And I stand by my assertion: every post you make is a defence of every facet of Australian housing policy. Every one. I have never seen you utter even one heretical thought.
It's due to cognitive dissonance. Isn't rufus a mortgage broker?
So, that would mean that he is selling a product to people that are buying into the housing policy.
If he was bearish on housing it would create a cognitive dissonance as his means of income would be in conflict with his thoughts on the housing policy. It would create very real mental pain.
He avoids this pain by ensuring that his attitudes support the Australian housing policy.
He knows he can't do anything else in life so it's a very real self-defense mechanism. You're being very unfair in asking him to change his attitudes. He cannot do it, ever. Unless he is willing to quit his current job and remodel himself.
And I stand by my assertion: every post you make is a defence of every facet of Australian housing policy.
Bullshit. How in tha name of f*** can ya call the following (by Rufus [and in reply to you]) a defence of 'Oz housing policy'? As opposed to just potentially generally useful info for those wanting to get into housing:
"I was referring to investors buying more properties, not family assist loans.
Generally for loans with family assistance they don't put money in, they guarantee up to 20% of the house price which has two effects, it becomes the deposit, and it means the borrowers (the children) don't have to pay mortgage insurance because the whole loan is within the required lending margins. Often the kids have a decent deposit anyway, but not enough to cover 20% plus the stamp duty, so it's more of a way of saving the mortgage insurance that would otherwise have cost them.
Mortgage Insurance is costly. For example on a 95% loan to buy a house for $800,000 the cost will be:-
Deposit 5% $40,000 Stamp Duty $46,289 (including allowance of $1500 for solicitors fees) LMI $38,131
Total $124,420
So while we refer to that as a 95% loan in fact the buyers have had to stump up 15.56% of the purchase price. The above stamp duty cost is for Victoria, but other states are similar.
BTW I'm not defending the above costs, just mentioning what they are. If parents can save their children $38,131 of the above costs then that's a big saving for the kids, especially if you add interest on $38,131 over 20 or 30 years on top of it. Even for a 95% loan to buy for $400,000 the costs are:-
The reason I calculated the fees as if they are not FTB's is because it's not uncommon for one of a couple to have come from a previous relationship and been a part owner of a house and so are unable to claim the stamp duty concession - just saying)
A parent assisting in a $400K purchase would still save their children $13,855 which can be put to better use with a smaller loan or cost of furniture etc. Parents have a natural desire to help their children, nothing is going to alter that from here until eternity. I know it makes it a bit harder for those whose parents are not able to assist, but that's the way it is.
Banks still want the buyers to show good savings, have a good income that services the loan without support from parents, and meet all the normal loan criteria they normally expect. If a borrower who was a crap risk had parents to assist with a parental guarantee, he/she wouldn't get the loan on the strength of the parents alone, the borrowers still need to be able to service the loan in their own right. the guarantors are almost always security guarantors, not servicing guarantors. There is a difference between the two. Parents could opt to be servicing guarantors as well, but I've not seen that happen."
And anyway, what tha f*** is 'Oz housing policy'? - Give me a link to that specific national document so I can go and have a read up on it also please ...
deluded
8 Sep 2017, 12:37 PM
... Isn't rufus a mortgage broker?
So, that would mean that he is selling a product to people that are buying into the housing policy ...
And just on the off chance Veritas doesn't deign to provide me wif me requested link to the national gov documentation he refers to as 'Oz housing policy', I'll be more than happy to receive one from you Deluded?
It's due to cognitive dissonance. Isn't rufus a mortgage broker?
So, that would mean that he is selling a product to people that are buying into the housing policy.
If he was bearish on housing it would create a cognitive dissonance as his means of income would be in conflict with his thoughts on the housing policy. It would create very real mental pain.
He avoids this pain by ensuring that his attitudes support the Australian housing policy.
He knows he can't do anything else in life so it's a very real self-defense mechanism. You're being very unfair in asking him to change his attitudes. He cannot do it, ever. Unless he is willing to quit his current job and remodel himself.
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
Upton Sinclair
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
As for you fawning over B_B’s MMT lectures, can you explain why we need prudential supervision of banks or, for that matter, why the State needs fiscal policy constraints if we can’t run out of AUD?
You must not pay very much attention. These questions have been covered many times:
1) Prudential regulation - required to ensure that the risks inherent in commercial bank money lending are consistently and adequately managed by the private institutions licensed to conduct such activities. Eg maintenance of required capital levels relative to loan assets and so on. You may as well ask why is any regulation required for any business at all? But that would be a stupid question, now wouldn't it? MMT by no means advocates the unfettered supply of new money to banks or anyone else. It just provides a model to help understand the reality of what already goes on today.
2) Fiscal policy - you know what is inflation is right? MMT does not advocate the wholesale creation of new money without constraint, as this results in uncontrolled inflation - only the uninformed make that straw man argument re MMT.
For Aussie property bears, "denial", is not just a long river in North Africa.....
The money quote: "...there is a growing risk the wholesale lending community will walk away from the Australian banking system.
“[Many] international wholesale lenders ... may find out the hard way that they have invested into nothing more than a $1.7 trillion ‘piss in a fancy bottle scam’,” the report says."
So all AUD loans (including mortgages) create AUD deposits. Therefore all AUD loans are fully funded day 1.
And the AUD deposits never leave the Australian banking system (outside of notes and coins in the wallets of travellers). This is because any foreign transaction undertaken by Australians requires the AUD to be sold in the FX market. And for every FX buyer there is a seller. So the AUD always finds itself back in the Australian banking system (albeit classified as foreign liabilities). ***
So banks (in aggregate) are fully funded well after the loan created the deposit.
So why Issue Bonds? When a bank issues a domestic bond, zero new funds are raised for the banking system. Because in order to settle the bond, buyers need an AUD bank account with the required funds. That is, the money is already in the banking system when the bank issues the bond.
So what is really happening is what I like to call “liability management”. Bond issuance does nothing more than alter the term structure of bank liabilities. Total liabilities (deposits / bonds etc) are the same after bond issuance, but the composition is different. It is no different than someone with a 100% variable mortgage contacting their bank and asking the loan to be restructured 50% fixed 50% variable. You have no new money from the transaction, but you have altered the structure of your liabilities.
Bank do this for several reasons. But then main reasons include; - APRA encourages banks to seek “term” for their liabilities to try and limit short term inter-bank liquidity issues (as opposed to the banking system which is always funded) - Banks sensibly try to match asset and liability duration - Price - particularly if the bank has a view that cash rates on average will be higher than the long term rate secured
So why access overseas markets?
Australia’s capital markets are far less developed compared to other developed markets. The market for +5 year bank issuance is thin, and therefore pricing is inconsistent and the market is not deep. By issuing into the US / Euro / Yen markets, banks can secure longer term duration at a very low cost.
But when the banks issue USD/EURO/YEN denominated bonds, no domestic funding is raised for AUD banks. All Australian based loans are in AUD, so holding USD is pretty meaningless. So the mechanics of a foreign bond issue are as follows.
Aussie bank selects a foreign bank as settlement agent (say Wells Fargo) 1. Bank issue USD Bond (say US$500m) - sold by the joint lead managers, which would probably include Wells Fargo. 2. On settlement the Aust bank has a US$500M liability and US$500M cash held on deposit with Wells Fargo 3. Aust bank then sells US$500m and buys (say) A$700m in FX market (consequently pushing up AUD) - they will simultaneously enter into a forward FX rate agreement with Wells fargo to receive USD on the same say of bond maturity. This effectively hedges the banks liability against adverse FX movements. 4. The A$700m acquired in the FX market already exists in Australian deposits accounts, so the net change in Australian bank funding from this transaction is ZERO.
Conclusion Technically banks are encouraged to access term for their liabilities due to regulatory and commercial considerations. But the idea that Australian banks “source funding” from either the domestic or foreign capital markets is highly misleading.
And in the event there is some type of credit event where offshore markets were no longer willing to re-finaince existing bonds, it will have no impact on the banks ability to extend credit in the local market (as the loan creates the deposit). BUT it will have a major negative impact on the currency as our banks will be forced to sell AUD and buy USD so as to settle the maturing bonds (this ignore the possible CB response of putting in place temporary swap lines).
I hope this helps.
*** yes I know I can contact a foreign bank and ask them to hold my AUD deposit - but if I were to do this, the foreign bank simply places the AUD deposit back with an Australian bank (since this is the most efficient method to hedge currency risk). So even in this rare case, the AUD still ends up in the Australian banking system.
It's due to cognitive dissonance. Isn't rufus a mortgage broker?
So, that would mean that he is selling a product to people that are buying into the housing policy.
If he was bearish on housing it would create a cognitive dissonance as his means of income would be in conflict with his thoughts on the housing policy. It would create very real mental pain.
He avoids this pain by ensuring that his attitudes support the Australian housing policy.
He knows he can't do anything else in life so it's a very real self-defense mechanism. You're being very unfair in asking him to change his attitudes. He cannot do it, ever. Unless he is willing to quit his current job and remodel himself.
No it doesn't work like that for me. initially there would be a lull and later I would be busier than ever as people start scrambling for money to keep them going, give their business cashflow, and generally take evasive action and cash up their war chest.
I guess you just don't have the life experience to know that, but try to think beyond the first action. EG if you bang your head against a brick wall you'd have to be pretty dumb to not to know you would get a headache and suffer bruises and abrasions, or perhaps worse.
So next time you're not sure, just bang your head against a brick wall and you will be conveniently reminded. Free tip.
Veritas
8 Sep 2017, 11:54 AM
You mean anyone who listened to me and the WA bears about Perth?
The calls that were 100% vindicated?
And I stand by my assertion: every post you make is a defence of every facet of Australian housing policy. Every one. I have never seen you utter even one heretical thought.
As for you fawning over B_B’s MMT lectures, can you explain why we need prudential supervision of banks or, for that matter, why the State needs fiscal policy constraints if we can’t run out of AUD?
So all AUD loans (including mortgages) create AUD deposits. Therefore all AUD loans are fully funded day 1.
And the AUD deposits never leave the Australian banking system (outside of notes and coins in the wallets of travellers). This is because any foreign transaction undertaken by Australians requires the AUD to be sold in the FX market. And for every FX buyer there is a seller. So the AUD always finds itself back in the Australian banking system (albeit classified as foreign liabilities). ***
So banks (in aggregate) are fully funded well after the loan created the deposit.
So why Issue Bonds? When a bank issues a domestic bond, zero new funds are raised for the banking system. Because in order to settle the bond, buyers need an AUD bank account with the required funds. That is, the money is already in the banking system when the bank issues the bond.
So what is really happening is what I like to call “liability management”. Bond issuance does nothing more than alter the term structure of bank liabilities. Total liabilities (deposits / bonds etc) are the same after bond issuance, but the composition is different. It is no different than someone with a 100% variable mortgage contacting their bank and asking the loan to be restructured 50% fixed 50% variable. You have no new money from the transaction, but you have altered the structure of your liabilities.
Bank do this for several reasons. But then main reasons include; - APRA encourages banks to seek “term” for their liabilities to try and limit short term inter-bank liquidity issues (as opposed to the banking system which is always funded) - Banks sensibly try to match asset and liability duration - Price - particularly if the bank has a view that cash rates on average will be higher than the long term rate secured
So why access overseas markets?
Australia’s capital markets are far less developed compared to other developed markets. The market for +5 year bank issuance is thin, and therefore pricing is inconsistent and the market is not deep. By issuing into the US / Euro / Yen markets, banks can secure longer term duration at a very low cost.
But when the banks issue USD/EURO/YEN denominated bonds, no domestic funding is raised for AUD banks. All Australian based loans are in AUD, so holding USD is pretty meaningless. So the mechanics of a foreign bond issue are as follows.
Aussie bank selects a foreign bank as settlement agent (say Wells Fargo) 1. Bank issue USD Bond (say US$500m) - sold by the joint lead managers, which would probably include Wells Fargo. 2. On settlement the Aust bank has a US$500M liability and US$500M cash held on deposit with Wells Fargo 3. Aust bank then sells US$500m and buys (say) A$700m in FX market (consequently pushing up AUD) - they will simultaneously enter into a forward FX rate agreement with Wells fargo to receive USD on the same say of bond maturity. This effectively hedges the banks liability against adverse FX movements. 4. The A$700m acquired in the FX market already exists in Australian deposits accounts, so the net change in Australian bank funding from this transaction is ZERO.
Conclusion Technically banks are encouraged to access term for their liabilities due to regulatory and commercial considerations. But the idea that Australian banks “source funding” from either the domestic or foreign capital markets is highly misleading.
And in the event there is some type of credit event where offshore markets were no longer willing to re-finaince existing bonds, it will have no impact on the banks ability to extend credit in the local market (as the loan creates the deposit). BUT it will have a major negative impact on the currency as our banks will be forced to sell AUD and buy USD so as to settle the maturing bonds (this ignore the possible CB response of putting in place temporary swap lines).
I hope this helps.
*** yes I know I can contact a foreign bank and ask them to hold my AUD deposit - but if I were to do this, the foreign bank simply places the AUD deposit back with an Australian bank (since this is the most efficient method to hedge currency risk). So even in this rare case, the AUD still ends up in the Australian banking system.
That's a nice bit of peripheral theory but the context of this conversation is the stability of the Australian banking system.
How "fully funded" were also those deposit making through loan issuing American banks that required a bailout? Same story, they were trading in their own currency too.
If overseas funding is a red herring then what could bring them a cropper?
I presume you accept that both of the following could necessitate a bailout:
1. Australian banks being frozen out of inter-bank markets; 2. Mass delinquency on the loan book or likely a combination of both.
That's all the really matters here; I am quite sure that in the event that they did get into trouble the RBA would bail them out with freshly minted dollars if necessary.
herbie
8 Sep 2017, 02:01 PM
No link to that Australian policy doc yet mate?
Hmmm - Have ya ever considered changin' ya handle ta Cruditas?
What are you talking about?
Australia has housing policy irrespective of whether it is summed up in one document.
Just as we have education policy, health policy, public transport infrastructure policy.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Australia has housing policy irrespective of whether it is summed up in one document.
Just as we have education policy, health policy, public transport infrastructure policy.
Goodo.
Then seeing there's no link you can provide BUT you seem to reckon you know what Australia's housing policy is (whilst I don't), please be so kind as to enlighten me re same ...
Hmmm - A simple little dot point summary will/would suffice as a start at least?
A Professional Demographer to an amateur demographer:"negative natural increase will never outweigh the positive net migration"
Then seeing there's no link you can provide BUT you seem to reckon you know what Australia's housing policy is (whilst I don't), please be so kind as to enlighten me re same ...
Hmmm - A simple little dot point summary will/would suffice as a start at least?
Just google it Herby.
There is a world to discover about how political decisions effect how Shelter is provided to the citizenry of this country.
The sum of these decisions is correctly described as policy.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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