Bank Watch: Will they feel any pain if homeowners go bust?

“….how long can the banks afford to hold onto empty houses?….”

A long time – they are underwritten by the taxpayer and their debt products are supported with great devotion by RBA and APRA.

Plus if they find that being a giant rental mgmt company is too stressful they will simply bundle up all those sick mortgages and sell them for much more than they are worth to the govt who will ‘print’ some accounting entries to pay for them. The banks will then be free of their stinky loan books.

The govt can then do what it likes, leave the owners in them chained to their debts on super extended terms or trim the amount outstanding and let the debt serfs pay what they can.

QE for Debtors in other words.

Our banking system is little more than a franchised distribution system for new money. You can always get some if you are prepared to cough up the trailing commissions charged by the banks (interest) and are happy using the fresh and crunchy accounting entries to buy some mouldy over priced house.

The franchise/license to create money is simply awesome so don’t lose too much sleep waiting for one of the big 4 to fold.

At the risky of sounding like some fire breathing radical – can you think of a better way of enslaving a population (aka control/manage) than by using the demand for a fundamental requirement – shelter – and then drive up the price to force them into long contacts of debt bondage.

tonydd,

007
Just wondering if your suggestion is more likely in a total housing collapse situation but unlikely in a slow or even fast melt housing price environment. I can then envisage debtors who are locked in actually wishing for an implosion that might trigger a govt backed bailout QE as you suggest.

tonydd,

That comment of mine was a bit tongue in cheek as it is not a simple thing ‘politically’ to come out and admit that the banking system is not a bastion of free market wonderfulness and instead is just a very expensive and unfair way of pumping new money into the economy.

There is nothing stopping any politician raising that subject right now but they will not because either they are as fooled as most of the public or they are simply not interested in raising ‘difficult’ topics knowing that the FIRE sector will unleash the winged monkeys,

So as you correctly note – it will require proximity to the abyss before some systematic QE for Debtors is introduced, Until that point those who cannot pay the debts will have a simple choice – pay up or default and be evicted.

So if you are currently in debt serfdom and are feeling nervous don’t be lulled by the gentle sqwarks of the usual suspects that we have a fiat currency and can print whatever we need. That is true but don’t assume any of that moola is coming your way – and if assistance does come it will have serious strings attached – i.e. extended debt terms (like the Greeks got) or a haircut but loss of your property rights or you end up as tenant of the state.

The ones to watch are the non-bank lenders as they move very quickly to foreclose if the terms of the mortgage are not meet. They generally do not have the capital to burn and they do not have the ability to ‘create money’ – their loans actually require them to raise the funds first.

But most importantly they are not likely to be offered all forms of QE for Debtor assistance if times get tough.

To read the original version of this comment in the original context at Macrobusiness.com.au click this link. (link maybe locked – but there is a free trial available).

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