Corrupt APRA sets course for 2022 economic accident

As we know, the Australian Prudential Regulator, APRA, is corrupt. Its head, Wayne Byers, was re-appointed by Treasurer Frydenberg in the midst of the Hayne Royal Commission before it could bring down its findings on anything. A clear ‘jobs of the boys’ moment rendered appalling as the Hayne RC made clear how badly APRA had failed during the last bubble episode under Byers’s leadership.

But, even corruption has its limits with a free press still half in operation. APRA will eventually be forced out of its control fraud to tighten the lending driving tearaway property prices. What will be the triggers? The disgraced Byers was on the hustings yesterday giving a few hints:

  • High LVRs will be a trigger.
  • High debt-to-income ratios as well.
  • And market share originated by brokers.

Byers hosed all three as requiring near-term action:

He went on to say:

  • Household debt has declined relative to incomes. Serviceability costs have fallen.
  • Investor lending and interest-only are low.
  • High LVR, DTI and broker origination is rising but understandably so given first home buys are rampant.
  • APRA could intervene with targeted macroprudential similar to 2015 and 2017 or lifting the capital buffer or whacking non-bank lenders.

A few points then:

  • There is no mention of the mortgage buffer which determines what level banks must assume for future interest rates above the current cash rate in serviceability calculations so APRA is not considering tightening it even if it does move.
  • Nor is the FHB excuse to do nothing encouraging. High LVR is arguably more not less dangerous for FHBs over investors so this is a purely political position.

In short, corrupt APRA will do nothing this year, as expected, so house prices will run. Obviously, this means that lending standards will decline and household indebtedness will get worse.

But regulators have a big problem over the horizon. 2022 will witness a booming global economy but a materially slower Chinese economy with tumbling commodity prices for Australia in particular. Along with whatever other trade attacks it can launch. We will also be slower than most in opening borders given the Morrison Government’s vaccine rollout shocker.

As local fiscal policy tightens from here and the property boom triggers falls in household savings with excess consumption, we will use up our post-COVID catch-up growth pulse over the next year.

By 2022, then, we’ll have a slowing economy undergoing another external income shock, just as the housing metrics that APRA follows push towards the triggers for tightening.

By refusing to tighten macroprudential policy now to slow house prices and push more of the RBA easing into a lower Australian dollar, APRA is setting us up for a pro-cyclical accident in 2022. How does that serve the cause of “financial stability”?

Such are the contradictions at the heart of Australia’s broken monetary regime.

Houses and Holes
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  1. – Awesome Charts! Courtesy of Fed / RBA.
    – When will interest rates prick the bubble?
    – The BANG is going to be amazing!

    • It is said that if once you start down the dark path, forever will it dominate your destiny, consume you it will.

      99% do not even comprehend what is going on, how they have been dancing to the tune of the elite all this time, guided by the strings held by the mighty enabling machine known as the central bank. BTC may have been a movement to get rid of the shackles.

      Who’ll come a Waltzing Matilda with me?

  2. 17 more years ;p Australia will probably destroy itself. I want no part in it.

    The Boomers are homicidal.

      • Crash in 2 years.

        Best news I’ve ever heard. Lets have a party. We can make it last for 2 years.

        It’ll be like watching a Solar Eclipse or something. We can all line up to watch the fun.

        Front row seats to the dying of the Baby Boomers.

        You think its a Wine occasion or a Beer occasion?

        2 years? Im so excited. Lets bring this sh*t down. I wish it was sooner.

          • 3 to 6 months the crash will be well under way
            You’ll see GDP contraction possibly 15% to 20% (-20% GDP) over 22 year
            Unemployment could touch 50%
            In 1931 & 1932, CPI was around negative 10% (deflation)

            I read a little last night while reusa was watching his transport news “fake taxi” I was reading up about 1931
            Banks collapsed all over the world and you could buy so many things such as cars 10 or 20% cheaper We haven’t had real deflation since 1930s
            Not 18 months …away this year

            Wayne Byers will be serving soup to the starving……helping manage the distribution of food……do we have a food stamp system here ? That’s what Byers will be doing because you don’t need MP when there aren’t banks…..Byers will be running the food stamps

          • ‘Wayne Byers will be serving soup to the starving’

            You think too highly of Wayno, I suspect he’ll be syphoning off the soup to sell on the black market.

          • @John
            You haven’t seen anything

            This is what happened pre GFC guys

            This are the very early red flags

            I promise you, I feel very strongly I’ll be correct

            Wait until second half this year ….kids stuff

            European banks will go first ……derivatives counter-party risk …..more than 1000 trillion USD in derivatives

            You are going to see things that have never happened in history

            In the 10s of trillions

            The entire world banking system is possibly going to collapse……starting with the big boys …’ll see European Asian UK banks close their doors,,…you’ll see possibly one or 2 go… the US…..(I think it may be Goldman’s, they have the biggest derivatives exposure to Europe) ….it may not be Goldman’s but there will be mergers in US, there won’t be big 5, think US may save theirs but not Europe, they will be squabbling

            major major corporate bankruptcies and major hedge funds will collapse

            We are on the edge of the greatest financial crisis ever in history

            I WROTE YESTERDAY THAT PLEASE GIVE ME 2 or 3 weeks for me to start providing you all with evidence

            Above is a red flag, be smart and be aware what’s really being hidden

            There are major corporations that are being quietly held up by the FED

            Last year we have the LIQUIDITY crisis and huge trillions were pumped in guarantee lines by FED ECB etc ….also RBA too is holding together some big names

            You wait over next few months, I will provide you all with graphical evidence of what’s ahead … few weeks

            This is going to happen so fast …..possibly weeks to 2/3 months

            The globa financial system is going to collapse into Xmas

            I’ll provide on here information that will back up my thesis

            Refer on wiki or internet the bank collapses in 1930 1931 1932 bank collapse and deflation

            This will be worse this yr


          • Bcnich – you also said March was going to be catastrophic and …


            While I do value your opinions, maybe leave the crystal ball on the shelf.

      • Titanics about to sink. Im scared dumpling. Hold me.

        So if all these Boomers die and suicide, reckon we can buy stocks in a funeral home or something so we can profit off there deaths? Everytime a Boomer dies, we get a stock dividend, right? Small mercy for the money they’ve cost us over the past 20 years. Maybe we can recoup some of that. Profit off there death? Seems like a great investment opportunity, wouldnt you think?

        Is there anyway I can buy a Cemetary and Rent a Grave to Boomers when they die? Maybe they can pay it over a 5 year span on a nice little payment plan or something? I accept quarterly payments so that wont be a problem. After 5 years when they can no longer pay the rent, we dig up there coffin and toss them into the sea. Real Estate is precious. We will need the Grave for the next Boomers who die.

        Do you believe in ethics dumpling? I do. I read the Bible once. It said, ” Treat others as you’d have them treat you “. I think thats amazing and really good advice. I think its precisely what we should do. Treat the Boomers how they treated us. Seems fair. I think we should Rent Boomers there lives for the next 20 years. If they cant pay it then just let them die. A few of them might even Suicide but its no great loss. When Boomers die, it’ll only make Australias Liabilities cheaper so its not like we actually lose anything.

        Im Happy Happy Happy Happy Happy

  3. happy valleyMEMBER

    “Such are the contradictions at the heart of Australia’s broken monetary regime.”

    Bottom line is Byers and Captain Phil couldn’t give a r.t’s? All that matters is the price of their Pymble and Randwick mansions? The Sydney Sun Tele last Sunday even had a picture of Captain Phil inset in to a group of photos of recent Randwick mansions sold – prophetic?

    • HV
      Over the next 2 years you’ll see wealth inequality disappear
      I know it’s hard to see, but many of these, will lose most of their wealth
      You’ll see many boomers forced to live with their children
      No one really understands unless they’ve studied the Great Depression
      When credit is taken away, the world looks very different
      2022/23 will be brutal

      Analysts will start changing their forecasts from mid year ……but no one really understands what this time next year will look like

      Do you remember that feeling of dark last March when we shut down….think March 20, but at that point there was no job keeper etc

      It’ll feel 10x worse than that …..just dark and confusing

      No one will know what to do….
      Banks closed
      Many companies closed
      Many small businesses closed

      Armed services etc will be brought in to help with safety and food distribution etc list goes on

      • chuckmuscleMEMBER

        So far this year we have had Melvin Capital, Greensill (massive, soon to be convicted fraud) and now Bill Hwang (actually a convicted fraud) all blow up. Any yet what has happened in capital markets? Nothing… no tightening anywhere. I am starting to think you might be onto something, the financial system has built up all these frauds and keeps blowing them up with no consequences. The process is always non-linear so will keep happening until one day, boom.

        • SoMPLSBoyMEMBER

          When glass breaks, the cracks can travel at over 5000 km/hr.
          About 8 seconds to circumnavigate the earth.
          b(cnich) prepared!

        • Chuck they are quietly being bailed out
          I heard I believe solid that Bridgewater (Ray Dalios) were close to going under like LTCM but where bailed out, they had huge leveraged long equities, in pandemic stock market crash was so fast they nearly went

          There are major banks and corporations being held up now you don’t know about

          The liquidity has delayed the insolvency phase

          You wait

          There is serious stuff being hidden under the rug

          Give me 3 or 4 weeks and I’ll show you and as we get into mid year

          Keep me updated with this info this is the true discussion main stream are not anyway near aware of and as what’s his name the gun from Rabo talks about

          He knows

          Someone posted that RABO ….EVERY is his name

          He said middle main stream analysts and economists have no idea but they know at the very top

          The very very top know what’s ahead

        • GLobal pandemic?
          Widespread shutdown across multiple industries?
          The sun going supernova?

          Or the only actual likely cause, Central banks pulling the rug out from under everyone. But why would they?
          Everyone can see that leads to the disaster predicted.

        • Brett in life everything has a breaking point

          I’m saying second half

          HONESTLY I BELIEVE I KNOW WHAT IT IS BUT GIVE ME A FEW WEEKS, TRUE IM WAITING FOR CONFIRMATION. I DONT WANT TO SAY JUST YET I’m not quite there yet but I’m pretty close to have worked out

          There is something very very big that I think so close

  4. pfh007.comMEMBER

    Sounds like the reality of MPLOL is starting to sink in though “corrupt” is perhaps overstating the situation.

    The system is operating as intended.

    Rather than dream of some unknown future (China trade collapsing, interest rates rising, fiscal repair) proving the folly of MPLOL why not campaign NOW for reforms that will allow the fundamental system problem to be fixed.

    End the banker monopoly on operating deposit accounts at the RBA right now and allow the balance sheet of the RBA to expand to meet the demand from public and non banks for RBA deposits.

    Why should the banks retain the privilege of a monopoly over RBA deposit accounts?

    • I’ve always liked this suggestion by yourself. However, who really cares? Seriously. I mean , about anything, in this stolen land. The legacy nationalism. As Stewie says this an economic zone. Torn between revenge fantasism and entitlement exceptionalism. Lolz.

      Land register outlining all foreign ownership. Never will happen. As wont your suggestion. Why. Cause the 99% are fodder.

      Not just houses and farms, commercial real estate. How much do you think is owned by Australian s? I mean Australian s like ones who have contributed in teaching, caring, valuing, creating what ‘was’ a pretty bloody awesome place. I would say by value this too is mostly foreign owned

      I don’t expect any policy to designed to purposely benefit the fodder.

      I live in Qld but I guess you get stuff like the Cronulla riots when the legacy fodder feel they have no legitimate Avenue to voice their disgust. Not condoning. But what are you supposed to do when your country is stolen from you as it was from the 1st nations.

      • pfh007.comMEMBER

        I understand the low expectations but things do change……slowly and incrementally.

        The strange thing about the proposal to end the banker monopoly on RBA deposit accounts is that half the time I get told it is banal, too little and not enough and the rest of the time I am told it is terribly risky and far too ambitious.

        It is neither.

        It is a simple, practical and important bit of reform that is technically not difficult to implement.

        It is very hard to justify why bankers should still enjoy this monopoly.

        Considering we are now being told about trans rights every second news bulletin and that is an issue of super marginal interest, selling the ending of a banker monopoly should be a piece of cake.

        Just start telling anyone you know that the bankers have this outrageous monopoly and we need to end it now.

        It does NOT require the destruction of life as we know it.

        It is nothing more than allowing the general public and non banks operate central bank accounts if they want to.

          • pfh007.comMEMBER

            They can continue to believe that as it doesn’t really affect whether or not the public are allowed to open an account at the RBA.

            People will remain free to lend money to private banks (which is what a private bank deposit is).

            I just don’t see the general public not supporting being allowed to operate an account at the RBA …just like the banks do.

            Normally it would be of little interest because people lending to banks normally get paid interest whereas there would be no interest paid on saving in the RBA. But with the piddling interest on offer for unsecured loans to private banks there may be more interest in RBA accounts because people may think .

            “If I am not getting any interest anyway I might as well be 100% safe in an RBA account”

            I don’t think everyone trusts that the government will honour the guarantee on deposits in private banks.

          • As long as the banks can continue to operate fractional reserve banking, where the deposits are held is mostly irrelevant.
            Getting average folk to put their money in the RBA does nothing to credit creation, which is what the actual problems stem from.

          • pfh007.comMEMBER

            Credit creation is a problem because it is 95% of the money supply.

            You can’t fix that problem without an alternative form of money supply.

            That is what MyRBA provides.

            An alternative way of settling transactions and an alternative form of savings that is not an unsecured loan to a private bank.

            So if you want to fix the bank credit creation problem you NEED MyRBA.

          • Thats not actually true. If you want the RBA to create money then you need RBA accounts to do it into, these could be held by citizens, Banks, corporations or Government.
            Or the government could just create the money and distribute it via the welfare or tax systems.
            None of this is dependent on individual accounts at the RBA.

          • pfh007.comMEMBER

            You have just described MyRBA except you are arguing that we only widen access to RBA deposit accounts to non banks.

            Sure you can do that but unless individuals are entitled to operate RBA deposit accounts you are still forcing them to be unsecured lenders to the banks as that is currently the only form of account they are permitted to operate.

            If you want to deal with the bank credit creation problem (and not be held hostage) you need to introduce an alternative to forcing people to lend to private banks.

    • As they say, never waste a good crisis, let alone a great one.

      But we will have to have a great crisis first.

      • pfh007.comMEMBER

        We do not need a crisis to allow the general public to open and operate deposit accounts at the RBA.

        All we need is more people demanding it and fewer people saying it is impossible.

        Opening and operating a bank account is not rocket science.

        The RBA could be offering MyRBA accounts within 6 months if they were required to do so.

        I confess I am puzzled why MB don’t put this at the top of the reforms they constantly demand.

        • Because it does nothing to banks ability to create and control credit, so really does nothing the bank deposit guarantee doesn’t already?

          • pfh007.comMEMBER

            If you want to regulate bank credit creation do that (though we haven’t seen much success on that front) but that has nothing to do with ending a banker monopoly on RBA accounts.

            Ultimately MyRBA is likely to force regulation of credit creation by the banks but no need to get distracted by that issue now.

          • Even StevenMEMBER

            It will dramatically reduce bank profitability though. A proportion of the population will opt for an RBA account (even if at zero interest given scant interest on offer from private banks). This means private banks will need to compete with the RBA for deposits (pay more interest), reducing profits.

            Question is: do the bankers deserve these easy profits?

            I don’t.

          • pfh007.comMEMBER

            Even Steven,

            Yes, banks will be forced to work harder to persuade people to lend to them and that will mean they have to increase the price of the credit they extend. Keep in mind they are not just competing with the RBA as it is likely that people with deposit account alternatives will start paying much closer attention to the risk and reward of investment options.

            But this is no different to any other business who finds their cheap inputs rise in price. E.g. blueberry farmers denied access to easily exploited temporary residents.

            When it comes to lending secured by existing housing/ land that is not going to be a problem as less cheap credit chasing up existing housing prices is a good thing.

            The question is whether lending secured by new housing or any form of new productive capacity should be favoured with artificially lower rates than would otherwise be the case. In other words should some types of bank credit continue to be subsidised

            That could be achieved as a policy goal by fixing the rate charged and have the govt fund the loans as an exercise in fiscal policy.

            The fiscal aspect of the policy will be the gap between a market return and the artificially lower rate charged on those loans.

            It might prove to be a relatively inexpensive way of encouraging investment in new productive capacity.

            Of course this is a matter for the elected government and their election platform.

    • I feel a change in the air.
      People a lot more open to calling the b.s. out and march for it. And calling out some minutely articulated details of exactly how and why it is wrong.
      Feels like the aus version of a BLM forming. This feels different to the usual 730pm Leigh Sales b.s. questioning.

  5. Holiday In ScomodiaMEMBER

    APRA- here now the horse has bolted…. the new Australian classic…”…There was movement down at APRA, for the Wayne had figured out, the cost of buying homes had got away…”

    • Holiday …………… will be much much cheaper but still unaffordable because credit will be very hard to obtain

      What I’m trying to work out is what will they do

      They may have to offer 0% mortgage rates from a government owned nationalised bank just to keep some credit flowing

      In 1937 president Roosevelt introduced the 30 year mortgage… mid 30s no one wanted to know about going into debt

      They will have to come up with these type of solutions

      The more I think Steve Keen QE to the people and home loans directly to the people

      Most banks will be gone

      There will be direct relationships btw government backed organisations money direct to people

      Over longer term inflation in essentials food etc will be very high

  6. Problem is that high LVRs are government policy, with the first home loan deposit scheme and attempts to roll back responsible lending just a few recent examples of where the government stands. Instead of the government insisting that APRA maintain high standards, the government has lowered their standards to match APRA’s.

  7. Portfolio investors champing at the bit to refi at new Q1 vals to leverage up into MOAR.
    Asset lends running rampant from parental guarantor loans. Is that 15% LVR + 80% LVR = 47.5% reported by APRA when the real lend is 95%??

  8. US rates are going to rise. The 10 and 5 year yields have rocketed off.
    Only a matter of time before 1 year and 3 month takes off.
    5 year breakeven inflation is back at 2008 levels.

    If the RBA stopped its YCC the 1 year will be up to 0.8%
    I just watched someone purchase a 2 bedroom 0 garage, 0 outdoor that needs a complete reno for $1.4m, 30% over reserve.
    We now think we are invincible

    • “We now think we are invincible”

      Because we are……brrrrrrrrr can’t and won’t stop.

  9. Even StevenMEMBER

    APRA says they don’t target house prices, they target imprudent lending. Assertions of corruption are too far and not borne out by facts.

    Traditional lending metrics have remained within normal parameters, e.g. LVR, repayment %s.

    If interest rates rise materially, then clearly this was imprudent lending. Question is: what likelihood do we/they/everyone attribute to material rise in interest rates? Very little, in my view.

    What we have is in effect a permanent inflationary injection into property prices (directly caused by lower interest rates). We need a house price regulator. Should be the government but they are horribly compromised. RBA similarly. And APRA seems not to care “not my business”. Something must give.

  10. I have moved towards Cameron Meyer/ Catherine Cushmores views – mid to late 20’s (26-28) as the big impact. Until then all going uuuuuuuuuuupppppp