This is just what markets do. They go up a bit, and then down a bit. But over time, they go up more than down.
Except Aussie property, of course. That asset class only goes up.
But it’s gone up so much lately, that now the suits in charge are genuinely worried about the effect on financial stability.
They should be worried about the effect on social stability too. Because in another generation or so, there will be a clearly-defined landed class on one side, and serfs on the other. In Sydney and Melbourne at least.
The latest news on the issue is worthy of a comedy sketch. From the Financial Review:
‘A pending crackdown on bank lending to riskier investor and low-deposit borrowers is being spearheaded by a special regulatory working group set up last week following direct intervention by the Treasurer Scott Morrison.
‘The group whose members are understood to be made up of officials from the Council of Financial Regulators — ASIC, APRA and the Reserve Bank of Australia — are expected to move on imposing tougher lending rules on the banks imminently.’
After handing out crack to the masses, the regulators are now trying to wean them off it — while maintaining supply at the same time.
As I pointed out yesterday, the biggest culprit here is the RBA. It singlehandedly reignited the property boom with two additional rate cuts last year, just as the terms of trade started to pick up strongly and give the Aussie economy a boost.
It’s probably the biggest blunder they’ve made. The intention was to put pressure on the currency, but it’s had a negligible effect.
If they really saw the need to cut rates as the economy recovered (to stop the Aussie dollar from rising too much) then they should have worked with the other regulators to ensure the stimulus went where it was needed. As it turned out, the interest rate cuts have gone straight into the property market, as evidenced by investor loans growing at a 27.5% rate in the year to January.
Who would’ve thought!
And now that the horse has bolted, four men (yep, men again) have rushed over to shut the gate.
Unlike the pundit from Bloomberg, regulators are paid very well (by us, the taxpayer) to engage in foresight, not hindsight, analysis. That means making tough decisions and pre-empting market moves. It means acting in the face of uncertainty.
But for years, former RBA boss Glenn Stevens refused to do this. He downplayed the role of ‘macroprudential policy’, which is exactly what is being proposed now.
As Nassim Nicholas Taleb points out in his book Antifragile, in medieval England engineers were made to stay under the bridges they built with their families for a short amount of time. It was a crude form of accountability.
Unfortunately, it’s a completely foreign concept in this country.
From the Port Phillip Publishing Library
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