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 (10,593 Views)
Strindberg, while it is true that Irish banks suffered badly from delinquent loans to developers, Anglo being the chief culprit, Allied Irish Bank and Bank of Ireland (the two main retail banks) have suffered badly from the weakness of their mortgage book. This matter remains unresolved in large part but is reflected in its share price of both banks and the fact that the Irish Government have had to transfer capital to both banks more than once since 2008.
The major problem for all three of those banks was commercial/business loans, not retail loans. You can lie and post irrelevant charts and say otherwise but it simply makes you look a bigger dick. When commercial unsecured loans go bad the loss to the banks can be 100%. That doesn't happen with residential mortgages even if house prices fall. The "chief culprit" in Ireland had almost no retail loan exposure and went bust. Your favoured model of banks lending to businesses rather than people was adopted by Anglo Irish. Yet again, we see that Australia is very different to Ireland.
The banks are acting in their own interests and in the interest of their shareholders. The economic systemic risk associated with the banking system is managed via regulation of those self-interested businesses via the RBA and APRA.
The problems in other countries stemmed primarily from their own regulatory failings, and the resulting poor lending and capital destruction. Our system in Australia has been PROVEN by recent events to be on a much more solid standing in this respect, hence my level of comfort with the current status-quo.
PS: Your admission re "yearning for some sort of communist type controlled economy nirvana" is very also pertinent and interesting. I'll keep that in mind when reading your comments in the future.
So basically anyone who wants reform of the banking sector is a communist?
All those people who protested during Occupy Wall Street? Or 80 years before, the last time banksters brought down the global economy, are communists.
Is this the part where I call you a crypto fascist Uncle Tom?
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
I don't believe that is or can be known. If you take out a home equity loan or HELOC the money is yours to use as you wish.
In previous times, the loans now taken out to purchase other things, like supporting small business, were secured either by nothing or by a rapidly depreciating asset like a boat or a car. Securing these loans against property actually improves the position and strength of the banks and benefits the borrowers with lower interest rates.
hang on.. no-one knows or can access the actual figures for business /personal lending using housing mortgages as its unregulated and simply all lumped together as a home equity loan... ?
that doesn't sound troubling if we hit a downturn
Could be interesting as we might actually have statistics showing increasing mortgages in an economic downturn due to people having to take out second mortgage / refinance to try keep their house after their business fails and bank tries to claim equity on the house..
Interest is a net cost to the economy that needs to be paid for by increased productivity. Without increased productivity, interest is purely inflationary.
Balls. Interest is simply a transfer of money from one party to another party and leaves the money supply and aggregate wealth unchanged. Interest received or paid gets recycled. The initial loan increases money supply and repayment reduces it. Interest is entirely neutral and is simply money of which ownership changes.
The major problem for all three of those banks was commercial/business loans, not retail loans. You can lie and post irrelevant charts and say otherwise but it simply makes you look a bigger dick. When commercial unsecured loans go bad the loss to the banks can be 100%. That doesn't happen with residential mortgages even if house prices fall. The "chief culprit" in Ireland had almost no retail loan exposure and went bust. Your favoured model of banks lending to businesses rather than people was adopted by Anglo Irish. Yet again, we see that Australia is very different to Ireland.
Ah Goebbels you are in great form today.
Must protect the core message at all costs eh?
You are putting words in my mouth.
I clearly said that the profile of lending looks like the Irish banks minus the developer loans
Understood? that means without the develop loans. and a third time, the profile of mortgage lending is similar but not, based on this data, in the case outstanding loans to property developers.
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
Would you rather the banks have more lending exposure to mining, retail and manufacturing?
The housing book is high quality assets and the average LVR across the book for, say, CBA is around 30% I recall. Good old fashioned banking business, lots of small exposures, geographically spread, fee and interest margin income. It's where banks depart from this business model they come unstuck.
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.
That is basically true - hence you want a banking / financing system that results in the lowest possible interest costs in aggregrate for both business and the household sector. Ie lowest cost possible for access to capital when it is needed. The current system results in lower over-all interest costs (net of inflation) compared to previous more regulated systems, especially for individuals and small/medium sized business.
Yes, the current system lowers the cost of capital, but it lowers the productivity gains even more! Mortgage borrowing is not a value adding activity. And by value adding I don't mean renovations, I mean productivity gains. If existing home owners borrowed against their house to put R21 insulation in and double glazed windows, and solar panels on the roof, then the energy cost of accommodation would decrease dramatically, which would more than pay the interest on the loan. But mortgage borrowers do not make the housing stock more productive, only more expensive, so the net result is inflationary. Fortunately, there are 2 billion poor people living under dictatorships/corrupt kleptocracies that we have been exporting this inflation to. How long that will last is anyone's guess.
I clearly said that the profile of lending looks like the Irish banks minus the developer loans
Understood? that means without the develop loans. and a third time, the profile of mortgage lending is similar but not, based on this data, in the case outstanding loans to property developers.
The profiles were never the same.
Do you mean minus the builders loans too?
How many minuses do you want and still call them the same?
So you want Australian banks to lend to businesses but not to property developers or builders.
Balls. Interest is simply a transfer of money from one party to another party and leaves the money supply and aggregate wealth unchanged. Interest received or paid gets recycled. The initial loan increases money supply and repayment reduces it. Interest is entirely neutral and is simply money of which ownership changes.
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