RBA slams macroprudential tools

By Leith van Onselen

Find below a speech today by Reserve Bank of Australia’s (RBA) Head of Financial Stability, Luci Ellis, on macroprudential policy.

In the speech, Ms Ellis essentially plays down the need for macroprudential policy tools in Australia – such as loan-to-valuation (LVR) ratio limits, loan serviceability limits, and the like – arguing instead that effective micro-prudential supervision from Australia’s financial sector regulators (APRA, ASIC, and the RBA), whereby they closely monitor individual risks and respond accordingly, is a better approach in the Australian context.

A few things, in particular, peeve about Ms Ellis’ speech. She basically makes no counter-arguments as to why macro-prudential tools are undesirable, and instead offers a series of motherhood statements suggesting that Australia’s regulators are on top of the risks, and would respond accordingly, so there is no need to worry.

She is also quick to point-out the raft of regulatory failures in the US, all of which is true, arguing that these could have been avoided by better prudential regulation. Let’s not forget, however, that Ms Ellis was very comfortable with the the huge run-up in housing values (and bank balance sheets) in 2006, and claimed that it was not a major concern for financial stability in the US or globally:

The resulting expansion in both sides of the household balance sheet is an important development for policy-makers to monitor, but it is probably not of itself a cause of financial instability…

Particularly in North American markets, simple ratios have given way to credit scoring and risk-based pricing, so that loan sizes and pricing are more closely tailored to individual borrowers’ circumstances. To the extent that this reduces the margin of safety for some borrowers who are now able to borrow more than the older practices would have implied, this might mean that more households are facing greater financial risks than previously. But overall, this easing of financial constraints is a reflection of their ability to repay and withstand those risks. Therefore it cannot be assumed that a shift away from the earlier lending practices based on rigid ratios implies that financial vulnerability has increased in any significant way…

[And] The most important lesson to draw from recent international experience is that a run-up in housing prices and debt need not be dangerous for the macroeconomy, was probably inevitable, and might even be desirable..

If Australia’s Head of Financial Stability was unaware of the risks, what makes anyone think that other regulators will be any better the next time around? At least if macroprudential tools had of been in place in the US over the 2000s, such as blanket caps to LVRs on mortgages as well as minimum loan serviceability requirements, then credit and house price growth would have been mitigated, and the damage would likely have been less severe.

Ms Ellis also makes the spurious claim that binding limits to LVRs would be ineffective, as they would only effect first-time buyers (since trading-up buyers typically have significant equity), therefore “most buyers would be little affected”. As such, Ms Ellis claims that LVR limits “would not prevent boom-bust cycles in housing prices”. This argument is highly questionable. First home buyers (FHBs), along with investors, are key sources of new mortgage demand and chief enablers of the upgrader market, since upgraders typically sell to FHBs or investors. If mortgage credit is restricted to only credit worthy FHBs, then it automatically has flow-on effects up the chain, reducing overall credit and house price growth.

Basically, Ms Ellis’ speech is a thorough endorsement of regulator discretion when, in fact, the history of housing bubbles here and abroad, suggests that regulators are prone to the same forces that sweep away the market. Big, dumb rules are the best regulation.

Ms Ellis’ full speech is below. I am interested in your views (no personal attacks please).

Macroprudential Policy: A Suite of Tools or a State of Mind?

Luci Ellis*
Head of Financial Stability Department

Paul Woolley Centre for Capital Market Dysfunctionality Annual Conference
Sydney – 11 October 2012

I would like to thank the Paul Woolley Centre for inviting me back to speak to this conference. I am particularly grateful to have the opportunity to do so in a session chaired by Ian Macfarlane. Ian was instrumental in setting the tone for the way we at the Bank think about financial stability policy today. His example helped us take the historical insights of authors like Charles Kindleberger and transform them into a practical approach to analysis.

The financial crisis has spurred a huge, multifaceted regulatory response. I know Jim Murphy is going to talk about some of the reforms that have actually happened or are in train. I would like to talk about just one element of that response: the calls for a so-called ‘macroprudential policy framework’. Development of such a framework is at a rather early stage, but it’s attracting a lot of attention and energy. For example, following their meeting in Seoul in late 2010, G-20 Leaders called on international agencies to do more work on the subject, which they have done.[1] But what is a macroprudential policy framework? Is it separate from financial stability policy? Does Australia really need a whole new framework?

As background for the IMF’s recent Financial Sector Assessment Program review of Australia, APRA and the Bank prepared a paper on how we think about financial stability policy and its macroprudential dimension. In essence, we see ‘macroprudential’ policy as being subsumed within the broader policy framework for promoting financial stability. That seems to be something of a minority view internationally. So we published the paper last month, after the IMF visits had concluded, to put our take on this subject into the public domain.[2]

Today I would like to give a little more detail about our thinking on the issue of macroprudential frameworks, as set out in that joint paper. After giving a brief history of the term ‘macroprudential’, I will organise my remarks around three assertions, which are consciously intended to be a little more sceptical about the idea that a whole new framework is needed than some international commentary has been. In doing so, I hope to provide a bit more clarity about the international policy debate.

First, macroprudential policy is only a subset of the policies intended to enhance financial stability. For a start, it is not really designed for managing crises when they do occur. It does no good to muddy the waters by claiming things as macroprudential for the sake of it.

Second, most supposedly macroprudential policy tools are in fact the usual prudential tools long used by ostensibly ‘micro’ prudential supervisors. What is ‘new’ is the motivation behind their use. Even that is not particularly new in many countries, including Australia.

Third, the build-up to the recent crisis resulted more from a microprudential failure than a macroprudential one. The easing in US mortgage lending standards, the growing reliance on short-term wholesale funding, the low risk weights applied to complex and highly leveraged structured securities were all things that an avowedly microprudential supervisor could have – and arguably should have – noticed and responded to.

Certainly, a more holistic, or system-wide, perspective could help supervisors see if risks are building up. This could happen because many individual institutions are doing the same risky things. Or it could happen because particular risks have become concentrated in a few institutions. But that macro perspective does not necessarily require a whole new institutional or policy framework for regulation. It possibly might not even require new policy tools. I would argue that macroprudential policy is indeed more of a state of mind than a suite of tools. I think it would be a mistake if a focus on macroprudential frameworks were to occur at the expense of much-needed reforms to normal prudential policy arrangements, both at the international level and in some of the jurisdictions overseas where the crisis began.

It would also be a pity if a false dichotomy between macroprudential and microprudential supervision were to be drawn. The two perspectives do not need to be pitted against each other. They can both be parts of one, holistic, view of financial regulation and supervision, which is how we see it in Australia.

What is Macroprudential Policy?

The term ‘macroprudential’ first appeared in internal documents of the precursor to the Basel Committee in the late 1970s.[3] The BIS and others started using it publicly by the mid 1980s. It isn’t a new term; neither are the concerns behind it. The underlying idea was that prudential supervisors should take a system-wide view in the way they supervise. They should recognise that the actions of individual firms can collectively generate systemic risk, even if those actions are individually rational. They should recognise that risk can build over time, and that the distribution of risk can matter. And according to this view, they should avoid focusing narrowly on the safety of individual institutions without regard to the feedback from those institutions’ behaviour to the wider system.

So the original idea behind ‘macroprudential’ policy was a sensible one. It was about how prudential supervisors should do their job and the perspectives they should have. The policy tools are the tools of prudential regulation and supervision. I would go as far to say that what others think of as macroprudential supervision, the Australian authorities consider simply to be competent supervision.

Not all Financial Stability Policies are Macroprudential

Not every policy that helps financial stability can be reasonably labelled macroprudential. It would be needlessly confusing to shovel everything into that category. Why not just call it financial stability policy, after all? For example, central banks’ provision of liquidity to the market is as old as central banking itself. It is clearly helpful for financial stability, both before and during a crisis. But is it macroprudential? I have heard some claim so, but I don’t see it that way.

We should also remember that not every policy that helps financial stability was necessarily enacted with that purpose in mind. Sometimes, policies are worthwhile for completely different reasons, but happen to be helpful for financial stability as well. A good example of this is consumer protection regulation around the provision of credit. Consumers generally have less information and expertise in financial matters than the firms that lend to them. Regulators try to redress this imbalance in regulation. For example, they might specify what lenders must tell consumers about the loans they offer, or impose more general requirements that the loan product must be suitable for the borrower. This is seen as worthwhile because it prevents possibly vulnerable people from being ripped off or simply from unwittingly making a decision that is not in their interest.

A well-designed consumer protection regime can be very useful for financial stability, even though that is not its primary intention. Australia’s National Consumer Credit Code requires that the lender must be able to show that the consumer can be reasonably expected to repay the loan from their own resources, without having to sell the collateral. (So did the state-level Uniform Consumer Credit Code that preceded it.) If not, the loan can be modified or even set aside by the courts. Lenders then have incentives to extend credit responsibly. They should especially want to avoid the asset-based lending and ‘no-doc’ lending that caused so many problems in the United States in the lead-up to the crisis. It’s no surprise that the US regulation was not uniform, and did not cover all borrowers.

Macroprudential Tools are Prudential Tools

As I mentioned before, the original idea behind macroprudential policy is that it is, in essence, prudential policy. Many of the so-called macroprudential tools currently being discussed in international forums are the usual tools available to a prudential supervisor – liquidity rules, risk weights, capital standards, large exposure limits and so on. They might be calibrated differently, and the reasons motivating their use might differ. It is in this sense that macroprudential policy seems new. But in most cases they are the same old policy tools, just as the original proponents at the BIS intended.

Part of the confusion in recent international discussions seems to lie in how some observers think prudential supervisors operate. It has become common for observers overseas to refer to bank supervisors like APRA as ‘microprudential’ regulators. A distorted view of how supervisors do their work has arisen, one I consider quite unhelpful. The misconception is that supervisors charged with ensuring the safety and soundness of banks are thought incapable of looking beyond the individual bank they supervise. It’s such a caricature of prudential supervisors that the best way I can think of to explain why it’s a misconception is to show you a cartoon (Figure 1).

The view of some observers seems to be that a ‘microprudential’ supervisor is like this self-satisfied looking fellow, complete with a capital adequacy report on his desk. He is saying, ‘The bank I supervise is well capitalised, and that’s all I have to care about!’

Figure 1: The Microprudential ‘Nutter’

Figure 1: Cartoon showing a self-satisfied looking fellow, complete with a capital adequacy report on his desk. He is saying, ‘The bank I supervise is well capitalised, and that's all I have to care about!’
Image: RetroClipArt/Shutterstock.com

It might well be that there are supervisors who think in this narrow way. But I labelled the cartoon as the ‘microprudential nutter’ because it reminds me so much of a concept popularised by Sir Mervyn King (King 1997). He made the point that even if a monetary policymaker cared only about inflation – an inflation ‘nutter’, as he put it – monetary policy would still respond to output, because output tells you something about future inflation. Likewise, any sensible prudential supervisor knows that the number one cause of bank failure is a systemic crisis, and that the safety of the bank they supervise depends on the environment around it. Even a microprudential ‘nutter’ would look at the big picture. So I think a better cartoon version of a good prudential supervisor looks something like Figure 2.

Figure 2: ‘Holistic’ (Micro)prudential Analysis

Figure 2: Cartoon showing a good prudential supervisor thinking ’Hmm... a systemic crisis could harm the bank I supervise... I should watch for signs of one!‘
Image: RetroClipArt/Shutterstock.com

It is in this sense that I would argue that macroprudential policy really is about the state of mind, not the suite of tools. The tools are already there. It is in how they are meant to be employed that the differences between micro and macro arise.

In fact, I would dispute that there is much different in macroprudential policy from supervision as it is currently practised in many countries.[4] Like the old joke about people discovering that all these years they had been writing prose, I suspect that a lot of bank supervisors are discovering that they are really macroprudential, and have been all along.

For this reason, I would caution against efforts to invent too many ‘new’ and untried tools, particularly ones designed to be manipulated over the cycle, much like monetary policy. One such tool we’ve been hearing about from other jurisdictions lately is to set a cap on loan-to-valuation ratios (LVRs) for mortgages, and then vary that cap from time to time. Obviously it is prudent to have some sort of limit to the leverage in collateralised loans such as mortgages. The alternative would be the situation in the United Kingdom or the Netherlands, where one could borrow as much as 125 per cent of valuation and, more importantly, where many people actually did so, not just a small fringe. I don’t think that is good practice. People need to provide some deposit when they buy a home. It protects them if something goes wrong for them, like a job loss or illness, especially if it happens at the same time that housing prices are falling.

The question is whether policymakers should go further and set maximum ratios well below 100 per cent, and whether that maximum should be varied periodically. This might be sensible for the jurisdictions that have adopted such a policy. For some of them, their exchange rate regimes constrain them from raising interest rates instead. But that is not relevant in Australia. I also have a number of conceptual reservations about an LVR cap. These lead me to question whether this kind of product regulation is a suitable prudential tool in the Australian environment.

The first issue is that this kind of policy is only relevant for home mortgages. Business lending can be more easily structured around such a restriction, especially the property development loans, which are particularly risky. And for unsecured lending, it’s not even relevant. In any case, high LVR loans are still available to at least some borrowers in jurisdictions that set this cap. In Hong Kong, the excess over the cap is covered by the government-sponsored mortgage insurer. This is not so different from Australia’s prudential framework, which requires higher risk weights on high LVR loans, especially those that are not insured.

The second issue is that the cap would have to be set very low to be binding on existing home buyers who are trading up. First home buyers would be squeezed out, but most buyers would be little affected. Third, the cap would not prevent boom-bust cycles in housing prices. The evidence from overseas is that it instead limits the increase in arrears rates that occurs when the bust comes.[5] That is because the borrowers who get into difficulty are more likely to have some equity, even if prices fall. They can therefore sell rather than default. That’s not a bad thing, but in the end our responsibility for financial stability is about protecting the real economy. Protecting the banks from the real economy is not the ultimate goal.

I also worry that focusing too much on the LVR would be a mistake. Lenders that do that are engaged in asset-based lending, which is exactly the kind of practice we would want to avoid. There are many other dimensions of lending standards beyond LVRs.[6] In my view, the borrower’s ability to repay is more important than the collateral. Lenders also need to think about how certain they are about the valuation in that loan to valuation ratio. One of the things that went wrong in the United States during the boom was that the valuations behind the lending decisions were often flawed, or even fraudulent.

The Current Crisis Partly Stemmed from a Microprudential Failure

As with many other reforms that have been proposed since the crisis, new macroprudential policy frameworks are being advocated with the view that these might help prevent similar crises in future. But would they? Well, maybe. I am not convinced that they would be the most effective approach. If we think about what went wrong in the United States in the lead-up to the crisis, it was in essence that a lot of bad assets were created – in this case mortgages and the securities based on them – and that these bad assets were distributed around the global financial system, primarily to entities that were funding themselves at very short terms. How was this possible? Obviously there were lapses in risk management and governance at the banks and other firms involved. In part, though, it was also a failure of prudential supervision that enabled those lapses. Many of the lenders weren’t supervised at all. Of those that were, many nonetheless were not stopped from making loans of dubious quality. That was a microprudential problem.

There was a macro-level element to the boom: those poor-quality loans were packaged up and distributed around the world. Each national supervisor thought that it was a good idea to transfer the risk out of their system. It could then be spread across the world, supposedly more thinly. That showed a lack of macro perspective. But it was also a microprudential failure, because banks were allowed to buy these securities without holding enough capital to cover their risk. Risk capture – getting the risk weights broadly right – is very much a micro-level aspect of prudential regulation. Macroprudential frameworks would not have solved this problem.

Nor was a macroprudential institutional framework strictly necessary to avoid the liquidity problems brought about by short-term funding of these security holdings. Funding and liquidity are traditional, micro- or institution-level concerns of prudential supervisors. It certainly needed more attention globally in the lead-up to the crisis. But this didn’t require a new macroprudential or systemic risk regulator. It just needed more attention from the supervisors and the Basel Committee.

Where Does that Leave Financial Stability Policymakers?

If all of the tools are in the hands of the prudential supervisor, what role does the non-supervisory central bank have in financial stability policy? There are many things we can do, which we described in the joint RBA-APRA paper. Crisis management is one aspect. Liquidity provision is another. And there is also the one use of the word macroprudential that I actually feel comfortable about: macroprudential analysis. This involves identifying the risks in the financial system that ostensibly ‘micro’ prudential regulators can respond to. This does not mean looking only at macro-level data, by the way; it is usually the riskiest banks or borrowers that cause the trouble, not the average ones.

I can perhaps best explain how this works with another cartoon (Figure 3). I’d like you to imagine that the supervisor from the previous cartoon – I call him ‘Mike Rowe’ – receives a visit from the head of the central bank’s financial stability department, ‘Prue Denshall’, sometimes nicknamed ‘Macro Prue’. Prue has news for Mike: all the banks are doing crazy lending – systemic risk is rising. And Mike responds: ‘Gosh, thanks, “Macro” Prue! I’ll raise their Pillar 2 capital add-ons right away!’

Figure 3: Macroprudential Analysis Supporting Prudential Supervision

Figure 3: Cartoon showing that a good prudential supervisor – ‘Mike Rowe’ – receives a visit from the head of the central bank's financial stability department, ‘Prue Denshall’, sometimes nicknamed ‘Macro Prue’. Prue has news for Mike: all the banks are doing crazy lending – systemic risk is rising. And Mike responds: ‘Gosh, thanks, “Macro” Prue! I'll raise their Pillar 2 capital add-ons right away!’
Image: RetroClipArt/Shutterstock.com

Of course, it’s just a cartoon. In reality, if lending standards were imprudent, Mike would already know about it. And Pillar 2 capital add-ons aren’t the only tools at his disposal. That said, I’d like to draw out a few points from this picture. The first is the focus on lending standards. Risk-taking, here in the form of easier lending standards, is what we are watching for. It’s about behaviour, not a single number. The second is that a qualitative assessment might well be good enough. Prue isn’t telling Mike that her favoured measure of systemic risk has risen to such and such a level, and that this has breached some trigger point. Existing models of systemic risk simply aren’t good enough to be relied on that way, and they probably never will be. But informed judgement is probably good enough in most cases.

The third point to note is that Mike already has the tools at his disposal to respond. Prudential supervisors have always had the scope to increase banks’ minimum capital ratios above the Basel minimum. That is what Pillar 2 of the Basel framework is for. Not every supervisor used that power, but it was there.

The fourth and final point about this picture is that Mike believes Prue, and is willing to act on it. This is pretty much how it works in Australia. It comes down to the relationship between the agencies and the culture of the supervisor to create that willingness. There doesn’t need to be a so-called systemic risk regulator issuing public warnings or directions, telling the supervisor what to do. Some jurisdictions might want to set things up that way, but there are other ways that might be better here. In Australia, we think that a culture of cooperation, dialogue and mutual respect is more important than formalised arrangements. The Council of Financial Regulators has proved itself to be a low-cost, flexible way of coordinating between agencies, alongside bilateral relationships. We think we have the essential elements needed to promote financial stability with a holistic frame of mind. In the end, what is needed is the wisdom to see the problems and the willingness to act in response. No elaborate set of institutional arrangements and rules can manufacture those two things.

Thank you for your time.

Twitter: Leith van Onselen. He is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

Unconventional Economist

Comments

  1. The sole objective of reserve banks is to enhance the profitability and solvency of commercial banks regardless of loan quality – her response clearly demonstrates this.

  2. If ever there was any doubt, we now know for sure which team the RBA is batting for.

    Let’s look on the bright side. We dont have to deal with ambiguity.

    • Yes – I assume you are talking about the “debt is fine in our safe hands” team.

      It is very consistent with the Platypus Speech of last year.

      No need for measures, indicators, controls or anything that might cramp the application of the powers of electroreception – the ability to detect things using highly sensitive organs in the snout.

      Debt is fine until it isn’t and we should just trust the finely tuned electrodes of the RBA who will communicate their ‘readings’ on the economy via interest rates and opaque tin-plating statements that will keep the whole family busy for hours discerning their meaning.

      I suppose it is hard to be more direct on the subject of the risks of outstanding household debt when the levels are currently over the top and the RBA did not do much to stand in the way.

      Adopting more specific measures/controls/indicators now, that would tend to demonstrate the past mistakes made by the RBA, is hardly consistent with the ‘positive energy’ and ‘cheer up charlie’ approach currently being deployed.

      Nothing to see move along.

    • True GSM. I also see it as more and more certainty that the RBA is just like their friends in other central banks. They work for their mates in the banking fraternity group and not for the well-being and the interest of the nation.

      • “They work for their mates in the banking fraternity group and not for the well-being and the interest of the nation.”

        My sentiments exactly Deo.

  3. “There doesn’t need to be a so-called systemic risk regulator issuing public warnings or directions, telling the supervisor what to do. Some jurisdictions might want to set things up that way, but there are other ways that might be better here. In Australia, we think that a culture of cooperation, dialogue and mutual respect is more important than formalised arrangements”

    I can’t believe someone in her position would say something like this. Talk about giving a hostage to fortune!!!

    As for LVR only affecting FTB. This is only because we’ve had a housing bubble and many people are sitting on oversized piles of equity. Over time, this would play out as LVR limits prevented future bubbles forming.

  4. Interesting speech and assessment.

    Ellis is correct, placing LVR restrictions would only limit first time buyers, not refinances or upgraders, and FTB’s are not the area of the market that potentially causes problems.

    Banks lose money when they write bad loans, so yes I believe the market will self regulate in an appropriate manner.

    Impending changes to the credit reporting industry, lessons learned from the experiences here and elsewhere, and active policing of regulations should be enough to make a difference.

    • How does LVR restrictions only affect FHBers. Peter? If I, say, own 100 houses and want to debt finance another, don’t I have to submit a valuation of the portfolio to decide is I can borrow any more to add to the collection? And wouldn’t any LVR be taken into account in that case?

      • Well I will assume that your an individual, and not a construction company whose assets may be bundled.
        Honestly I’ve never seen anyone with 100 houses – maybe 20 or 30 but never 100.
        No one would cross collateralise that many securities, it’s way too hard and unwieldly. In fact mostly we don’t like cross collateralising at all, so the borrower would pick another property with a lot of equity in it, access some of that equity, and use that as a deposit for the next house. That way only two houses need valuations, and only one loan is disturbed, and one new loan is set up. Everything else is left untouched, although every single property commitment and rental would be taken into the servicing calculation – it would be a bit of a nightmare handling all of that – please find another broker – try Aussie, or anyone but me.

        For anyone with 100 properties they would need fairly low leverage overall otherwise the cashflow would pound them into the pavement – if you are running property as a business, then cashflow is everything, you MUST be positively geared.

        It’s one thing for a high income earner to get a little negative gearing on a property or two, but negative gearing on a manifold property portfolio is a whole different ballgame.

        I also doubt that someone with 100 properties would be exclusively in residential, they would diversify into different types of property at least.

        Does that answer the question? I suspect not – specifically what did you want to know?

        • Isn’t the whole point to extract the equity as each opportunity arises to maximise the potential of any portfolio, even your 20-30 properties? So what’s the probability then that there is one remaining property that has ‘a lot of equity’ in it; unless it’s been used on a previous purchase and no negative pledge has been taken ( ie: the same security is used twice or thrice etc). Given that, I’d suggest that any collection of properties is subject to combined LVR considerations, no matter whether it’s 1 – a FHBer, or 30 – a speculator. Otherwise in times of crisis two mortgage brokers might find themselves clamouring to gain security over the same property!

          • Janet, in the situation that you describe, any security property can only have one lender holding a first mortgage position against it, and that lender knows what the property is worth, and they know exactly what is owing on it, securities cannot be used twice.

            Absolutely no one lends against property without taking a mortgage – the mortgages are registered at the state government titles office, and the records are available for anyone to check, and they do check before they advance money. It’s called a “Search on Title” and it is comprehensive – costs about $12.

            Although second mortgages are possible, amongst investment property owners they would be a rarity.

            You may be talking about caveat loans, which may be used short term, but the caveat is also registered on the deed at the titles office.

            If a lender can’t get satisfactory security, they won’t lend – there are no ifs or buts about that.

          • So if the security is only used once, how does it get applied against another purchase – your ‘find one with a lot of equity in it’? Whatever mechanism is used a LVR would be applied, even if it’s a second mortgage. My point remains, that it is not just FHBers that would be affected by any LVR regime, but established owners as well, to a greater or lesser degree.

          • Janet – what you are saying would be true for a small investor with a couple of properties, but every deal has to service, so during the build up stage of the property portfolio they have to become positively geared, no one can sustain large ongoing losses even if they earn good money.
            The most important issue in any deal is servicing – you can lend on a high LVR to someone who can afford to pay back a loan, but you can’t lend to someone who can’t afford to payback a loan regardless of how much security they have on offer.
            I’m not talking about business loans where the owner of a security actually stakes their property on the viability of their business, that’s a different lending scenario.

            When you lend to someone buying property, the holding costs including making repayments can be accurately calculated, and the rental income can be accurately calculated, so it’s a pretty cut and dried deal.

    • Banks lose money when they write bad loans, ..

      … but bankers and mortgage brokers don’t lose money when they write bad loans. They just get out before the SHTF.

      Case in point is David Liddy and BoQ – happily writing bad loans in SEQ until the cows came home.

      so yes I believe the market will self regulate in an appropriate manner.

      Yeah, yeah.. we should all trust the banksters and mortgage brokers and let them be.

      • You know quite well that what you just said is WRONG – banks do lose money on bad loans – that is why they provision for them, and on top of that they have higher maintenance costs.

        Mortgage brokers are different I acknowledge that – they can lose money on bad loans, but in general are less likely to do so, although if they wrote an abnormal number of bad loans then lenders may withdraw accreditation, and their licence could be lost in an extreme case.

        • You are trying to talk up a point I NEVER disputed in the first place and obfuscate the point about self regulation.

          Tell us how bankers lose money when they make bad loans.

          • Banks lose money when they write bad loans, and bank staff put their jobs at risk when they write bad business.

            They have an audit process in place.

          • Peter, when the bank makes that loan it’s a computer entry on their balance sheet; they create that credit/debt.

            http://www.federalreserve.gov/pubs/feds/2007/200754/200754pap.pdf

            Page 3 of this paper says that Australia has no reserve requirements, but even if it does the bank has to hold a, say 9% reserve, to cover the loan. If the loan defaults, and the property is seized then it is auctioned off; you could loose some. But then check the tax code for this and in the end the banks loss is likely low.

            Deep T would know more, but I think it’s overblown. Banks make huge profits out of creating credit out of thin air.

          • If you drive in heavy traffic every day for a year you stand a decent chance of getting a dent or two, more so than someone who never drives.
            If you lend money 5 days per week 52 weeks per year for 100 years you will write a bad loan or two, whether the bad debts on the Gold Coast are the fault of David Liddy or the boards lending policy I really couldn’t say, but I think that I could say that the Bank of Qld would rather not have written any bad loans. Its always easy to criticise and be wise after the event, the reality is that in every 1000 business decisions, some will go wrong, and a loan is a business decision.

          • a63 – you’re going off topic, but just quickly a bank in Australia is required to hold deposits even if they don’t technically need them to create the funding, so there is no free money.

          • Oh come on.. You are obfuscating again and slowly backing away from your original point about bank self-regulation.

            Fact is Liddy lost nothing while BoQ was left holding the basket and made a loss on bad loans.

            Going forward, there may come a point where tax payers may be left holding the basket ala GFC. Hence self-regulation is a self-serving myth propagated by those who will profit from it – such as bank CEOs and mortgage brokers.

          • Peter, ok. Let me know in detail how the bank is loosing money as I’m interested. I’ve seen the bad loan provisions, but actually what is that in detail? Got a link? I can see how they might, but I want to know. Anyone can reply.

          • Its always easy to criticise and be wise after the event, the reality is that in every 1000 business decisions, some will go wrong, and a loan is a business decision.

            Where did criticise? I am merely pointing out that banksters/mortgage brokers get all the upsides and none of the downsides from those business decisions.

            You can wave your hands all day long and try to distract attention, but the truth tend to bubble to the surface.

          • mav, I’m fine with ceo’s and brokers being brought to justice if they have something wrong.

            I don’t hold Liddy in high regard, but I couldn’t say whether he was responsible for the bad loans on the Gold Coast, or it was just bad luck. I’m not prepared to hang someone without evidence, so exactly what do you have?

          • PF, are you trying to be deliberately obtuse? Where did I ever suggest that Liddy broke the law??

            All that I said was he got all of the upsides (via bonuses) and none of the downsides, from the business decisions.

            In such a scenario, self-regulation is a joke. Where is the incentive to play safe? In fact, the reverse is true – there is an incentive to place risky bets, collect the bonuses and lawfully get out before the risk time bomb explodes.

          • mav risk is a part of business and banking is a business. I think that you may be getting corporate governance mixed up with regulations.

            Every ceo makes errors.

          • Peter,you know if the heavy traffic drivers I knew,ran into as many private lives as the banks have…they wouldn’t be allowed to still drive similar billboards,for one day more,let alone a further five days a week to scot-free

    • Not true. FTB owns a house worth 500k with a mortgage of 400k, LTV 80%. Lets say this is the upper limit.

      Now they want to upgrade to a place for 700k, they need to find another 160k. How does this NOT affect them?

    • The Canadian rules are:

      * Maximum amortization period for a government-insured mortgage is 25 years (used to be 40);

      * Banks will still be allowed to offer 30-year amortization periods on low-ratio mortgages that include a downpayment of 20% or more;

      * The maximum Canadians can borrow against their home to 80% of its value (from 85%);

      * To qualify for a mortgage loan, Canadians can spend a maximum of 39% of their gross household income on home expenses such as mortgage, property taxes and heating, and a maximum 44 per cent of income on housing expenses and all other debt;

      * Ottawa limits government-backed insured mortgages to home purchases of less than $1-million.

      * A downpayment of at least 20% is required on mortgage loans for homes priced at or above $1-million.

      Flaherty said the government’s moves are part of an effort to “moderate behaviour” among Canadian homeowners and make them reflect before jumping into the housing market at the high end.

  5. Cognitive Dissonance

    The folks among us that has been around for a while will be rolling their eyes and shaking their heads

    Hell even the younger ones have gotten to see recently what good government agencies do in stopping disasters

  6. Ellis cites a BIS report as evidence the LVR caps don’t stop boom bust cycles, yet the conclusion to that very report states that:

    “LTV policy is effective in reducing systemic risk associated with boomand-
    bust cycles in property markets.”

    And that while “LTV policy can lead to liquidity constraints for some households,” it goes on to state that “potential liquidity constraints should not be considered a compelling reason for not adopting an LTV policy to
    contain the systemic risk associated with property price shocks.”

    Seems an odd paper to use as evidence of the inappropriateness of LVR policy…

  7. Effective micro-prudential supervision from Australia’s financial sector regulators (APRA, ASIC, and the RBA), whereby they closely monitor individual risks and respond accordingly, is a better approach in the Australian context.

    It seems Ms Ellis is talking herself out of a job. Or does the RBA actually monitor micro-level risks at individual banks??

    If so, can the Ms Ellis identify any individual risks (no need to name names) and the response/actions thereof taken by the RBA/banks? No? I thought so.

  8. Just the opposite of what they are doing in Singapore to deleverage via LVRs.

    http://armstrongeconomics.com/2012/10/06/singapore-is-deleveraging-real-estate/

    QUOTE

    “The new rules are:

    All residential property loans capped at a tenure of 35 years.
    Tighter limits for home loans longer than 30 years or which extend past age 65.
    If the borrower has no other home loan, he can now borrow only 60 per cent of the property’s value (down from 80 per cent).

    If the borrower has other existing home loans, he can borrow only 40 per cent (down from 60 per cent).

    Same rules apply for refinancing loans.
    Non-individual borrowers now subject to 40 per cent loan limit (down from 50 per cent).”

    I don’t understand the RBA. Are they saying it’s someone else’s job to worry about leverage and risk?

      • Reading lee Kwan Yew’s autobiography (the first one, talking about up to 1969)…

        He viewed corruption as the very worst aspect of civilisation.

        He was nominally a communist until he studied in the UK. After meeting European communists, he returned to Singapore avowed that he must stop it evert taking form.

        It was difficult, nationalism throughout post-colonial Asia found a bed fellow with communism, and he had to appeal to socialist sentiments…

        To be fair, he realises he has embedded it too much where he has stated too many Singaporeans are complacent and dependent on welfare, and it will bring them down.

        They will crumble however when the nepotistic regime of LKY puts in a mediocre leader.

        • RP, you should read both volumes of the LKY bio. They’re quite interested reading IMHO and you’ll learnt lots from one of the best statesmen of the past era.

          Most interesting is LYK insight and determination to have independent Singapore and prosperous one as well though it does not have most of essential natural resources in such hostile environment being a small nation that has Chinese people as their majority population in the middle of much bigger neighbours like Malaysia and Indonesia which have native Malays population with different culture and religion.

      • Besides their issue with freedom of speech and practically single party politic, actually living in Singapore is not bad. They even have better quality MPs compared to most other developed countries.

        But if you think to move there to get more affordable housing, then you will face nasty surprise. Their government has responded well in the last couple years to limit property speculation but the reason they did that is because the bubble there is even worse than here in Australia. The only safety measure they have is for citizen it is easy to get more affordable government developed HDB flat. But, for non-citizens, you will have hell trying to have affordable private condo units there.

  9. So Leith, HnH, Prince,

    We can safely assume the RBA will not be pushing for the intoduction macroprudential tools/restictions any time soon.

    Should we still cut rates further?

    • There will be rate cuts to prop. up bank balance sheets resulting from the sale of homes of the newly unemployed – due of Asia/global downturn in full swing.

  10. Diogenes the CynicMEMBER

    Disgusted with Ellis. This combined with Stevens talking out of both sides of his mouth and those issues surrounding bribes to win currency contracts makes the RBA look very tarnished. Ellis needs to go on the basis of this rubbish.

    LVRs affect everyone in a positive way! If a FHB cannot scrape up a deposit then highly likely they will be unable to pay off their loans without property prices rising. Ellis misses the plus points here – a hard cap LVR:
    (1) Protects the FHB from becoming a debt serf if property prices fall up to the limit of course.
    (2) Protects the bank from nasty losses by having a buffer of equity.
    (3) Protects the banking system from having to be bailed out which ultimately protects everyone from becoming a debt serf through higher taxes (see Ireland as an example)

    It also partially encourages a saving culture. As for business I cannot see how they are impacted most business loans require property as a security and LVRs are low 60-70% already.

    70% cap from tomorrow for new loans (personally I would like this to ultimately be 50%). Old loans have a 10 year period to work towards that with increasing capital buffers forced on banks for every year until they get a decent equity buffer. We might just avoid a banking crisis if this comes in.

    • savings = debt reduction = recession/depression = debt based money system. The only game in town is debt growth.

  11. All this proves time and time again is that the RBA as a whole does not know what it is doing, how the economy should be modelled, what the risk factors really are and their weight, and so on.

    In other words they aren’t fit for the job they have been placed in – and people who don’t know what are doing can be more dangerous than if we have no one manning the post at all. Time and time again these people have been debunked and proven wrong, and us taxpayers have to stump the cash/guarantees to make their predictions come true. Yet they still are the ones on top making the decisions. Doesn’t leave me with a lot of confidence.

    Again makes me question the need for a reserve bank in the first place at all.

  12. The big picture is pretty clear is it not?.The RBA has worked out that only by ramping residential construction can the looming hole in the road be avoided(Phil Lowe).The last thing you want if you are betting the farm on an uplift in residential construction(if that doesn’t mix too many metaphores) is people imposing new controls. Ergo-quiet everyone, she’ll all be good.Quite mad-but consistent.

    • God that’s friightening….

      “The minnig booms over fellas…. how to we avoid the fallout?.. put all that labour into building houses !”

      Now construction means “new houses”… hmmm….

      This is what I have said… current prices are based the perception of a housing shortage.

      In other words, there is an inbuilt scarcity premium.

      That can only reduce UNLESS a permanent housing shortage is structured.

      How anyone thinks a population will endure a permanent shortage for a human need, in beyond me.

      • How anyone thinks a population will endure a permanent shortage for a human need, in beyond me.

        My dark side said that the Australian governments in the last 10-20 years probably think they can get away with this because the new migrants are not “voters” and they don’t care if they have to live like cattles in over-populated units.

        I am not sure but it is common secret, at least in some suburbs in SYD that most houses / units are rented as cattle-class accommodation. I’ve seen some 2 BR apartments in the CBD area and other areas closed to UNSW and Macquarie Uni that have 10-12 residents, some students but some are working poor migrants. I even saw those places have young families with babies sharing 5 BR house with another 20 residents. This practice is rampant and the local council and ATO kept ignoring them, don’t know why ?

    • I don’t believe that the RBA is ramping up construction, although some states have incentives in place for exactly that.

      I don’t think that they want to cause any system shocks by changing LVR requirements, and thus see a fall across the nation in house prices, so the steady as she goes comment is correct.

      Now is not the moment for bold experiments for the economy.

      • RBA says – This weakness in the construction sector, particularly of new homes, has been one of the bigger surprises in the economic outcomes over recent times. Looking forward, a pick-up in construction activity is one of the factors that could provide an offset to the eventual moderation in the current very high level of investment in the resources sector.

        PF says – I don’t believe that the RBA is ramping up construction.

      • Peter Fraser says:

        I don’t think that they want to cause any system shocks by changing LVR requirements, and thus see a fall across the nation in house prices…

        I think maybe you’ve put your finger on what is the true top priority of the RBA: to maintain house prices, or to even keep them on the rise. If that is true, then all the talk about employment may very well be nothing but a distraction. After all, and I can’t recall whether it was Steve Keen or Michael Hudson who did a great analysis on this, in order to keep the housing Ponzi scheme going housing prices must continue to rise. With negative gearing, even flat housing prices cause the housing Ponzi scheme to implode. And if housing prices implode, the banks do as well.

        I’m looking for some philosophical consistecy on the doctrinal question: “to regulate or not to regulate.” I don’t seem to find any.

        According to the researchers John V. Duca, John Muellbauer and Anthony Murphy in a paper they recently authored, two factors which influence housing prices are credit standards and housing stock. http://www.bis.org/publ/bppdf/bispap64n.pdf

        And according to posts which Unconventional Economist has written on this blog, he is of the opinion that housing stock in Australia has been kept artifically low by the over-regulation of land use.

        It seems like if the true agenda of policy makers were to spur residential construction, and thus create employment, they would be calling for both deregulation of lending standards (which Ellis does) and deregulation of land use. Yet there seems to be a deafening silence regarding the latter issue from Australian policy makers.

        By calling for deregulation of credit supply but continued regulation of housing stock, this seems to be more indicative of an agenda of housing price maintenance than anything else.

        I understand it’s more complicated than that. With the current mentality, it’s hard to get people to buy a house when they believe that the price will go down. This does reflect a mentality, because people don’t have any problem buying a car that is assured of losing value. People have been programmed to look at buying a house not as a consumption decision, but as an investment decision.

        It seems to me the FIRE sector Ponzi scheme is unsustainable, if for no other reason than its internal inconsistencies. But I don’t see any easy outs. It seems the FIRE sector has painted Australia, and the rest of the Anglo-European world as far as that is concerned, into a corner.

        • By calling for deregulation of credit supply but continued regulation of housing stock, this seems to be more indicative of an agenda of housing price maintenance than anything else.

          Damn, your excellent post above was come very late so prob not many have seen it. I agree with it though, the whole exercise looks more like a charade to prop-up the real-estate ponzi scheme. And I may say the whole argument to increase migrant intakes is also part of the trick to ensure that those lucky Boomers elites in the society who happened to have their real-estate properties will be guaranteed nice retirement courtesy of desperate and/or ignorant younger generation buyers.

          This does reflect a mentality, because people don’t have any problem buying a car that is assured of losing value. People have been programmed to look at buying a house not as a consumption decision, but as an investment decision.

          That’s the main argument right ? Both cars and houses are just consumption goods but why most of Aussies see them as investment and assets ? I think there are 2 main differences i.e. big and increasing value of housing (at least in recent history) and the myth of good housing scarcity perpetuated by the FIRE industry players. The sad thing is the whole population are fooled by these tricks and fraudulent exercises.

          But I believe same with you, the whole scheme is unsustainable and it will defeat himself eventually by some unintended social and economical consequences and I hope it happened soon enough so that those FIRE industry bas***ds who created the mess get some of the bad consequences.

          • Deo said:

            …so that those FIRE industry bas***ds who created the mess get some of the bad consequences.

            If Australia conforms to the pattern that has been established in Europe and the US, however, the government will throw the big boys in the FIRE sector a lifeline and let the proles drown in a sea of debt.

            This was no better illustrated than in one of today’s links here on MB:

            He concludes that QE has produced a limited but temporary gain for the financial sector, but it has been of no help to the wider business community or individuals and families struggling against inflation and unemployment.

            http://phys.org/news/2012-10-quantitative-easing-benefits-financial-sector.html

    • Well said Terry.

      Mad but consistent seems to be the SOP for mainstream economic thinking, the “unbold and the unbrave”.

      Although the RBA is between a rock and a hard place, some guts in addressing a core structural problem – an overwhelming malinvestment in residential property that has seen countless other nations prosperity skewered – that is in their hands to change (because we can be assured that both sides of politics wont do it) is called for.

      Time to stand up and not hide behind “she’ll be right mate”. Time for some experimentation indeed.

  13. thomickersMEMBER

    “Ms Ellis also makes the spurious claim that binding limits to LVRs would be ineffective, as they would only effect first-time buyers (since trading-up buyers typically have significant equity), therefore “most buyers would be little affected”.

    the LVR limits would stop people from buying 2 – 3 homes without any equity
    (someone at a party recently… 29, $90,000pa income, $1.1 mill debt all in west side melbourne…. uh oh!)

    • That sounds like exactly one of my colleague who claimed he is smart to use OPM (Other’s People Money) to make more money. That you don’t need to save to make money. In essence, he is just playing with leveraging with a lack of understanding (or pure ignorance) of the risks from the other edge of the sword. No differences in going to the forex market and “trade” a contract at a 100x margin to equity ratio.

      • Do you honestly blame them? Reserve and central banks are encouraging immoral behaviour by not letting the system purge itself. If you are not taking on debt you are sitting on the side lines getting murdered by central banks. We have such a wholesome system don’t we?

  14. Ronin8317MEMBER

    Before bagging the RBA, you need to realize that the tools available to a Reserve bank is limited, which is why LVR should be regulated by ARPA rather the RBA. There are two primary issues :

    1) LVR can be bypass by using a personal loan. Even if you set the LVR at 70%, nothing prevents a person from borrowing the other 30% as a unsecured personal loan from the same bank. This is what happened in the US. For LVR to actually have meaning, it require monitoring and enforcement by an agency.

    2) What happenswhenf the value of a property falls? Will the mortgage holder be forced to make a margin call and top it up?

    A much better approach is for the RBA to adjust the bank’s capital reserve ratio according to what they lend, and how much of their capital is sourced from overseas. Too many investment home loans and reliance on overseas capital should trigger a higher capital reserve requirement.

    • “Before bagging the RBA, you need to realize that the tools available to a Reserve bank is limited, which is why LVR should be regulated by ARPA rather the RBA.”

      True. However, the RBA has “financial stability” in its mandate. It is also on the Council of Financial Regulators, along with APRA, ASIC and the Treasury. It should be working along side these agencies to implement macroprudential tools, rather than dismissing them outright, as Ms Ellis has done.

      1) LVR can be bypass by using a personal loan.

      So what? This happens now. But increasing LVRs makes highly leveraged borrowing more difficult, which is desirable from a financial stability perspective. The regulators should also look at increasing loan servicability requirements.

      2) What happenswhenf the value of a property falls? Will the mortgage holder be forced to make a margin call and top it up?

      No. LVR limits apply to new loans, not pre-existing loans. Plus, the extra equity arising from the lower LVRs would provide a downside buffer, reducing the likelihood of borrowers becoming stuck in negative equity. Dampening the credit cycle is a good thing.

      A much better approach is for the RBA to adjust the bank’s capital reserve ratio according to what they lend

      Why can’t they can do both? This is not an either, or proposition. Further, what makes you think that the regulators would be successful in 1) recognising problems; and 2) adjusting capital ratios accordingly? They have been inept in the past (try reading Ms Ellis’ 2006 speech).

      • +10

        the RBA has “financial stability” in its mandate.

        Not only does the RBA have that mandate, but there is an entire department of financial stability headed by Luci Ellis. What the hell are these public servants doing, other than shuffling paper and giving poorly sourced speeches so flawed a lay person can pick holes in them.

      • Leith,

        How about an MSM response from you to Ms Ellis’ speech, similar to your previous demolition?

        • Maybe you could open with Luci’s 2006 speech quotes again? At moments like these they are worth repeating

    • LVR can be bypass by using a personal loan

      Yes, but personal loans would be less profitable to the banks as more capital would have to be set aside for unsecured loans.

      And with NCCP, banks need to consider all outstanding credit while determining serviceability.

      • Yes, but personal loans would be less profitable to the banks as more capital would have to be set aside for unsecured loans.

        True, but only half the picture. The interest rate on personal loans is much higher, which offsets the loss of profitability from the capital issue.

        • Yeah, but my point remains – unless they are desperate, either the bank or the borrower is dis-incentivised from gaming the LVR requirement.

          • No argument from me – banks these days are certainly not keen on personal loans, at least not for significant amounts. Credit card debt or car loans, yes, anything more, forget it.

  15. Peter Fraser-my argument that the RBA is going to pump residential construction as much as possible simply speaks to their lack of alternatives.The export side(apart from mining ) has been hammered by the dollar and once the mining construction boom fades there is a huge hole in employment and GDP.The RBA can pray for a Chinese stimulus to push ore and coal back up-but absent that, it has to be residential construction because there is nothing else.They would be being negligent if they were not looking hard at it.Equally they would be negligent if they ran up another bubble.Rocks and hard places I suggest.

    • What about putting rates up clearing out the debt and starting over. Globally, this crisis is like ground hog day over and over again. if it wasn’t for central bank planners protecting banking interests, we would have had a nasty but short and sharp recession, prices would have fallen back, labour would be affordable and we could have been internationally competitive to start exporting of way back to prosperity. Additionally may have new banks with CEOs who are decent people.

      The can kickers are completing screwing the economy. We need them to stop creating bubbles, stop fiddling interest rates down and stop the manipulation of pockets of the economy (eg construction).

    • Manufacturing’s trashed, service sectors in the throws of being trashed, farming’s decimated, tourism Australia – over priced joke. R&D – isn’t that a new boy band? There’s nothing left Terry. There’s only housing and the RBA know it.

    • Fair points Terry. I just don’t think that the mechanics are in place at the moment. If they were serious then they would need some policy assistance via larger grants or tax credits etc to favour new over existing housing and if possible greater land release at lower prices, but that would take time and political co-ordination between the commonwealth and the states.

      How can they significantly increase housing supply without causing a mini-boom?

      If it was my responsibility I wouldn’t be able to sleep at nights.

  16. “There’s none so blind as those who will not see.” Prov. You cannot make someone pay attention to something that he or she does not want to notice.

    • Listen to the Q&A session from 8 mins 5 sec. The former head of the APRA research team (2005 to 2009) skewers the RBA and APRA for completely failing to acknowledge or review macro financial risks. They were totally blind, according to this questioner.

      Ms Ellis comes across very uncomfortably at this point.

      • 🙂 Yeah, I just finished listening to that. I think that question was a mini Black Swan event in itself, because Q&A ended rather abruptly.

        Her modus operandi is pretty clear to me now and is neatly encapsulated by the title of the speech – it is all a state of mind – Instead of developing and enforcing new macro-prudential rules to improve financial stability, just look at all the micro prudential rules (like NCCP etc) conveniently enforced by other agencies, ignore overwhelming empirical evidence to the contrary and then pretend all those existing will be enough to ensure fin stability.

        Then the work of the department is reduced to producing an FSR that nobody reads or cares about. No enforcement action against banks, nothing.. How the hell is a report going to improve fin stability other than as a CYA after the fact?

      • QUESTIONER: [The RBA] saw debt rising, that they said well there’s no problem because assets also rising and so the net asset values of households are fine.

        Where have we heard that before? Ah yes, Alan Greenspan.

        Essentially what the RBA is and Greenspan was advocating is the relaxing of both layers of risk protection. Loans can be repaid either 1) through the debtor’s income or 2) by selling the asset. Historically, prudent lending practices required a potential debtor to demonstrate he could do both 1 and 2 prior to be loaned money.

        I found a great graph the other day. It shows home-loan-to-income ratios in Austalia. It is Graph 3 in this study:

        http://www.melbourneinstitute.com/downloads/hilda/Bibliography/Other_Publications/Connolly_McGregor_Household_Borrowing_Behaviour_0311.pdf

        What it reveals is that home-loan-to-income ratios on newly originated loans in Australia have increased from 220% in 2001 to 315% in 2009. As long as house prices kept soaring into the blue empyrean, however, this was no problem because, as the graph also illustrates, home-loan-to-income ratios rapidly fell back into safer territory. The rub comes when housing prices stabilize or, horror of horrors, actually start falling. Then the whole Ponzi scheme implodes.

        • Phew! What was I thinking?

          The rapid decline of home-loan-to-income ratios in the years immediately after new loan origination was due to the rapid growth in incomes, and not house prices, as the rise in house prices would have no direct effect on this ratio.

  17. How can anyone with half a Brain take her seriously. Had I been at that preso I would have walked out.

  18. This is terrifying. It’s hard enough to deal with the dangers when you take them seriously. What hope have this lot got? Breath-taking. One for the file. Sure to be the source of some useful tragicomic quotes in the future.

  19. WeNeedaWarpDrive

    The committee on the Paul Woolley Centre seems a bit dysfunctional …Steve Keen isn’t there to guide them:
    http://www.pwc.uts.edu.au/committees/

    The concerning thing from the BRR media link above is the regularity with with the RBA seems to be indoctrinating this stuff into its subjects. why are they doing so much talking?

    If they were listening and being a little bit creative imagine how much they could achieve…invite Steve Keen for lunch…invite the macro crew for lunch..have a few constructive brainstorming sessions…have a few beers and relax..let the ideas flow..maybe a debate or two.

    “We think we have the essential elements needed to promote financial stability with a holistic frame of mind. In the end, what is needed is the wisdom to see the problems and the willingness to act in response. No elaborate set of institutional arrangements and rules can manufacture those two things.”

    well fuck..lets just stabilise the markets with our holistic wisdom mindset.