Look Who’s Been Telling Fibs…

Yes, Australian banks do have some exposure to the US subprime crisis. It turns out, for some reason, that the big 4 decided to join a consortium that injected liquidity into the hardest hit of the mortgage backing companies, Countrywide. At first glance, it seems like the Australian banks lied when they publicly stated “we have no subprime exposure“.

Like a good politician, however, their use of weasel words and ambiguous statements could be used as a ‘get out of jail free card’. Its true, prior to the subprime crisis, the major banks had no positions. They weren’t part of the group who were bed ridden with ’subprimitis’. In becoming a doctor, however, for those who were sick, they contracted the subprime virus themselves. Technically, this means they didn’t have exposure, at least, not before the subprime term was coined.

Was it wise to get involved? I’m sure their financial modeling told them they were getting a bargain. What interests me the most isn’t so much that some Australian banks were involved, but that none of the big boys decided to stay away. Among banks, there’s usually one contrarian. Goldman Sach’s provided this rule in the US, betting against subprime loans and scored a record profit. I detect a trend in Australian banks becoming more sheepish. Maybe its because of the small Australian market which leaves little for financial diversity, but either way, its a worrying trend for those who like to diversify.