This morning we did our usual scan around the interweb looking for things to write about in today’s Money Morning.
We usually look all over the place for inspiration. Local websites, overseas websites, blogs, mainstream stuff, non mainstream stuff – you name it, we’re not fussy where we look.
But today we needn’t have looked any further than the News Ltd website.
It was there that we found the ‘smoking gun’ behind the property bubble. It is perhaps the biggest expose of the year from the mainstream press.
It’s a top piece of journalistic investigative reporting. You know, the sort of stuff they used to do in the old days. Reading it brought back memories of Cary Grant and Rosalind Russell in ‘His Girl Friday.’
Mr. Murdoch should be happy to know, this is the kind of news story we’d be happy to pay for.
The only problem is that if we had paid for it, we think we’d want our money back. Or part of it anyway.
Because while this was a news story that could blow the lid off claims that Australian banks are ‘responsible’ lenders, News Ltd’s Sunday Telegraph could only be bothered to take up 261 words of cyberspace (not including the headline).
In fact you can read the full article here.
To be honest, as a reader of Money Morning you won’t be surprised at the content.
It’s exactly what we’ve written about for the last year and a bit. And guess what? We didn’t even need to get off our backside to talk to anyone at one of the banks.
There’s no need to.
Once you know how the banks work and what they’ve got to do to stop themselves from collapsing it all makes sense.
But this article from the Sunday Telegraph confirms that the mainstream press knows the banks and property sector are built on wobbly ground as well. It’s just that they’d rather not make too much fuss about it.
We can surmise that based on the paltry 261 words given to the subject. In fact, we’re surprised they bothered to print the story at all.
And considering it took two journalists – Nick Gardner and Miawling Lam – to write it, this must be the most overstaffed article in the history of journalism.
According to the ‘scoop’ from Gardner and Lam:
“Based on an income of $61,000, a deposit of $55,000, and a good savings record, NAB offered a loan of ‘at least $455,000.’”
But here’s the kicker to this concentrated news story:
“A $450,000 loan, equal to 7.5 times stated income, would require repayments of $2496, based on the NAB variable rate of 5.29 per cent — more than half of the buyer’s income. And if rates increase by 2.4 per cent over the next year, as tipped, repayments will rise by $700 a month, leaving less than $1000 a month to live on.”
Got that, a $450,000 loan to someone earning a gross income of $61,000 per year. Giving them monthly repayments that’s half their gross income.
Now, the property bulls will say, “Yeah but, no but, yeah but, most people have their heads screwed on and they wouldn’t do that.”
But why wouldn’t they do that? The property bulls and spruikers tell us that property always goes up. The property buying public has been brainwashed with the idea. And if property really does always go up then there shouldn’t be a problem with borrowers leveraging up as much as possible.
Only the property spruikers really know their claims about rising prices are just lies.
Anyway, the fact is, buyers are borrowing big, and they’re doing so with the full knowledge and support of the banks.
It should be enough to finally expose the lie about Australia’s banks having better standards than overseas banks. And it should also finally expose the lie that Australia doesn’t have a ‘subprime’ style problem hiding in the closet.
But this story also fits in quite well with an article that a Money Morning reader sent through today. It was from the Sydney Morning Herald’s – hehem – Lifestyle section.
Even the Lifestyle editor’s can see there’s a problem with the banking system, yet somehow the business editors can’t.
Actually, just as an aside we wrote this in an email to an old pal last week about business journalists:
“They [business journalists] seem in awe of the people they interview and are afraid to call them out as being frauds. Seriously, I reckon football players get a stiffer grilling from sports reporters than the RBA does from business reporters!”
Anyway, the headline from the Sydney Morning Herald Lifestyle section is “Lenders at fault over $18m debt, says Upton Baker.”
Apparently Karin Upton Baker is a “society doyenne.” We’ve got no idea what that means to be honest with you. But looking at the article we think it involves having three names and a fur store.
So clearly your editor doesn’t have the credentials to be a doyenne. Must try harder, as our exasperated teachers used to tell us.
The rather dull tear-jerking story to be brief is that KUB borrowed a lot of money which she now claims the bank shouldn’t have allowed her to borrow.
Of course, your first reaction should be, how about some personal responsibility? KUB made her bed, she should lie in it.
Naturally we agree with that too. But it’s also clearly more evidence that the banks have crappy lending procedures. And I don’t mean ‘crappy’ in that they misplace things or that they make silly little errors.
I mean crappy in that the banks knowingly and willingly lend out as much money as they possibly can in full knowledge that people are borrowing too much.
Look, the banks aren’t the victims of ‘liar’s loans’, the banks are fully complicit in allowing these loans to be approved. They are the ones that approve them.
Simply because they have to.
The banks don’t care. They figure that the property market will always be propped up by them and their pals in government and by the spruikers that even if houses are repossessed they can sell them easily.
And besides, look at all the lovely interest income they’ve earned anyway. So what if the borrower defaults, they’ll get another sucker from somewhere.
As you’ve read in these emails countless times, the banks and the property sector are stuck together. They are inseparable. The banks must continue to lend out money at ever greater leverage in order to prevent the whole system from collapsing.
The problem is that like any pyramid scheme eventually it runs out of victims. And when it does the outcome isn’t pretty.
No amount of nonsense about clearance rates and immigrants and Australian’s ‘love’ of housing will remove the fact that the Australian banking system – like its overseas counterparts – is nothing short of a mass fraud.
The banks fraudulently make you believe that they’re looking after your money, when in fact they are doing nothing more than gambling at the property casino.
And that’s where the fraud really kicks off. A lending criteria that allows someone earning $61,000 to borrow a minimum of $450,000 should really be called usury.
Except that instead of the banks charging an excessively high interest rate, they go about it another way. A way that only the most crooked of crooks would think of – they tell you to borrow more money.
That way they get to increase their interest income without having to increase interest rates.
And thanks to the manipulation of the property market by the government, the citizens of Australia who have been brainwashed to think that property always rises have no other option than to take up the banks’ offer of ‘cheap’ money.
If you think Australia has dodged the recession/depression think again. From what we can see, the banks and property spruikers are intent on building this bubble even further.
Get ready to block your ears for when it finally pops.
Shae’s 60-Second Market Round Up
The S&P/ASX200 closed at 4,859.40 up by 46 points on Friday. However, it opened in the red today as the Dow Jones Industrial Average closed at 9,972.18, a 1.08% drop.
Despite the good earnings report from Amazon [NASDAQ: AMZN] and Microsoft [NASDAQ: MSFT], the DOW still closed lower. But, the drop has been explained as profit taking by investors. You can read more about this here.
In Europe the FTSE finished up 35 points to 5,242.57. Even though UK GDP was lower than expected, the mining companies still pushed the index up for a solid finish. Follow this story here.
The Nikkei was up 15 points to 10,282.99.
The price of gold in Australian dollars is trading at $1,144.60, while in US Dollars it is trading at $1,054.90. And the price of silver in Aussie dollars is $19.20 and in US Dollars it is $17.69.
The Aussie dollar continues to hold against the US dollar, currently trading at USD $0.9251. The Aussie dollar strengthened again overnight against the Japanese Yen, trading at JPY 84.94
Crude oil closed overnight at USD$80.50
For the biggest movers on the market yesterday click here…
Shae.
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CB – umm i’d have to say the answer is incompetence. Labor aint exactly famous for their brilliance wrt the economy, but they seem to be quite adept at ruining it and leaving it for the Libs to cleanup when they’re next in office…
Peter,
I have come in to this one a long way down the line but as an FYI we have been offered well over half a million dollars on just the wife’s salary $85k
PA without even adding on the 70k I average a year. I am the self employed one. It’s true madness what is being splashed around at the moment. Fortunately we have bought ourselves a place with 60% down so the mortgauge in real terms or rather in relation to what most people borrow is small in comparison oh and that is after we took 50k off the amount the loan shark (mortgauge adviser) from a well known home loan company wanted us to take out. I suspect it was his kick back. The ongoing payment from the bank not the initial couple of bucks he has to legally tell us about.
When the poo hits it really will be ugly.
CB havent I told you a hundred million times not to exaggerate.
Mick – sorry I took my eye of this thread. I wasn’t ignoring you.
Only half a million. Your getting ripped off – I could have got you more.
The point is what can be lent and what you should borrow are sometime two different things. You obviously did the smart thing and just took what you needed, but you see, that is your choice, no one forces people to take extra, in the same way that no-one forces someone on a diet to eat that chocolate. It is the individuals choice.
I should confess here that I often advise clients to keep a bit extra out as emergency funds (you never know when some one may need expensive medical treatment, car repairs etc) and just pay the extra off the loan so that it doesn’t cost them anything, but it is there in an emergency. Whether the clients utilise those funds responsibly is beyond my control, but I do like to see them with some ability to cover unforseen expenses.
We do get a commission but the usual for $50,000 is about $200 so I hardly think it is entirely about the money. As for the kickback – there is NO trail paid for 12 months and then it will be between $4 and $8 per month for that $50,000. If you repay or refinance the loan within 12 months the broker will have to refund the whole commission to the bank and will have worked for Zip.
Actually if everyone worked on those conditions all useless non-contributors would starve and only the best would survive. Look around your workplace and ask yourself how many of those you work with would survive. No results – no income. I like it, it has a beauty all of its own. It is the ultimate way of sorting out the wheat from the chaff.
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