Banking Royal Commission

APRA and the Oz house price bubble

This morning Macrobusiness neatly contrasted The Australian’s coverage of the evidence of Mr Wayner Byers, head of APRA, to the House Economics Committee,toddler-1312858__180

“..Mr Byres said APRA was not responsible for policing much of the conduct at the centre of the royal commission.

“Those laws are administered by ASIC. Instances of fraud will be pursued by the corporate regulator and the police in some cases,” he said.

“That’s not to say we don’t have an interest in these issues, because we do — the prudential interest in these issues is trying to understand the extent to which these issues indicate a failing in the governance oversight and accountability within organisations.” …”

with the assessment of the Banking Royal Commission to date by UBS.

“..So far the Royal Commission has been presented with substantial evidence based on a number of case studies into banking misconduct. The following are a series of quotes from the Royal Commission transcript which illustrate the extent of these issues:..”

Regulating private bank credit creation is not APRA’s job.

The comments of Wayne Byres are not surprising as they are consistent with the design and philosophy of APRA.

APRA is NOT a regulator of private bank credit creation it is a regulator of private bank “prudential” performance.

They are NOT the same thing as Byres points out.

The fact is NO ONE is directly regulating private bank credit creation.  ASIC may have some responsibilities (albeit not much enthusiasm to date) for outright financial system crooks but it has no brief with regard to private banks driving asset bubbles by creating credit and handing it by the truckload to local and foreign speculators.

That was the whole point of the “deregulation” era with regard to private banks. They are, according to modern free market theory, when competing with each in the free market, the most efficient allocators of private bank credit.

Sure we now know the theories have proved to be wrong… and we have ended up living in a continent sized country with a small population and an economy stuffed with household debt driven bloated residential asset prices but until the mission of APRA  (and the RBA) changes why does anyone keep expecting its officers to talk as though it has?

APRA was dragged kicking and screaming to credit creation regulation-lite aka macroprudential – and they are clearly keen to ditch it as fast as possible. The ideological extremists at the RBA still have next to no time for any talk of macroprudential let alone credit creation regulation.

Both organisations are designed from the ground up on the assumption that regulating the purposes for which private banks create credit is unnecessary.

Learning from the campaign to stop the Big Business Big Australia population ponzi

People now understand that a relentless campaign to fix immigration policy is required yet still seem to think some hairy magical pixie is going to fix the regulatory and structural problems that have turned our banking and monetary systems into a massive asset price casino ridden with sharp practices and crooks in shiny suits.

It will not fix itself.  It requires changes in policy, law and regulation and most importantly of all and understanding that the changes are unavoidable.

The only thing that has papered over the disaster on the horizon is the determination of policymakers to keep spraying more unproductive private bank credit creation at the problem.

1. Massive inflows of foreign capital to drive down mortgage rates.

2. Massive inflows of new immigrants as consumers of credit products and to drive up demand for housing.

3. Massive sales of local residential assets to foreigners.

4. Taxation policy that rewards debt driven asset price speculation.

5. An effective taxpayer guarantee underwriting the scam.

An ongoing flood of unproductive private bank credit may postpone the day of reckoning but it is just making the problems worse and causing more severe and lasting damage to the Australian economy and the future of our children.

Until people start treating the RBA and APRA as a public policy failure like the Big Business BIG Australia population stuffing program nothing will change and we remain enroute to an eventual economic ‘iceberg’.

6 replies »

  1. Dumpling commented on Macrobusiness

    “..It is hard to tell whether Wayne Byres is disingenuous or just stupid.

    My view is the former and 007’s appears the latter.

    But then again, I could be wrong as I have a history of underestimating people’s stupidity…”


    • Dumpling,

      My vote is for disingenuous. People don’t get to run things like APRA if they are stupid.

      It is clear from his answers that he understands the points I am making but he is carefully not volunteering any information that might assist the House Economics Committee members who probably don’t understand those points.

      He could quite easily say

      “Hey you clowns, stop asking me why I am not doing stuff that your legislative framework clearly does not intend for me to do. Read my lips…we are a prudential regulator…we don’t do regulation of the purposes of credit creation.”

      “If we did that you would all whinge that APRA were running the economy. We certainly do but the ‘game’ is that we pretend we don’t and instead claim that it is just the ‘free market’ and banks competing”

      “If you really want us to regulate credit creation by banks in a meaningful way you have to stop with the horse poop about APRA being an “independent regulator”. That is just a sham to conceal that the economy is being driven by monetary policy which simply means being run by private banks who drive money creation to benefit wealthy asset owners”

      “Can I go now? I have some important private meetings with some private bank “system stakeholders” to attend. Making sure they don’t go broke and are making healthy profits… know prudential supervision”

      Liked by 1 person

  2. Rage commented at Macrobusiness

    “..Ok, but given the determination of policymakers to continue more of the same, where, apart from The Glass Pyramid, is the will? Seriously, how many in parliament, the RBA and Treasury not only understand the issues but support your thesis?

    Your solutions are necessarily radical reforms – this is why we need to reach Year Zero first. In the meantime, perhaps something more pragmatic?..”


    • Where?

      Where was the support for SSM 10 years ago?

      Where was the support for immigration reductions 12 months ago?

      Where was the support for a banking RC 12 months ago?

      All those public servants go to BBQs, read papers, listen to the radio, read books, blogs and even comment sections.

      I know this because I know some of them.

      They feel as uncomfortable as anyone else being on the wrong side of history.

      Don’t under estimate the capacity for attitudes to change and change much faster than seems possible.
      Our pollies are now not much more than focus group reflectors. Once the focus groups start fingering the banking system and its regulation change will be on the way.

      The main barrier at the moment is that many of those who understand what the problem is take a fatalistic nothing ever changes attitude when the evidence is stuff changes all the time.

      More pragmatic?

      What is more pragmatic and politically possible than cutting taxes on lower paid workers to stimulate the economy as speculators in existing property (not new property) are increasingly cut off from access to credit.
      Its not even necessary to do the direct bond sales to the RBA but I cant see why a couple of small transactions to demonstrate the world will not end is so hard.

      Funding 10% of the deficit this way can be done immediately and demonstrate that it is perfectly safe.
      The only thing holding us back is not a preference for “pragmattic” solutions.

      It is nothing more than the “chains” of ideology and breaking them is nothing more than a state of mind.


        • Rage,

          Dont worry there are plenty of reasons for pessimism but i take the view that making everyone pessimistic is no accident.

          They are already freaking out that more and more people are starting to see through the scam and dysfunction of effectively outsourcing economic management and coordination to monetary policy and the private banks.

          They are desperately trying to keep the RC under control and they may succeed.

          If they do we will just demand another one…from the ALP and Greens!


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