In a little country town just a bit North of were my Mother and Father lived there was a very nice young fellow with a very nice young family, who had just, with the bank’s help, expanded the farm to 4500 acres. The original farm, which started at 640 acres, was the farm his parents had started. 640 acres for those of you who are inquisitive is the size of one square mile.
I think I’ll call this nice young fellow Ian, because that was his name. Ian played football in the local team. They had a new player on the team who was a city bloke – the new manager of the local bank. They all got on like a house on fire. All the locals made the new bloke welcome. He wasn’t a farmer and didn’t have a country background but he was a pretty good footballer so he fitted in.
In the 1980s Australia was, with the rest of the developed world, experiencing ups and downs in inflation rates, unemployment and interest rates. Unemployment of up to 10% was obviously a bad row to hoe. Banks would call in a farmer and tell him that his 640 acre property was unsustainable as it was but that the next door farm was about to come up for sale and that his 640 acres plus his neighbour’s 1000 acres would make a much more profitable concern. And don’t worry about the money we’ll lend it to you at only 10%. Oh, and if you need a bigger and better tractor to plough the bigger acreage then we’ll finance that as well.
In 1983 the Australian Government de-regulated the banking industry. The Aussie Dollar was floated and sixteen foreign banks were granted licences. Lending competition accelerated. Banks reduced the security needed and crazy loans were given.
In 1990 the bank overdraft rate reached 20%. Now I am going to repeat that for all you sceptics because some of you might think I have typed in the wrong numbers. Ian had just borrowed about One Million to develop the farm at a reasonable rate of 7.5% and it had now gone up to 20%. He had expanded the acreage about five years earlier and he needed a much better harvester to strip the wheat that he grew. In fact the bank manager – not the new bloke the old bloke – had said that unless he expanded as they suggested they wouldn’t be too happy.
Let me explain the term ‘not too happy’. A farmer doesn’t get a regular income. Some farmers will get different amounts during the year depending on whether they sell a few cows now and then. A bloke who only grows wheat, for example, might only get one big cheque a year when he sells his wheat. So things on his bank balance go up and down quite a bit. What happens, for example, if the tractor suddenly decides to throw a hissy fit and the power take-off breaks? Well the farmer goes into town and gets it fixed. To pay for it he writes out a cheque and the bank pays the Agfarm fellows and writes it into Ian’s ledger and waits for him to sell his wheat. Have you got the idea?
Now if the big amount that was there at the end of last year isn’t quite big enough to cover everything until this year then the bank has to decide if the prospect of next year is good enough. And if it isn’t the bank is in trouble. But never mind, banks don’t get into trouble, usually. Usually it is the farmer who gets into trouble.
And in 1990 Ian was in trouble.
And in late 1990 head office sent the new young Bank Manager, who plays football with all the young farmers, a notice telling him he had to go and tell Ian that they were going to foreclose and he would have to sell the farm at a ridiculously low price. The bank is in it for the long haul and it knows that when things get better they will sell the farm and make heaps of profit. Who for? For the shareholders, that who, who have no idea about the fluctuations in the price of wheat and only care about their portfolio.
Now the new young manager, who I shall call Angus – it was not his real name – wrote back to Head Office and asked them to be a bit understanding and they said you have to go out there on Monday morning and do what has to be done.
On Saturday night, after they had played football against the boys from the next district, Ian went home to his farm and his farmer’s wife and his farmer’s children and wondered an awful lot about what he was going to do on the farm tomorrow.
Angus, who didn’t know how he was going to go out to the farm tomorrow and tell Ian about how his bank was going to sell Ian’s farm went home and blew his head off with a shotgun.
And Ian lost the farm anyway.