Pick up the phone, APRAMAN, fate is calling

See the latest Australian dollar analysis here:

Macro Afternoon

Paging Wayne Byers, chairman of the Australian Prudential Regulatory Authority (APRA), Mr Byers to super hero reception, Australia is calling.

Yes, this anonymous bureaucrat wears a blue lyrca suit and red cape under his drab clothes. He is a super hero in the making, if he seizes the moment. He is APRAMAN (h/t Pfh007)!

Australia’s two macro-economic stabilisers – fiscal and monetary policy – are both trapped and helpless like school girls in a sinking bus that has run into a river.

On the one hand, the Reserve Bank is caught between a high dollar and rampant Sydney property speculators. It needs to cut interest rates to as low as necessary to get the dollar down another 20 cents as an offset to the mining bust. On the other hand it can’t cut rates at all (and should probably raise them for Sydney) owing to the bubble. It’s also trapped in the legacy of its own failures, unable or unwilling to recognise how badly it has stuffed-up in the past four years, first by over-egging the China boom and then by unleashing house prices.

You must save the RBA from itself, APRAMAN.

On the fiscal side, the budget needs to be repaired now or the AAA rating is as good as gone in the next global shock, massively compromising any economic support measures and financial stability when it comes. But the economy can’t take the required austerity now, neither politically nor actually. Only a lower dollar can save the budget from commodity price carnage.

You must save the Government from itself, APRAMAN.

The only lever left to pull to cushion the economy from the post-China shock is a lower currency and the only person that can pull it is APRAMAN.

For your fellow Australians that are also trapped in the sinking bus, rip off the plaid and ramp bank capital charges on investor mortgages, APRAMAN.

Show us you’ve got the muscle.

Houses and Holes
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  1. An example of an economic, geo-political and currency constrained menu of choices available to institutions charged with the management of the global system.

    As can kicking options are swept from the table strong, intelligent and charismatic individuals will enter stage left.

    We have been introduced to a few of late.

    Thomas Jordan (Swiss National Bank)is perhaps an example. He has the capacity to return some risk to risk markets. I like that, its a start.

    His next move will be to buy gold, lots of gold.

    My opinion.

    • Mr Kouk said yesterday that the dark days for the Auderooo are over and it will now start to climb the sunlit mountain.
      Mr Kouk has been proven right time. And time again.
      There was a nice photo of Mr Kouk in the SMH yesterday under the title ‘The man who knew too much’.

      Go long the Auderooo my friend, before it’s too late.
      Put your house on it.

    • Mr Kouk said yesterday that the dark days for the Auderooo are over and it will now start to climb the sunlit mountain.
      Mr Kouk has been proven right time. And time again.
      There was a nice photo of Mr Kouk in the SMH yesterday under the title ‘The man who knew too much’.

      Go long the Auderooo my friend, before it’s too late.
      Put your house on it…

    • Maybe he is a gold bug after all
      Vociferously against the Gold Plan for Switzerland (which might have forced gold up up up), but maybe a sneaky plan to buy gold on the sly…..

      • Marshy, Ran into a group of ordinary punters down your way yesterday who have started taking their cash out of the bank and buying gold in 5oz bars.
        Seems they are getting a bit of a following, they are a bigger group than I thought.
        They could be starting something. Seems the local bank managers aren’t impressed. WW

    • He has enough EUR on the books (~EUR500bn) to make a start – should line up for the last 2,000 tonnes by taking a long at the COMMEX and requesting delivery.

      Get the show on the road and his balance sheet back in shape.

  2. If as recommended by the article the Aussie dollar falls 20 cents will it take the NZD down with it? The NZD is at historically high levels against the AUD at the moment so I am thinking of moving some NZD over to AUD, but wonder if this appreciation has more to run with Dairy prices starting to stabilise and a mining boom well and truly off the cliff….

    • Forget the currency number Dan! Just ask yourself “Where is the NZ economy going to be if it’s Number 2 trading partner, Australia, is dragged down by both their Number 1’s – China? If you reckon NZ can ‘survive’ without Australia, then by all means look for a higher kiwi. If you think a worse Aussie economy will affect the NZ economy – then buy as many A$’s as you can! The relativity could fall to 75 cents as a result. ( which it was only a matter of a couple of years back!)
      (Disclosure: I’m long A$’s; out of market – and happy with what I have 🙂 )

  3. Although I mostly like H&H’s perspective, I don’t like this approach of ever more regulation. It reminds me of a chronically ill patient prescribed a multitude of medicines to alleviate the side effects of previous medications. Consequently the patient, though still alive, never becomes well.

    Surely it’s structural reform we need – less regulation and let the markets do their work

    • I agree. If property were a market – with no subsidies for buyers, banks or land bankers – we would not be in the trouble we’re in. That would be the ideal solution.

      But that’s not going to happen so I’m going for the next best thing that has a chance of preserving what market economy we have left.

    • Everyone calls for structural reforms without ever laying out what structural reforms that are calling for. It’s become a catchcry with no meaning.

      APRA’s job is to ensure that lending quality across the board is appropriate for the market risk at the time, and I think they do a pretty good job of doing that.

      What you are asking them to do is influence the housing market by limiting credit, in particular to investors. I think that they have the tools to do that, but I don’t believe they would act independently unless they were requested to by the RBA, so IMHO it’s the RBA’s call even though the legwork would be done by APRA.

      • Even StevenMEMBER

        Yes, that’s my sense of how it would/should operate.

        RBA is tasked with macro-stability, APRA is tasked with ensuring the behaviour of (individual) financial institutions is prudent.

        Individually prudent decisions could lead to an accumulation of risk, however…

      • Heres some proposals.

        Large extra capital charges on all PPOR mortgages of more than 4x gross income.

        Large extra capital charges on all Investor mortgages greater than 50% LVR.

        Large extra capital charges on all investor mortgages which are IO.

        See how that works then go from there.

      • Your usual mortgage-biased baiting, Mr mortgage broker.

        Potential reforms have been outlined here hundreds of times. They’re available all over the place.

        If you had any sense you’d be cheering MP on. But no, higher, bigger, faster, more mortgages, MORE, is the only way for your ponzi.


      • Simple, investor loans attract the same interest rates as business loans, lets see how the takeup is @ 11% interest ….

    • Yes Geof, we need macroprudential rules to offset the nasty effects of other rules….negative gearing, capital gains tax etc etc…..

      It’s a crazy world.

      • Why are IO loans even allowed on housing?

        Ban new issuance, grandfather existing IO loans and give them 3 years to start paying down principal.

        The speculation stops in a big hurry.

      • @mdsee agreed, such loans should ONLY be allowed for short term projects such as a development. 3-5 years is more than ample time from acquisition through to planning through to construction and sale/settlement on any typical suburban development including apartment blocks… in other words a business loan.

      • “Why are IO loans even allowed on housing?”

        Interest-only loans are the only way to go MD and Andy. The tax system makes it thus. IO loan with offset means you can retain the debt on the property and move the offset around (see ATO TR 2000/2) if you want to move house.


        So rather than pay your house out then be forced to sell when you move (PR becomes ineffective as a rental property as interest is non-deductible) you need to retain the debt and just shift your offset funds around. Fair to say state governments love the existing arrangement (stamp duty field day).

        For this reason I’m sceptical of figures showing high levels of IO loans. It’s effectively mandated by the tax system (keep your options open and pay into offset, never pay down principal).

        On the other hand, I have no doubt people are requesting investment loans (I/O) to get a higher borrowing capacity and then “changing their mind” at the last minute and moving in. That is highly alarming from a systemic risk perspective.

        But as long as a redraw is deemed a new loan for tax purposes, I’d advocate that everyone go interest-only and load up the offset.

        … T Marsh, I’m talking to you brother!

      • >> “IO loans are for a term of 5 years. After which you have to refinance to another IO loan.”

        Which creates a big problem if your earnings have changed and you can’t refinance. Repayments suddenly spike as they go P’n’I over a reduced 25-year period (not 30).

        Systemic risk for Oz down the track you reckon Kev?

        Could be one to watch for those Genworth shorts … especially if reduced house prices impair ability to refinance (LVR threshold changes and suddenly the bank wants LMI). Though, if it were ever to come to this, methinks those shorts would be well in the money!

    • Markets are distorted by irrational exuberance and pessimism and herding instincts.

      The 87 boom and bust was in a supposedly efficient market, as was the 2007/8 boom and GFC.

      Externalities also distort markets, hence the need for laws to protect the environment.

      Markets themselves are not “efficient” unless there are enforced laws against collusion, cartels, misleading conduct, fraud etc.

      In the absence of regulations, markets degenerate to corruption and gang warfare like the illegal drug market in Australia and elsewhere.

      • @ Explorer

        Yes, markets need to operate within a legally binding regulatory environment (though many of your examples of free market failings are dubious in that they’re not of free markets). However, too many regulations also stifle markets – that’s why discussion and review is continually needed.

        I think it’s healthy that there are economic cycles. Nature operates in cycles and all living things are born and die. I’d prefer markets to have some spontaneous life and a tad of danger than machine like predictability where nothing is gained and nothing is lost. And attempts to achieve such predictability through excessive regulation have always failed in the long run.

    • Or, you know, generations of Western literature focused on damsels in distress, the inate human desire to help the girls first, several superhero culturally significant folklores of a recent vintage.

      You know.. THAT!

      • A bunch of school kids need rescuing, whatever their gender.

        That’s not being PC, it’s a fact

        But please, continue on. It makes for much amusement amongst all this rain.

  4. Phil the engineer

    Have you tried putting in a phone call into Wayne’s office for an interview Mr Holes? Would love to hear APRA’s perspective on the whole shebang.

    • Getting an interview with APRA is like getting an exclusive with ASIS or ASIO Phil. Seriously … total closed shop out there at George Street. The drawbridge is well and truly up at SuperWayne’s HQ.

      Best public relations job in the trade. Just set up an email auto-respond with “Sorry, we are unable to comment.”

  5. APRA-man certainly has the powers required and not just the spoon bending stuff like macro prudential.

    APRA-man can slow the polluted torrents of unproductive capital flooding through our borders from the currency war wastelands and eventually plug the holes tight like a little Dutch Boy.

    Unleashing those powers is simple as well.

    1. Direct the banks to reduce their reliance on off shore lenders for residential mortgage related purposes by 5% per year. That will get the 35-40% borrowed off shore down to zero in 5-7 years.

    2. Direct The AOFM to introduce a system of registered govt bonds so the owners of govt securities can be identified at any time. Then start restricting new issues to these new registered bonds and restrict ownership to locals – the SMSFS sector would love them.

    The above measures will put immediate downward pressure on the $AUS and can be tightened if the effect needs to be enhanced. Increase the reduction percentage for 1 above and convert more securities to the registered type in 2.

    Of course a reduced supply of predatory hot money from the currency wars may put upward pressure on interest rates but that is easily addressed.

    APRA-MAN use your super powers – don’t pussyfoot around.

  6. There’s one problem with this discussion. Well, there’s more than one, but this is the main one. APRA’s problem is the solvency of individual financial institutions. Stability of the financial system as a whole is not APRA’s problem. That is the RBA’s problem.

    Unless Glenn Stevens says it’s going to happen, it aint gunna happen.

    • …..and Glenn Stevens will do nothing unless the politicians start talking about the issue and that they want him to do something.

      The fundamental problem when responsibility for economic management is outsourced with a limited too set and the tools stop working.

      There is no way to resolve the problem with the pollies steeping up.

    • Even StevenMEMBER

      Acme – you’ve nailed the issue.

      APRA has the tools, but not the mandate. RBA has the mandate but I suspect lacks the balls to tell APRA to clamp down HARD – at which point it would become a combined regulatory effort.

      RBA lacks the balls because its political masters would be unhappy and possibly because it believes the bottom might fall out of the housing market.

      The underlying cause to all this is our credit creation system which is outsourced to the banks, and which can only be capped by applying higher capital requirements.


      • Interesting discussion guys.

        Charles Littrell hit on this point exactly during a speech back in 2013 when this topic was starting to get traction.


        Firstly, most macro prudential tools are in fact the basic tools of prudential regulation. It’s just that the goal (reducing systemic risk) differs from APRA’s mandate (controlling institutional risk).

        As such, implementing macroprudential would basically be perceived by APRA as the central bank or government telling it how to use it’s own tools, “even [if] the regulator doesn’t necessarily want to use them in that way”.

        APRAman doesn’t want to be told what to do, dammit!

        Littrell describes Macroprudential as “the set of supervisory tools, and governance of those tools, deployed by the public sector [as a whole] to promote systemic financial stability.”

        On the other hand, APRA is focused on micro-prudential supervision — reducing the failure rate for individual institutions.

        It’s reassuring to hear Mr Littrell tell us that APRA is content that if there’s another banking crisis it will come from an exogenouseconomic source — in other words, it won’t be APRA’s fault, because the banks themselves didn’t trigger the collapse.

        “APRA is unable to guarantee that Australia will never have a banking crisis. We do strive, however, to ensure that any banking crisis is caused by an exogenouseconomic crisis. The opposite result, that an economic crisis is caused by a banking crisis, is a much more serious, and ideally more preventable, regulatory failing,” he said.

        Arse-covering or what? You can start to see why we’re in trouble here. Damn the economy, as long as banks don’t trigger the collapse we’ve done our job seems to be the sentiment.

        APRA suffers from the unfortunate delusion that it is already conducting adequate macroprudential regulation. And it doesn’t want to be told otherwise by the RBA or gummint.

        Can you believe this comment below … in 2013 no less? Right before Sydney property spiked another 30% …

        “At its best, macro prudential supervision is something that the prudential regulator already undertakes, and at APRA we hope that we are in this category. Our macro prudential work receives substantial assistance from the RBA in particular and the public sector in general, but at the end of the day, all supervision, micro and macro, is in APRA’s hands. I immodestly assert that these are a reasonably safe pair of hands.”

        Genuine macro will only happen if the government demands it of APRA. Good luck with that Australia.

        Lord help us.

        On the plus side, at least this is driving us towards a crash which will ultimately benefit the young who have been displaced by current policies. After the pain of a correction, they’ll be in with a chance and the intergeneration wealth transfer will reverse like a Kimberley high tide.

        If macro was put in place, they might just succeed in maintaining the current (highly unjust) status quo.

  7. are both trapped and helpless like school girls in a sinking bus.

    should be

    are both trapped and helpless like bankers and politicians in a sinking bus. but then, who could be stuffed saving them? Piranhas.

  8. probably the most relevant arcile on the whole site. APRA is the only one who can salvage the financial mess of Australia but my bet is they will do nothing.

    Here’s the prediction:

    – APRA will continue to flap its lips about, saying it is ‘watching the market’ and ‘its not a bubble yet but at risk of being one’ and ‘banks need to be considerate of their lending practices’ and so on and so forth, trying to sound like they are doing something but in reality doing zero. Doing less than zero actually, if they just admitted they were weak and useless, they would at least be honest.

    – Banks will continue to lend however they wish, setting their own capital requirements off internal models, like foxes being asked to guard their own hen house. Its perfectly fine that banks set their own capital standards, as long as they don’t come asking for a bailout when it all goes to custard. If APRA expects taxpayers to bailout banks, then they should be properly regulating them.

    – The RBA will be forced to lower interest rates, to prop up the debt fuelled property ponzi which requires incrementally higher levels of leverage to keep it afloat, by its very definition. It also helps to lower the dollar in a futile effort to revive an export sector that died years ago, and to help prop up unprofitable mining companies.

    – The federal government will flap about making noises on how it understands the cost of living, how it intends to regulate etc, much the same as APRA, all the while knowing housing investment is the last and only game in town supporting the FIRE sector and thus the remnant of the economy.

    All these clowns are just buying time, pumping a little more air into the balloon or turning their backs before the balloon pops so they don’t get hurt.

    Fat chance of APRA doing anything meaningful. They can’t, even if they wanted to. The stakes are too high – a mis-step on regulation could cause the whole housing ponzi to collapse, then who would be to blame?

  9. mine-otour in a china shop

    APRA-Man has changed in the last year and there was hope of a change of tact with the regime and leadership change.

    Sadly APRA is held back by the Kryptonite the big banks (and super firms) continue to put and threaten to put in its path.

    It waters down its own proposals and its endless and lengthy discussion papers internally, before the kryptonite needs to be brought out by the big banks.

    Whilst it takes an institutional view, it is the RBA that takes the macro view. Problem is a bank can now bring down a macro-economy. Liaison is not enough now, somebody needs to take responsibility and leadership rather than plan for the buck-passing when the shit hits the fan.

    • Even StevenMEMBER

      I’m not sure what the ‘super firms’ have to do with anything. Otherwise good post.

      The buck stops with the Government. It stops with the Prime Minister and Treasurer. The obligation of the RBA and APRA is to say to them that there is a problem, action is required, and that collectively they have the tools to fix it.

  10. Put the APRAMAN on TV. preferably on Kochie’s breakfast show!!

    Our ponzi little landlords will react in a fashion similar to their Irish cousins, as documented by Michael Lewis.. 🙂

    In McCarthy’s view, the dominant narrative inside the head of the average Irish citizen—and his receptiveness to the story Kelly was telling—changed at roughly 10 o’clock in the evening on October 2, 2008. On that night, Ireland’s financial regulator, a lifelong Central Bank bureaucrat in his 60s named Patrick Neary, came live on national television to be interviewed. The interviewer sounded as if he had just finished reading the collected works of Morgan Kelly. Neary, for his part, looked as if he had been dragged from a hole into which he badly wanted to return. He wore an insecure little mustache, stammered rote answers to questions he had not been asked, and ignored the ones he had been asked.

    A banking system is an act of faith: it survives only for as long as people believe it will. Two weeks earlier the collapse of Lehman Brothers had cast doubt on banks everywhere. Ireland’s banks had not been managed to withstand doubt; they had been managed to exploit blind faith. Now the Irish people finally caught a glimpse of the guy meant to be safeguarding them: the crazy uncle had been sprung from the family cellar. Here he was, on their televisions, insisting that the Irish banks were “resilient” and “more than adequately capitalized” … when everyone in Ireland could see, in the vacant skyscrapers and empty housing developments around them, evidence of bank loans that were not merely bad but insane. “What happened was that everyone in Ireland had the idea that somewhere in Ireland there was a little wise old man who was in charge of the money, and this was the first time they’d ever seen this little man,” says McCarthy. “And then they saw him and said, Who the fuck was that??? Is that the fucking guy who is in charge of the money??? That’s when everyone panicked.