By Craig Isherwood
For the second year in a row CBA is hiding its true financial position from the Australian public.
The bank’s 2013 Annual Report, like its 2012 edition, fails to disclose the multi-trillion-dollar face value of its betting in off-balance-sheet derivatives. CBA happily discloses “fair value”, because it is a much smaller figure, but deliberately omits “face value”, even though that is the amount for which the bank is obligated when something goes wrong.
Derivatives are the risky financial bets, called by Warren Buffett “financial weapons of mass destruction”, which triggered the melt-down of the global financial system that started in 2008.
Collectively Australia’s banks have become even more addicted to derivatives gambling since the GFC, increasing their total exposure from $13 trillion in 2008, to $21.5 trillion as of the latest measurement by the Reserve Bank. This amount completely dwarfs the nation’s entire annual income, measured in gross domestic product, of $1.4 trillion.
The big four banks account for the majority of the derivatives betting, and, until it starting hiding its position in 2012, CBA accounted for the majority of the growth in derivatives exposure. (Click here to see a graph of the latest derivatives figures.)
CBA’s decision to hide its derivatives just as it announces record profits is highly suspicious, and brings those profits into question. The short history of derivatives shows them to have been, more often than not, an instrument for fraud.
Former Morgan Stanley derivatives trader Frank Partnoy in his 1997 exposé of derivatives, FIASCO: Blood in the Water on Wall Street, insisted that derivatives are sold to cover up losses and to make losses appear to be gains for short periods of time. Partnoy’s admission has been borne out in numerous cases, including the 1995 collapse of the British Barings Bank; the 2001 bankruptcy of U.S. energy giant Enron after years of using derivatives to cover its losses; and the 2008 Lehman Brothers-triggered meltdown of the $1,400 trillion global derivatives bubble that bankrupted not only Wall Street and the City of London, but entire nations, especially in Europe.
The CEC has exposed that international banking authorities are working with Australia’s Reserve Bank, Treasury and banking regulator APRA on hush-hush, Cyprus-style legislation to “bail in” a failing Australian bank by seizing its depositors’ funds. CBA’s insistence on hiding its multi-trillion-dollar exposure to toxic derivatives points to why they might be in such a hurry. (Click here for a visual presentation of the evidence of bail-in.)
The only way to protect the Australian people from the catastrophic financial crisis towards which Australia’s increasingly reckless banks are hurtling, is to split up the big four banks according to the principles of the U.S. Glass-Steagall Act. The banks that hold the people’s deposits must be kept separated from banks that engage in risky speculation, so that when the gamblers lose their shirts, the depositors don’t lose their money.
The CEC is leading the fight to stop the bail-in law that would steal deposits, and to force the Parliament to protect deposits by enacting Glass-Steagall instead. Join the fight!