Bank Watch: Aussie Bank CEOs deny nicotine is addictive!

Sorry there was a typo in that headline.

Bank CEOs deny Australian Housing is in a bubbleis what it should have said but in terms of denying the obvious it is right up there with the mass denial by tobacco CEOs that nicotine is addictive.

The Sydney Morning Herald covered the denials this week.

So what delicately expressed sentiments did our very dear bankers provide to help Mr Morrison sleep soundly in his “bubble boy” bubble?

Westpac

“I would draw the distinction between a speculative bubble in prices and prices beyond what fundamentals would justify,”

National Australia Bank

“There are increasing risks, but I still believe the answer is no,”House prices

Commonwealth Bank

“..”lending at levels we are comfortable with”

ANZ

“..wasn’t anticipating “a calamity or a disaster…”

Reserve Bank of Australia provide the excuses.

But then with senior staff from the Reserve Bank of Australia, like lucy “Platypus Spotter” Ellis and Governor ‘Lucky’ Phil out and about denying there is a bubble as well, who could blame them.

As the RBA and APRA are primarily responsible for creating the massive bubble in household debt (by driving down interest rates) and external liabilities by our banking sector (by green lighting massive offshore borrowing) that have been driving house prices higher and higher over the last two decades, is it really surprising that the RBA and APRA deny that there are bubbles in any of them?

So there you have it.

The bubble makers, RBA and APRA deny there are bubbles in household debt, banking sector external liabilities and house prices and their 4 “little” banking sector dwarves do the same.   Alice in Wonderland would be impressed.

And just in case you have forgotten what a really professional denial of the bleeding obvious looks like here are the professionals!

Excessive household debt and excessive Australian banking system foreign debt/liabilities secured by inflated asset prices is a bit like smoking as well

Whatever you do don’t do it.

6 thoughts on “Bank Watch: Aussie Bank CEOs deny nicotine is addictive!

  1. “I would draw the distinction between a speculative bubble in prices and prices beyond what fundamentals would justify,”

    To be honest I think that is a fair comment from Westpac (without knowing the context in which it was used). Making comments such as “I’ve spent half my life chronicling this idiotic bubble…” really devalues the term:

    ..as typically an asset bubble has been defined as a sharp rise in price (over a short period) to well above fundamentals before it collapses. Perhaps you could argue that this has/will be the case in Sydney and Melbourne, but many of the other Australian capitals look very different. I am seeing some properties in the outer suburbs of Adelaide selling for below their nominal sale price in 2009/2010 and open inspections can be very quiet, not the sort of activity you’d expect to see in a bubble. According to the Residex house price index Perth houses are at around 2006/2007 nominal prices (well lower in real terms).

    pfh007, if you had to define a housing bubble in a single sentence, how would that read? How would you differentiate a cyclical overvaluation/expensive houses versus a bubble?

    I think a clear agreement needs to be reached on what a bubble in housing is before two people can really debate whether or not we have one in Australia.

    I do question the (permanent) sustainability of high debt to GDP in most western economies, but at the moment it seems to be the status quo and I don’t know how this is going to resolve itself (one of the reasons I have a heavy gold allocation). Perhaps based on the circumstances Australian house prices aren’t in a bubble, rather they are trading based on the fundamentals, you just don’t think believe those fundamentals (the current paradigm) are sustainable over the long term.

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    • BB,

      I agree there is not much point talking about house price bubbles in isolation.

      Which is why I refer to the Grand Triple Alliance of bubbles:

      * bubble in external banking sector liabilities
      * bubble in household debt
      * bubble in Australian House prices.

      The last of the three is held up by the first two and is dependent on them – along with supply side issues that enable a fertile bubble environment.

      What enables the Bank CEOs to deny a house price bubble is the knowledge that the ‘fundamentals’ are the two supporting bubbles and their knowledge that the RBA, APRA and the government are committed to supporting those bubbles.

      I agree that prices outside of Sydney and Melbourne are not doing much but they are still floating on the existing bubbles of household debt and external banking sector liabilities.

      When will those supporting bubbles pop is a very good question and I give no predictions other than that I anticipate that the banking sector external liabilities bubble will come under threat if Trump delivers a stimulated US economy and US rates start to rise.

      That will put Australian mortgage rates under pressure and the RBA’s ability to maintain a low target rate. It seems strange to say it but we may find a low $AUD is a problem if US rates rise and China stumbles.

      But if Trump fails and China does not stumble might APRA allow the banking sector external, taxpayer underwritten, liabilities continue to grow and continue to deliver low mortgages rates? Yes.

      Could the RBA continue to run low target rates in that situation and thereby provide additional support to the household debt bubble and therefore the house price bubble? Yes.

      Can the government increase tax and incentives to encourage malinvestment in existing property? Yes

      Can the government continue to sell citizenship to the highest bidders and foreign owners to buy existing and new property with few hurdles and even credit from Australian banks? Yes.

      Is this sustainable? No.

      Just because a bubble has not popped does not prevent it from being a bubble.

      There might be a definition in there, maybe not!

      🙂

      Note: As for what is driving these debt driven asset prices bubbles around the globe. This interview with Professor Werner is an absolute must see.

      https://pfh007.com/2017/03/07/oz-bank-watch-the-root-cause-of-the-australian-housing-bubble-fiasco/

      Like

    • It’s a bubble because of the high speculative demand, Perth is in a slow motion pop because it’s being propped up by spill over from Sydney & Melbourne Chinese buyers…

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  2. Bubble or not, once we used to say crisis and crash and slump and depression and more recently recession as we looked for the least alarming words in order to make bad things look less menacing. Now we have refined our semantics and financial definitions to ensure those in charge have their responsibility mitigated by a deceptive tactics and language.

    Liked by 1 person

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