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Australia Faces Its Demons

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On 17/09/2018 at 23:19, eric pebble said:

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, have you seen these ?

 

 

HAHAHAHAHAHAHHAHAHA

That headline, I love the tittle, lets hope we see something similar in the UK soon.

 

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On 21/09/2018 at 06:56, 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.

 

 

 

 

The banks capital can be cash or is usually cash equivalents - anything AAA rated, dodgy MBS for example. What was happening 2000+, banks where accessing the repo market for funding, rather than the CB. Swapping securities with corporations who were sitting on piles of cash. The ratings agencies were complicit in triple A  rating the securities used in these transactions. When the SHTF the CBs had to take the place of the repo market, recapitalising the banks by purchasing these securities of unknown value.

It's worth remembering that there was a global shortage of AAA securities at the turn of the century. IMO that was the main driver for this bubble.

 

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2 hours ago, dom said:

The banks capital can be cash or is usually cash equivalents - anything AAA rated, dodgy MBS for example. What was happening 2000+, banks where accessing the repo market for funding, rather than the CB. Swapping securities with corporations who were sitting on piles of cash. The ratings agencies were complicit in triple A  rating the securities used in these transactions. When the SHTF the CBs had to take the place of the repo market, recapitalising the banks by purchasing these securities of unknown value.

It's worth remembering that there was a global shortage of AAA securities at the turn of the century. IMO that was the main driver for this bubble.

 

Bit complex.

Banks capital needs to be risk bearing. And it needs to be in proportion to their loans and riskyness ofte loans.

The most insane thing was there was a dry rn of 2007 when Abbey National came unstcuk in 2000ish. There, ratehr than going for deposits, bonds  and the like, Abbey National had took on a load of commrcail leases, aricraft mainyl if I remember. Then when it hit turbulence, they could not get a clear value on their value and were not liquid. This is where Luqman Arnold and his dpeuty, Stephen Hester made their name and money - going through loads of crap secutiries, trying to extra cash from.

https://www.ft.com/content/d05c3ea4-97bf-11e7-a652-cde3f882dd7b

 

'According to Morgan Stanley Research cited by the Treasury select committee, in 2007 the average loan-to-deposit ratio of UK banks was 137 per cent. But for Northern Rock, it was 322 per cent, almost two times that of HBOS, which also later collapsed.'

 

 

 

 

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49 minutes ago, spyguy said:

Bit complex.

Banks capital needs to be risk bearing. And it needs to be in proportion to their loans and riskyness ofte loans.

The most insane thing was there was a dry rn of 2007 when Abbey National came unstcuk in 2000ish. There, ratehr than going for deposits, bonds  and the like, Abbey National had took on a load of commrcail leases, aricraft mainyl if I remember. Then when it hit turbulence, they could not get a clear value on their value and were not liquid. This is where Luqman Arnold and his dpeuty, Stephen Hester made their name and money - going through loads of crap secutiries, trying to extra cash from.

https://www.ft.com/content/d05c3ea4-97bf-11e7-a652-cde3f882dd7b

 

'According to Morgan Stanley Research cited by the Treasury select committee, in 2007 the average loan-to-deposit ratio of UK banks was 137 per cent. But for Northern Rock, it was 322 per cent, almost two times that of HBOS, which also later collapsed.'

 

 

 

 

If you want to get really simplistic, it could be said that banking is about taking value from the future and bringing it into the present. This system works until the present surplus can no longer sustain the burden.

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55 minutes ago, dom said:

If you want to get really simplistic, it could be said that banking is about taking value from the future and bringing it into the present. This system works until the present surplus can no longer sustain the burden.

No. Thats debt.

Banking, of the fractional reserve type, is about gettign cash circualing in the economy.

Its normally works but you have to really watche the leveage and bad debts.

 

 

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8 hours ago, spyguy said:

No. Thats debt.

Banking, of the fractional reserve type, is about gettign cash circualing in the economy.

Its normally works but you have to really watche the leveage and bad debts.

 

 

Er, yeah. 97.5% of all money circulating IS debt.

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6 hours ago, CentrinoDuo said:

https://www.domain.com.au/living/this-couple-couldnt-afford-to-buy-so-theyre-building-on-top-of-his-parents-house-20180923-h15bd3-766072/

 

"This couple couldn’t afford to buy, so they’re building on top of his parents’ house ..."

How's that different than staying in your parents basement?

I guess anyway to get some skin in the game...

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15 hours ago, Captain Kirk said:

Is the remaining 2.5% gold and silver coinage?

NO. The 2.5% is cash, coins and notes. It's the permanent, debt free percentage.

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19 hours ago, CentrinoDuo said:

https://www.domain.com.au/living/this-couple-couldnt-afford-to-buy-so-theyre-building-on-top-of-his-parents-house-20180923-h15bd3-766072/

 

"This couple couldn’t afford to buy, so they’re building on top of his parents’ house ..."

So a house in the area is $800k asking, so about that after haggling down a bit then adding fees back on.

Instead budget $600k, and end up spending $700k and s**tloads of personal time on an extension.

Okay...

The concept is sound but the extension would need to be nearer $400k all in to make sense to me.

I suspect the real agenda here is to persuade the crumblies that it would make so much more sense to swap...

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Really interesting youtube video from Mike Martins I had playing in the background on and off yesterday with phone ins from Australia and Canada. One caller was talking about house prices in his mining town in west Australia going from $400K to $1m and then back to $400K (or may have been $200K). Rents falling from $2K a week when the economy was booming to $400 a week now.

 

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Oz has triple bubble:

Bubble #1 - The West bubble, blown up pre 2008.

Bubble#2 - QE/asst prices.

Bubble#3 - Chinas infrastructure boom.

As US raise rates, China pops then I expect to see the current Oz cabinet in Earls Court working in a bar.

 

 

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https://www.zerohedge.com/news/2018-09-27/global-housing-bubble-biggest-these-cities

 

Zero Hedge Report, 

 

1 hour ago, spyguy said:

Oz has triple bubble:

Bubble #1 - The West bubble, blown up pre 2008.

Bubble#2 - QE/asst prices.

Bubble#3 - Chinas infrastructure boom.

As US raise rates, China pops then I expect to see the current Oz cabinet in Earls Court working in a bar.

Bubble no1 is now even bigger, making it a bubble on a bubble, or bubble squared.

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South China Morning Post:

https://www.scmp.com/business/banking-finance/article/2165899/hong-kong-raises-base-lending-rate-striking-final-nail-more

Quote

Some Hong Kong homeowners are discounting the prices of their lived-in flats by up to 16 per cent in the secondary sales market, hours after 11 of the city’s banks raised their lending rates for the first time in more than a decade.

 

from zerohedge:

Quote

A recent Bloomberg report on Chinese real estate noted that from June 2015 through the end of last year, the 100 City Price Index, published by SouFun Holdings Ltd., rose 31% to almost $202 per square foot. That’s 38% higher than the median price per square foot in the U.S., where per-capita income is more than 700% greater than in China.

This China story gets more interesting. Most of these apartments are sitting empty because they are purchased as investments. Rental yields in China are 1.5%, while the cost of borrowing (mortgage cost) is around 5%-6%. Chinese consumer debt-to-GDP is much greater than it was in the U.S. during the 2008-09 financial crisis.

 

Bring it on

Edited by No One
adding more info from 2nd source

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8 hours ago, spyguy said:

Oz has triple bubble:

Bubble #1 - The West bubble, blown up pre 2008.

Bubble#2 - QE/asst prices.

Bubble#3 - Chinas infrastructure boom.

As US raise rates, China pops then I expect to see the current Oz cabinet in Earls Court working in a bar.

 

 

:lol:  Mines a Tooheys Blue mate, in fact make that two :lol:

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On 28/09/2018 at 11:09, Captain Kirk said:

But aren't these just IOUs from the BoE?

Yes, they are THE promissory note. The 97.5% is issued AGAINST promissory notes, approx 60% of which are called mortgages. When you take out a mortgage you are selling the bank a financial instrument, a bond. You are paid with numbers that are entered into your account. That money didn't exist before, and will cease to exist when repaid.

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On 21/09/2018 at 20:35, No One said:

Eric, have you seen these ?

 

 

HAHAHAHAHAHAHHAHAHA

That headline, I love the tittle, lets hope we see something similar in the UK soon.

 

Sigh.....   I just find it beyond unbelievable that "no one" saw this coming...  If you have a bubble fuelled by PREDATORY LIAR LOANS --- what is the end result?  

It's like 1+1 is 2.  It's not 3, or 7, or 9....  It's 2.  It is just SO, SO, SO depressing that all this was allowed to happen.  Just beyond incredible. It was TOTALLY, TOTALLY predictable.  100% predictable, in fact.

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22 minutes ago, Saving For a Space Ship said:

Australia’s housing boom is not heading for a soft landing. How did we get here?  

Saw that, just a few weeks after his article denying the issues raised in the 60 Minutes programme and predicting a soft landing.

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  • 396 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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