Australia Faces Its Demons

[Kurt Barlow]

On 01/07/2018 at 22:22, pepto said:

I don't know so much about Perth but I have recently seen Origin and Santos continue to let people go in Brisbane and Adelaide even though the industry is now supposed to be back on the up.

Back in the hey days pretty much everyone at Santos had a company credit card that they could charge $100 to a day without any need of receipts. They also took advantage of the company paying mobile phone bills by getting a package deal including internet and Foxtel and then claiming it all. Crazy days!

Adelaide is a ghost town - might as well just send all the centre linkers and refugees there. My Missus has a 1 bed unit there (which means we face a 3% SD surcharge if we buy in the UK?) which she clings onto as her investment property - she 'believes' in property. Paid $210K now worth $165K. Several years rent just about cover the costs not including inflation - whats not to like? 

[eric pebble]

On 20/06/2018 at 10:33, zugzwang said:

Aussie FTBs are currently forking out 40-45% of their joint income on mortgage repayments, 4-8x what their boomer parents did.

https://renegadeinc.com/australian-housing-affordability-worst-130-years/

It's un-ravelling guys..... It's coming to pieces.  

Watch these 2 videos.  It's ALL there.  ALL THERE.   LIAR LOANS.  The wise people are now shorting the Oz banks...... 

LEARN FROM THESE 2 VIDEOS!!!!

 

 

 

[eric pebble]

On 21/08/2018 at 16:28, Society of fools said:

When I first joined this site in 2016 I told my better half that the Brits are definitely far advanced ahead of the Aussies when it comes to recognizing that that the House price party is over, and that because of the general sentiment about high house prices, the UK would have its house price crash at least two years before the Australians. 

The sentiment problem in Australia is simply incredible compared to Britain.

It is out of sight worse down there in terms of believing that "House prices only go up".

But now I think I was dead wrong.

Australian housing prices are apparently falling faster than house prices in Britain, and that's nothing to do with sentiment, which is as deluded in Sydney/Melbourne as its ever been. 

I think the key is in the interest rates and the level of indebtedness. With the RBA holding rates at 1.5% ( considerably higher than the BOE), and Aussie households even more indebted than the Brits, it only takes a tiny wobble to tip the Aussie ship over...… and the Aussie economy is wobbling. 

I have been watching the video below.  

I have to tell you -- I am sitting here with my head in my hands. It is SO depressing.  And - it confirms my worst, worst worries about banksters and lenders.  It just takes your breath away.  It is really, really, SERIOUSLY worth watching this remarkable lady.  Just watch the WHOLE thing.  Let it run to the end --- listen - move around doing the housework -- and just keep your eye on it - and listen. LISTEN to this lady reveal the ASTONISHING dishonesty of Bankers.  INCREDIBLE.

 

 

[zamo]

 

[Freki]

Why is it not rated PG-18 ?

[user not found]

2 hours ago, zamo said:

 

People worried they can't afford their mortgage? Why did you sign up for it then ? Idiots

"Da nice man in da bank he say I could have da mortgayge, so I saaay yesss pleease I like to have happy house. But now I realise I cannot afford five thaaasand dollar a manth repay becozz I only earn ten dollar work in factory. Why did he trick me? He say don't worry about the numbers, he talk to beeg cheese to sort it. I will pray to God I trust him to feex it."

[Lord D'arcy Pew]

46 minutes ago, Sausage said:

People worried they can't afford their mortgage? Why did you sign up for it then ? Idiots

"Da nice man in da bank he say I could have da mortgayge, so I saaay yesss pleease I like to have happy house. But now I realise I cannot afford five thaaasand dollar a manth repay becozz I only earn ten dollar work in factory. Why did he trick me? He say don't worry about the numbers, he talk to beeg cheese to sort it. I will pray to God I trust him to feex it."

"Stupid is as stupid does."

Forest Gump 1994

Edited September 18, 2018 by Lord D'arcy Pew

[highcontrast]

Could Australia/New Zealand be the kick start to bigger falls in the rest of the world? I.e. the source of the contagion!? 

[Freki]

3 hours ago, deadlyavenger said:

Could Australia/New Zealand be the kick start to bigger falls in the rest of the world? I.e. the source of the contagion!? 

What vector would allow for the contagion to spread?

[Kurt Barlow]

54 minutes ago, Freki said:

What vector would allow for the contagion to spread?

Aussie banks are a major component of Far East Share indexes. 

Reminder to sell ANZ shares?

[spyguy]

13 hours ago, deadlyavenger said:

Could Australia/New Zealand be the kick start to bigger falls in the rest of the world? I.e. the source of the contagion!? 

Wrong way around.

Aus/NZ factors are:

- Not had a recession for ~30 years. All the dumb ideas 'Only goes up' are so ingrained.

- Insane tax relief on mortgages.

- Aus and NZ have just turned into Chinas Coal iron and agri stores. China contracts, they die.

- Small, corrupt grey legal/Pols - making all the above much worse.

Gie it a few years and we'll have most of Aus parliament working in a bar in Earls court...

 

 

[cnick]

16 hours ago, Sausage said:

People worried they can't afford their mortgage? Why did you sign up for it then ? Idiots

 

Yes, but the bankers who 'lent' them 'money' would have carried out their due diligence on the borrower?.... the banks are run by careful, responsible people?.....

....

 

.....

 

...... or not?

[simvastatin]

11 hours ago, spyguy said:

Wrong way around.

Aus/NZ factors are:

- Not had a recession for ~30 years. All the dumb ideas 'Only goes up' are so ingrained.

- Insane tax relief on mortgages.

- Aus and NZ have just turned into Chinas Coal iron and agri stores. China contracts, they die.

- Small, corrupt grey legal/Pols - making all the above much worse.

Gie it a few years and we'll have most of Aus parliament working in a bar in Earls court...

 

 

Aussie working in bars in Earls court, i remember now that was the 90s

[darkmarket]

On 19/09/2018 at 09:04, cnick said:

Yes, but the bankers who 'lent' them 'money' would have carried out their due diligence on the borrower?.... the banks are run by careful, responsible people?.....

This needn't be controversial, it's just one side tries to push all the blame to the other.

Borrowers who over-extend are responsible if they can't pay their debt when rates rise or they lose income.

Lenders who lend to them are responsible to their investors and board if they fail to pay.

Government doesn't have a role to play unless it interferes.

[cnick]

3 hours ago, darkmarket said:

This needn't be controversial, it's just one side tries to push all the blame to the other.

Borrowers who over-extend are responsible if they can't pay their debt when rates rise or they lose income.

Lenders who lend to them are responsible to their investors and board if they fail to pay.

Government doesn't have a role to play unless it interferes.

But how much does the bank lose it the 'borrower' fails to pay? ....... given that the bankers are allowed to create money from thin air.

 

[darkmarket]

29 minutes ago, cnick said:

But how much does the bank lose it the 'borrower' fails to pay? ....... given that the bankers are allowed to create money from thin air.

It loses the difference between the value it initially ascribes to the mortgage and the eventual sum it makes from repayments and / or a distressed asset sale.

For your video, It's better to read the much-cited BoE post on money creation and understand risk weighting.

[Captain Kirk]

54 minutes ago, cnick said:

But how much does the bank lose it the 'borrower' fails to pay? ....... given that the bankers are allowed to create money from thin air.

Banks do create the money for loans but you have to consider it in terms of double entry accounting. If I go to the bank and borrow £100K to buy a flat, say, the bank will conjurer up £100K by creating a loan and a deposit account for me, moving the £100K from the loan to the deposit account (roughly; there will probably be other internal accounts involved also, but the principle is the same). So the 2 accounts cancel out each other (i.e. I can use the £100K in the deposit account to pay off the £100K owed in the loan account, at this stage). These are just digits on a computer and no other money from elsewhere needs to be involved. The double entry from these 2 accounts balance to 0.

However, I don't get to keep the £100K. It gets transferred to Mr Smith the owner of the flat through another double entry (debit my deposit account, credit Mr Smith's deposit account). So now Mr Smith has the £100K and I owe the bank £100K. My deposit account is now empty. Mr Smith could go out and buy a new Porsche with the money. That £100K has now been spent.

If I default on the loan later, say I only pay off £10K and default on £90K, the bank really does lose £90K. It has to use profits to pay off the £90K that I defaulted on in order for the accounts to balance, which is effectively writing off the bad loan.

In theory the bank could go after Mr Smith and claim the £90K back because I defaulted on the loan that resulted in the money Mr Smith got, but that is not how banks work. Once a transaction has taken place, it is deemed done and dusted. You can't roll them all back if someone defaults. The bank has to cover the default.

Of course, the bank will go after the flat and repossess it to cover as much of the £90K it can.

Edited September 20, 2018 by Captain Kirk

[zugzwang]

2 hours ago, Captain Kirk said:

Banks do create the money for loans but you have to consider it in terms of double entry accounting. If I go to the bank and borrow £100K to buy a flat, say, the bank will conjurer up £100K by creating a loan and a deposit account for me, moving the £100K from the loan to the deposit account (roughly; there will probably be other internal accounts involved also, but the principle is the same). So the 2 accounts cancel out each other (i.e. I can use the £100K in the deposit account to pay off the £100K owed in the loan account, at this stage). These are just digits on a computer and no other money from elsewhere needs to be involved. The double entry from these 2 accounts balance to 0.

However, I don't get to keep the £100K. It gets transferred to Mr Smith the owner of the flat through another double entry (debit my deposit account, credit Mr Smith's deposit account). So now Mr Smith has the £100K and I owe the bank £100K. My deposit account is now empty. Mr Smith could go out and buy a new Porsche with the money. That £100K has now been spent.

If I default on the loan later, say I only pay off £10K and default on £90K, the bank really does lose £90K. It has to use profits to pay off the £90K that I defaulted on in order for the accounts to balance, which is effectively writing off the bad loan.

In theory the bank could go after Mr Smith and claim the £90K back because I defaulted on the loan that resulted in the money Mr Smith got, but that is not how banks work. Once a transaction has taken place, it is deemed done and dusted. You can't roll them all back if someone defaults. The bank has to cover the default.

Of course, the bank will go after the flat and repossess it to cover as much of the £90K it can.

You forgot to mention securitization. The bank will have pooled the riskiest mortgages with a lot of other illiquid contractual debt and sold the related cashflows to third party investors as securities through the shadow banking system, covering itself against default.

[Captain Kirk]

9 hours ago, zugzwang said:

You forgot to mention securitization. The bank will have pooled the riskiest mortgages with a lot of other illiquid contractual debt and sold the related cashflows to third party investors as securities through the shadow banking system, covering itself against default.

Yes, I realise that there is a lot more that usually goes on, but I was considering the simplest scenario. The other thing to point out is that as the £100K loan is paid back, money is destroyed (to use the same terminology).

[spyguy]

12 hours ago, Captain Kirk said:

Banks do create the money for loans but you have to consider it in terms of double entry accounting. If I go to the bank and borrow £100K to buy a flat, say, the bank will conjurer up £100K by creating a loan and a deposit account for me, moving the £100K from the loan to the deposit account (roughly; there will probably be other internal accounts involved also, but the principle is the same). So the 2 accounts cancel out each other (i.e. I can use the £100K in the deposit account to pay off the £100K owed in the loan account, at this stage). These are just digits on a computer and no other money from elsewhere needs to be involved. The double entry from these 2 accounts balance to 0.

However, I don't get to keep the £100K. It gets transferred to Mr Smith the owner of the flat through another double entry (debit my deposit account, credit Mr Smith's deposit account). So now Mr Smith has the £100K and I owe the bank £100K. My deposit account is now empty. Mr Smith could go out and buy a new Porsche with the money. That £100K has now been spent.

If I default on the loan later, say I only pay off £10K and default on £90K, the bank really does lose £90K. It has to use profits to pay off the £90K that I defaulted on in order for the accounts to balance, which is effectively writing off the bad loan.

In theory the bank could go after Mr Smith and claim the £90K back because I defaulted on the loan that resulted in the money Mr Smith got, but that is not how banks work. Once a transaction has taken place, it is deemed done and dusted. You can't roll them all back if someone defaults. The bank has to cover the default.

Of course, the bank will go after the flat and repossess it to cover as much of the £90K it can.

No. Its fractonal reserve banking. The BoE actually has some good intro papers. Google.

Bank makes a loan, say 100k. Depending on how the loan is classed, the bank will have to retain some capital - say 5k.

The central banks than puts 95k on the banks account and the retial bank gives it to the customer.

Customer pays off loan, bank pays back central bank.

Central bank sets base rates to control money in economy. High rates suck cash out of the economy.

Retail bank charges customer the cost of the money plus extra. The banks compete to keep the extra low. Extra would be cost fo bad debt, bank premises, employees. Idea is the more efficient banks have lower costs so get more of the business.

Whats goes wrong?

If he long goes bad then the lendingbank is in shit. That 5k goes if the bank has to spend 10k repoing and only gets 80k for the house with 100k mortgage.

What went wrong 2000 - onwards?

Lending standards - FRB only works if the person pays he loan back.  To guarantee that, you need the old building society lending model - save for 10% deposit, lend at 3 + 1 wages.

Capital requirements on housing was way too low. People are suggesting it needs to be 20-30%. This would be equity i,e risk bearing.

Securisation for funding - did not work like it said onthe tin. Securitisation trapped bank capital and started costing a fortune, mainly for the above reasons.

Regulated banks need to be run like utilities (not uk ones ffs) . They are not profit maximising entities - the leverage is too high and will be wiped out quickly.

 

 

 

 

[Captain Kirk]

15 minutes ago, spyguy said:

No. Its fractonal reserve banking. The BoE actually has some good intro papers. Google.

Bank makes a loan, say 100k. Depending on how the loan is classed, the bank will have to retain some capital - say 5k.

The central banks than puts 95k on the banks account and the retial bank gives it to the customer.

Customer pays off loan, bank pays back central bank.

Central bank sets base rates to control money in economy. High rates suck cash out of the economy.

Retail bank charges customer the cost of the money plus extra. The banks compete to keep the extra low. Extra would be cost fo bad debt, bank premises, employees. Idea is the more efficient banks have lower costs so get more of the business.

Whats goes wrong?

If he long goes bad then the lendingbank is in shit. That 5k goes if the bank has to spend 10k repoing and only gets 80k for the house with 100k mortgage.

What went wrong 2000 - onwards?

Lending standards - FRB only works if the person pays he loan back.  To guarantee that, you need the old building society lending model - save for 10% deposit, lend at 3 + 1 wages.

Capital requirements on housing was way too low. People are suggesting it needs to be 20-30%. This would be equity i,e risk bearing.

Securisation for funding - did not work like it said onthe tin. Securitisation trapped bank capital and started costing a fortune, mainly for the above reasons.

Regulated banks need to be run like utilities (not uk ones ffs) . They are not profit maximising entities - the leverage is too high and will be wiped out quickly.

 

 

 

 

I don't need to Google it; I already understand fractional reserve lending. But FRL is not how banks create money according to Steve Keen. They may have done in the past. The way it works is roughly how I've described it, which I believe is along the lines of how Steve Keen describes it.

The other thing to point out is that creating loans creates deposits, and those deposits will eventually either be used to pay off existing loans or will end up as savings. This is easy to understand from the example because Mr Smith could use the £100K to pay off a loan or mortgage or he could put it into a savings account.

Edited September 21, 2018 by Captain Kirk

[spyguy]

6 minutes ago, Captain Kirk said:

I don't need to Google it; I already understand fractional reserve lending. But FRL is not how banks create money according to Steve Keen. They may have done in the past. The way it works is roughly how I've described it, which I believe is along the lines of how Steve Keen describes it.

The other thing to point out is that creating loans creates deposits, and those deposits will eventually either be used to pay off existing loans or will end up as savings. This is easy to understand from the example because Mr Smith could use the £100K to pay off a loan or mortgage or he could put it into a savings account.

No, the big change was dropping the requirement to pay back the capital - IO loans.

Total kryptonite.

The other change was messing around with securtisaion where they make up a model for non-prime loans (mainly US) which  was so far from reality.

 

 

[Captain Kirk]

20 minutes ago, spyguy said:

No, the big change was dropping the requirement to pay back the capital - IO loans.

Total kryptonite.

The other change was messing around with securtisaion where they make up a model for non-prime loans (mainly US) which  was so far from reality.

 

 

I don't really follow, but it may be that you can consider how banks work in other ways, but the accounting viewpoint makes sense to me.

I would check out some of Steve Keens videos. Steve has worked with central banks including the BoE.

 

Edited September 21, 2018 by Captain Kirk

[cashinmattress]

On 18/09/2018 at 17:34, deadlyavenger said:

Could Australia/New Zealand be the kick start to bigger falls in the rest of the world? I.e. the source of the contagion!? 

No. Property is non fungible for starters.

[zugzwang]

2 hours ago, Captain Kirk said:

I don't really follow, but it may be that you can consider how banks work in other ways, but the accounting viewpoint makes sense to me.

I would check out some of Steve Keens videos. Steve has worked with central banks including the BoE.

 

You are correct. Fractional reserve banking is a myth. Kydland and Prescott published a paper in 1991 (I think) establishing the facts empirically, but Hyman Minsky worked from an accounting perspective long before that, as did Keynes. Unlike the majority of economists both had first-hand experience of investment banking and financial speculation.