Read the warnings as prime crisis hits

"IN AUGUST the mortgage crisis crossed Wall Street to Main Street. This coming year will see it move to your street and mine. Words and expressions like collateralised and derivatives and tranches will be understood by people who would prefer not to. Dead words from a dead culture." Planet Wall Street, December 27, 2007.

IT IS now apparent that I should be sending copies of this column to our banks (and superannuation funds), and should have been doing so for at least 12 months and marking them registered mail, just to make sure they were received and, hopefully, read. For they haven't been. Not by the banks nor, it seems, by anybody else.

Nor, it is now apparent, that our banks and super bosses spend any time studying the US economy, and especially the state of the "financials" as we can now cease calling them. As for our financial journalists, the less said the better. In fact it's a worry, wondering what one should be worrying most about on these fronts.

For it has been some 12 months since US broker banks began not very privately, indeed with most inconsiderate poor taste, letting it be known they had passed on the worst of their "toxic loans" to foreign funds. And it was about that time lobbying began to have an utterly compliant Congress (the members of which receive more money from banking trusts than all the other lobbying machines) pass legislation ensuring that foreign funds could not sue US banks when the upshot of all this became apparent. It is beginning to now.

The learning curve is going to be a long and painful one, especially if one considers that most Australians seem still to believe this is a subprime matter. Banks, such as the Commonwealth, seem to take some pride in having their US exposure in A, AA, and AAA loans as if magically these classifications make them one iota less endangered. For at least 12 months I and at least a score of independent observers have gone to considerable pains to explain that subprime is very, very old news. That horse bolted so long ago it is no longer on the American continent.

The big story in coming months will be the collapse of the "prime" US housing market and the already apparent explosion of foreclosures on upscale US homes. The owners of these would never have touched subprime, with its apparent "liar's loan" provisions and the tiny short fixed-interest rates followed by the massive resets.

The rich don't take loans of that kind, which is why they are, or were rich. But that is what "slicing and dicing" is all about, wrapping up the good, bad and ugly and flogging the toxic mix to fools like us. "Us" includes the Europeans, the Chinese, the Russians, and a whole host of other nations, including Australia, who have been sold these still-born pups.

Last week the one reliable ratings agency, Fitch, predicted huge falls in housing values across the board. Subprime has nothing to do with this except, in the celebrated words of the great American blog site Calculated Risk, "we are all subprime now".

Perhaps now the Australian financials will begin to note their insurers AMBAC and the like are pretty much out of business. But that news has also been exceedingly well reported in the mainstream US press.

And every day, on a score of internet sites, hundreds of experts have for well over a year provided any one who bothered to look an insight, indeed a complete and detailed study, of the lay of the land. All the information, or the vast bulk of it, suppressed by the banks and the mainstream media, has been dutifully made available to any scout worth their salt. Road maps that provide clear warnings are posted every few minutes, but their work, like mine, has been in vain.

For if I, from the confines of a run-down cottage in NSW, could with absolute certainty and over a period of 16 months predict the demise of the financials, how can our banks and other financial institutions so abjectly fail? I simply, daily consulted reliable sites and reported their acute findings.

In December I summarised the events of the past year and looked forward to things to come. Some of what I wrote then I will revisit:

"Countries like Australia and huge US unions (there are some) established pension or superannuation funds have so far been spared and have not turned toxic. All that 'liquidity' we hear is being pumped into the credit market, yet never finds its way out to business for investment, is either swallowed by the banks for the rainy days, or, as some suggest, being used to buy back the junk from the pension and superannuation funds as it comes onto the market. Up until now the funds have largely escaped the rout.

"How will members of pension schemes (read super funds in Australia) react when they hear of multimillion and even multibillion-dollar write-offs against their retirement money?"

Despite our exposure to "toxic shock" in the form of slicing and dicing, a term synonymous with handing of this poison to the nearest fool, are our financial institutions aware that the "prime" real estate in the US they are soon to take part possession of is tottering?

And what will our establishments, and all the other international establishments, do with these soon to be flyblown McMansions or the old money tree-lined upscale suburbs that will soon be another millstone?

But let us return to the "Massive Road Trauma" signs that were erected all over the internet, so much so that the federal authorities are making some dark comments about their activities. What happened?

What has stunned me more than I could have expected is the absolute, impenetrable wall of blind indifference that can be explained only by conspiracy or folly.

Obviously it is in the main the latter (but if it's conspiracy you want there's plenty of that too), but how can folly conquer when hard fact abounds?

Ever since making, for SBS TV, 10 years ago a documentary Superimposed on the Australian industry funds, I have been concerned that well-meaning people running schemes that involve the nation's savings might be found wanting when up against the sharpies from the US, where I had just completed another documentary for SBS and where I had lived for a good many years.

My concern was that people, especially those with no training, having spent their lives in the trade union movement, might be found wanting. They have been, and when the walls of silence the funds have constructed begin to crumble, the result may be disturbing for those who think they are likely to live high on the hog rather than high with the hogs in retirement.

At present it is not the industry funds that are seen to be totally out of their depth but the much-admired banking fraternity, whose house of nothing is starting to look like the empty wind-swept McMansions that cover so much of the US.

David Hirst is a journalist, documentary maker, financial consultant and investor. His column "Planet Wall Street" is syndicated by News Bites, a Melbourne-based sharemarket and business news publisher.