark, also at a discount price relative to book value, was thus readily comparable to the CBA takeover of Bankwest and fitted naturally into the structured orientation of the inquiry.

Not so with the NAB. In the victim submissions, there is a sample of NAB victims to be had — as in Pappalardo (no.13), Kreutzer (no.39), Hitchens (no.66), Andrews (no.102), and Troiani & Barrett (joint, no.114). The confidential submission no.168 is from an NAB victim; no doubt there are others. The NAB has to date remained totally under the radar, even though the NAB has been pursuing comparable unconscionable and fraudulent foreclosures of its SME/farmer borrowers continuously over the last thirty years.

This is the second in an Independent Australia six-part series analysing ongoing bank corruption and ineffectual parliamentary inquiries, as victims remain uncompensated.

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