Hedge Funds Are Betting Record Amounts On Meltdown Of Australian Banks And Housing Bubble

[The Masked Tulip]

No one (outside of the short sellers) wants home prices to go down or these banks to topple. Not the housing industry, the realtors, the home builders. Not the media that depends on advertising dollars from the banks and the housing industry. Not the taxing authorities. In short, all those that feed off this housing bubble. And certainly not the homeowners, who are voters! And therefore, certainly not the government.

Since the resource bust, the health of the Australian economy has become even more dependent on housing, and no economic player wants that bubble to implode or the banks to collapse. It would be a fiasco. They’ll do what they can to keep it going.

Earlier this year, Sydney-based asset manager John Hempton teamed up with Jonathan Tepper, who runs U.S.-based hedge-fund consultancy firm Variant Perception, for an undercover investigation of Australia’s property market.

Posing as a gay couple, they drove around Sydney, from glitzy beachside suburbs to the shabby city fringes, to probe potentially risky lending practices. What they found was considerably worse than what they had expected.

“We witnessed a mania in all its crazy excess,” Mr. Tepper told clients. “Australia now has one of the biggest housing bubbles in history.” Among the trades he recommended in anticipation of a major property-market downturn: shorting Australian banks.

http://wolfstreet.com/2016/05/23/hedge-funds-bet-meltdown-australian-banks-housing-bubble-record-short-positions/

[shindigger]

They watched the Big Short, hired a convertible, got fake tans, and a Chihuahua.

Excellent.

[The Masked Tulip]

Apparently it is all the Aussie banks fault for not being prudent lenders and lending BTL interest only mortgages.

Edited May 23, 2016 by The Masked Tulip

[GreenDevil]

Some bargains down under then!

[renting til I die]

Apparently it is all the Aussie banks fault for not being prudent lenders and lending BTL interest only mortgages.

Oh dear, these people are blameless. IT WAS all the banks fault for lending the money. They need to understand the emo's in lending money! Watch out people, WHEN we get UK HPC this is all we will be hearing. 'Poor me. the bank should have known not to lend me so much money.....I just wanted a home......and a small BTL portfolio, to get a little ahead in life!'

[wonderpup]

Oh dear, these people are blameless. IT WAS all the banks fault for lending the money. They need to understand the emo's in lending money! Watch out people, WHEN we get UK HPC this is all we will be hearing. 'Poor me. the bank should have known not to lend me so much money.....I just wanted a home......and a small BTL portfolio, to get a little ahead in life!'

It's an interesting question- if I brew up some intoxicating substance in my basement that turns out to have bad side effects am I to blame for creating it or are my customers to blame for being stupid enough to buy it?

The banks have the ability to create credit from thin air and then make that credit avialable to people who never in their lives expected to be able to get their hands on so much 'money'- greed on both sides yes- but who is better placed to see the risks involved here - the bank with it's rooms full of experts or the borrowers?

In my view blaming the borrowers is a cop out for the real source of the problem, which was the reckless lending policies of the bankers which distorted the market in the first place.

The issue is not greed- we are all greedy given the opportunity. The real issue is a disgracefull abrogation of social responsibility by the bankers who betrayed the trust that was placed in them when they were given the unique power to create credit from thin air.

So while we are busy slagging off the crackheads let's not lose sight of the methlabs that created them-for profit and controlled by men who knew exactly what they were doing.

[Venger]

It's an interesting question- if I brew up some intoxicating substance in my basement that turns out to have bad side effects am I to blame for creating it or are my customers to blame for being stupid enough to buy it?

The banks have the ability to create credit from thin air and then make that credit avialable to people who never in their lives expected to be able to get their hands on so much 'money'- greed on both sides yes- but who is better placed to see the risks involved here - the bank with it's rooms full of experts or the borrowers?

In my view blaming the borrowers is a cop out for the real source of the problem, which was the reckless lending policies of the bankers which distorted the market in the first place.

The issue is not greed- we are all greedy given the opportunity. The real issue is a disgracefull abrogation of social responsibility by the bankers who betrayed the trust that was placed in them when they were given the unique power to create credit from thin air.

So while we are busy slagging off the crackheads let's not lose sight of the methlabs that created them-for profit and controlled by men who knew exactly what they were doing.

Aww sweet.

All that matters is those who were not part of it at all - lending/borrowing - and have no share in any blame that can be directed out (or quest for excuses forgiveness), get opportunity in a HPC.

If it's a bubble then borrowers made their own decisions.

We're not all greedy at all. That's where you're so wrong.

Always HPI++++ and always forgiveness... banks dragged them in and forced them to outbid others by crazy amounts, throughout it.

It's not money out of thin air. It's market. Borrowing money is about making and keeping promises to repay. If someone has made mad crazy promises, whilst outbidding someone else who recoiled from paying so much, for homeownership or BTL, that's their own choice. I value my promises. They are real as real can be.

Edited May 24, 2016 by Venger

[Guest]

It's an interesting question- if I brew up some intoxicating substance in my basement that turns out to have bad side effects am I to blame for creating it or are my customers to blame for being stupid enough to buy it?

The banks have the ability to create credit from thin air and then make that credit avialable to people who never in their lives expected to be able to get their hands on so much 'money'- greed on both sides yes- but who is better placed to see the risks involved here - the bank with it's rooms full of experts or the borrowers?

In my view blaming the borrowers is a cop out for the real source of the problem, which was the reckless lending policies of the bankers which distorted the market in the first place.

The issue is not greed- we are all greedy given the opportunity. The real issue is a disgracefull abrogation of social responsibility by the bankers who betrayed the trust that was placed in them when they were given the unique power to create credit from thin air.

So while we are busy slagging off the crackheads let's not lose sight of the methlabs that created them-for profit and controlled by men who knew exactly what they were doing.

If a stupid/greedy bank goes bust because it made stupid/greedy loans to stupid/greedy people, it is to blame.

AND

If stupid/greedy people go bankrupt because they took on stupid/greedy levels of debt, they too are to blame.

[Guest]

Apparently it is all the Aussie banks fault for not being prudent lenders and lending BTL interest only mortgages.

I can't bring myself to watch the whole episode, but that lady in the screenshot does say at 2m10s that "we absolutely did the wrong thing". If she then blames the banks too, I actually agree - I hope some bankers who lent crazy sums of money lose their jobs.

[Venger]

It's a mirror on wider society.

Bankers are people too. Millions of people have been complicit in the forever HPI quest.

There's no cop-out to say 'everyone is greedy'... now begin the bailouts and let the the renter-savers continue to carry it all for another lifetime (and begin the forever HPI again).

That $6M debt woman now claiming banks don't understand the social costs when she was the eager people-farmer with claims on multiple homes.

Other couple...

"It can happen to anyone. It can happen to any Mom and Dad and that's all we are."

Errr a Mom and Dad who went hard into property and debt.... own lux-home + load of spec builds. I read an article on this couple a month or so ago, but at the time didn't realise they also had a lot of investment properties on the go. Just thought it was the luxury home they were at risk of losing for overstretch to what they deserve.

I suspect banks have lent to the very very greedy because it also pulls in loads of other greed. All those who do have something to go after in the bust (deposits and loan secured against home), and then to resell homes again, fresh mortgages to younger buyers in a post-HPC market.

To younger generations and all those who refused to get involved, in mad house prices. Sometimes the only way to win is to not play - although that's yet to be proven - and the excuse givers been giving it the pure-innocence/everyone greedy so no one can be blamed excuses during years of ever more HPI.

Tipper was amusing watching over the mad auction towards the end. The innocence of paying mad prices. Their own choices, impacting hard on others who refuse to pay crazy prices/take crazy debt.

[goldbug9999]

The issue is not greed- we are all greedy given the opportunity. The real issue is a disgracefull abrogation of social responsibility by the bankers who betrayed the trust that was placed in them when they were given the unique power to create credit from thin air.

By the same token you can argue that the banks are also blameless as they are also "victims" of greed and simply exploiting the opportunities available to them via the effective regulatory capture granted to them by governments.

[evetsm]

It's an interesting question- if I brew up some intoxicating substance in my basement that turns out to have bad side effects am I to blame for creating it or are my customers to blame for being stupid enough to buy it?

The banks have the ability to create credit from thin air and then make that credit avialable to people who never in their lives expected to be able to get their hands on so much 'money'- greed on both sides yes- but who is better placed to see the risks involved here - the bank with it's rooms full of experts or the borrowers?

In my view blaming the borrowers is a cop out for the real source of the problem, which was the reckless lending policies of the bankers which distorted the market in the first place.

The issue is not greed- we are all greedy given the opportunity. The real issue is a disgracefull abrogation of social responsibility by the bankers who betrayed the trust that was placed in them when they were given the unique power to create credit from thin air.

So while we are busy slagging off the crackheads let's not lose sight of the methlabs that created them-for profit and controlled by men who knew exactly what they were doing.

spot on! who are these banking lovers who are positioning the banks to be Innocent of their own fraud when the bust comes?

if I defraud you, it's not your fault it's mine!!!

in banking the fraud starts with creating money out of thin air, for nothing, and earning interest on it, interest that is rigged by central bank committees in closed door meetings. The insiders get the news first. And it's the borrowers to blame?!

the borrowers are looking to get cheap money that because of the banking fraud will only get cheaper. strictly speaking under those circumstances you'd be a fool not to borrow as much as you can.

.

Edited May 24, 2016 by evetsm

[Fully Detached]

No one (outside of the short sellers) wants home prices to go down or these banks to topple. Not the housing industry, the realtors, the home builders. Not the media that depends on advertising dollars from the banks and the housing industry. Not the taxing authorities. In short, all those that feed off this housing bubble. And certainly not the homeowners, who are voters! And therefore, certainly not the government.

Since the resource bust, the health of the Australian economy has become even more dependent on housing, and no economic player wants that bubble to implode or the banks to collapse. It would be a fiasco. They’ll do what they can to keep it going.

Parasites, then. **** them.

[spyguy]

Interesting to see how Oz goes.

There's a hefty hoe in the budget popping out now.

How can they close it?

Wil it get worse?

Will China start importing more?

Will housing debt sink Oz?

[GreenDevil]

You could argue that oz is quite dissimilar to our housing bubble. Clearly building luxury property in a desert totally dependant on mining is risky. Having said that Aberdeen seems to be undergoing the same sort of mineral crash. The risk of a sing!e industry.

[Venger]

Outside Aus, bank shareholders have taken serious pain in a correction, for their malinvestment into the bubble.

It's true many banks/lenders have been reckless and are a disgrace with sociopathic lending. And that was in Bubble 1.0.... way back. Then again Bubble 2.0. Until recently... MMR, Section 24, European Mortgage Credit Directive.... faint hopes of market correction ahead. Yet that brings out the anti-hpcers.

Same is true (disgrace/sociopathic) for millions of others complicit in it all (including the core-voters as they think of themselves, where politicans wouldn't allow HPC)... including all the borrowers at ever higher prices, year after year, or BTLing more to their portfolios. Tepper himself outlining how bubble prices have no relationship to incomes, in the Aus vid - yet so many have pushed and fallen over themselves to pay those ever higher prices (and hpcers calling them innocents) and then prices double again (and hpcers calling them innocents still), with all the 'blame the banks'.

Reckless lending and borrowing impacting on mostly younger generations. Politicians too, so complacent about no risks in lead upto crunch 2007. People who should have known better but all part of it.

There are some who've refused to go along with it and allowed the landlords to carry balance sheet risks of correction. How can they be accused of being greedy for not overextending, only wanting to buy 1 home. Instead some now claim 'everyone is greedy' or 'humans are greedy'. We are individuals.

Many would prefer no HPC and renter-savers and younger generations only to know HPI++++ forever, because some owners would take ego-losses in a HPC.

I notice the article suggests it's a Widow Maker trade (what my car forum calls the standard car-jack/lifter that comes with our cars), attempting to short the banks, noting all the tools VI HPI+++++++ can resort to to try and support the ponzi prices. As in QE and rates slashed, as we've seen elsewhere for years and years. Given all the other policies how can know if HPC, yet always ready for the breakdown for owners side, most of who sat on £$Trillions in equity.

SE/London, HPI galore each year, post crunch, and always thinking about the few at the margin, rather than all the £Trillions in ponzi equity on owners side, where correction only affects mostly egos of owners.

In many parts of Aus the bubble is super inflated (imo) - with very little if any fall back. Your owning innocents can come to market and sell at mad high prices in most areas..

Also UK banks now have a load of greedy BTLers (past 6 years) who've doubled down into market. 25% deposit on the BTL, and their own homes to sell to make the lenders whole for the debt owed, into a HPC. Fair is fair.

Money from thin-air again. Some HPCers just can't get away from it.

it's not others peoples money. The banks create the money digitally.

These two ideas are not contradictory or mutually exclusive. Money (in the form of bank credit) is created when a loan is made, giving rise to two balance sheet entries. I have a small amount of cash in a current account with a High Street bank. This is, from the bank's perspective a liability - money they owe me. They do loan this money on, creating, again from their perspective, an asset - the loan to Fergus.

Whilst the banking system in aggregate is responsible for almost all new money creation, individual banks do also genuinely act as intermediaries between their depositors and the people to whom the depositors' money has been loaned.

Regardless of the means of its creation, the money loaned belongs to somebody, and given the small amount of capital the banks have relative to their loan assets, it's quite correct to say that they essentially lend other people's money, (and it's also quite correct to say, as you do, that banks create money digitally).

A lot of bankers did benefit, it's just that plenty of other people also benefited and benefited more in many cases.

There are plenty of people who have made more through the housing bubble than they have ever earned in their lives. For landlords and London homeowners or anyone with an inheritance the amounts are similar to lottery wins - hundreds of thousands or millions - largely untaxed.

Those people wanted the banks to inflate the bubble, and they wanted the bailout. They may even be the reason there was a bailout, but none ever holds them responsible.

People love to blame banks for what happened, but millions of people were complicit. Most obviously the banks didn't get any criticism when the damage was actually happening. They only get blamed for stopping it.

Even now the British middle aged middle classes are clamouring to go back to the days when the crisis was still looming, so they can play at being property developers.

The idea that older people don't see their homes as investments is a ridiculous self-serving platitude.

If that were true, the age demographics of landlords wouldn't be what they are, the daily mail wouldn't print the house price of every serial killer and murder victim, and house prices probably wouldn't be an issue.

Very few people can afford to ignore the value of their home, whatever their age, it's a key factor in everyone's decisions about housing.

"But, if I was a bank that can create money out of thin air, I would be less fussy and the offers on the market now do look about right on the basis that the money lent is, essentially, free to the lender."

Banks create money out of thin air in aggregate, but individual banks still have funding costs. Broadly speaking this is because they have to attract that newly created money back into the bank by offering good returns on deposits or by borrowing it back (not literally the exact same money, you understand). I'm sure someone with a greater understanding than I can explain in better and more accurate detail. In the meantime the Bank of England issued a pretty accessible report on bank funding last year:

Bank funding costs: what are they, what determines them and why do they matter?

Edited May 24, 2016 by Venger

[R K]

Every bubble in history has burst back to real trend.

Except Australian housing bubble (no supply response issue so will likely follow typical bubble collapse)

and UK housing bubble (due to broken market supply response - likely take a generation or more)

[zugzwang]

Bank lending inflates land prices and thereby interest payments to the financial sector. The more banks lend, the higher real estate prices rise, thus encouraging more bank lending. As the cost of mortgage debt servicing rises, more of household income and more of the rental value of real estate are paid to the financial sector. Bankers capture a ever-greater share of the national output, at the expense of workers and business owners.

Steve Keen's Minsky model illustrates the dynamics of a private sector debt bubble in a much simplified form.

[zugzwang]

Every bubble in history has burst back to real trend.

Except Australian housing bubble (no supply response issue so will likely follow typical bubble collapse)

and UK housing bubble (due to broken market supply response - likely take a generation or more)

You forgot to mention the following bubbles (off the top of my head): China, France, Italy, Canada, South Korea, Saudi Arabia, Russia, Singapore, Sweden, Norway, Hong Kong.

[repetitive bleats]

So while we are busy slagging off the crackheads let's not lose sight of the methlabs that created them-for profit and controlled by men who knew exactly what they were doing.

Mixed methaphor?

[Sandwiches33]

oz is only an island so that pushes up house prices....... oh wait.

Oz went even more stupid than here, its bubbletastic and there economy is even more worthless than the uk, we still make some stuff they dig holes and now no-one wants there holes. New zealand has been dragged in on this ******** too. Lot of kiwis see this problem as being imported by immigrants from england with there house obsession. I often hear kiwis rant about it.

There will be an epic crash there,

[R K]

Bank lending inflates land prices and thereby interest payments to the financial sector. The more banks lend, the higher real estate prices rise, thus encouraging more bank lending. As the cost of mortgage debt servicing rises, more of household income and more of the rental value of real estate are paid to the financial sector. Bankers capture a ever-greater share of the national output, at the expense of workers and business owners.

Steve Keen's Minsky model illustrates the dynamics of a private sector debt bubble in a much simplified form.

Except thats nonsense.

Debt servicing costs have fallen since 2008.

hence the wealth transfer from savers to borrowers

Seriously worried about your Steve Keen!

[R K]

You forgot to mention the following bubbles (off the top of my head): China, France, Italy, Canada, South Korea, Saudi Arabia, Russia, Singapore, Sweden, Norway, Hong Kong.

You would have to demonstrate theyre 2+ sigma bubbles v real trend. Not very keen on your (top of the head) lack of rigorous analysis. Seems to be one reason why you are always wrong.

[Venger]

Debt servicing costs have fallen since 2008.

...hence the wealth transfer from savers to borrowers

Seriously worried about your Steve Keen!

Same borrowers that many HPCers want to place on a stone altar of innocence, vs runaway HPI 2.0.

No one dragged them into the banks to outbid other people.

Throughout my career, I have had criminals sit in front of me and in most instances they offered attempted to rationalize their behavior. Often, they would use the same excuse the Ritters are using --- they would claim that their wrongful behavior was justified by someone else's wrongful behavior.

Yes, it's the bank's fault that these people had to commit fraud and to live in a million dollar house they're not paying for.

It's a tough job, but someone has to do it.

Not one bank held a gun to anybody's head and forced him/her to take on a mortgage s/he could not afford.

I'm sick of people blaming the System for problems with their personal finances. May be if you bother to learn a little math and compounding interests, and read the fine lines a little more carefully before signing, you would be in a better shape. The One Percent didn't force you to sign in the dotted line.

How many people were FORCED go buy homes they couldn't afford? NONE.

HOw many WILLINGLY bought homes they couldn't afford? More than none.

Main housing market is like this, and also with BTLers, but some HPCers just interested in protecting HPI, suggesting the market is entirely full of overstretched debt-heads, who all too often have made values rise, by being willing to set ever higher purchase prices !! (Although I'm less certain about that for Australia - outright owners vs number of seriously overborrowed debt-heads).

What annoys many people is rachman - like many in London - are literally lottery winners. (Being given £1-1.5 million pounds for nothing can most definitely be classed as a lottery win) - (HPI++++++++++)

And are not even cashing it in !!

There is also the belief that they are somehow deserving of it - which is ********.

[Sancho Panza]

Except thats nonsense.

Debt servicing costs have fallen since 2008.

hence the wealth transfer from savers to borrowers

Seriously worried about your Steve Keen!

Debt servicing costs are indeed down since 2008 but consumer credit is nearly back to record 2005 levels.

http://www.tradingeconomics.com/united-kingdom/consumer-credit

'Consumer credit (excluding student loans) is defined as borrowing by UK individuals to finance current expenditure on goods and/or services excluding loans issued by the Student Loans Company. Consumer credit (excluding student loans) is split into two components; credit card lending and ‘other’ lending (mainly overdrafts and other loans/advances).'

Household debt to GDP ratio is down from 99% in 2009 to 86.4% but that ignores the flagrant distortions of GDP eg 12% being imputed rents-a figure that has risen in nominal terms since 2008.

http://www.tradingeconomics.com/united-kingdom/households-debt-to-gdp

Household debt to income hasn't really eased much.

http://www.tradingeconomics.com/united-kingdom/households-debt-to-income

And you do wonder how much wage growth has come at the expense of UK taxpayers issuing debt to fund,debt that the banks/pension funds sit on.

http://www.tradingeconomics.com/united-kingdom/government-debt-to-gdp

http://www.tradingeconomics.com/united-kingdom/wages

Central bank balance sheet ballooning.

http://www.tradingeconomics.com/united-kingdom/central-bank-balance-sheet

All in all,I'd say the financial sector is doing very well off the back of the worker bees.