RBA control fraud is its crowning blunder

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In good news for Australia, last week’s break into the open of RBA corruption met with little media response on the weekend. By that I do not mean that the media held the bank to account for endorsing criminal mortgages – as if – but it didn’t pile in behind the bank’s lunatic push to return the banks to fraudulent lending either.

There were only two stories covering the issue and they were loaded with the usual suspects, at the AFR, Mark Steinert, chief executive of developer Stockland, leads us off:

“Credit is the lifeblood of the Australian economy. Ensuring fair and equitable access to credit is vital for the stability of key Australian industries including property,” Mr Steinert said…This view was supported by Lendlease chief Steve McCann, who said there had been a “noticeable tightening” in the availability of credit for Australian households.

ANZ chief Shayne Elliott said regulatory intervention and changes in “where and to whom we lend” had a clear impact on the market.

“There were some figures recently which showed an average family could have borrowed about $550,000 three years ago. Today that figure is closer to $440,000, so that’s a very tangible example of how the borrowing capacity for customers has been curtailed.”

Rightly so, given they couldn’t afford the loan. Let’s remember that the Hayne RC revealed around one third of said borrowers were mis-assessed as prime when they were sub-prime. We all know where that ends.

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Even Domain’s effort was paltry:

When Carla Jenkins recently sought to refinance a loan over a house she bought six years ago, she faced a very different vetting process from her bank than last time around.

…Her current income is the same as the joint income she and her former partner had in 2012; her credit record is clean; the amount she wants to borrow is virtually the same as in 2012; and the house itself is worth much more, after renovations and a property boom.

“They are delving deeper into your life and your situation. I did not feel so scrutinised six years ago,” says Jenkins, a full-time sub-editor.

…she worries that the banks’ tougher stance might make it harder for first home buyers to enter the market at what might otherwise be a good time to buy.

“It’s becoming more of an attainable goal, but the problem lies now with the gate-keepers, the banks, to actually get the loan,” Jenkins says.

How magnanimous of Ms Jenkins who already owns property but has taken the time to worry on behalf of those that don’t. The first question that occurs is where does Ms Jenkins work as a full-time sub-editor? I think I can guess.

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Ms Jenkins has it backwards, of course. Home ownership is becoming more attainable because the banks lifted lending standards. That has helped trigger the price falls that are repairing destroyed affordability. Now a prospective FHB can build a deposit with confidence that the market won’t tear away leaving them chasing their tail. If it takes a bit longer to save a larger deposit than that’s all to the good given the longer that they save the cheaper property gets. For instance, if Ms Jenkins were to sell today, then an FHB could make her a low-ball offer and force her to drop the price. The absence of specufestors or ponzi borrowers empowers FHBs and they are better positioned today than at any time since the pre-bubble days of the 1990s.

This brings us back to the nub of RBA corruption. The banks have reverted to lending in a responsible manner. For the first time in many years they are actually doing “banking” instead of just being credit vending machines. Mortgages are cheap and readily available for those that make the effort to build a solid balance sheet. Just as it should be.

If the RBA has a problem with that then it should make credit more affordable still by cutting the cash rate. Self-evidently what it should not do is subvert responsible lending laws, good banking practice and a banking royal commission that uncovered vast systemic corruption before it has even concluded.

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This is so obvious that it begs the question why is the RBA behaving so appallingly ? For an insight into that we can turn to John Adams from Friday:

Last week, a federal coalition member of parliament told me that the establishment (political, bureaucratic, media, corporate) will seek to claim ‘plausible deniability’ (i.e. no one could possibly have seen the crisis coming) when Economic Armageddon comes.

This will be a deliberate tactic as they will seek to escape personal responsibility.

The RBA misread the China mining boom in 2009-2011. Expecting it to run for thirty years it drove the AUD far too high and hollowed out non-mining tradables. When the boom instead imploded in three years, the RBA covered over its huge blunder by deliberately blowing off housing, in contravention to its own declaration in 2010 that household debt was already too high. Through 2011-16 it slashed interest rates and resisted higher lending standards via macroprudential that would have contained the bubble. As we pointed out again and again during the blow-off it was always going to end in tears.

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Now the staff of the bank want to dodge responsibility for their own mess and are willing to destroy the credibility of Australia’s primary monetary institution to do it.

In the study of white collar crime this kind of arbitraging of an institution’s well-being for personal benefit is called “control fraud”.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.