If you saw the recent 60 minutes feature on the post GFC failure of the CEC Group in North Qld and the attack on the Commonwealth Bank I am sure you would have been somewhat taken back by the content.\u00a0 I won\u2019t get into the detail here but sufficient to say that the program and its reporter displayed a spectacular lack of understanding of even the most rudimentary elements of bank finance and credit contracts. The founder of CEC, to no great surprise, is playing the bank sent me broke card to some effect and places the outcome completely at the feet of the lender.<\/p>\n
This was a speculative and high-risk developer who, like so many before them, went under and blamed everyone but themselves. No personal responsibility here, it\u2019s the banks fault.\u00a0 We were just poor simple developers and the evil bank gave us a box of matches and a can of petrol.\u00a0 We didn\u2019t start the fire.\u00a0 Give me a break people!<\/p>\n
I guess the only argument the borrower might have been able to make was that the bank should have known \u2018\u2019we were too silly to manage our affairs and declined finance\u2019\u2019.\u00a0 I am expecting that the bank treated their borrowers like adults, assessed the funding via prudent standards and the economic conditions of the day and approved funding.\u00a0 It\u2019s kinda like saying that your project needs petrol and matches and we are all mature grownups so a fair assumption is you won\u2019t blow yourself up.\u00a0 Anyway, courtesy of aggressive speculative develop strategies and the GFC it turns out that CEC did indeed explode.<\/p>\n
Yesterday (20\/7\/17) the Australian Financial Review, a respected business and finance journal, ran an article addressing the 60 Minutes feature. \u00a0It\u2019s a cracker and highly recommended reading. \u00a0Just Google Why 60 Minutes stitched up the Commonwealth Bank and enjoy. Again, I won\u2019t go into detail and I don\u2019t want to get sued but sufficient to say the AFR essentially discredited the 60 Minutes piece and painted CEC in a very different light.\u00a0 Sadly, while plenty of everyday punters will have watched the 60 Minutes show I suspect bugger all are readers of the Australian Financial Review and that\u2019s a real shame.<\/p>\n
The sad truth is that while most people have borrowed money in their lives very few really understand how banks work and they take their views from the sort of garbage that 60 Minutes, A Current Affair and others peddle.\u00a0 From this they come to a view and the view is that banks are bastards who are out to get us.\u00a0 Of course, the politicians pick up on this and play to the lowest common denominator.\u00a0\u00a0 Their actions are clearly reflected in a political view that the voters are too stupid, gullible or na\u00efve to deal with the banks and so we must have regulation.\u00a0 Back in the day a normal loan offer and related security documents might take up as much as 10 pages. That\u2019s 10 pretty easy pages to read and understand and most borrowers did just that.<\/p>\n
Now, thanks to regulation, disclosure and fear of borrowers taking no personal responsibility it\u2019s not unusual for a pretty straightforward loan offer to take up hundreds of pages and to be almost incomprehensible for the average borrower.\u00a0 To no great surprise very few people read all the documents and even if they do even fewer understand them. Most simply check the loan amount, the rate and bank fees and sign up.<\/p>\n
This is the law of diminishing returns at its finest. Put a simple, concise and well-crafted document in front of someone and chances are they will read it and understand it. Put 400 pages of impenetrable jargon, disclosure and bank speak on the table and there\u2019s no chance.\u00a0 Of course, that\u2019s great for finance brokers and lawyers because the less people understand about all this stuff the more they need us but that\u2019s hardly the point.<\/p>\n
Let\u2019s cut to chase. If you borrow money you make the application.\u00a0 With the possible exception of those bizarre credit card limit increases I seem to get offered from time to time, no bank is sending me approved loan offers.\u00a0 Sure, they are marketing lending as a service they offer but I need to apply and at that stage I have decided to take personal responsibility for that action.\u00a0 If I invest my borrowed funds and my venture goes under that\u2019s not the bank\u2019s fault.\u00a0 If I hit a cash flow crisis and the bank can\u2019t help me that\u2019s tough but, that\u2019s my problem, not the bank\u2019s.\u00a0 If my company goes under and the bank calls up my personal guarantee that\u2019s what I signed up for. I won\u2019t be lawyering up to try and wriggle my way out of my responsibilities and I won\u2019t blame the bank.\u00a0 We had a deal and I expect both parties to keep their end of the bargain and it\u2019s a pretty simple bargain. Here\u2019s some money, spend it wisely on what you said you would and pay it back as we agreed.<\/p>\n
I can hear the wailing from certain quarters right now.\u00a0 It\u2019s not that simple Mike.\u00a0 The world is a complex place and banks are not what they used to be.\u00a0 Sorry, it really is that simple although I agree that banks are certainly not what they once were.\u00a0 We can thank the not my fault, no personal responsibility, law of diminishing returns, media and political agenda for that!<\/p>\n","protected":false},"excerpt":{"rendered":"
If you saw the recent 60 minutes feature on the post GFC failure of the CEC Group in North Qld and the attack on the Commonwealth Bank I am sure you would have been somewhat taken back by the content.\u00a0 I won\u2019t get into the detail here but sufficient to say that the program and its reporter displayed a spectacular lack of understanding of even the most rudimentary elements of bank finance and credit contracts. The founder of CEC, to no great surprise, is playing the bank sent me broke card to some effect and places the outcome completely at the feet of the lender.Read More →<\/a><\/p>\n","protected":false},"author":1046,"featured_media":610,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mbp_gutenberg_autopost":false},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts\/609"}],"collection":[{"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/users\/1046"}],"replies":[{"embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/comments?post=609"}],"version-history":[{"count":1,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts\/609\/revisions"}],"predecessor-version":[{"id":611,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts\/609\/revisions\/611"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/media\/610"}],"wp:attachment":[{"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/media?parent=609"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/categories?post=609"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/tags?post=609"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}