The politico-housing swamp has entered a corruption blow-off. One doesn’t need to be Albert Einstein to see why. House price falls are steepening and the panic in official circles is mushrooming.
This week saw two extraordinary events that illustrate the circling of the wagons among the ruling class. The first was the COAG meeting which pretended to produce a population policy. In reality it was a complete snow job with the only “expert” appointed to lead discussion a discredited population booster with ties to the Scanlon Foundation, Australia’s primary business lobby for more people.
No immigration cut came out of the meeting to take pressure off wages and the great crush-loading.
The second event was the extraordinary declaration by the Council of Financial Regulators (CFR) that banks were lifting lending standards too far. This even before we get to the outcome of the Hayne Royal Commission which uncovered:
- systematic mortgage fraud including misuse of HEM and failure to asses expenses and income;
- sub-prime lending masquerading as prime across roughly 40% of major bank’s mortgage books;
- rapacious incentives;
- outrageous behaviours like deliberate mis-selling and charging dead people.
As John Kehoe observed yesterday:
The RBA’s fingerprints are all over the CFR statement, which says “an overly cautious approach by some lenders to incorporating relevant laws and standards into loan approval processes may be affecting lending decisions”.
Not only has the CFR circumvented the rule of law, it is actively subverting it before it arrives only months after we discovered historic depths of depravity in the banking system. If the RBA is so concerned about the supply of credit then why isn’t it taking the correct (ie legal) path of cutting the cash rate? It’s the perfect time with lending standards where they should be. Crash the dollar and support the economy that way. You know, the way we’ve always done it. Why also is it implicitly entering the political debate against Labor and it’s housing reform agenda?
Not only is the lunatic management at the RBA jeopardising it’s independence and ruining its brand, it is wandering entirely off the reservation of its mandate. It behooves me to remind the great and good at the bank that the institution is not theirs to trash. It belongs to Australians, their employer. They are already forking out $200k plus to 45 economists with a proven record of forecasting failure. They don’t need the same to be fiddling with their democracy.
So, will any of this madness work to turn around house price falls? Nope:
- the Hayne RC does not deliver its outcome until February and before then bankers will be sticking with higher standards lest they go to prison;
- even if the Hayne RC is nobbled by the corrupt CFR, it will still result in new legislation that will have no time to be delivered before the federal election in May leaving bankers on tenterhooks;
- Labor will need to show a firm hand in response at minimum and we still have its negative gearing reforms coming anyway.
That takes us out to mid-2019 before we get any respite. By then Sydney will be down more than 15% and Melbourne more than 10% and the imploding internal dynamics of the market will have taken over as the economy buckles. Immigration is a long term support that can’t fix a cyclical crash.
The RBA will have to do what it should be doing today. Instead of throwing its weight around like some monetary mobster, it will be forced to cut rates. But by then it’ll be too late with real downside momentum in house prices and a buckling economy as we march towards the end of the global business cycle.
Finally, let me observe that Australia’s political-housing swamp is now so perverse that the government and RBA are publicly endorsing illegal, predatory mortgages, as well as actively targeting a decline in Australian living standards, while the chastened banks, legal system and ordinary people are on the side of morally and economically sustainable lending and economic growth.