Macroprudential whinging begins

From Miranda Maxwell comes a litany of complaints about macroprudential:

…The banks have achieved an unlikely windfall from the crackdown on the escalation in investor loans, raising borrowing charges to potential landlords by 27-to-30 basis points. This will add $340 million a year to revenue at NAB, for example.

…While the Sydney and Melbourne property markets have been running hot, growth rates in regional New South Wales and Victoria are much more varied. And Western Australia and Queensland are having an outright downturn in parts, with property prices falling substantially in areas such as the Pilbara.

…Another criticism is that for all the hoopla over foreign property buyers, the crackdown on investor loans will only aid cash buyers from China, or those borrowing offshore, by taking out local competitors.

OK, let’s sort through these. On the banks jacking up rates, yes, a lack of competition is apparent. But that is separate to the complaint that previous investors shouldn’t be hit with rate rises. Why shouldn’t they? They’re contributing to the bubble and systemic risk too and should pay for it.

On the geographic complaint, yes, this is an issue. MP could be more targeted but, really, it’s no different to the blanket effect of a rate rise in geographic terms so is hardly something new.

On foreign buyers, this is plain whinging. Foreign buyers need to be addressed as well via other policies. It should not prevent MP. That’s just arguing that two wrongs make a right (the Australian media’s highest form of dialectic).

Houses and Holes
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  1. Please, do not offend dialectic by mixing it with the media. Australian media lacks any objectivity.

    • I’ve always found it problematic to consider journalism as unbiased. I like to think of them as spies, spreading propaganda for one side or the other.

      While this may seem unfair to journalists who take being impartial seriously, in my defense, the above allows me to think far more clearly about underlying biases and where an ‘objective’ truth might lie. Maybe this says more about my lack of confidence in my ability to think clearly about things than what any specific journalist or journalists say.

      is it too early to start drinking?

      • You are right, and I had in mind the official media. There are out there many good and professional journalists, like those in MB. It is up to every reader to check their works towards reality. But today’s officilal journalism stopped serving the people, they are serving the powers, because they work for corporations, not independently. Thanks goodness to Internet and the many bloggers, who try to give us the truth.
        And truth is when it matches the reality and what the very wise and enlightened have envisioned it before it happens. In some area this is science, in others is just truth.

  2. This and more needs to come in. I have been saving diligently and owe over $1k in taxes from all the interest (~100k). Meanwhile, the guy next to me got over $4k back because he negatively gears. Basically, This one guy is being supported by 4 people like me, realistically more. So pissed off right now. And then when he sells he gets another 50% tax cut? (funded by me and other savers of course). This is why I long for the day this country collapses and these leeches lose all their money. I guess the silver lining is that his investment property is in Perth… But I’m sure there are many other like him getting a lot more with appreciating property.

    • Thanks Phroneo. To you and the other seventeen just like you helping to fund my lifestyle. I owe you a depth of gratitude. You’ll be in my thoughts for the rest of the day..

      • Whatever troll. Thanks for calming me down. I happen to be in a good position as most people I know have no savings or just starting the mortgage debt journey with minimum deposit. I will own a home relatively fast once I buy it. I’m annoyed for the rest of the country who are in a worse position than me. IMO, they should be already finished with the torches and pitchforks and the heads of those who resist reform already paraded. But since they are happy to keep voting LibLab, I assume the millions of them that vote for this are happy to be raided themselves along with their children, year after year. You’re the only hope troll. Raid this country till it’s totally collapsed and rub it into the LibLab voters as you make off with their gold.

      • McPaddy

        The risk was small over the last 25 years.

        I think Jagster understands risk better than you or I.

        We have lived on an inflationary environment. Whether it’s private debt fuelled or govt deficit spent or investment / trade inflows; or even tax concession induced.

        The risk you think of (before the blow off top) has been mitigated for Jagster….. for now.

      • Hey Phron.. No offence taken. I don’t have much time for these discussions now days. That battle has been fought and won.

        Don’t be angry with me for being right. Be disappointed with yourself for being wrong..

    • He may have received a tax refund but he had to lose a decent amount of money on that property to achieve it. He might make it up on the capital gain with the 50% discount but it depends when and where he bought.
      If I had to sink $10K (or more depending on my tax rate) into my investment to get $4K back on my tax, without that capital gain I am still going backwards.
      My suspicion is that the guy next to you has limited financial literacy.

      • Andrew – you don’t have to lose money to get cash back on negative gearing – all you have to do is get a surveyors report stating how much you can claim under Div 43 – this can run into thousands of dollars.

  3. “separate to the complaint that previous investors shouldn’t be hit with rate rises. Why shouldn’t they? They’re contributing to the bubble and systemic risk too and should pay for it.”

    That’s a bit tough.

    We may as well then ask your parents and grand parents to “pay for it”, because they also (at one stage) contributed to systemic risk.

    Let’s not just blame the Johnny-Come-Latelies.

    • But there’s very real systemic risk that someone has to pay for. Who would you suggest?

      And investors should factor rate rises into their investment decision.

    • “Who would you suggest?”

      I’d have a sliding scale based on LVR and income to loan size. Borrowing 90% of property valued at 8 x income? No need for LMI – you’ll pay the highest interest rate. Borrowing 10% of property valued at 1 x income? great, you’ll get the lowest rate we have.

  4. It’s a disgusting system phroneo, totally designed to create inequality at the tax payers expense whilst neglecting to do the one thing that liquidity should be doing in Australia – building more God dam houses.

    NG should only ever be used for land to completion builds. That’s fair and reasonable.

  5. Macro-prudential measures – if they achieve their objective – which is to reduce the supply of credit to particular groups and thereby reduce the level of demand for particular assets and thereby slow the rate of increase in the price of those assets – are ultimately a form of capital control – just messy, easily criticsed and not very effective.

    Because they are selective and because they put sand in the gears of a Debt Machine economy (without actually addressing that the Debt Machine model is the problem), it is not surprising that they are the subject of a lot of criticism.

    It is like living in Never Never Land and then arbitrarily deciding that Tinkerbell will be limited to 50% spell power.

    Macroprudential policies rely on the theory that you can switch a Debt Machine, that is dependent on ZIRP already, to run on a wholemeal blend of nice innocent fresh debtor flesh (FHB taste sweetest). Why anyone would think that is a good idea, even if it were to work, is hard to explain.

    Rather than have uglies in white shoes prop up inflated asset prices with manipulated interest rates we will get new young families to do so.

    The Macroprudential administration is a risky exercise because there is a good chance that a Debt Machine running on ZIRP and very inflated asset prices will shudder to a halt and slide into reverse when the knobs are twiddled and the uglies in white shoes are forced to take a seat.

    A much better approach is to be upfront and regulate the worst forms of unproductive investment directly and that means slowly fixing the broken price signals (interest rates) that are driving the mal-investment. And that involves nothing more than slowly restricting the hot money inflows that make the artificial interest rates possible.

    Did I mention that running an economy on interest rates supported by hot money inflows inflates the exchange rate and thereby undermines the competitiveness of the economy?

    Well that too!

    PS: Before you all stamp your feet are call me a crash-nik, that is where QE for the People will come in to help make sure that while the deleveraging takes place (and the money supply is shrivelling) there is plenty of fresh dollars being injected to the system via tax cuts.

    The “Super Kanga 0% Save the Nation” Bond will save the day.

    As natural as Weet-bix.

    • Really, really, well written.

      It sounds like OzDebtJubileebyQE.

      And here I was, planning to go on House Rules, WIN, have mortgage paid off.

      Well there goes that idea. Who wants to be a creditor in a debt jubilee?

    • Even StevenMEMBER

      Not sure you have a compelling argument that macro prudential is ineffective. The idea of MP is : cheap inretest rates for business loans (productive), expensive interest rates on property lending (unproductive). It may not be perfect, but don’t consider its application will cause the economy to come to a grinding halt as you seem to suggest.

      Note: I agree with you that addressing capital inflows would be cleaner, but don’t think MP is as bad as you suggest.

      • Even Steven,

        I did not say it was not effective – just not very effective. In any event the purpose of my comment was to point out that macroprudential is just a very limited and inefficient variety of capital controls.

        As it is a capital control I am not opposed to it but why use a poor quality control when better ones are available.

        The notion that there are a bunch of ‘productive’ businesses with great plans that would be viable if only credit was cheaper doesnt really stack up. Credit is already cheap. What is stopping them investing is a belief there is insufficient demand in the economy to warrant the investment. Driving rates even closer to ZIRP will not change that.

        Encouraging business decisions that dont stack up with cheap credit fuelled by hot money inflows is a recipe for malinvestment.

        Not sure where I suggested macropru would cause the economy to grind to a halt. All I suggested was that driving up the exchange rate in the process of securing even lower rates was counterproductive.

        In theory giving cheap debts to good people sounds great but the problem quickly arises that

        1. Most people think they are good and deserving. Miranda Maxwell appears to know a few.

        2. The economy has been running on credit extended to bad people and the asset prices reflect that. Maintaining asset prices with big debts granted to good people is a dubious objective and alllowing/causing them to deflate is very likely to cause the economy to grind more slowly.

        In short, macropru is a poor solution and insofar as it gives a fig leaf to crazy monetary policy and capital flows it is probably doing more harm than good as it deflects attention from the fundamental problem.

  6. Phoerno if it makes you feel better after paying tax on interest you aren’t even beating housing inflation (nationally speaking) or even cpi to be honest…

    Oh and then there that stinking currency devaluation which pumped up RE in Aussie land dollars, lined bogans wallets with $ which further warps Terms or trade and subsequently slaps your saved dollars in peso’s…

    Buy USD, SGD , GBP, you know the Australia housing mantra so why continue in their language (AUD) ?

    Onward to 30 cents to the usd…

  7. I’m amazed to find that our macro-prudential policies have been the weakest in the region, particularly in regards to LVR – way behind RBNZ, and way behind Singapore and China.

    With all the whinging you’d think we’re seeing too strict, when in fact we are by far the most undisciplined.

    In terms of fiscal and monetary policy, we’ve become very shoddy in the region.

  8. notsofastMEMBER

    I think that the reduction in proportion bank lending towards business as a portion of total bank lending over the last two decades needs to be subject to a Senate Inquiry. Changes need to be made that make it more attractive for banks to lend to businesses, particularly businesses involved in export and import replacement industries and businesses that are non-housing related.

    The Senate Inquiry should be headed by Scott Ludlam and include a good portion of the cross benches who do not have investment properties…

  9. matthew hoodMEMBER

    Phron…. Why don’t u just loan out your money? I’ve just lent out my money at a good rate, no tax, contract signed by both parties.