Lunatic RBA runs riot

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.

WTF.

Comments

    • truthisfashionable

      Anyone have any ideas on how we can hold this unelected bunch of corrupt parasites to account?

      • HnH’s language is highly inflammatory and condemns all involved in financial regulation. Correctly.

        Institutions are run by individuals. They are paid (handsomely) to administer the laws and regulations to advance the citizenry. They have ostentatiously failed.

        RC Hayne’s interim report recommends against new laws, just the proper application of the existing. Harry Truman said his hardest task was getting people to do the job they were paid for.

        I want lengthy prison sentences for all. This used to be a good country.

      • @Ashentegra
        “This used to be a good country.”
        Is this based on any sort of direct observation, or just the vibe of the thing that it was somehow better in the olden days?
        All the same [email protected]!T has been happening for my entire lifetime.

      • Suspect Ash (DC) is solidly Gen X and therefore had his vision off Australia formed in the 80s, which were a much more hopeful time. It was possible to believe we were on a good path.

      • Lol, if anything the 80’s is when we really started sliding down the slope, despite the propaganda spewing forth at the time.

      • There’s some merit to that. I would say rather that we’ve been screwed by too much of a good thing, much of which was introduced in the 80s and was necessary in the right dose. Then add outlandish tax support for capital holders, shake, and you’re done.

      • Thanks for the flattery. I am a boomer, musically a New Romantic. I watched my idealistic peers turn into rent-seeking narcissists, saw the same old Tory bull$hit repeated again and again and they took the bait – because they’d bought a suburban home and thought they were ahead of the curve. Pathetic.

        I am old enough to have mixed as a child with the unshakable debt-averse elderly who had endured the 1930’s depression and seen lives crushed by the banks, unemployment and want. They would go without rather than take any financial risk ever, ever, ever. Not even a layby. I wondered, what forces were brought to bear on these folk as the vehemence of their position was striking and startling.

        Well, kiddies, we are about to see for ourselves. That mortgage debt is unpayable and widespread. We merely await the denouement.

        Don’t Buy Now!

      • I was a kid in the 80s. I remember we were a bit poor but I also remember there was also a huge amount of national pride and a strong and cohesive culture. A sense of belonging. That’s what I would say is different now, just my opinion. I was obviously naive but I recall Hawke on Americas cup day and everyone celebrating, the Aussie cricket team and my older sister listening to Australian music. I also remember noticing, as an early primary school kid, being given ever larger amounts of money to catch the bus to school, which I would walk to and catch by myself (bit different now). So I started thinking about inflation at a moderately young age.

      • “I want lengthy prison sentences for all. This used to be a good country.”
        “unshakable debt-averse elderly who had endured the 1930’s depression”
        By your own evidence the same crap was happening a few decades into our countries existence, so i’ll ask again, when exactly did it used to be a good country?

      • Bj, That you ask the question speaks volumes about you, my friend. It was when no one locked their doors, even when they went on holidays. When you knew everyone in your street personally. When as a 6 year old, I could walk home from school in safety. When my grandparents, who were as poorer than church mice (to an extent people today could not conceive, wasted absolutely nothing), told me they would never ever take the pension – responsible people did not do that – welfare was only for the truly needy. When the community was cohesive.
        Different in every respect from today. Ashentegra is right!

      • Jumping jack flash

        “…the unshakable debt-averse elderly who had endured the 1930’s depression and seen lives crushed by the banks, unemployment and want.”

        This!

        My parents were born around that time, at the end of the 1930s. My father grew up in Europe in the middle of the war with allied bombs falling around him.
        They instilled in me a healthy fear of debt, because ruination is exactly what it turns into, every time.

        This kind of stuff needs to be taught in schools otherwise we are doomed to repeat the cycle again and again, despite whether they think they have abolished the cycle with their latest “debt economy” experiment. Abolished? No. Intensified? Yes.

      • Strange EconomicsMEMBER

        But the Morrison strategy may be to propose new laws which will delay for 1 year any reckoning. (new laws that repeat the adequate and unenforced existing laws). Knowing that laws will not be enforced. RBA will just drop interest rates. Large salaries earned !

      • I think this royal commission had to happen. It was timely for where we are now in our economy. I don’t claim to know answers but exposing unhealthy sales culture I think most people suspected was in the banking and insur6industry and making the leaders who are normaly cacooned away from the public answer to their customer base directly needed to happen. I agree with jumping jack flash teach in high school how compound interest works relate it directly to a credit card so kids who are growing up who are comfortable growing up with out physical cash have a sense of what they are really spending and what the true costs are. Banks needed to clean up attitudes towards sales and in particular to lending. I understand increasing profits cements share holder confidence but poor training, staff cuts and unconscionable sales tactics in order to achieve this out come? I can’t help thinking that while we want a s a nation for the bad guy to get his just deserts at the same time we don’t want him to take away our credit.

    • Oh yes indeedy. We haven’t seen the kitchen sink yet. I warned long ago that the kitchen sink willl be deployed to save house prices.

      So this (which is just light jawboning by the RBA) shouldn’t surprise anyone. There is much more c0ming.

      • Possible kitchen sinks:-
        Lower teh rates. all the way to 0 or even below if they have to. It’s already been done elsewhere.
        Redefine the laws around responsible lending to make the bar much lower than it is currently set to “encourage” lending.
        Provide tax deductions for PPOR interest payments. This is also done in other parts of the world.
        first home owner/ investor/got a pulse want a house grants.
        provide multiple times deduction for neg gearing property similar to “research” deductions for business.
        Further immigration visa manipulation, like buy a house, get citizenship.

        That’s what I’ve got in a couple of minutes. I’m sure the powers that be can come up with plenty more in a few weeks of thought.

      • Interest deduction for owner occupiers is my best guess.

        It is very difficult to reconcile with Labor’s NG policy, so it might be a Lib branded “solution”.

      • If there is an interest deduction for owner occupiers, I’ll be first in line to buy a house. My wife and I earn about 500K together but we can’t afford to buy in our own neighborhood. But that would be reasonable and fair policy. Basically the exact opposite of negative gearing.

      • bjw – I think that they’ve given it decades of thought already. None of those things you thought of are going to counter IO, ridiculous tax protection enjoyed by investors and historically low interest rates. Think again.

    • Considering that Macquarie are running amok with mortgage lending at the moment, has anyone considered that the RBA is already doing that? Using Macquarie as the broker – Macquarie issue the mortgages, securitises them, then the RBA buys them?

      • What I was about to say. RBA buying RBMS is effectively the same thing; lenders are simply customer and account managers. The money to lend could come from the RBA and be printed. Only thing different I guess is the RBA could accept lower lending standards (i.e. HEM or “you can afford to pay if you give up everything else for the rest of your life – don’t worry at the end of your life your assets will be sold at the same parameters and someone else will be forced to pay again for the rest of their life too”).

        Although in all honesty that’s what will happen if population keeps rising in the world anyway. Property long-long term while global population is rising is still a good bet.

  1. Apart from changing mortgage broker payments(which will take out a sector who whips up buyers), what can the commission say outside of follow the current laws? Maybe some crackdown on guarantors. What can the banks loosen? Check mortgage at 7% interest, check their expenses and income are what they say. Can’t change that. RBA is in a panic because they and I think it’s much worse than MB.

    • Thi 7% malarkey can easily change.

      If the RBA guarantees to fund banks at no more than 5% for the next 15 years, say, the banks can easily (and justifiably) scrap the 7% thing.

      Why can’t it happen? It’s easy.

    • Many lenders were already checking at 7%+ before the measures were taking place though from what I read anyway. The thing they could do is allow repayment history (a good history of payment) to be taken into account even if you are at the HEM measure. Hey – if your willing to live in poverty to own that house why should we try to stop you especially since your propping up the housing system for us? As long as your not defaulting which is really what we care about anyway.

  2. The panic has gone from zero to turbo in such a short time frame.

    Australia is mad.

    With regulators now beging for the return of sub-prime lending, the banks know they hold the entire country hostage.

    “You want to avoid sinking into a black hole recession? Then beg us to renew our predatory lending, BEG US! Or. Else”

    No-one wants to wield the pin that pops the bubble do they?

    Well it’s too late for Australia’s regulators. They shouldn’t have let it get out of control, and this panicked reaction is bonkers.

    • I’d like to believe that individual Aussies are looking at residential Re prices and saying NO that’s too much I can’t afford it.
      But feedback that I get from the broker front line is more along the lines of “I can’t pay that much….my limit is $xxxx.
      Median house prices really seem to be returning to lending limited to median salary times whatever multiple the regulators allow.
      wrt Sydney I don’t think that Fear of the dreaded Negative Equity trap is really a factor YET (least ways not on the First time buyer front), it’ll take some time before stories of RE woe filter through to the masses, if our Ponzi masters can turn it around before that omg moment than we’ll be off to the races again.
      That said I sense that all is not well in the finance sector nor the construction sector…major job losses in both of these sectors would definitely tip the scales in favor of a really hard landing for Sydney RE. With Sydney making up almost 25% of the countries GDP, it’ll be hard for that to not trigger a national recession.

      • I agree they could save it from here. The supply side of the market hasn’t capitulated yet. Once that happens it will be too late but we are not there yet. Bubble psychology has taken a hit but it ain’t dead.

      • Construction industry = immigration levels = construction industry…
        Oops.. Batten down the hatches – another 20 million on the way..

    • What’s everyone losing their sh!t over? Credit is still growing at 2-3 times the rate of wages. FHBs are out in force. Lending standards have improved. Default rates are still low.

      Wasn’t this the desired outcome?

    • Is there real panic yet … or just “I will sit tight for a few months and see what happens”?
      Uber drivers in Brisbane still looking to buy houses. They have no real feeling yet of any panic wave which should ripple out from Melb and Sydney. Meanwhile Brisbane apartments continue to be build at a great rate.

  3. So where in the RBA’s charter do they mention keeping mortgage credit flowing?
    We all knew the RBA’s means of credit expansion was via ever increasing house prices but now they’ve been forced to admit it.

    • Strange Economics EC 101MEMBER

      Part 3 of the charter is “their 3 negative geared apartments and the waterfront house.”
      Needed
      As they have these enormous salaries for passing EC 101 questions (Exam quiz 1 – more demand = higher prices for houses? =Good 2) Speculation is good/bad?) they have a higher driver –

  4. reusachtigeMEMBER

    I’m no Albert Einstein so I have no idea what you guys are banging on about! It’s all good.

  5. Junker was nearly right when he innocently said. “When it becomes serious you have to lie” . He forgot to add “..steal and cheat” to complete his admission.

  6. St JacquesMEMBER

    So hilariously predictable. And people talk about “reform”.with a straight face. hahahahahaha !!!!!

  7. ErmingtonPlumbingMEMBER

    “the chastened banks, legal system and ordinary people are on the side of morally and economically sustainable lending and economic growth.”

    Well,…if we are going to bring “Morality” into the discussion, Id like to say that I think interest payments on on loans to purchase a family home are “immoral”,…isn’t thevpayment of interest called Usury in the bible?

    Let the market set the interest rates for all other loans and make Owner Occupied Property purchased through Govie supplied 0% loans the norm.
    Make homes purchased through such a programe unusuable as collateral for other loans or secondary mortgages, even go as far as keeping the family home purchased with this intrest free loan out of the hands bankruptcy courts.
    If you want to use the “Equity Mate” of your family home to Borrow to “Consume” that new boat or car, or overseas holiday then you would have go to a private bank, borrow to payout your 0% interest loan to the govie IN FULL and what ever extra that bank is prepared to loan you agsinst your prooerty then so be it, consume you equity mate…but you’ll pay the market rate of interest for turning your home into a credit card or Automatic teller machine.
    And if a bust comes and you lose the family home then so be it.

    That’d be more “moral” wouldn’t it.

    • That’s interesting, but too complicated, EP.

      just need to raise the interest rates on all debt to a good 6%-8% to stop the house being an ATM.

      With 4% mortgage rates, buying a 70,000 car on interest-only equity-mate costs just 2,800 per year. Of course people are going to do it. Again and again and again.

      • ErmingtonPlumbingMEMBER

        Not complicated at all,…you just make the family home with an on going 0% Govie supplied mortgage untouchable to all creditors,….Thus “Equity Mate” will not even be offered to these homeowners to “tap into” untill the debt to the Govie is paid back in full.

        Why should the prudent pay for the risk of the imprudent.

        Are we not talking about making a “moral” distinction between those trying to supply their familie a stable home and those chasing money for nothing Speculative gains?

      • (Monday morning meeting at Megabank)
        “The Government is providing free, 0% money to homeowners. Now….how do we get at that…”

        (I remember decades back when a Government Bond Issue to private individuals up to $250k each had a coupon rate above falling inter bank rates. You know what ‘Megabank” did? Lent all of it’s staff – from MD to cleaner – $250k on the proviso that they invested it in said Bonds. Bank and staff did well. Most didn’t realise they’d get a call for Provisional Tax the next year, but you can’t win ’em all!)

      • @peachy
        and at 8% it cost $5600, 12% $8400
        You really think a small interest rate increase will stop it? If property prices are increasing it doesn’t even have to cost you anything, you just put next years interest on last years equity maaate.

      • truthisfashionable

        What if, and i’m sure people in the financial sector would label this extremest.

        What if the RBA started charging the private banks the overnight cash rate on all the Australian Dollars that they have created out of thin air?

        PFH, might be a decent stepping stone?

      • Bjw, I do feel that $3k these days is “nothing money”, whereas $6k is still “something”

        But in a sense you’re right -$3k is only “nothing” because house prices have been going up that much every fortnight.

        Ask someone to actually SAVE $3k out of income and it’s like climbing freaking K2.

    • Can I get one of these Gov loans Interest Only ermo? Cause that would be awesome for speculation, I’ll go get myself a harbourside mansion 🙂
      Or more seriously what other loan terms would you realistically recommend? Because you have probably just given a massive leg up to housing prices if you implement this within the current environment.

      • ErmingtonPlumbingMEMBER

        You woukd cap these loan amounts at Average house prices or just below.
        If implemented at the trough of this crash after prices have gone down anothe 20 to 40% it woukd bail out a lot of people without recklessly expanding credit supply for property speculation.
        The loan size could be set at 90% of the purchase price, with income requirements like any other loan,…But with absolutely no extra money for anything other than the purchase of the Property.
        No lending financial instution would able to count or claim the owner occupiers “Equity” in said home until the Govie loan is paid in full.

        So you could have 200k equity in said home, but the Range Rover dealership are not going to loan you the money for one of their cars unless they judge your income large and stable enough,…the increased risk due to lack of collateral puts consumption interest rates up.
        Its actually fking simple.
        If you want to “tap into Equity mate” then you leave the Generous Govie programe by paying it out in full with your new full market interest rate mortgage from a traditional lender.

        Its success would totally depend apon making the Equity untouchable to all whilst the loan is unpaid.

        Why must we all be forced into life long financial relationships with rapacious Private tyrannies (Privately owned Banks) when there are Democraticly accountable alternatives.

      • I like your idea Ermo. It has the added benefit of controlling house prices. The 0% loan is only available on a house up to a set amount which increases with inflation. Lets wipe out real-estate speculation altogether!

      • Peachy is correct but 8% is too low. We need to save so we need an IR that ensures sufficient incentive to result in a good saving rate. So let’s call IR that 5% RAT. Allowing for Marginal Tax Rate and inflation that means a nominal rate of something over 10%.
        Would that destroy this economy with all that goes with it? Yep – for a long time! However the alternative is a slow grind until nothing is left anyway with moe damage and way more misery for a lot longer time. Acting quickly we just might salvage something somehow.
        The answers lie back in time – 60 years back!

    • EP That reinforces all the BS we want to fix! Money of real value, i.e. money that is exchangeable for real goods at a price, cannot be just ‘created’ without it finishing up as a liability. Can you begin to imagine the price of houses at 0% IR – Guaranteed. At 0% IR everything, from the beer in your hand to the tallest building in Sydney is worth infinity. Value loses all meaning.
      In ladling out free money for houses you create a whole bunch of people with loads of money to spend on consumer items – all imported. The CAD and Foreign Debt is going to be the real cause of the ultimate collapse of everything in Australia – and I don’t just mean financial collapse. Policies of zero money for anything just exacerbate the terror that is ahead of us.

      • ErmingtonPlumbingMEMBER

        I’m all for much much higher interest rates for ALL things,…just not for home ownership,…stable family shelter along with Universal Health care and Education are just fundamental requirements for any country wanting to call itself Just and civilised,..if you disagree thats OK,…but Just be honest and state that your for nothing else than an all in free for all with “Rules” that suit YOU.
        Drop the pretence of Morality and what is Right and Just and admit the only thing you’re advocating for is not your community,..buy yourself.
        I prefer a community focused Democracy,…where as the Plutocratic Corporate sector and their brainwashed acolytes prefer the “Individual” consumer to be the focused of Democracy
        The Identity Politics crowd also prefers the corporate promoted version of democracy,…it’s quite a broad church.

      • JHC! And I was born a Cartholic!!!!! My comments had nothing to do with social structure! You can arrange that however you like with appropriate social measures. Rearrange taxation and social measures however you choose. Give low income people more – as long as it is appropriately taxed. My comment is purely on what WILL happen if you do what you propose. You would, factually, just make everything worse. Why do you find the need to be abusive? Instead of abuse, show me how I am wrong? Show me how, absent a restructuring of everything including free choice, debt won’t explode. providing people with free loans for houses won’t result in the What’s so damned hard? Or in the new world order do you just silence anyone who has a different thought by whatever means? As for your great social conscience that you consider to be soooooo superior to mine – BS! That’s just conceited BS.
        Before you abuse me and accuse me of the sort of crap you did (- and you know absolutely ho effing thing about me) please get a grip on some basic economic truths and social behaviour that applies anywhere in Western civilisation.

      • ErmingtonPlumbingMEMBER

        Hey!….hey, hey, hey,…shhh
        Dont get cranky, my kids enguage in a lot ofcselfish behavior,…esp towards eachother but I still love them to.
        We all need to grow a thicker skin when discussing such things in my View, because we are all selfish to a degree.
        Its not free money when it has to be paid back, but that Private bank money, created out of thin air, isnt the interest they are paid “free money”?
        What about the 22 trillion dollars QE of free money made avaliable to capital owners and the wealthy to keep Asset prices pumped sky high,…but low income earners, the vast majority of the population cant afford to purchase a family home because the price has been pumped sky high by thecalready wealthy who have never had issues gaining access to cheap credit.

        My proposal if quarantined to Owner occupied borrowers only, with strict enforcement of Zero equity avaliability until moneys paid out in full would not only level the playing field for low income Australians but sharply increase the rate of interest for speculative investment’s due to theceasy money for nothing returns from the much more secure owner occupier mortgages subsidizing the investmentors rate.

        That would mean better returns for savers.

      • The only problem with all this ermo, is that the PPR is still the no.1 preferred option for RE speculation given it’s tax free status. Multiple property owners are only a small proportion of the total. Without large scale reform, your proposal achieves not much of anything.

    • My goodness EP you have a very strange sense of what is Moral.
      0% capital is hugely immoral because it destroys savings and furthermore guarantees that our available capital will be misdirected targeting unproductive assets. Isn’t that where we’re at today?
      Nah in my book a moral outcome puts a price on new private capital creation and restores value to our currency, this way our wages have value because our work adds value.
      Under your scheme the real value (social / economic/ business…) of our work does not factor into our wealth creation process, the value of work is precisely what must be restored for any moral outcome.

      • He’s not talking about savings or other debt except for PPoR roof over head

        Others just want 8% because they have this fairly sick desire to see everyone suffer – not just the imprudent

        What do we really think 8% will do – wipe out just the specufestors but benefit all the MBers with $$$& in savings and no debt?

        It’ll see bankruptcy galore and a massive house transfer from battlers to banks and the rich and I suppose a smaller number currently on the sidelines with cash at the ready but I reckon they’d not be a majority

      • ErmingtonPlumbingMEMBER

        “New private Capital creation” relation to Home ownership is the problem in my view.

        A stable family home should not be a fking asset,…its something more fundamental to society than that.

      • Oh eff me!!!! Those of us who argue rationally are just sick pricks who just want to see everyone suffer??????????????????????
        Strewth! Don’t argue FACTS! Don’t argue the actual outcomes of what is proposed – just adopt a holier than thou stance where anyone who thinks differently to you is evil!!!! That’s a great discussion!!!!

      • “We built this BUBBLE
        we built this BUBBLE,
        on debt and liesssss

        Say you don’t know me, or recognize my face
        Say you don’t care who buys that kind of place
        Knee deep in the debtola, sinking in your fight
        We got too many IR drops eating up the night”

    • Strange EconomicsMEMBER

      The “Immorality” boils down to where everone decided that a family home became speculation.
      When the wisdom became “No One plans to pay off the principal – get yourself a double size loan”
      When with IO loans, etc
      no need to worry when its 10 % a year up forever.
      In a 40% down market it all comes home to roost.
      Immorality is not “the paying of interest” it is ” not planning to pay back the principal as inflation will boom”

  8. “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;”
    Australian history say that Royal Commison findings are routinely ignored and rarely result in new legislation. And even if it did, Australia is a world leader in failing to actually enforce any legislation it finds inconvenient, so I think this point is drawing a very long bow.

      • I love your optimism, but realistically, all and sundry who are in a position to influence the end result are already making excuses not to follow any of the recommendations. For previous RC at least they waited until after the RC to make excuses for not acting on the recommendations.
        There is no way any significant reform comes out of this RC process.

      • For the most part, in the vicinity of three quarters of a major party’s funding in most elections comes from the public purse. The ‘public purse’ amounts are allocated to parties after the election in accordance with the proportion of the votes that are achieved.
        But there is no forward allocation of money. The distribution of ‘public purse’ money is strictly governed by the proportion of the votes actually achieved.
        ALP organisers are not looking forward to meeting with their bankers as the election nears. They are deeply apprehensive that as a result of current opinion polls, their bankers will slash the amount of election funding available to the ALP and lock it into a low vote.

        From https://barnabyisright.com/2011/11/07/aussie-banks-put-taxpayers-on-the-hook-for-another-130-billion/
        Assuming this is factually correct, the ALP simply can’t be firm, or they will be running unfunded election campaigns forever more, and will be as dead as the democrats. Of course you can substitute any party for ALP and get the same result.

      • Don’t want to argue the point, but will agree to disagree, although for a final point the class actions can be stopped in their tracks with retrospective legislation changes if the will is there to undertake them. The question is how badly do the powers that be want to maintain the status quo? And that is where our difference of opinion lies.

      • Indeed they will, the RC report comes out a few months before the election, Labor will take the reports findings and make it a manta of their campaign…they will rub it into the Liberals face…no upside here for coalition.

    • In any case it looks to me like the RC will be more about improving adherence to existing laws than putting in place new ones (on lending standards anyway. Maybe something new on broker commissions and remuneration etc – just a sideshow though)

  9. Everyone seems to omit all concerned are beholden to economic models and as such are a derivative of … something decades in the making and spans generations, hence many today were born into an environment that was already established as normative.

    “Models share three common characteristics: First, they simplify, stripping away unnecessary details, abstracting from reality, or creating anew from whole cloth. Second, they formalize, making precise definitions. Models use mathematics, not words … Models create structures within which we can think logically … But the logic comes at a cost, which leads to their third characteristic: all models are wrong … Models are wrong because they simplify. They omit details. By considering many models, we can overcome the narrowing of rigor by crisscrossing the landscape of the possible.

    To rely on a single model is hubris. It invites disaster … We need many models to make sense of complex systems.”

    https://larspsyll.wordpress.com/2018/12/13/why-all-models-are-wrong/

    So I submit that whilst everyone is focusing on the models slavish adherents, it completely – overlooks – the glaring fact, that the human component is more akin to plug and play wetware. Then some wonder why regardless of political brand, over long time lines, the result is invariably the same. Same goes for focusing on the voting process or attempts at introducing policies which attempt to limit human aggregate factors, because at the end of the day what ever comes out of that wash will inevitably be subjugated by the models framework.

    Ahhhh …. off to another day in a Queenslander reno … lol did I mention my mate got a plan to work his pro rata rates and material consumption off and then as I was discharging my duties thought something was widely off with the model – like 33% off. So he came in the next day and lazer measured the Sq meters himself, only to mumble its much larger. Then I had to have a chat about how pro rata is a scam [normative assumptions] and how some mobs game plans for some trades to skim profit off those that don’t verify the accuracy of the data before making plans ….. chortle ….

      • So I take it that reading comprehension is overwhelmed by personal bias, substituting for informed diologe. The above has zero correlation to your knee jerk but if I must would say it would be just the opposite of your projections dependent on further considerations.

      • just scan, or sample it…models – slavish adherence – plug and play wetware – aggregate – comes out of the wash – discharging – my duties with the model – skim off – chortle.

      • Hey Skip…. Claw doesn’t get it either.

        You need to provide more information on the 33% scampi make it…. intelligible.

      • ErmingtonPlumbingMEMBER

        I must admit to also not being on the same reading level as you Skip,…could you expand a little farther for a dumb $hits plumber.
        😘

      • EP… strangely an old plumber mate in America knew exactly what I was talking about just the other night.

      • Peachy ….

        The day you say something intelligible without having to reference some deductive ex ante axiom plucked from some vacuum and proclaimed rational I might take interest in what you have to say. Sorta like WWI or Gallipoli generals banging on about stuff whilst suffering information degradation via yes men and fog of war and topped off with a huge cognitive bias affliction …. oh major darling are you done with my boots yet ….

    • Skippy I read your comment (take that as a compliment). Could you please explain how your mate got scammed with the pro rata thing. I must have missed something, but I am interested in understanding the scam.

      • In this specific case he was given plans which were 33% off in sq meters used to price the job. I saw this almost 15 years ago with some dominate spec home builders, this is after charging buyers up front for X dollars and then skimming off around 25%, too pocket, whilst paying the tradie below the charge to the buyer.

        But then the whole industry is just chocker block with all sorts of corruption and lowering standards. Watched it all play out as old boys with solid knowlage and experience were driven out by administrative changes from construction boss to sales – marketing MBA types. Largely driven by so called free market platitudes about increased efficiencies and personal bargaining arbitration reduction.

        I went through all this years ago IMO …

        On the other hand none of the respondents to my comment seem to want to touch the link or the information in it with someone elses anything …. yet are quite sudden to bang on about or quire my personal observations as an sample. Strange how that always emanates from the same source …. regardless of the individual proposing … chortle …

      • That’s sort of what I though you were saying, skip, but couldn’t be sure.

        And my response is apt. I was suggesting that the government would covertly sneak in 33% more bods than anyone asked for (or agreed to), in order to serve their own corrup purposes.

  10. “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 are not serious? Most people visiting this site have some savings. Let’s hit savers again. Are you guys short AUD? 🙂

    • Spot on!!! Lowering rates is just inanity shoved on inanity. It is impossible to correct deformity by adding more deformity. MB has always refused to discuss the real causes of this shambles, which includes the policy of negative RAT IR’s, despite repeated challenges from quite a few contributors.

  11. “ordinary people are on the side of morally and economically sustainable lending and economic growth.”

    What BS! Ordinary people want to consume more and they want to consume more NOW!!! They are quitter happy to see farmers suiciding as a result of policies that strip farmers of well being to allow themselves, as city consumers, to consume more cheaper.

    That’s the basis of our whole economy. The economic/social/voting system is rigged to reinforce this process.

    Morality???? Bwahahahaaaaaaaaa!!!!

    • Farmers tend to top themselves out behind the shed, maybe we need farmers topping themselves in Martin Place during the lunch hour.
      City folk will never understand why their actions are the cause of so much distress in our farming community, they didn’t understand why manufacturing was important and they won’t / don’t understand why farming is important …..who needs sustainable income when you can borrow as much as you want as often as you need it all supplied by a magic money machine.
      Those that choose to make money the old fashioned way (selling products / services) are today’s greater fools so farmers (or economic fools as they should be know) should at least ensure that some part of them ends up on the lunches of RBA employees that will at least give them a moments time to reflect on the broader implications of their policies.

      • My problem with farmers is that they have continuously voted for National Party pricks who have betrayed them so badly for so long. I’ve never understood it!

      • 90% of the city folk I see every day would not notice someone topping themselves in Martin Place because they are looking at their phones and not anything else, they also look down on farmers as people that live in the dirt and don’t know how to buy investment properties. Their food does not come from farms it comes from Colesworth in a truck or delivered on the back of a scooter from their favorite takeaway !

      • Record household/credit card debt, payday loans and afterpay would beg to differ with that assessment.

        Edit: wow, wonder what the trigger word was?

      • Who? All the virtue signallers living in the middle of cities with every convenience????? Bwahahahaaaa!! There are a few people like IP et al. Then there are others who live frugally just because that’s what they do. The REALITY is however that these people are a very very small minority – again just an inconvenient fact.

  12. Don’t get me wrong in any of this. The RBA has presided over this mess for 60 years without a single word of warning about the process and inevitable end result of the population living in a nation where every worthwhile asset that produces anything worthwhile is owned by foreign interests.

    The old English had a just punishment for treachery. HDQ

      • Sam is a minor player!!! This has been gross treachery by those in power, of every political colour and not limited to politicians, for 60 years.
        I think Sam was just, mindlessly, responding to the situation that has been created long before he happened along.

  13. The corrupt regulators have lost control. It is fear of civil and criminal actions which are driving bank behavior now. Another 2-3 years of royal commission under Labor would seal the deal.

    • Hmmm problem with that is that Labor’s owners have been shown to be world class document burners (after turning off the cameras of course). Now everyone knows how to do it…

  14. CBA appear to have severely curtailed their LTI/tightened serviceability – there’s a lot of variation between banks and the CUs

  15. It’s bleedingly obvious they want lending loosened in time for the investor stampede which seems inevitable with labor looking likely to win the election. Then they will be relyong on hope that the Chinese will be bqck shortly thereafter.

  16. Jumping jack flash

    “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.”

    Well said.

    Interest rates should ordinarily reflect the risk of the debt, and these are incredibly risky times, like none other in recent history, and as the volume of debt increased over the decades risk would have as well so interest rates should have likewise increased and we wouldn’t be in this position at all.

    Unfortunately risk was ignored completely except one metric, LVR, and now we are here. Our interest rates continue to be absurdly low, and will probably, somehow, go lower.

    What we see now is the effects of decades of ignoring risk. Ordinarily the risk should finally be realised, interest rates raised and the banks left to die as everyone implodes, but the economy and the people are being sacrificed to the private banks so they don’t all fail due to the insane amounts of incredibly risky and unproductive debt that have been doled out.

  17. Banks may have been lazy, used the hem incorrectly or whatever. But let’s be frank here. Just because the bank says you can have x doesn’t mean you borrow x. You can do some simple arithmetic on what you can afford, including any potential future rate rises. Blame the banks all you want… but the mug punters that took the fist full of cash are just as complicit in this. And not to mention if they lied well that’s also their fault.

    • Strange Economics - history and moralityMEMBER

      You had 2 options in Sydney Melbourne – take out a 10 times income loan and win at auction vs cashed up foreigners and investors (very socially acceptable0
      OR
      take out a 4 times loan responsibly, and like a 1950s family in the Holden factory, plan to pay off the loan.
      Then LOSE at auction, and have your young family HOMELESS (ie renting !)
      lose all your friends,
      and move out to Tarneit and wait for the FFA team…

  18. They know. They know that dropping the interest rates will not fix the problem this time and, probably, do more harm than good. They are frantically trying to come up with another solution and getting desperate. This shows that they are in desperation mode. It is as simple as that.

  19. “ the government and RBA are publicly endorsing illegal, predatory mortgages, as well as actively targeting a decline in Australian living standards”

    They’ve been doing it implicitly and on the sly for years now. Hence, the unstable political system. Now it’s out in the open maybe we can finally get a discussion about economic reform.

    • plenty of room to drop rates. They can halve them, then halve them again, then again. Every halving doubles the amount of principle you can cover with the same amount of interest payment.
      Then they can start the real ponyshow and start going negative 🙂

      • If the RBA drops to 0.5% (which will kill the dollar; another topic) the banks will take their sweat time to drop; probably 5 years to get from 5.3 to 2% (and they wont drop below 2%, probably higher depending on how low the AUD gets and how high the BBSW rises.)

  20. The economy is doing well, that’s why we have emergency low rates and cannot raise a fraction of a percent or it’s all game over. lol..

  21. You can’t help thinking that in 10 years time, people will be saying RBA should have gently hiked from about 2015. In particular, those last 2 cuts in 2016 will seem silly.

    Instead they kept the rates at emergency lows, failed to build up a reasonably large strategic monetary reserve, and put the last gasp of air into the bubble. The lack of any reserve is a real problem now in light of the Royal Commission and more prudent lending.

    So what can RBA do now
    1. Lift rates – and be forever blamed for the housing crash that is now starting
    2. Drop rates – which probably won’t stabilise prices significantly as market sentiment has clearly turned, tighter credit will remain, and banks will keep some of the cut for themselves. In addition, this tells everyone how bad things are and risks wider panic.
    3. Keep rates on hold, point out that house prices are falling, and start lobbying for credit to be loosened a bit lest things crash. There will be plenty of other factors to blame for housing crash anyway – Shorten and concern about negative gearing / capital gains, China slowing, Trump….

    I don’t think there is a good option. Only a least bad option. For the Board keen to avoid being blamed (and you can always bet on personal self-interest to play some role), option 3 seems the least risky / least bad.