michael west still $65 in front, page-9

Macquarie is also too complex for me to take a punt on at this stage.

The thing I like about ordinary banks however (not sure exactly how the rules apply to Macquarie) is that they are able to do things no ordinary business can do, because of fractional reserve banking. For example I put a $100,000 deposit into CBA. They can then lend out up to $2.5m (correct me if I'm wrong I think the ratios are something in the vicinity of 25x for retail deposits). So cba pays me say 5% on my deposit (with a cash rate of 5.25%), and borrow $2.5m from the reserve bank. They borrow this money at 5.25% from the reserve bank and lend it to borrowers at around 7.25%. So they are making 2% on 2.5m being $50k per year while paying me $5k per year on my deposit. Obviously they have overheads and some bad debts but it's a pretty good scheme. Also they charge me fees on my account and charge the borrowers fees on their accounts to give them a little more revenue.

No other business is allowed to operate like this, and I actually don't like they idea that they can. However, I figure if you can't beat them, join them. Until recently bank shares have definitely been overvalued, they took on too many high risk loans and they are now clearly suffering the consequences. However I think the major retail banks may just end up in an even stronger position after this is all over. So while I may disagree with getting charged fees each month for having my money in the bank, I think with their powerful position in the economy and the share prices finally down to what I believe are cheap levels, I've started investing in the banks over the last couple of weeks - so far cba and wbc. Time will tell whether it's a good investment, and am prepared to put more money in if prices drop further (assuming they still look like solid investments).

Anyway back to work for me.