Moody's Assessment of Overvalued Australian Housing: Local analysts don't know how serious it is; Stark warning bells sound: Australians blind to impending financial Armageddon
Tweet Topic Started: 16 Jul 2013, 09:36 AM (10,590 Views)
Actually--rather emphatically--yes, particularly with respect to the latter two.
From a risk management perspective, a sound banking system, much like a conservative investment portfolio, will be diversified in its sectoral allocation, and will not over-allocate its exposure to any one sector, whether consumer mortgages or anything else.
And from a national economic growth perspective, which surely corresponds with the Big 4's commercial interests over the long haul, allocating lending resources across a more diversified business portfolio (i.e. perhaps trending down in mining and consumer real estate compared to recent activity) anticipates a more broadly based set of growth opportunities based on recent changes in exchange rates and commodity price levels.
Why *wouldn't* you rather have the banks have more lending exposure to retail and manufacturing, considering recent changes to the exchange rate and national terms of trade?
The big 4 are predominately retail banks. They lend to consumers. That is their business model.
The big 4 pretty much only do asset lending not cashflow lending. Even in the corporate part of the bank lending on the basis of the cashflow of a business is very rare. In Australia the robust public equity market (eg ASX) provides cashflow based company financing. The public equity space is funded to a siginificant extent by you super. At the next tier down private equity firms will do equity and debt financing on the basis of expected cashflows.
Loan facilities to major household name companies won't even be done by a single bank, they will club together to provide a portion only and want to see that the others are in before they are happy to (this will include some of the Aussie banks and foreign banks that operate here).
Banks ask businesses to put up assets before they'll lend to them. This seriously limits bank lending to business as 'the modern way' is to run businesses on low assets (therefore enhancing return on equity).
Other than a nominal overdraft in the tens of thousands of dollars, small business owners will be asked to put their house up as security for a business loan. If you don't have a house you'll struggle to get a loan of more than a trivial amount.
You may agree or disagree with the way our institutions are structured. Personally I have no serious issues with it.
On your specific points below, banks aren't looking for growth opportunities, they are just looking for people that will pay them back. They don't get any equity uplift from picking growth areas.
Sweetdish
16 Jul 2013, 06:42 PM
Yes and no.
Housing is good to spread risk but if housing is your main asset in a country with no other assets than housing you may have a problem.
This is true. If house prices crash and banks are exposed to them the banks will be in a spot of bother.
Lets hope that doesn't happen.
This could happen but I don't believe that if it happens here in Australia it would have been caused by the banks.
Veritas
16 Jul 2013, 03:14 PM
Eh...of course.
Please explain to me how banks switching their lending away from job creating businesses to investment in ensuring we have some of the most expensive real estate in the world is desirable?
I understand why it works for the banks, but why does it work for your average joe?
I said nothing about it being desirable. I make no value judgment on banks lending allocation.
It benefits Joe in that borrowing is relatively accessable.
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
House prices in Australia are set by what people are willing to borrow and what banks are willing to lend.
And banks during the last 20 years have been willing to lend an awful lot to shit loads of people.
Debatable in the extreme.
Just as credit availability increases access to home ownership so too does it inflate the price of houses.
So average joe is getting a loan quicker and maybe easier than he would have in the past but the period of debt slavery is longer and more severe.
To promote a mass sell off by stressed mortgagors you need high interest rates and high unemployment. At the moment we have neither.
People won't sell at a loss unless they are forced to so they just hang in there. as a potential buyer that might not make sense to you, but it doesn't have to make sense to you, it only has to fit the sellers mindset.
Credit doesn't increase prices, that takes a shortage and then credit enables a price rise. In areas globally where there is a surplus prices have fallen.
Fast melt; Oil shock, collapse in commodity prices, frozen international debt markets, govt austerity leading to massive job losses, epidemic, natural disaster affecting a major city, large scale contamination, war, insurrection.
In addition certain slow melt causes such as rising unemployment (however caused or through multiple causes), regulatory change, over building, stock market crash (cold be fast or slow).
None of those named are related to Australian bank activity, except maybe over building (depending how it's funded).
“You Keep Using That Word, I Do Not Think It Means What You Think It Means” - Inigo Montoya
To promote a mass sell off by stressed mortgagors you need high interest rates and high unemployment. At the moment we have neither.
People won't sell at a loss unless they are forced to so they just hang in there. as a potential buyer that might not make sense to you, but it doesn't have to make sense to you, it only has to fit the sellers mindset.
Credit doesn't increase prices, that takes a shortage and then credit enables a price rise. In areas globally where there is a surplus prices have fallen.
yeah, i take your point.
Its a mass infusion of credit (demand) in the face of rigid inadequate supply.
I agree with you that, really, a recession is required to cause a major correction.
Or something that would cause investors to run for the door.
Or like i said a bolt from the blue that causes a credit contraction.
barns
16 Jul 2013, 11:48 PM
Fast melt; Oil shock, collapse in commodity prices, frozen international debt markets, govt austerity leading to massive job losses, epidemic, natural disaster affecting a major city, large scale contamination, war, insurrection.
In addition certain slow melt causes such as rising unemployment (however caused or through multiple causes), regulatory change, over building, stock market crash (cold be fast or slow).
None of those named are related to Australian bank activity, except maybe over building (depending how it's funded).
Cool.
What I meant was the banks keep the wheel turning.
Something fucks with their ability to lend and the wheel stops turning.
I'm merely highlighting the absolutely central role of bank lending.
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
What I meant was the banks keep the wheel turning.
Something fucks with their ability to lend and the wheel stops turning.
I'm merely highlighting the absolutely central role of bank lending.
I believe the Aussie banks ar second order in a potential crash. That's why Moody's analysis doesn't concern me.
Unlike the US where the banks were first order as they lent to people that fundamentally couldn't repay. Here regulation means this isn't permitted (or is at least severely restricted).
“You Keep Using That Word, I Do Not Think It Means What You Think It Means” - Inigo Montoya
If you and enough people find it tradeable then it is money to a limited degree, it just won't be as accepted as other forms such as cash. Digits on a computer screen can be money, as long as both parties accept them as money.
Catweasel say in white picket fence the world.
Bitcoin is maybe the bit frighten.
If the Catweasel purchase from a Japan from a Vietnam to a Singapore, what a happen to a money supply?
Is a debit/credit the monetary system framework of a universe?
Or just white picket fence confines?
barns
17 Jul 2013, 12:02 AM
I believe the Aussie banks ar second order in a potential crash. That's why Moody's analysis doesn't concern me.
Unlike the US where the banks were first order as they lent to people that fundamentally couldn't repay. Here regulation means this isn't permitted (or is at least severely restricted).
I believe the Aussie banks ar second order in a potential crash. That's why Moody's analysis doesn't concern me.
Unlike the US where the banks were first order as they lent to people that fundamentally couldn't repay. Here regulation means this isn't permitted (or is at least severely restricted).
I presume you mean barring a significant rise in unemployment.
Point being, you dont need subprime lending to fuck your mortgage book.
All you need is for the dude paying the mortgage to lose his job on a house worth less than he paid for it.
There was virtually no sub prime in Ireland and the UK.
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
If the Catweasel purchase from a Japan from a Vietnam to a Singapore, what a happen to a money supply?
Is a debit/credit the monetary system framework of a universe?
Or just white picket fence confines?
If someone doesn't trust the Bitcoin then they won't accept it as payment, so for them it isn't money although it may be for you.
Cash is only an accounting system, it has no intrinsic value. If I did a job for you for $100 then you owe me $100. If you were able to supply me with goods valued at $100 that I wanted then no cash need change hands. But if that wasn't the case then you give me $100 in cash or digits in my bank account to spend elsewhere - it's only an accounting system that is very helpful for tax collection as it allows record keeping.
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