Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory & buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

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Tuesday, 20 November 2012

"Too big to fail"

Too big to...

I watched Too Big to Fail last night for the first time (with Indonesian subtitles, which, if anything, improved the experience).

It's an interesting movie which chronicles the meltdown of the US financial system in 2008 and presents some fascinating insights into the machinations of the power struggle between the major banks, the US Government and the Federal Reserve.

The four pillars and Basel III

This is a subject that is very much relevant to us here in Australia, with only four major banks here carving up a huge percentage of the housing loan market.

The world's banks will come under new legislation from 2013 under the new global regulatory standard known as Basel III.

The new standard will introduce regulations on stress testing, capital requirements and leverage ratios.

These are welcome developments, though some have argued that they go nowhere near far enough as they still allow the use of tremendous leverage (significant restriction thereof would potentially have a flow-through effect to GDP growth and, of course, bank profits).


While banking executives would naturally contest this, in my opinion banks should be far more heavily regulated, and here's why:

The four pillars system requires that our largest banks receive an implicit government guarantee (i.e. they are too big to fail).

It's impossible to measure the dollar benefit that such a guarantee delivers though economist Adam Creighton had a game stab recently - the number is surely measured in billions of the banks $25 billion annual profits.

The big become bigger

Paradoxically an implicit guarantee may encourage banks to become bigger. Why?

Well, for one thing, the bigger the institutions become the more certainly they must be guaranteed - they truly will be too big to fail! Counter-parties take more comfort in dealing with a guaranteed institution, and the guarantee in itself encourages management to take on more risk safe in the knowledge that the worst can never befall them.

Realistically a system such as that of Australia cannot afford to have any of its largest lending institutions go to the wall.

"Creative destruction" - also known as Schumpeter's gale or, effectively the survival of the fittest - might be a nice idea in theory, but it would be a total horror show in reality.

So while I agree that an implicit guarantee is absolutely necessary, the cost to the banks should be far tighter regulation. You win some, you lose some...


The Indonesia Bahasa must be the most economical language in the world. Every swear word, every curse, every blaspheme and every term of abuse seems to be covered by just one solitary word: Astaga!