As a person paying off a home loan, I have of course been watching with great interest (pun intended) the situation regarding interest rates in the past few years.
I perfectly understand the role of the Reserve Bank in Australia and it's responsibility to increase and decrease the standard interest rates in regards to controlling inflation and economic growth among other financial indicators.
That's all good, and I perfectly understand the banks changing their rates in line with the movement made by the Reserve Bank.
What I do have a massive problem with however, is the recent actions of the banks increasing interest rates independent of any movement of the Reserve Bank's ones.
Now I understand the reason why they do it: they're losing a lot of money as a result of investments etc in the sub-prime mortgage meltdown in the US, and it's made financing loans much more expensive for them.
Now really: who gives a toss that they're losing money? Lets get things straight here: they're not exactly going into the red. All we're talking about is them having a couple of billion dollars shaved off their already multi-billion profits. E.g posting a 3 billion dollar profit instead of an 8 billion dollar one. Nevertheless they're still making money.
In this situation the banks are basically saying: "Hey, we've made some dodgy investments that have turned bad on us and we're losing a lot of money. We still need to make more profits then we did last year, so we're going to jack up your repayments for no other reason so we can still post bigger record-breaking multi-billion dollar profits."
Can you imagine me going to the bank and saying: "Hey, I've had a few investments turn bad on me recently, and i've lost a fair bit of money. I still need as much expendable income as I had last year, so i'm not going to repay you as much so I can still afford to buy the video games that I want."
What's the difference between the above statements? Nothing.
They're both sides of the same coin. The only reason why one is accepted and the other is laughed off as absolutely ridiculous is that the first side is allowed to get away with it, and the other is the consumer whipping pole.
I admire the Government's attempt to make it easier for people to switch between banks with their loans, but it's not going to make any difference because all the banks are doing the same thing so you don't really have a choice anyway.
The banks shouldn't be allowed to do this kind of thing when they are still making healthy multi-billion profits either way. Also, do people really think that once this sub-prime crisis subsides and the banks' costs of financing loans become cheaper (which they will), that the banks will actually decrease their interest rates accordingly? I highly doubt it.
Dammit I hate capitalism sometimes.