“In the past year, Westpac, St George, ANZ, National Australia Bank, BankWest, ING Direct and Citibank have extended a financial lifeline to 55,362 people unable to afford their mortgage repayments, personal loans or mounting credit-card debt.” Where I read the “personal loans or mounting credit-card debt” bit and say, Yes so what, people are always defaulting on those, and I bet they make up the great bulk of the hardship applications. (As specifically opposed to housing mortgages as such.)

With an article link on the same page under “Related Coverage” reading “Home Loan Stress soars” leading to a spiel that gives pretty much the same sorts of numbers writen by the same author – But nothing specifically on home loans as such – Except one reference that says “About 3300 ANZ mortgage customers are deferring home loan repayments.”

At which point I say What is special about ANZ bank customers and do a search on ANZ staff cuts and find the bank has been chopping lots of staff and I guess that just maybe part of it is that those staff that have been axed do get mortgage holidays. And maybe even the reason they got axed was because ANZ was a bit brittle because it had issued a few more dodgy loans than most – Not that I know any of that for sure of course.

http://www.businessday.com.au/business/anz-whispers-jobs-gone-20090708-ddej.html

But either way, I sure want more info before I even go close to interpreting that article to mean that 55,000 families are on a mortgage holiday. Despite the fact that the article almost seems to go out of its way to mention the words “mortgage” and “homeowners” and even throws in a heart warming line that says “Treasurer Wayne Swan said the provisions were stopping families losing their homes.” While I’m asking if the article is really telling me that the provisions are stopping some silly kids who are up to their ears in personal loans and maxed out credit cards from defaulting on them?

The 35,000 mortgage holidays figure was from my memory of this article:
Families gripped by financial hardship

Turns out the figure is actually more than 55,000 this year…and that is not including CBA who have the most mortgages.

We could possibly assume it was more than 75,000 including CBA, but there is no way to know.

I am not sure about the proportion of these people compared to total mortgages – I couldn’t easily locate that information. The article says that the holidays are being given to families, so I assume that does not apply to speculators/investors.

One issue, that I raised before (Aussie Home Prices pt2 #77), is that banks have used these ‘holidays’ to avoid writing off losses on their books this financial year. And this financial years reports were really important to the financials market. It is dog-eat-dog out there and the underperformers will suffer share price losses. Which makes it harder to raise capital. It becomes clear they are willing to use any methods that are available to make things seem better than they are. So that is something to keep in mind…things are likely to be much worse for the banks than they report (because if it was better they’d be sure to let us know right away, in exaggerated fashion).

(Sorry to bring property into the comments on this article)

The BDI is more of a worry because it ties in with reports about Chinese demand for coal weakening. I suspect demand for other hard commodities might be coming off the boil as well. That is not going to help the Australian GDP numbers in Q4.

There are some pretty iffy reporting strategies out there – Anything to attract a reader and even if the stats aren’t about housing as such, then having the heading make it look like they are seems to do the job while also satisfying Oz standards of journalistic integrity these days.

I guess it pays to keep in mind that while the people writing the bulk of this stuff were hard working and smart enough to qualify for a university place in media studies or some such, law, medicine and even the sciences probably weren’t open to them as options?

The more house prices go up compared to wages, the more trouble people will be in. Particularly if interest rates rise.

See, artificially low interest rates (emergency rates?) have helped people out a lot. I particularly note the large number of people that tell me “but buying is only slightly more expensive than renting!” and “rent money is dead money”. I’m not going to get into those except to say that changes in interest rates will dramatically affect peoples ability to repay their debt. Couple this with increases in house prices, increases in the cost of living (CPI, fuel prices, electricity prices, import prices) and issues with employment (such as wage freezes, unemployment), then you have some big issues.

A nationally reckless approach to both borrowing and lending means that a lot of people have taken low interest rates for granted and are simply not prepared for rising interest rates. The absence of an RBA interest rate rise for more than two years does not imply it won’t happen. We especially need to consider that the RBA does not regulate bank mortgage rates, and that they will raise rates independently if they need to pass on costs.

The argument of “people have coped so far” doesn’t means that there won’t be problems. We need to consider why they have coped so far (and if they truly have) and whether they will cope in the future.

Who will bail out the insurers? It really starts to spread into other areas of the economy once that starts…

Senator13:
How do banks have wiggle room? If they up their rates they will push people (especially FHBs) to the wall, which is precisely what they don’t want to do.

If they up their standards of who they lend to (and they are anyway) they will essentially bring down the market, because they won’t be providing enough credit to the property market. Which means less demand. Which means lower prices, negative equity, etc.

*My understanding*

Currently our Gov and banks enjoy nice low interest rates from overseas lenders, due to:

1) the fact that our economy, particularly our house bubble, has not suffered (yet?)

2) the Government guarantee of the banks money (including international banks)

What happens if our banks get stressed due to loan defaults, mortgage defaults, etc? Lenders will get concerned about increased risk and will raise rates.

What happens when rates are raised? More loans are pushed to the edge. This creates more risk for lenders who will raise rates.

So, what can the Gov/RBA do?
- reduce the cash rate.
This can increase inflation (although that’s another story) which would concern lenders. Also they only have 3% left to go, which is not so much. Reducing rates to 0% would reduce the value of the AUD, making overseas loans proportionately more expensive.

- increase the cash rate.
They won’t do this, because then the RBA could solely be blamed for increasing mortgage rates in a time of crisis. It just won’t happen. Plus it adds risk, and international rates would probably rise too, although so would the AUD (probably) and may counteract international rates a bit.

- borrow money.
I went over this in my last post.

- print money.
I went over this in my last post.

Damned if they do, damned if they don’t.

Banks are on a knife edge. They are extremely vulnerable to increases in international interest rates and moves in the AUD. At the moment they are pretending that all is well and trying to absorb new costs as best possible. It just happens that they only have a certain capacity for this. And that is where the Government comes in to bail them out.

Now there are four of them (and countless smaller financials that could possibly be bailed out, who knows what Kev would do) controlling most of the mortgages and a large number of loans.

To understand the effect this could have, consider that Australia has just under $1 trillion (AUD) of mortgage debt. Can the Government just borrow $100-$200 Billion here and there to bail out the banks? Whilst racking up its own debt at the rate of more than $50B a year? What if it needs even more money to bail out the banks because other loans default?

I see this as a precarious balancing act in which the RBA is essentially hog-tied and the Government just has its fingers crossed that the banks don’t need to be bailed out (probably due to property market bust).

As to taxing us more, I firmly believe that is a given – Just a matter of how and when.

It’s also good to see that Centrelink and our bureaucrats have made the social security system so complex that this will drive more people towards accountants at tax time. That’s just what we need, more paper shuffling

http://news.smh.com.au/breaking-news-national/disability-pensioner-numbers-will-rise-20090401-9jlf.html

Don’t know why a more recent figure wasn’t given? But either way, apparently 200,000 people dropped out of the workforce in the last recession never to return. So the concern is that will happen again.

Yes, a criticism of the disability pension is that it masks the true unemployment statistic. A lot one might suspect with the most recent unemployment figure being a touch under 670,000.

That fact the number on the disability pension is that high, also helps explain Ken Henry’s empathsis on “capacity building” – He is keen to get people off welfare and working of course. But like any wise businessman, he also realises it is easier to retain your existing “clients” than get new ones – So the retirement age was increased.

I also found the following interesting:

http://www.acoss.org.au/News.aspx?displayID=99&articleID=5858

(Sole parents were miffed because everyone else’s pension went up in the last budget but theirs didn’t.)

Out of interest I went to the Centrelink home page and had a snoop around payments. Apart from saying it seems real complex, I’ll keep my general opinions to myself! The following was interesting though:

“Please note: As of July 1 2009, changes to the definition of income mean that your assessable income for Centrelink and the Family Assistance Office will also include:

* reportable superannuation contributions, and
* total net losses from rental property or investment income.”

http://www.centrelink.gov.au/internet/internet.nsf/payments/ftb_a_iat.htm

I just can’t get my head around what we’d hope to gain by printing money – Get our ER down? Seems just too desperate for small fry like us.

If our banks go to the wall – what will the Gov do?

They won’t be able to borrow that much money, because rates would skyrocket (think of the risk) and no-one would lend with that much risk, except maybe China but I think they have more to gain by letting us suffer (because we’ll get desperate).

The Gov has guaranteed the banks money as it stands anyway – therefore it has to pay everything. Including money for international banks.

So the way I see it, the Gov has committed itself to supporting the banks, which means supporting the property bubble and giving out stimulus. Which costs a lot of money, all of which it is borrowing (you can’t tax people more if you want to encourage growth and push down unemployment!).

And if the Gov continues to do this (which it looks like it has to) for the next few years, then unless we have some sort of miraculous resources demand boom, we will be in debt…of at least 50% of GDP (in my opinion) and possibly much more.

And more debt = more risk = higher rates = harder to repay debt = (cycle starts again) = default or money printing.

And default is not an option.

I don’t think Ken Henry will have much success bring down those numbers.

I doubt he’ll have much success?

But then Oz doesn’t need any expat to approve of it of course.

Still, the real hub of the matter would seem to be that here, we have country that has just gone through 15 years of unbroken growth and very well may survive a deep global recession comparatively unscathed (because it IS the MOST blessed and fortunate of joints – As opposed to hardworking or clever!) and at the end be worse off than I remember from 15 years ago …

In debt as a nation. In debt as individuals. Can’t afford to buy a dwelling anymore. Having more and more of our kids raised in single parent families – Lots of them on welfare. Wondering where we are going to get money for pensions. A crumbling healthcare system. I’ll stop there – You know the storey.

If that was growth, then maybe we should try recession because we have definitely done something very wrong?