Ok... I guess American banks being forced to loan to irresponsible people (be they black or not) may have caused the collapse in the US. What about Ireland and UK? A quick wikipedia search brought up this: http://en.wikipedia.org/wiki/2008–2011_Irish_banking_crisis#Warning_Signs_Ignored 500% housing price increase in 12 years, we're almost there. Australian banks pretty much do the same as Ireland, lend to everyone who has a job (for now). What happens if 3% unemployment goes to 8% or even worse? It's a spiral downwards. If the banks are only doing 80% loans (not the crazy 90-105% loans before), there is only room of 20%. If housing prices crash 30% then the banks will not have the asset values on their books to backup their investments. This is exactly what happened overseas, such as Japan. 20 years of stagnation. Having a bunch of overvalued assets backing your books doesn't mean your books are risk mitigated.
Fishball, The Big 4 have zillions of housing loans, many of them well into their 30 year terms, and for them the % of their pay that goes to the loans is gradually dropping to not very much! It is usually just the first 3 to 4 years of a loan that the major risk lies. A man overextends, his wife gets pregnant or he loses his job or whatever. The default rate in Australia is and has been just over 1%, and in bad times it gets near 2%. When that happens the house is auctioned, and the proceeds settle (most of) the loan. It is NOT a total loss to the bank. I repeat, home mortgage finance is the BEST a bank can make. A man will give up a lot to kep making those payments. I KNOW, I have been through it, I worked 2 jobs for 6 years to get ahead of the game. OC
I assume that these Brokers are lending to less scrupulous people whom are more likely to have trouble repaying after rate hikes? This in turn will lead to the Brokers having trouble repaying the Banks and we're back where we started? With auctioning off the home to cover book losses in theory it works but in practice if lenders (Overseas lending) saw your balance sheet (local banks) full of illiquid assets (homes) they will be more wary when lending to the local banks. This creates the whole 'credit crunch' which a lot of countries experienced. Surely a few losses won't matter but we both know often the whole market tanks and losses compound. When the funds dry out the banks won't have enough liquidity to fund their day to day operations or reinvest elsewhere, would be deep trouble. Most of this is postulating but really the possibility of this happening isn't 0%. When the banks don't have enough actual M1 'cash' on hand, it won't take very much to do a bank run.
Fishball, "(local banks) full of illiquid assets (homes)" I can only repeat, the Big 4 are NOT "illiquid", and housing loans are the BEST lending a bank can make. A business loan has a FAR greater risk of default. OC
Maybe they are the best loans in the long term if you average the risk/return but there is such a thing called market sentiment and liquidity risk. When the market is looking poor, there will be more people dumping than buying and puts a downward pressure on prices which is a self-fulfilling prophecy of a downward spiral. It has happened in Asia, US, Europe, Eastern Europe, UK etc. You cannot easily convert home loans into 'liquid' vehicles, especially since they are long term debt (mortgages). When the crunch comes and banks need funding or equity, there will be no one to provide them this (or will charge crazy rates) because their books are filled with long term illiquid debt. The banks will be stuffed. You are confusing between liquidity and the risk/returns metric. Liquidity implies that you can ditch the asset for 'cash' fast without losing a lot of value. Stuff that is liquid (for banks) include: Term Deposits, Government Bonds/Treasuries and Cash etc. Mortgages aren't liquid but mortgage loans are definitely the best when it comes to the return vs their risk. It's not really about the home owners repayments, it's about banks and them not diversifying their risks properly so when the supply outstrips the demand in the RE market and pushes prices down, banks will find it hard to recover the value on their books by auctioning the assets (houses).
the properties is Asset to the banker, its a liability to the borrowers. simple double entries concept. asset side / liability side. IN/OUT. ON / OFF
"the properties is Asset to the banker, its a liability to the borrowers. simple double entries concept. asset side / liability side. IN/OUT. ON / OFF" DAMN!!! Why didn't I think of that? The concept of double entry bookkeeping - BRILLIANT!
Countries? Don't get that? If I invest all my capital in one investment vehicle, I am an idiot. ANZ's loan book consists of 59% residential mortgages. All those rating agencies give "opinions" only, what they say can be taken with a pinch of salt (that's their words, not mine). I would assume that most other banks in Aus have the same lending criteria, just because they only lend 90% of current house value doesn't make it a secure investment when houses are so overvalued here. So I don't believe that relying on experts from Moodys and the like should give anyone any confidence. You can use whatever criteria you like to rate them, but as their primary income is derived from residential mortgages, I'd agree with Moodys et al, that their opinions are worth jack. Ultimately if the Aus residential market starts to falter then the banks will too. Foreign investors are now betting on that very scenario.
It may be true that we have best managed / regulated banks compared to the US. We have 4 majors, while over there they have hundreds of banks. Not so sure about being strongest, as NAB and WBC did get some funding from the Fed. In term of mortgate, non-recourse loans are not very common here, so as long as employment rate holds, the banks have nothing to worry about.
Income tax Goods and Services Tax Excises Capital gains Stamp duties Registration fees Do I need to continue?
add to that the flood levy and eventual living standards (carbon) tax and im sure there are many more Oh and Im in between b and c as im only 22 and am currently trying to sell a property but have money in metals and cash in the bank waiting for the right time to buy
OC I'd like to lay a wager you have a lot of super money or saving tied up in bank stocks, probably the commonwealth, I bet 1 x 1966 50 cent
Income tax Goods and Services Tax Excises Capital gains Stamp duties Registration fees Alco pops Ciggies Fuel Carbon Mining but you will never see the government tax the Banks!!!!!!!!!!!
