Reform

This morning, as Michael Vick led the Philadelphia Eagles to a 26-24 victory over the Indianapolis Colts, I marvelled at the benefits of opportunity and reform.

Two years ago today, Vick was sitting in a US federal prison after being sentenced on a litany of dog fighting charges. His future looked bleak, his arse was broke, he was being vilified to high hell, animal rights activists wanted to wear Vick skin boots and there were questions if he’d ever play in the NFL again.

Contrast Vick, at that time, with the average Australian mortgage holder, or even more specifically the average variable rate mortgage holder with the Commonwealth Bank. They’d just received a 58 basis point cut – leaving them with an interest rate virtually comparable to the one they have today.

November 2008 – 7.74%. November 2010 – 7.81%.

To better illustrate any rise or fall in interest rates, some hack will usually paint the picture of what this will do for a $300,000 mortgage. In November 2008 that mortgage holder was around $115 better off, nothing fantastic, but how about we extrapolate this to include the period from September 2008 to December 2008?

To quote The Age, The Commonwealth and the National Australia banks passed the full cut yesterday… Mortgage holders with those banks will save close to $200 on the monthly cost of servicing a $300,000 loan. In all, they have saved a massive $570 a month since the Reserve started cutting rates in September.


Good times! So while Vick spent a cold Kansas winter in Levenworth, CBA customers enjoyed a hot Australian summer with stimulus money and massive interest rate relief.   And as you can see by my inept graph, that wasn’t the end of rate cuts if you were a CBA variable rate mortgage customer.

Now in the world of ‘ifs’, ‘buts’ and ‘maybes’, let’s just assume those rates didn’t move any lower for 15 months. There’s about $8500 saved right there, but they went even lower, and at one point, these mortgage holders were over $750 a month better off. Excuse me, but I’m too lazy to calculate every possible dollar saved in that period.

Those lowest rates for CBA customers coincided with Vick’s release from prison. Just as Vick was enjoying freedom again, CBA customers were deleting Merle Travis’ Sixteen Tons from their i-pod, and creating a feel good play list of every money song they ever had a hard-on for.

Given such good fortune, wouldn’t this be the best time to pay down debt and save some money? Well that’s what one newspaper suggested, in a November 2008 editorial entitled, ‘Be a winner: reduce debt and save.’

Putting the money back into ordinary households’ budgets at this time of the year should help free up cash and create a flow-on effect for our economy - just the thing to set cash registers ringing in the busy Christmas season.

It is a delicate balancing act, but we hope Australians have learned not just how to spend, but equally, how to reduce household debt and save.

Now which influential opinion shaper had such foresight? To suggest, as rates were heading toward an all time low, that it would be prudent to take the opportunity to plan for the future? Yes, it was the world renowned Bendigo Advertiser.

Unfortunately the message didn’t carry further than central Victoria. And after a brief, but extremely passionate affair with saving, Australians got back to doing what they do best, playing sandwich – continuing to rape their savings accounts, while they let debt rape them.

Debt to income got its groove back and net savings, probably influenced by stimulus to rise in the first place, charted back to the embarrassing depths they had long plumbed under the rodent government.

Now we suffer the unruly mob, who ignored their opportunity of an interest rate time out, kept spending and are now absolved from blame by political parties and advocacy groups like Choice and Getup! Groups who’d be much better starting a campaign aimed at eliminating debt serfdom, than continually cooking up ads dumber than this blog.

These groups and political parties will continue to ignore private debt greater than GDP, debt to income over 160% and savings accounts with so little money they couldn’t fill a parking meter. The opportunity existed for people to reform and not only didn’t they take it, they dropped their strides and crapped all over it. 

The same people will be eventually be taken out by their debt and they’ll blame everyone but themselves. So don’t forget to remind them, an ex dog fighter and the ‘most hated man in sport’, took his opportunity to reform - they didn’t.

Then be prepared to duck.