Will no-one rid me of these evil moneylenders: Part One

Not only is life tough but you try finding a parking spot in a busy shopping centre. Whenever I do I can usually find some place where they could have fitted an extra parking spot. And pretty obviously if theyd have done so I could park there. Well actually I couldnt. If there was an extra parking space, chances are it would be full too and I’d have to keep searching.

The housing affordability crisis is a bit like that. Of course if we can increase the supply of housing then we can all enjoy better housing. But when its in limited supply it has to be rationed. So if we increase the grants people get to buy houses, theyll all bid against each other and end up back where they started. Well actually theyll end up a bit further back than that because the new arrangements involve churning money through government coffers for no good reason and some level of waste is inevitable.

I’m having to remind myself of my parking rage when I think of the growing community anxiety to stop all this predatory lending thats driving people to the wall. You know the story. A comment by Graham Bell on a post on the sub-prime crisis and its implications for prudential supervision raised the issue.

I’m not accusing Graham of anything so heinous, but I cant help thinking of all those Jews sucking the blood out of Europe before Hitler sorted them out.

This idea that progressively laxer and ultimately predatory lending standards is trapping poor Australians – innocent Australians – into the current ‘mortgage stress’ theyre in flies in the face of all the evidence Ive seen in running a mortgage broker. About a year or two into running Peach, Doris gave us a ring. She was a receptionist. She was earning an OK wage I think around $35,000 a year gross and she was single. If I had been in her position I’d probably have been living in a group house and saving more of my pennies. But I wasnt in her position. She had been working and renting in the previous five years and was paying had paid throughout her tenancy around 50% of her income in rent. She had a deposit and wanted to borrow to buy a house. If you recall at the time rental yields in less posh areas were around seven or eight per cent which meant that she could finance the repayments on the mortgage for substantially less than the rent.

Being an economist, I had a naive faith that even though this wasnt normal, it shouldnt be too hard to persuade a lender to lend to her. Peach’s more prosaic General Manager was not impressed with my impression and convinced me that I was wrong. I guess I shouldnt have been that surprised. I already knew that despite a spotless twenty year credit history and plenty of equity, I couldnt refinance my existing home mortgage. Because you see, having started a new business, I couldnt afford the repayments. That is I couldnt demonstrate current income sufficient to do so. I was happy if the bank took my house if I fell behind on payments, but no such luck. There were no takers despite the obvious stupidity of the situation – my existing bank never did any reviews of my ability to repay the loan.

Now theres an urban myth out there that says that lending has become much more cavalier since then. But its only slightly true. Serviceability formulas of at least some lenders have become a little more permissive and rightly so given reduced economic volatility and even more reduced volatility of interest rates. But only a little. It is true that acceptable loan to valuation ratios (LVRs) have risen (from 95% to 100% and higher if you want to pay much higher interest rates). However thats because of increasing appetite for risk (or more probably a reduced assessment of the actual risks involved) from mortgage insurers. And since lenders are the main risk takers here, they wont lend unless the whole package is serviceable.

And despite what youve heard, even today, lenders against residential mortgages remain an overwhelmingly conservative bunch. They move very slowly and typically no-one is out there innovating with any great gusto. They tend to move pretty much together defining industry practice (the practice to which they might be held accountable if someone defaults on a loan and a consumer lawyer argues that the loan was predatory and so unenforceable.)

Theres an obvious reason lenders are conservative like government regulators, theres much less upside from making a good judgement (just the 2% margin on the interest) than there is downside from getting it wrong (where you can lose 10 or 20% of your capital without too much trouble).

And theres government regulation. The Uniform Consumer Credit Code (UCCC) makes loans that people can’t afford unenforceable unless they are for investment. But if you think that the regulation is the main reason for the conservatism – think again. Lenders are actually more conservative lending for investment (where it’s pretty impossible to get an LVR over 95%) than they are for owner occupation even though the UCCC requirements on serviceability only cover the former.

For all these reasons theres very little risk taking or predatory lending against residential mortgages amongst Australian lenders. Still, Graham Bell says this:

Quite a few of those who become victims of low-doc loans could well be true dropkicks and absolute dills, real born losers, but the rest are both impoverished and very ambitious . a very dangerous combination in our troubled times. Do you imagine that some very nasty groups would neglect to seek out willing recruits from among those who have lost everything?

Sorry but your present discussion, necessary and interesting though it is, seems to me to be like rearranging the deck-chairs on the Titanic when there is a far more urgent and potentially hazardous issue to be tackled.

I wonder if Graham has tried to take out a low-doc loan – that is a loan on which income is not fully documented. Firstly most of them have rates that are only about half a per cent above the discount rates available on fully documented loans. Secondly they are generally difficult to get without substantially more equity than those on full doc loans. Over 80% LVR and your cost of money rises sharply and 90% the market is getting seriously expensive and thin. Thirdly low-docs loans are still subject to the UCCC. The lender certifies their own income and if the amount they certify wont service, the UCCC makes the loan unenforceable if the borrower defaults ie it makes it commercially unviable (the spellchecker thinks ‘unviable’ means ‘enviable’ which gives you some idea of how widespread this moral panic is!). Anyway this kind of lending represents 15% of the market in Australia and about the same in the US where its not called sub-prime but Alt A sounds like a keypad shortcut. (If I press Alt-A in Word the table menu drops down but I digress . . .)

There are also no-doc loans. It beats me as to why theyre more expensive when low-doc lenders can lie about their income and if no-doc lenders come with plenty of equity. But there you go. They are. And theyre expensive at 80% LVRs and virtually impossible to get at LVRs over 85%.

These are sometimes classed with low docs and sometimes with non-conforming loans. Non-conforming loans tend to be Australias equivalent of what the Americans call sub-prime loans. I used to think that banks overdid their abhorrence for those with credit defaults Ive certainly fallen for some sob-stories. Or perhaps they were legit. Stories of people living in group houses and moving out and finding that the people whod moved in had made overseas calls on their telephone accounts etc etc. Quite small defaults. Anyway, a recent study suggests that those with blemished credit records are five times more likely to default again which doesnt seem so surprising.

In any event, non-conforming loans are expensive and account for around 1 per cent of our home loan market as opposed to the market share of sub-prime loans in the States of around 15%!

So when I think of whats happened in the market for housing loans I think back to that empty parking space the one that would be handy if it were there, but which, if it were there would still have a car parked in it.

What has happened is that as money becomes available, people find themselves effectively bidding their own borrowing capacity against that of their neighbours. And so people with similar incomes each compete with others of similar incomes (or of lower incomes and higher risk appetites and/or stronger desires to consume now rather than later).

So those parking spaces are filling up and people are feeling the pinch. There is an interesting case one might make that we could all do ourselves a favour by rationing credit. Ive not read or thought much about it, but the argument would be that competing against each other for houses is like standing up to get a better view at the footy. In the end everyone stands up and everyone is worse off. A decent model would bring out the ways in which that analogy is revealing and ways in which it misleads.

But a moments thought would show the political impossibility of re-imposing credit rationing, of governments interposing themselves between willing lenders and willing borrowers and effectively robbing people of the ability to become home owners. For while credit rationing would help lots of people who have got a good sized deposit (by keeping down the price of houses), all those without such a deposit would be the ones from which the government confiscates the Australian dream. I dont think so.

Its so much easier to let off a bit of steam against those evil, bloodsucking moneylenders who are driving us all to our doom, and to call for community action regulation to stop this cancerous evil.

This entry was posted in Economics and public policy. Bookmark the permalink.

234 Responses to Will no-one rid me of these evil moneylenders: Part One

  1. XX says:

    I think you’re being too panglossian about the market here, especially given the actions of some brokers. Just over 3 years ago we had a bbq for the kids, some of their friends and the parents. One had just started a new job working for a broker, and had a few weeks later been promoted to an accounting position after the previous occupant – someone of over 30 years experience – had been fired for being essentially “bolshie”. She had no accounting experience.

    She was somewhat worried about this, and after discovering that I worked in the financial industry asked me a few questions and related a few of her concerns – including some thouroughly alarming stories about the quality of the documentation being provided to the banks. Some of it included blatently forged details such as personal circumstances (nbr of kids, zero was better), and credit position (don’t tell ’em about your Visa, the Mastercard will be fine) ….

    … up to and including signatures forged by the broker’s staff.

    I won’t tell you any more about this, but if this is at all indicative of what’s been happening in that industry – and I’ve no reason to doubt her – we’re in for a very rough ride.

  2. Graham Bell says:

    Nicholas Gruen:
    A thoughtful response to the comment I made on the other thread; much appreciated – though I do disagree with some of what you said.

    Shall have to comment on the substance of what you said later, when I have re-read it. Meanwhile, a stake or two in the ground.

    Sorry, no evil Jewish — or Indian or Armenian or Chinese — money-lenders in sight anywhere, exciting and entertaining as conspiracy theories may be. Besides, there specific reasons why I myself am unlikely believe in them.

    Being a money-lender does not of itself make one evil. As one living in the Other Australia, several times over the years I have had to use the services of pawn-brokers; I found pawn-brokers tough but helpful and honest. They offered a service, charged like wounded bulls for it and I was grateful for their very timely help. There was only one exception [and he became immediately honest as soon as I visited a chamber magistrate :-) There are decent people lending money at the lower end of the economy and they perform a necessary, unnoticed and unrecognized service.

    My concern about the harmful effects of low-doc “loans” and predatory lenders comes from personal observation, both socially and – prior to retiring – in my professional work.

    And yes, I have had a bit of personal experience of predatory lending. Some years ago, my wife and I had to take out a housing loan at 17% [despite being a war veteran with a clear entitlement to my long-term low-interest War Service Housing Loan!!!] whilst I was at university on a civilian resettlement course. When the government abruptly, arbitrarily and illegally cut my income then lied that it was a temporary administrative adjustment and that I would get a hefty backpay!!, we fell behind in the house loan payments [I had an excellent case for litigation against the government but no lender in the world would wait until a case toddled through our creaky court system; loans have to be serviced and shareholders paid]. In desperation and with no help whatsoever from the bludgers in the RSL, I had little choice but to go seek alternatives — at 29%. The result was inevitable. We lost out house and it took me another seven years to get my degree. Nowadays, I see the same, or worse, things happening to others. Is it any wonder that I am concerned about predatory lending and about the government’s abandonment of its responsibility to protect its citizens against oppression and injustice.

    Is that enough to exclude The Protocols Of Zion from the present discussion? :-)

  3. Caroline says:

    Along with lying to the tax department, dodgying up your loan application is standard procedure if you want it to succeed–(apparently). We all need somewhere to live, but people in Australia (and elsewhere, though less so in Europe) are obsessed with ‘owning’ their own home. Keeping up with the Jones’s, and the concomitant greed and vanity have contributed to make this ‘dream’ exactly that for many and for those who do have a toe-hold in the door, it has become a nightmare.

    Privately (heh), I think usury sucks, (no personal offense intended Nicholas), but I think it somehow immoral that the archtypal fat, lazy, banker, gets fatter, lazier and richer, by doing nothing other than taking the lion’s share from those leaner than he. An over-simplification true, and it doesn’t look like this shrewd practise is going to go away anytime soon, as the moneyed (or not, as is actually the case) world runs on it. There was some good reason why the good Lordy wasn’t particularly kindly disposed towards the money lender. And while you may think he be a thing of myth and dream, its still a parable with a useful comment on human frailty.

    Sermon over. (For now).

  4. Firstly with all these comments, please don’t worry about offending me as someone who runs a moneylender. I also know that I rather threw the switch to vaudeville bringing up ancient phobias about moneylenders and Jews. My point was not to suggest for a minute that THAT is happening again, but rather to argue that there’s a deep seated need to attend to our anxieties about what people do with their lives and what a dangerous thing debt is in the hands of people who are reckless, stupid or inadvertent or unlucky by making someone else responsible.

    XX,

    There is criminality in broking like in any industry. It still amazes me that this is presented (though I’m assuming in your case) as largely a problem for borrowers. It’s mainly a problem for the lenders whose money is not secure. I doubt the problem is widespread, but it could be. It’s noteworthy that most of the regulation that’s proposed doesn’t really address this. Obviously if someone is forging documents, one wouldn’t expect them to play along with any other requirements of a regulatory regime. The lenders are mostly very well resourced and can deal with this, if you want the government to help, that’s fine with me.

    Caroline,

    You certainly have some quaint views (though please be assured that I haven’t taken them personally :). Are you against staged plays by any chance? Appropriate strictures to enforce feminine modesty. On lots of accounts the Lord has a thing or two to say about those things.

    What you’re talking about goes on – like tax evasion. We’d all be pretty surprised if it didn’t. But how common it is and is it increasing?

    We’re asked to dodgy up documents I’d say less than 1% of the time. And being a discounter we get our share of people from the wrong end of town. I haven’t noticed any trends in getting on to eight years in the business.

    And is your enmity directed toward the broker only? Both the borrower and the broker are defrauding the lender.

  5. Caroline says:

    Nicholas,

    I think that feminine modesty is probably wise. (Modesty in both genders is refreshing don’t you think?). I’m not so sure about the strictures, they don’t sound very comfortable. I have no opinion about staged plays and wasn’t aware that the good Lordy had one either. But there you go, learn something every day. (I wonder what the problem is?)

    I still think usury sucks and no doubt always will. It would take a great deal to convince me that the rich fleecing the poor was ever in any way a good thing–to put it crudely. I’d hazard a guess and extrapolate from the anecdotes of a diverse assortment of strangers and acquaintences, that dodgying up loan applications is very widespread, though probably less so by people who go to the trouble of using a broker.

    My enmity is directed towards the idea of usury, not any one person or group of people, in particular. I don’t by the way, in general, concur, practise or endorse random Biblical parables, only those that match my own experience and prejudices. I’d say I’m actually realistic, albeit that my realism will never be, in this world realised.

  6. Kevin Cox says:

    I was surprised a few years ago to learn that banks can lend more money than they have on deposit and they can charge the same interest on this newly created money as they do on money lent from deposits.

    There seems to be something fundamentally wrong with the way the system works. Surely wealth backed by tangible assets is different to wealth backed by a promise to pay and should be treated differently.

    A system where we can create “equal” money with a stroke of pen means that if we create too much of it we will get inflation which will affect all money equally. That is our money backed by real assets will decrease in value just as much as our money backed by debt assets. It seems that the people who create debt money have a temptation to create too much of it and that seems to be born out by the fact that we are told that we have an inflation target for the country of 2 to 3%. The idea that we need to have inflation indicates to me that the system is fundamentally flawed and will result in a movement of assets from those who create tangible assets to those who create debt assets.

    Can someone direct me to an explanation of why this is a good way to run an economy.

  7. Graham Bell says:

    Caroline:
    We need to delineate where honest lending for a just reward ends …. and where oppressive, rapacious, stifling usury begins.

    You are right about the importance of lying and deception. The current system works on it so all parties do it. Vendors, lenders, estate agents, solicitors, brokers and borrowers are rewarded, and rewarded again, for lying through their back teeth whereas truthful borrowers are punished by being denied loans and truthful vendors are punished by losing sales.

    Immediate access to every detail of a borrower’s financial history, of a lender’s clients [and victims?] and of a vendor’s property [and the vendors’ buying-and-selling history too!!] is only a partial answer. The problem is that although any screen-jockey can draw conclusions [accurate, hilarious or disasterous] from a few figures dancing on their computer screen, it takes skill and knowledge to relate that to what is actually happening out there on the ground. The problem has been exacerbated by closure of so many bank branches which then deprived the banks and their subsidiaries of what used to be very reliable local sources of commercial intelligence …. and ringing the local estate agent instead for an impartial information might get you only what is in his own interests to disclose :-)

    Imposing savage penalties for telling fibs would make the noose-and-lash brigade happy but do nothing to improve things. What is needed is something simple, just and workable to reward truthfulness and full disclosure and to make deception unprofitable. Sorry, no instant solution here just yet to all the problems caused by lying and deception.

    Nicholas Gruen:
    [[Haven’t forgotten you. Still mulling your comments :-) ]]

  8. Kevin Cox says:

    Nicholas,

    As you know our identification system has the central idea of giving individuals the ability to prove who they are and to prove that statements they make are correct. This means that it becomes possible for borrowers to prove that what they are saying is the truth. Truthful borrowers with the existing system get penalised because the lenders have to assume that they may be telling lies and so perversely if they tell the truth they will penalised for the bad things on their record but not rewarded for good things they have done.

    We are making progress with “commercialising” the idea. Our approach is now not to go to the final objective of being able to identify new customers but to give a simple way for organisations with existing clients to know they are dealing with the same person by using their voice prints for identification. The immediate payoff for an organisation is to ask existing customers to record their voice prints so that they can be identified quickly and privately when they use your Call Centre or need to contact you again or to sign new documents.

    Once a customer has done this for an organisation, the organisation can then give them permission to use their voice to pass on information about their dealings with the organisation to other organisations and vice versa so all will gain.

  9. Graham Bell says:

    Nicholas Gruen:
    Now I see, our differences of opinion probably come from your own work experiences of successful, beneficial lending on one side and, on the other, from my own personal and professional experiences of the disasterous effects of predatory lending and the aggressive marketing of unneeded credit to those manifestly unable or incompetent to handle it. IMHO, when it comes to sheer ruthless bastardry in such lending, some officers of “respectable” banks are no better than the unconvicted cowboys operating outside the normal finance industry; they have blood on their hands. Although lenders [whether as individuals or as shareholders] might end up a bit out of pocket, it is the taxpayers who pay most of the OVERALL cost of the results of predatory lending and aggressive credit marketing.

    Please please please do not assume that borrowers have perfect knowledge or that they have unlimited choices available to them, no matter who they are. Although money and knowledge may be borrowers’ most obvious deficits, there may be a lot of others such as time or status. Surely, too, you would have come across borrowers whose previous happy experience of with borrowing, such as for a car or white-goods, made them incredibly less cautious when presented with delightfully attractive low-doc or no-doc housing “loans”?

    You are absolutely right about the Australian finance industry being conservative! Can’t help but think of that old saying “Give a Chinaman one pound and he’ll do ten pound’s business; give an Australian ten pound and he’ll do one pound’s business”. How apt when talking about the Australian finance industry’s attitude to low cost and older houses as well as to those in less-fashionable places. It’s not a matter of being risk-averse, it is a matter of being downright business-averse, of having a cargo-cult mentality, of feeling that they deserve to have profits fall from the heavens upon them.

    Out in the rough-and-tumble of the real world, profits go to those who get off their backsides and work for them; the purveyors of dodgy housing “loans” know that …. and that’s why they are hopping in for their chop at the lower end of the housing market.

    The dodgy operators can flourish in that MARKET because the traditional financial institutions are too big-time, too wilfully ignorant, too timid and too lazy to go in there themselves with appropriate and affordable products and too stupid to design systems to cope profitably and efficiently with the myriad of small transactions that would come from getting into that market.

    The crooks, shonks and exploiters can flourish in that market too because government nowadays, regardless of which party is in power, freaks right out whenever somebody mentions the word “regulation” — well, if formulating and enforcing equitable, workable, easily-understood laws and regulations isn’t the business of government then why the hell are we paying them our taxes?

    No conspiracy theories here; none needed; just anger at so many lives ruined by the timidity, laziness, ignorance, short-sightedness and panic of those who should know better. Impolite? You bet!

    There’s a profitable market there. Why leave it to the crooks? Service it.

  10. Patrick says:

    Kevin, some level of inflation is generally considered a good thing. It is because we generally prefer the ‘economy’ to grow, because most of us harbour the secret suspicion that things could still be better.

    Absent some inflation, we’d still be living in mud huts.

    Incidentally, what you are advocating is called the gold standard – it is a respectable idea (Greenspan was once a fan). As far as I can tell it did nothing to stop (rampant) inflation.

    Also, it is hard to see the genius you claim in voice identification. I extremely strongly doubt that the biggest problem in borrowing is identity theft.

    Caroline, if you confine your comments to ‘usury’ in its pejorative sense, then fine. Otherwise you are a right dill. Once again, absent usury, we’d be in the mud huts. Not to mention that if you restrict or ban usury, the poor are the first to suffer – and suffer hardest. I had gathered from your tone and a quick perusal of your blog that you consider yourself sympathetic and compassionate. Yet, your views are extreme and apparently devoid of pity for the incredible hardship that their application would entail.

    Graham, I don’t know how well you understand our system. I suspect it is about as well as I understand your comment. We have harsh penalties for deceptive lenders – they can’t enforce the loan, and effectively lose all the money lent. They also end up losing their right to lend, which puts them out of a job. Lying borrowers usually face immediate foreclosure if the lender wishes.

    All of you, if you care about social justice, there are so many more useful things you could do. In fact, there is little less useful.

  11. Kevin Cox says:

    Nicholas why is inflation necessary for an economy to grow? If we need to have inflation for growth then that is because of the way we control our money system. An economy grows when more wealth is generated which comes from higher productivity and output per person. As we all know growth does not come from printing money and we all agree that high inflation is bad. If high inflation is bad then why is less inflation good and when does a little inflation become bad? If the system needs inflation to grow and adjust itself then I would suggest that we should be looking at different ways of organising and issuing money as any inflation or deflation makes its use a measuring tool for trading less effective – and that surely is the main reason we have money. Perhaps the problem arises because we now treat money as wealth itself rather than as a measure of wealth? There seems to be something fundamentally amiss with a system when trades in money are orders of magnitude greater than non money trades. Each day 76 billion Australian dollars are traded on foreign exchange markets yet the total GDP of Australia is less than a billion each day. GDP presumably is related to the size of trades in wealth. Thus we have a system where trades in the measure of wealth are two orders of magnitude greater than the trades in wealth.

    I am not claiming voice identification is anything special. It is just a convenient mechanism to enable people to take control of their own information. Giving people control over their own information is special in that it helps us all do a better job at trading and working together. We can only work cooperatively when we can trust each other and we can only trust each other when we know that people will keep their agreements and we can trust the information they supply to us.

    This comes back to the money problem. Money is information about wealth and if its meaning is corrupted through inflation and misuse in the way it is created through the issuing of doubtful debt then there are few things more important to a well functioning society.

  12. Patrick says:

    That should have been addressed to me, Kevin, not Nicholas. I doubt he appreciates the confusion :)

  13. Kevin,

    They weren’t my comments (and they were wrong on various points in any event).

    I don’t have time to go into a long lecture on it (and it’s an issue on which there’s a great deal of discussion – and unfortunately not a few cranks). But a few points.

    1. We don’t ‘need’ inflation in the sense that we’d be in mud huts without it. We had virtually no inflation for long periods in the nineteenth century and plenty of growth. But Akerlof and others have made a persuasive case that it’s better for us to have low inflation (below say 4%) than zero. That’s because economies need some relative prices – particularly wages – to go down and human nature being what it is, there’s a bit of ‘money illusion’ going around. People will react much less well to being told that their wages are being reduced by 2% than they will to being told that there’s not enough money around to give them any wage rise this year. Yet if inflation is 2% that does the work for you.

    2. The Gold Standard generally does restrain inflation – but not if you suddenly find a lot of gold! And why would you want to tie your money supply to the vagaries of the gold market. But the system can be less bad than other monetary systems – ie paper money with an incontinent government/central bank or the use of pigs for instance.

    3. The Gold Standard does not prevent fractional reserve banking. As I understand it, it pretty much grew up under such monetary regimes. For various reasons people didn’t carry gold, they carried IOUs from banks (ie bank notes). So long as the banks are properly supervised (and in principle, even if they’re not and everyone knows they’re not necessarily safe) and so long as they compete – in which case this interest that they charge on money they’ve not paid interest on will be competed away in the marketplace – what’s the problem?

  14. Kevin Cox says:

    My apologies Nicholas but thanks very much for the explanations as they confirm what I am reading elsewhere.

    I have been trying to “understand” money because as you know our Rewards systems create new currencies with special rules for each currency but with mechanisms to move money from one currency to another.

    I can see the reason for having inflation for reasons of adjustments on things which should reduce in value but which are sticky like wages.

    I can understand interest being charged on money that represents wealth that I cannot use effectively myself.

    The problem is that the rules that we use for money used for different purposes and created in different ways are all “the same” whereas if we had lots of currencies then perhaps the system might be able to cope with the relative change in asset values more efficiently and without so many side effects. Let me give some examples.

    If I create some money by giving a loan of money I do not have then this is much more risky than money lent against an asset that already exists yet the cost of the money is the same because it is all the same currency.

    This is of practical importance when say a housing loan is given against a house that deflates in value. The lender wants money back not a house back whereas if we had special money that was backed by houses and loaned to me to pay for a house then I could pay back in house money. My guess is that this would help prevent asset bubbles in housing and make housing more affordable because it would enable the deflation of house prices relative to other assets and it would enable lenders to better control risk.

    Similarly if I had special money for wages then we could allow inflation in wage money to occur without impacting other assets. The inflation in wage money would occur because the exchange rate between other forms of money would change.

    It is an intriguing idea and if we can get a Rewards program up and running then it will be interesting to see what happens. The argument against it is that it is complicated but in practice it is simple to do because it can be done “automatically” when money is spent. Thus if you want to buy a house you must use house money. When you sell a house you receive house money. If you build a house then you are paid in house money which can be converted into real currency as you have created more house assets – but that is the only way house money can be “destroyed”. You can always create more house money by converting some other currency to house money. You can always get rid of your house money by selling it to someone else. If houses overall now deflate in value then it is done by house money only deflating and it does not affect the asset value of other assets.

    Similarly we could do the same thing with debt money and we would not get the ripple on effect of the USA subprime lending.

    We already do the same thing with national currencies and we let the relative values of the currencies vary to take into account different situations in different countries. Why not do the same but with specific asset classes that are well defined and are subject to “bubbles” like houses or are difficult to control like debt or need to adjust like wages.

  15. Kevn, I think the lines you’re thinking along are interesting, though unlikely to be practicable.

    Money is a social institution. It utilises the magic of social convention to build a public good. Like language. Or a walking track through the forest. It’s built by the accretions of social convention. It is possible to think of rational improvements to the institution which is what we’ve done over the last few hundred years.

    I don’t really know why you want to identify particular asset classes for their own separate monetary systems. I think I’d rather identify different regions – that way we would be able to reflate the NSW economy without causing undue inflation in WA. The problem is that you can cut the pie in any number of ways, and I don’t know why you want to do it with houses. And I don’t really know how it would stop inflation in house prices. And – to use the example I’ve used of WA and NSW it’s pretty likely that the transactions costs would exceed the benefits – and that’s without even considering set up costs which would be huge.

    You might like to investigate the dual currency systems that were quite popular in quite a few developed countries until as recently as the late 1970s. I think Belgium had one. At one stage it appeared to me that if you wanted to promote industries in the traded sector, this would be far superior to traditional tariff protection (because what assistance there is goes to both export and import replacement). But since I’ve never thought it was much of an issue for Australia I’ve not pursued it. If I were thinking about developing countries more I’d think about it – but then I’ve not seen it discussed much in that context.

    I also think you need to guard against the temptation of thinking that setting up things afresh will get rid of problems of our current system. If our current system has problems – they might well re-emerge in your new system and indeed be exacerbated by it.

    Posts of mine here and here, and here might also be of tangential interest. Note how my enthusiasm for the idea cools with further acquaintance.

    This post is also of tangential relevance.

  16. Kevin Cox says:

    Nicholas I am getting confident that we will get Rewards up and going. After looking and trying to understand what we are creating it turns out that we are setting up a currency for particular asset classes. The reason for the Water Rewards is as a way of breaking the monopoly on the spending of money to save or to increase the supply of water. That is, to make the Water Authorities compete for funds and justify their schemes in the market place (not of water) but of ways of increasing supply. Have a look at my submission to IPART.
    http://cscoxk.wordpress.com/2007/09/20/ipart-submission/

    We have a new idea on how to get Energy Rewards started and you can see that at http://cscoxk.wordpress.com/2007/09/29/energy-rewards-for-reduced-greenhouse-emissions/
    Energy Rewards are to get investment in non polluting energy.

    If these get off the ground then we will be able to experiment and see how complicated and difficult and expensive it is.

    I believe isolating asset classes is important in both Energy and Water because we get issues in investment in these areas because people can get better returns by using their money elsewhere. However, for some things – like water and greenhouse emissions – we know we have to spend money on those problems but they do not give as high a return as investing in debt (for example) and I would contend that it is better for society to invest efficiently in water infrastructure than consumer debt and that is precisely what we are trying to achieve.

    I went to a briefing on emissions trading by the Federal Greenhouse group the other day and they have what appears to me to be an impossible task. They have to invent the rules for emissions permits trading and if you think Rewards are complicated then you should listen to their problems. At the moment they are trying to figure out how not to stop all abatement schemes in their tracks while they introducing emissions trading in 2011 but their record is not good with the price of NSW abatement certificates now dropping to 1/5th the value of European Carbon Credits since the announcement of Emissions Permits Trading. As the intention of Emissions Permits is to direct investment to pollution free energy sources we think Rewards can help. That is, if you made all Permits trading in Rewards then you would get the best of both worlds. A cap and trade but with guaranteed spending on greenhouse abatement through Rewards. It would stop speculation and manipulation of Emissions Permits dead in its tracks.

    The housing thing is just a mind experiment at the moment. I have been thinking about the problem of asset inflation and unaffordable housing and trying to think if a special asset class for housing would help.

    We are not trying to create a new system but trying to build on the existing money system. Money for trading has been a great way of creating wealth and we should continue to use it. We are only modifying some of the rules associated with money – not building a new system. However, to modify it we have to understand it and that is what we are trying to do. When Keating floated the dollar he was not changing the system he was only changing some of the rules. When countries went off the gold standard they were not changing the system only changing the rules. When we divide the system into currencies for different asset classes for particular reasons we are just changing the rules – not the system.

    By the way when an asset class currency can be sold on a par with regular currency then we no longer need it and it can be abolished. That is we create currencies to implement particular policies and we will know when the policies have succeeded when the asset class currency is on a par.

  17. Niall says:

    In 35 years experience lending money to people who ask for it……a sound point which all too many critics of lenders conveniently never mention…..I’ve seen only one major departure from what I’d determine as prudential lending practices, and that came with Lo-doc and No-doc policies. Being an olde fashioned lender, it took me quite a few years to come to terms with the genre, and these days, while I’ll still avoid Lo-doc lending where possible, I recognise that it is a tool to be employed in some very specific circumstances.

    As for those poor souls being ripped off by unscrupulous brokers and/or predatory lenders, all I can offer is this. You simply cannot legislate for stupidity.

  18. Bill Posters says:

    Now theres an urban myth out there that says that lending has become much more cavalier since then.

    …and then you immediately go on to document just how it has. Some urban myth.

  19. What practices that I spoke about do you regard as ‘cavalier’ Bill?

  20. Graham Bell says:

    Patrick [on 10]:

    “I dont know how well you understand our system. I suspect it is about as well as I understand your comment”.

    If you have trouble understanding my comment, please feel free to ask anyone working in Accident&Emergency to explain it for you, or, failing that, ask any Police who have attended too many domestic disturbances and suicides about what precipitated some of those incidents. Then again, better not; “ignorance is bliss’ as the saying goes.

    “We have harsh penalties for deceptive lenders – they cant enforce the loan, and effectively lose all the money lent. They also end up losing their right to lend, which puts them out of a job. Lying borrowers usually face immediate foreclosure if the lender wishes”.

    Indeed the laws and regulations may say so. And those with near-perfect knowledge may be well aware of all that and be at ease dealing with all the complexities and subtleties of the system …. however, such well-informed people are highly unlikely to be the ones entangled in low-doc or no-doc “loans”; many of the people induced to take out these “loans” just wouldn’t have a bloody clue! They would know something was terribly wrong and that they were in deep trouble but would have only a very vague idea that they could do something that would help resolve their problems and protect their interests. PREDATORY lenders know this; that is why they are so keen to lend to the vulnerable and rather less keen to lend to those who might stick up for themselves …. that is one of the things that distinguishes predatory lenders from hard-nosed lenders.

    Kevin Cox [on 14]:
    Just on special money, etc. Nice idea …. might even be practicable too, though I really don’t know how. Having lived in two countries that each had parallel currencies and the like, I feel it may well cause a flourishing black market to arise.

    Niall [on 17]:

    “You simply cannot legislate for stupidity”.

    True enough …. and there is glut of people who are as thick as a brick …. but you can legislate to prevent the stupid and the uninformed being deceived, plundered and abused by ruthless predators, and you can make sure there are sufficient means to ensure the law is being kept.

    Everyone:
    Earlier, I suggested the mainstram finance industry make available “appropriate and affordable products” for those at the bottom end of the housing market who are currently being “serviced” by predatory lenders.

    Why has there been no answer to that challenge?

  21. Graham,

    Regarding your last question, which I was going to address, does it occur to you that there might be a contradiction between offering people ‘at the bottom end of the housing market’ affordable products?

    Having tried with some of these people, many of them are exceptionally hard work. You are no doubt an honest person and of course there are many amongst them who are. And persistent and dependable and all the things that you need a borrower to be (if you’re a lender).

    Now imagine, just imagine that there’s a disproportionate number of people who are not like that at the bottom end of the housing market. What do you do as a lender. You have to raise your interest rates. You have to raise your exit penalties. Why? Because (and I speak from experience) you spend a lot of time, a lot of time. And when you finally get an application, it’s all wrong. So you spend more time ironing it out.

    Then you start to wonder if it’s true. Then (in a disproportionate number of cases) it turns out what they’re saying is not true – something they’ve said doesn’t check out. Or they assume you’re going to help them lie to the lender. Or they ask you to defraud the revenue to get them a First Home Owners Grant when you’re visiting them in a house they own!

    Then if you’re a broker you wonder if you really want your lenders blaming you for introducing this guy. Or if you’re a lender you wonder whether you might do all your dough – perhaps the mortgage you’re getting is based on a fraud and someone already owns the title, and you’ll be defrauded of the entire loan.

    Some of these outcomes are not very likely – others happen every day (like getting stuffed around). But then as a lender you’re margin is maybe 70 basis points. As a broker it’s 25. Is it worth it for you?

    Does that give you insight as to why products for those at the bottom end of the market might be unaffordable and disproportionately supplied by rogues? This is not at all to say that some people – perhaps many people, indeed I expect most people – at the bottom end aren’t lovely people and more to the point, people who can be trusted and who will have similar costs to the average borrower. But trust me there’s a disproportionate number of flakes, rogues, tire kickers, dead-beats and crims.

    Like the ‘lemons’ problem I’ve written about a few times on this blog, it’s a major problem and if you don’t put it pretty close to centre stage, IMHO you’re not really thinking about the problem as it is.

  22. Brendan Halfweeg says:

    Australia did not suffer from rampant inflation when we had both commodity standard back currency and before we had a central bank. When the US decoupled the dollar from the Bretton Woods pseudo-gold standard in 1971, inflation (and commodity prices) went absolutely haywire. To claim we need inflation to grow the economy is rubbish. To grow the economy you need stable currency and (non-discriminatory) rule of law.

    As for inflation being useful in lowering wages, that is rubbish. Capital accumulation increases real wages, and inflation is capital accumulation’s worst enemy. Sneaky real wage decreases is not worth the harm that inflation wreaks on capital.

    Fractional reserve lending is fine, so long as both lender (depositor) and borrower (bank) are aware of the risk. Even if they are not, there are price signals that indicate this risk, even if they are subtle. The depositor gains by getting cheap banking and interest payments on their deposits. Legislate against fractional reserve, and you’ll have to pay the banks money to store your money for you. Not only this, but getting a mortgage would be much more expensive, since each borrower (home buyer) would need to be linked to lenders who have no need to access their money for the length of the mortgage and only be organised by brokers. Full reserve banking has never been tried, even in Islamic countries where interest is supposed to be expressly forbidden.

  23. Graham Bell says:

    Nicholas Gruen [on 21]:

    Thanks for that; some of it I did realize or know; some of it was a new [for me, anyway] perspective.

    Alright. I’ll try restating the challenge. How do we get those at the bottom end of the housing market into long-term suitable housing; modest housing in which they can have some commitment to maintaining and improving, perhaps even as a store of their wealth [or whatever] and which they can call their own.

    The very long term, low cost tenency arrangements of the state Housing Commissions worked very well for native-born and migrants alike but it is highly unlikely that the Good Old Days, when such a system flourished, will ever happen again. Nor can we ever hope to resurrect the railway houses or the mine houses of bygone years. So where do we go from here?

    Having tightened up building codes to the extent that it is damed difficult to build anything less than a mcmansion these days, how do we go about relaxing regulations so that we can build cheap, durable, attractive [to the occupier, not to the professional] basic houses and flats that do not become instant slums.

    How do we break the irrational, anti-conmmercial ingrained prejudice of those in the finance industry against unfashionable locations so that some can start a new life in dying country towns and in rust-belt suburbs?

    What can be done to break down the set-in-concrete mindset of Centrelink that punishes anyone among the long-term unemployed who tries to start a new life for themselves by moving to areas that are deemed, willy-nilly and on very little evidence, to have “lower employment prospects” but which have incredibly cheap modest houses in abundance?

    Allowing predatory lenders, real estate cowboys and similar scoundrels to continue creating havor among the most vulnerable in our society will come back to create havoc for the rest of us — in spades! They get rich; we get grief. IMHO, this is an incipient security problem as well.

  24. Brendan Halfweeg says:

    Graham,

    Notwithstanding your bile against the banking industry, you have already hinted at the solution yourself – deregulation! Deregulate building codes, deregulate zoning, deregulate land releases.

    People want to live in cities and in urban areas. Why are you opposed to this? Why would do you want people to live in country towns where employment prospects are lower and services are worse? What is the nostalgia for rural living?

  25. Kevin Cox says:

    Now we are getting somewhere. The problem is not with the lenders but it is with the cost of houses. You get a reduction in prices when you get more dwellings built and where you have incentives for governments to reduce their dependence on housing taxes and land transfer taxes.

    The ACT is a classic case. The price of the land component in the ACT has sky-rocketed yet all land release is controlled by the government. When the ACT achieved self government they needed to raise revenue and as land was one of the few things they could easily “tax” through increasing prices they have proceeded to do so. They have discovered by limiting the release of land, by reducing and delaying services in new suburbs, by concentrating development in the Centre they could increase their “profit” to the detriment of the new home residents. Once new land prices are high then you have a real political problem because if you reduce them then all existing houses will drop in value and that is political suicide. When you start to change the environment of the “older” areas through changing the use of land – turn schools into high density living areas – build apartments in leafy inner suburbs etc – and if as a government you take the extra value created and do not share it with the existing residents then it too becomes a political problem.

    Perhaps we could remove housing as a special means of taxation? Perhaps we simply put a GST on house sales and remove all other taxes and land transfer charges except for genuine costs.

    Perhaps set up a system where the cost of new land is noted but not paid immediately. Let it be paid when the house is sold and where the owner of the house shares in the capital gain.

    Perhaps allow developers to build and run public transport systems to increase the value of their developments and enable high density living – which many people prefer – to move to cheaper land.

    Require that money raised from the sale of new land be spent to the benefit of the people who purchase the new land and not used as a general revenue raiser.

    Affordable housing will only come by addressing the supply problem. Making it easier for people to get loans will make the problem worse. Make housing cheaper by increasing the supply and reducing the cost will work more effectively.

  26. derrida derider says:

    Caroline’s should read this erudite, fascinating and funny little essay by a prominent blogger. In fact, Nic and Graham ought also to read it.

    And Kevin’s right – the big problems in Australian housing are on the supply, not demand, side.

  27. Bannerman says:

    Why has there been no answer to that challenge?

    Graham, if you have any shareholdings in the major banking institutions, you should already know why. Banking, and finance in general, is a business controlled by the desires of shareholders for profit. Even the likes of Bendigo Bank eventually turn, because they need to in order to survive and compete.

    “Appropriate and affordable products” require a re-assessment of risk in line with profits generated. There are some very appropriate loan products in the domestic marketplace, priced very competitively in comparison to the majors, however the general consensus among borrowers is that ‘Mum & Dad banked with (insert major of your choice here), so I guess I will too’.

    I urge all of my clients to examine the products and services offered by Illawarra Mutual and AMP Banking. Highly competitive, fully serviced loan and banking products supported by fully-fledged banking institutions in every sense of the word, and yet, who knows about them? Are they any less valid because they don’t market themselves broadly like the majors do? Or is it that they’re simply not choosing to make themselves available to the higher risk applicant?

    Excuse me if I make an incorrect assumption here, Graham, but are you claiming that prudentiality has to give way to risk because the idiot borrowers deserve more lenience than the fiscally astute? Will blanket legislation governing the finance industry, lenders and referrers solve the problems that the current crop of legislation has failed to? Five will get you ten the answer is a definite NO.

  28. Bannerman,

    In our experience IMB and AMP are not particularly competitive. They’re OK. And they have full access to anyone anywhere in Australia through the broker network.

    I can’t see the point you’re making.

  29. Graham Bell says:

    Derrida Derider [ ]:
    I avoid Pound and his ilk like the plague. As science fiction author Heinlein said ” Beware of those who recite their own poetry in public places – they may have oher nasty habits” :-) Thanks anyway.

    Is the problem defining “Usury”?

    “Usury”, as opposed to making a healthy and well-deserved return on money prudently and beneficially invested, does stifle commerce and innovation; it does create misery; so in that, “Usury” is as bad as was Feudalism and Communism.

    Now to the Claims on your link to the D-Squared Digest article — [1] You cannot speak of Usury and the original Building Societies in the same breath – the first was malevolent and repressive, the second was beneficial and productive. [2] Communism and other oppressive regimes did produce some great works of art as well as a lot of wasted firewood! [Do like the malt whisky curve though, even I can understand that :-) ] [3] Usury creates misery. ” “….although loan sharks provide a valuable service to the poor, they often do so in an extremely destructive way, and they should be regulated as tightly as possible; also, the bankruptcy law for individuals should be easy and free of stigma. Score a big one for Pound here. ….” ” My bloody oath! And it is we taxpayers who are forced to pick up the bill for their predations. [4] Social Credit is not totally bad; like Communism or Nazism, there are parts of it which can be adapted beneficially to our own needs.

  30. Patrick says:

    like Communism or Nazism, there are parts of it which can be adapted beneficially to our own needs.

    Off the top of my head, I’m struggling to think of them.

  31. Graham Bell says:

    Bannerman [27]

    Perhaps I should have stated the problem more broadly as something like …. ” How do we get the more vulnerable members of society [yes, even including the utter dropkicks, failed petty crims, druggies, serial bludgers, etc.] into long-term, stable, durable, affordable housing WITHOUT creating slums AND WITHOUT assisting, subsidizing and otherwise rewarding predatory lenders and other assorted hit-and-run scoundrels for creating serious problem for all the rest of us? ” Housing ownership is one of the better ways of doing it but what are other secure and stable ways of getting similar results?

    Thanks for the info on these particular lenders. The view from here is of the major banks, finance companies and fairly local building societies [[disclosure: I am not and never have been a member of a finance organization]].

    Well, yes. Actually, I am asking for the finance industry to come into the 21st Century. Surely there has been enough research done, in several different fields over the past century or so, on risk management to take apparently greater [and, I feel, necessary] risks with greater confidence and with lower actual risk. The prevalent old-fashioned attitudes to “risky” borrowers look to me a bit like searching for virgins in a brothel. Nicholas Gruen [in post 21] mentioned the time-wasting dealing with the bottom end of the market – and I can empathize with him – but surely, with all the research that has been done, there could be very simple, time saving systems to handle such borrowers efficiently, effectively and far more profitably. The predatory lenders recognize the value of that [niche] market and are getting rich being there …. then the respectable part of the finance industry can do their shareholders and their potential customers a service by getting into that market too and displacing the shonks. All that is needed is for a change in mind-set and a willingness be innovative and to have a go.

    [Brendon Halfweg: Shall answer as soon as I get a spare moment]

  32. Niall says:

    Nicholas re:28

    I tend to recommend IMB and AMP because of their fee structures, as well as their rate structures. IMB in particular, given the right product choice, would most likely beat any other bank hands down. There’s more to being competitive than simple rate structures, I’m sure you’d agree.

    Graham re:31

    Graham, as I see it, the current regime of referrers sending good deals to credit analysts in banks and non-bank lending institutions will never see the vulnerable shielded from the predatory brokers and lenders. Reason being that risk is not well understood by the kids in credit areas these days, any better than they understand their employers credit policies. Lending is all about risk, not whether a particular deal conforms to policy. Black is not black and white is almost always gray. I know. I have two such deals on my desk at the moment which I’d happily sign off on immediately because I know the circumstances behind them. Lenders do not trust brokers. It’s that simple. It’s a lot easier to say NO than it is to say YES, when you know that saying NO holds no risk for you, the authority holder.
    The solution? First person approval authorities. That is to say, REAL accreditation between lenders and brokers with REAL penalties for transgression or poor lending decisions. Lending money isn’t hard, but it can’t be taught by rote. It comes with experience.

  33. Graham Bell says:

    Brendan Halfweeg, you asked [post 24]

    “What is the nostalgia for rural living?”

    Absolutely no nostalgia whatsoever; just sheer practicality, that’s all.

    There’s an oversupply of very cheap houses and very low rents in many small country towns. [That’s why I’m living here in the Other Australia; if the situation was reversed, I would be living in Pitt street, Sydney. It’s called “market forces”. isn’t it? :D ]

    There are a lot of people, especially long-term unemployed and “unqualified”?? younger people, in cities who are really struggling to pay the rent or loan repayments. Their employment chances are severely limited, even with our glorious WorkChoices.

    If you apply CentreLink’s narrow view of employment prospects, they are indeed limited in country areas. However, once someone is known locally to be keen on finding work, work will find them; it may not be work that conforms exactly to this or that bureaucratic criteria but it is still an exchange of labour-for-money.

    So what is so wrong about putting two needs together? The need for affordable housing with the need for people in the bush. Besides, if such people are on government benefits, that’s money going into the local economy, for a while at least, with all sorts of beneficial effects …. and a far better chance of these people eventually coming off benefits than if they stayed in a worsening urban poverty trap.

    No nostalgia there, is there?

    “Deregulation”? Sorry, I’m not really into millinarian religion nor into cargo cults. Building codes? Why then is there open slather for building overpriced, poorly designed “chipboard palaces” and yet owner-builders are overburdened with unnecessary restrictions that have nothing whatsoever to do with protecting future buyers from jerry-built dumps? Wiping several regulations from one page in a code and then writing up several more on another isn’t “deregulation”, it’s bureaucracy-gone-mad; it stops affordable and appropriate housing being built and it prevents an outbreak of real competition in the housing industry.

    b.t.w., Your comment on what I said earlier: Is it “timely criticism” if you agree with something and “bile” if you do not? :D

    Kevin Cox [25]:
    Stick around. Once the next federal election is over, whichever party is in government will whack capital gains tax on the sale of the family house.

    Surely you didn’t expect a rational policy, one that made sound economic sense, did you?

  34. Graham Bell says:

    Niall [32]:
    Wisdom at last. Don’t worry; your secret is safe with me ….

    You have hit one of the nails right on the head.

    “The solution? First person approval authorities. That is to say, REAL accreditation between lenders and brokers with REAL penalties for transgression or poor lending decisions”

    That would have prevented all the shenanegans of the White Shoe Brigade and similar scallywags too.

    Alright, what sort of battering-rams and siege-towers and trebuchets are needed to get such a system up, running, making money, keeping viable small businesses flourishing, putting people into affordable housing and generally stimulating the economy?

  35. Brendan Halfweeg says:

    Graham,

    If it is so practical to live in the bush, why are so many young rural people upping stakes and moving to the cities? Why aren’t the hoards of Sydney strugglers moving to Bennelong or Burke? What has centrelink got to do with it? And what do you mean by “work will find them”? Haven’t we already tried keeping a certain group of people on welfare indefinitely in the bush?

    If we had regional minimum wages (or better yet NO minimum wage), then perhaps more work would be created in rural areas where cost of living is cheaper. If you want work to be created in the bush, then you can’t expect labour to worth the same as the city, especially if it is low skilled labour.

    What part of deregulation of building codes don’t you understand? Where did I advocate deregulation followed by re-regulation? When I say deregulation, I mean just that. I advocate people being able to build whatever they want on their land. Mortgage providers and insurance companies would require certain standards to be met in order for home owners to access their financial products, but they’d be in a much better position to be flexible than some council building inspector because they would be able to make decisions based on risk assessment rather than one rule for all.

    Getting into debt that you have deceived the lender into giving you is fraud. These people are adults, they are only fooling themselves and defrauding the bank by lying about their income and financial position. And you blame the bank being defrauded for the fraud? Sure, they might pay a bit more attention to their borrowers to protect themselves, but that still doesn’t make lying to them right, does it?

  36. Graham Bell says:

    Nicholas Gruen:
    It is an age-old problem to get the most vulnerable people into some sort of housing and out of the clutches of those who exploit their weaknesses and follies. It is a problem that we need to address but it is not an urgent problem.

    What is an urgent problem in these very troubled times is what do we do about all those decent, hard-working, ambitious, intelligent people who are now at the lowest end of our economy through no fault of their own but who, in normal times, would not be there …. and are very well aware of that?

    For example: the “downsized” middle-aged professional or experienced worker; the young couple who had been given tens of thousands of dollars by their parents to help them buy a house but now find they are excluded from the respectable parts of the housing market; or, further afield, the efficient far-sighted farmer who lost almost everything through bad luck or Canberra’s latest whimsical policy …. the list goes on and on. People like these swell the ranks of the New Poor as each day goes by.

    These are the people who make very desirable recruits for nasty extremist organizations.

    Such groups do not want the dregs of society except as cannon-fodder – to be sacrificed in clashes with the authorities or with rival groups; when they die they become marketable heroes, martyrs to the cause who must be emulated. When such groups achieve their purpose, they in turn will repress their formerly useful cannon-fodder; it has always been the way of the world.

    Successful extremist groups, whether they be fascist, falangist, nazi, communist, radical nationalist, theocratic or whatever, have always relied for their success on an educated, intelligent and hard-working but disillusioned and betrayed middle-class. [[pace, any counter-terrorism specialists lurking here, this is a weblog, not a conference, so my oversimplification is quite in order]].

    Poverty alone rarely causes social upheaval, revolution or terrorism …. they generally arise from smashed hopes and from frustrated ambitions. Do you think those who have had their hopes of a better life than their parents wrecked are going to have your continued well-being at heart? Do you think those who have, though no fault of their own, been excluded from all the good things of life – such as having a home of their own – are going to support and protect the present system. No way!

    One of the cotter-pins that stop the wheels falling off Australian society is affordable home ownership. That so many people who would formerly have been in the regular property market are now either excluded altoghther or have little choice but to deal with shonks and predators [with a very high risk of disasterous results, thereby exacerbating the situation] is cause for alarm; this isn’t just the usual ups and downs of the market – this is something new and it is dangerous.

    It is easy to spot the origins of complacency towards this hazard: Communism in Australia was easily contained because of the vigilance of the Labor Party and the churches [they didn’t want any competition] but nowadays there is nothing to hinder extremist groups from recruiting badly hurt and disaffected middle-class Australians to their cause.

  37. Niall says:

    Graham:(34)

    Alright, what sort of battering-rams and siege-towers and trebuchets are needed to get such a system up, running, making money, keeping viable small businesses flourishing, putting people into affordable housing and generally stimulating the economy?

    An acceptance by the major lending institutions that the ability to lend comes from the gut and mind of the lender, and not from a policy manual. An acceptance that sales targets and market share do not prudentiality make. An acceptance that real lenders deal with real people and not figures on taxation returns. Esoteric stuff in the main, but having done this gig for a long, long time now, it’s the esoterics which just aren’t taken into account when people lend money to other people.

    In my mind, the paradigm shift required in finance these days revolves around sales. Sales and credit simply DO NOT mix, and yet, all lenders have allowed sales to hold sway over credit. Until credit regains the upper hand, or at least comes to a compromise position with sales, the vulnerable in society will remain at risk.

  38. Niall,
    Sorry to disagree, but sales and credit do mix – without one the other is useless. I could be the best salesperson possible, but without credit to sell my commission will be nil. The reverse is also true. This you tacitly, and partially, acknowledge when you say that a compromise position is possible.
    Judging by the actual loss history of most banks (a quick look here may help) credit losses are currently tiny, and have been so for many years. This means that predatory lending, at least by the majors banks, in not a problem as if it were you could expect credit losses to show through. To me, this data supports Nicholas’ piece at the head.

  39. Graham Bell,
    I would encourage you to read a recent talk by the deputy head of the RBA, Ric Battellino, on the subject of debt affordability in Australia. He puts the whole question into a real context, not the limited look you get through the media.
    There is some real stress out there, but it is limited in scope and in exceptional cases. Strangely, people can be trusted to make their own decisions in life and lending. Further regulation (IMHO) will only restrict credit supply for no real benefit – in fact there is good evidence that things are too strict at the moment and the regulations are just hurting. A recent South African study deserves a good look. “Usurious” lending, done with care, has a good chance of actually helping the borrower.

  40. Brendan Halfweeg says:

    Graham,

    Your last post makes Australia sound like some kind of Weimar Republic, rather than a nation enjoying almost full employment and some of the best living conditions on earth. You, friend, are a doomsayer, and it is not surprising you say doom. A pox on your soothsaying!

  41. Niall says:

    Brendan, I fear you’re over-simplifying, or rather glossing over the known deficiencies in our monetary/credit system. Nicholas says a lot….in fact he didn’t need to say quite as much, but never the less….in his piece. There are problems, indeed, and there are predatory lenders and brokers. Given that thorough-going blanket legislation governing the finance industry can be brought into place in the very near term, those predatory types can be and will be weeded out.
    What Graham identifies in a somewhat over-glorified claim, is real. There is a new class of working poor and they are growing. Growing in number and growing in discontent. It’s discontent that this nation needs to be aware of, meaning the government of the day, by not adhering to ideologically driven class dividing statutes like Workchoices. We may not be a mirror of 1920’s Germany, but the fact that mid-20th century strife arose in Europe at all, provides proof positive that discontent is the feed-stuff of civil unrest.
    I believe Australia’s most pressing challenge in the coming decade will be the restriction of wages pressures in the lower paid sectors while ensuring that those same sectors are brought into some median parity with sectors which are benefiting from, and will no doubt expand with, the resources boom. Uncontrolled wages pressures remain our greatest enemy, and all nasty manner of economic events flow from it.
    By the way…..’almost full employment’? Methinks there are cuckoos and clouds where you live.

  42. Niall says:

    Andrew, you make a sound point regarding sales and credit, however it is my understanding that currently an imbalance exists in many major lending institutions, whereby sales’ desires over-ride credit’s concerns. This is dangerous, and leads to a rapid collapse in prudentiality.

    Personally, being a credit person, I loathe sales, primarily for the disingenuity it invariably fosters. Where sales seek out the assistance and guidance of credit, both can work together in harmony, however, this is sadly in the minority. Sales are almost always seen as profit centres, whereas credit is always seen as a cost centre. At least where I’ve worked in the past.

  43. Niall,
    If such a situation existed I would expect to see realised losses being much, much higher than they are. The simple fact is that credit losses are only just coming off some seriously low levels – comparable with the levels in the over-regulated 1960s. To me, this does not indicate that there is a problem with an over-stimulated sales force. If anything, the reverse looks true.
    Granted, we have been going through a really good time in credit terms, with high growth, low unemployment and stable inflation. This may turn around in the not so distant future. Even if it does, though, the stuff in Battellino’s speech that I link to earlier shows that it should not be too serious a problem.
    .
    On your comment to Brendan – if you know any of the working poor, please advise them to come to WA. We are desperately short of working people. Housing is the only real problem but employers are generally happy to help out anyone with a trade certificate and / or a good work history.

  44. Caroline says:

    Thanks derrider derrider for the link.

    Nicholas –

    perhaps many people, indeed I expect most people – at the bottom end arent lovely people and more to the point, people who can be trusted

    I am a lovely person. And you could trust me with your life. I just happen to be at the bottom end.

  45. Brendan Halfweeg says:

    The only civil strife Australia is likely to suffer in the near term is the after Christmas sales where your working poor fight each other over plasma TVs and white goods. Niall, you and Graham are talking bollocks if you think the social changes in Europe in the 20s and 30s due to The Great Depression are at all compatible to people not being able to afford McMansions and having to delay homeownership.

    The housing shortage in Australian capital cities is entirely government created. The first homeonwers grant has increased prices (more money chasing a slowly increasing stock of houses) and the failure for the state governments to release land rapidly enough, the zoning restrictions that they put on the land that they do release and building code regulations has restricted the rate of increase in the growth of housing supply.

    Graham wants to solve this by encouraging people on welfare to rural areas without jobs and you seem to think that the way to solve the housing shortage is to make lending harder and more expensive through regulation. Bloody hell, can’t you see that the problem is in the supply of housing, not what people are willing to pay for it and how they finance it?

    If cities like Austin and Houston can achieve affordable housing, then so can Australian cities.

  46. Caroline,

    My apologies – the passage you quoted was a typo. I meant to say many people at the bottom end ARE lovely. Not AREN’T lovely.

    I have said a number of rosaries.

  47. Kevin Cox says:

    Why do most people think owning their own house is a sensible thing to do? People buy houses because it offers them security (a nest) and it offers some protection against inflation. They believe that in the long term the house price should increase at about the same rate as inflation. All this works while the “real” value of house remains about the same as the price charged for a house. If the underlying value of houses – which is reflected in the rent that people are willing or are able or have to pay – gets out of whack with the prices then sooner or later something has to break. People also believe that house owners are not going to loose out too badly because there are more of them and that somehow they will be protected.

    So people are willing to pay a higher price for a house than one would reasonably expect by looking at rents. To get the funds to purchase a house then the only asset most people have is their labour and so they sell their future labour and purchase some debt. The sellers of debt are on a winner. They can sell debt and even if the wages of people are not sufficient to cover the debt then they get the underlying asset and if the underlying asset drops in value then they get the wages of people.

    Maybe the underlying systematic problem is to do with debt being created against a lien on wages rather than debt being backed by the asset for which the money was loaned. Perhaps if lenders could only get back the house when things went pear shaped then we would get more responsible lending.

    The problem compounds when we get the securitisation of loans and the lender of money becomes even more remote from the underlying asset.

    So how about this for a way to stop housing asset bubbles in their tracks.

    When a house loan is given it is only backed by the house itself and only backed by the proportion of the house “owned” by the lender. Thus if a house has a value of $100,000, the lender lends $70,000 then they are entitled to 70% of the sale of the house.

    Isn’t this the idea behind limited liability companies? You put in some money but you are only responsible for the amount of money you put in and equally you only get back what you put in.

    One result would be that we would get very responsible lending.

    Can this be done in any practical sense? Well yes it can if we think of a house like we think of a company. Lenders purchase “shares” in the house – not shares in wages.

    The system could be introduced “slowly” by designating that new developments can only happen with the new loans. My guess is that there would be new houses built with the new loans but the value of the land would drop and new houses would become truly affordable because lenders would know they would have to reflect the underlying rental value of the properties.

  48. Kevin Cox says:

    If people like the previous argument now how about the following as a logical extension so that we can extend the concept to all existing houses/dwellings without destroying the system we are trying to save.

    Let us create a special money whose purpose is to conduct transactions in the asset class of houses. When you purchase a house or dwelling then you buy the special currency with regular money and you pay for the house with the new money. The receiver of the money however, can sell it, or they can use it to buy another dwelling. That is they cannot use the money for anything other than a dwelling. They can also use it build another dwelling by purchasing new land, building materials etc. The people who supplied the new land, the building materials etc can convert the new money back to regular currency.

    What would happen would be that the new currency value would fall in relation to the regular currency and to get the best value for selling your house you would have to build a new dwelling. My guess is that the system would soon “settle down” so that the two currencies approached par when we had sufficient housing to meet demand.

    The new currency is really an extension of the idea of shares in a single house. It just gives a way of trading house shares (or bits of this asset class).

    Is it practical and could it be done? Because house and dwelling sales have such good record keeping associated with them then it is simple to implement. Because it is easy to identify suppliers of the bits and pieces needed to build houses/dwellings it is easy to police the people who can convert house money into real money. Would it be politically saleable – well it is a “brave” policy but it could be started slowly and with new houses. I think it would be welcomed by the responsible lenders (the banks) because they must know that the current asset boom is not good for them in the long term.

  49. Patrick says:

    When a house loan is given it is only backed by the house itself and only backed by the proportion of the house owned by the lender. Thus if a house has a value of $100,000, the lender lends $70,000 then they are entitled to 70% of the sale of the house.

    I was under the impression that this was how most mortgages had worked since the early part of this century, allowing of course for interest.

  50. Kevin Cox says:

    Patrick if this was the case how can people get negative equity?

  51. Graham Bell says:

    Kevin Cox [47 & 48]:
    Looks interesting. Shall mull over it before replying.

    Brendan Halfweeg:
    [first, on 35 & 45] Rent under $120/week and houses less than $150K — why wouldn’t anyone live out here in the bush? Of course, if you can offer me a deal like that in Peppermint Grove or Elizabeth Bay, I’ll start packing.

    Why shouldn’t those living in marked urban poverty and with little prospect of gaining employment have the choice of sharing the good fortune of people like me? It would revive the local economy in dying country towns as well as freeing up some housing back in the cities? However, CentreLink cuts welfare benefits to those who do just that; don’t they have any economists in CentreLink to point out the folly of such a counter-productive, ideology-driven policy?

    So you don’t like rural bludgers? Nor do I. And it’s NEITHER the rural battlers NOR those who got wealthy through their own efforts who are the so-called champions of free-enterprise who are always sucking on the government tit. Don’t forget, too, that it was handouts like the wool floor price stunt that imported the flood of semi-automatic weapons and also damaged our excellent manufacturing idustries.

    [then on posts 40 and 45] Weimar Republic and the Great Depression? There are lessons we can learn from them …. and a lot more lessons we can learn from other histories too; please widen your view just a wee bit.

    So manifest underemployment and misemployment becomes ‘full employment’ at the wave of a magic wand, does it? Oh dear, oh dear ….

    Doomsaying? Why do you complain? You are getting my opinion free of charge – would you be happier if I sent you an invoice with it? [Cash in 30 days will do fine, thanks]. :-) Surprise, surprise! Far from being a “doomsayer”; I am very confident that ruin can be fairly easily averted …. but not by staying silent waiting for someone else to speak up and not by pretending that real problems and real threats simply don’t exist.

    Andrew Reynolds [39]:
    .i. My opinions don’t come from the news media – though I do read and watch some of the news media – but from my own professional or personal knowledge. I see no reason yet to believe what I have seen myself is not part of a wide-spread problem [though I am happy to change my mind if I see evidence to the contrary].

    .ii. We certainly don’t need more regulation; we need LESS but regulation that is more logical, more appropriate, better targetted, more consistent, equitably enforced and that is reviewed every decade or so.

    .iii. “Usurous lending” does help in SOME cases. Living as I do at the bottom end of the economy, pawn brokers did get me out of a couple of spots bother imposed on me.

    Niall and Andrew Reynolds [37 &38]:
    May I suggest that it is a Stakhanovist obsession with Sales that does not mix well with Credit. Getting sales at any cost is rather like the exceeding of production targets during China’s Great Leap Forward. The figures look fantastic; pity about all the wreckage.

  52. Kevin Cox [47],
    Two points.
    Most of the mortgages in the US are limited liability one – recourse to the borrower is limited to the amount realised from the house and once that is sold that’s it from the lender’s point of view. That has not driven, shall we say, notably better lending practices than those here where full recourse is the norm.
    On the question of the overall deal structure, the deal you are describing is very similar to a “Diminishing Musharakah” mortgage – see here for a full explanation. This is a common Islamic finance methodology where interest is prohibited.
    I hope Nicolas will not mind a link to the category on my blogwhich covers the whole area of Islamic finance in more detail.
    The more equitable sharing of the risk creates a whole different set of incentives for both the borrower and the lender.

  53. I should thank Amir from Austrolabe for the Ansar link.

  54. Kevin Cox says:

    Andrew,

    The Sharia banking laws make a lot of sense. I really like the idea of the sharing of risk. After all it works well for shares in companies why shouldn’t it work as well for shares in a house. The argument that seems to be raised against it is “why shouldn’t people be allowed to lend against other assets” and I agree with that except I think debt is a different type of asset because it is uncertain and it can be too easily manipulated. It would be interesting to know if there are housing asset bubbles in countries where the majority of loans use the “Diminishing Musharakah” mortgages. It is interesting that the trading in debt derives from the restriction on gambling.

  55. Kevin,
    Personally, I would like to see these products commonly offered in Australia. I think they would make a good addition to the product line.
    Over the last 10 or so years they would also have made the banks a heck of a lot more money out of their housing portfolios than they did with just interest payments. It will be interesting to see if that is the same going forward.

  56. Kevin,

    The product or a variant of it is being made available in Australia – via Rismark shared appreciation loans. It took them about two years to bash their way through our regulatory system. A Scottish lender was also marketing something a bit similar.

    Of course if people want these type of arrangements they should be free to adopt them. It’s hard to work out why you’d want to stop people using their assets and trading with them in the way they wish. I guess it’s a kind of ‘native title’ over your house!

    And Loans wholly secured against the asset – ie without recourse to your own income if they go into ‘negative equity’ are also available – just at a higher interest rate. So there’s no problem there.

  57. Kevin Cox says:

    An issue is that it is hard to get them and they are not “normal”. My other guess is that they are not as profitable to the banks and certainly they are riskier for a bank. Why would you bother going with a riskier business when you have a certain bet the other way.

    With current bank arrangements the borrower is the one taking all the risk with very little effort on their part. It is part of the whole inequity in the market place where the borrowers are in a weak position with respect to lenders. It is much the same with anyone when going to make any large purchase from an organisation that does it frequently when you do it once or twice in a lifetime. Ordinary people have no way being in a position of bargaining and trading on equal terms.

    If you have a think about it the suggestion on a currency for this asset class would also “solve” the problem because it would mean that everyone trading in that asset class share the risk because the asset class currency will depreciate when the bubble bursts.

  58. Patrick says:

    It is much the same with anyone when going to make any large purchase from an organisation that does it frequently when you do it once or twice in a lifetime. Ordinary people have no way being in a position of bargaining and trading on equal terms.

    I find this silly. If there were any truth to this car manufacturers would be rich and LCD screens would still cost three or four multiples of their present cost. In fact I can’t really think of a market in which this is the case, the market for debt included.

    It seems to me that consumers don’t necessarily have to be in a position to bargain or trade on equal terms in a relatively free market because the vendor’s competitors are in a position to compete for the same client on equal terms. I think this applies to the market for debt as well.

  59. Kevin,
    I believe Patrick is right. One of the beauties of a free(ish) market is that you do not have to be fully informed to make a decision that is at least close to right. It is true that you are almost certain not to get the best possible price, but it is also very likely that the search costs involved in getting a better one would be higher than the improvement in price.
    The mortgage example is a good one. To me, the reason that the limited recourse loans are not popular here is that they are more expensive and that most people are convinced that the value of their homes will go up – an assumption that has mostly proved correct. The non-recourse nature of the loan would therefore be a dead-weight loss.
    The situation in the US is different. From my understanding this is due to differing taxation and regulatory consequences from a non-recourse loan.

  60. Brendan Halfweeg says:

    Graham,

    Who are these people with little chance of employment living in urban areas? Would you say there are more or less low skilled jobs in urban areas or rural areas?

    Mechanisation of farming practices has bascially eliminated much of the manual labour required in rural areas. Notable exceptions such as fruit picking do exist, and jobs are there for the taking for backpackers and refugees.

    I don’t know enough about Centrelink to have any idea about how they lower benefits for rural unemployed, probably a combination of the knowledge of lower costs of living and a disincentive for people isolating themselves from the employment market. I read recently there is a big push on to crack down on the high number of unemployed living in coastal towns with good surfing conditions.

    There is plenty to learn from the inter-war years:

    – Inflation is very bad
    – Loose money supply causes inflation and artificial asset booms
    – State interference in the market delays adjustment and recovery from shocks
    – Socialism is very bad

    I could go on.

  61. Kevin Cox says:

    Andrew and Patrick I am a true believer in Free Markets and understand that free markets are the path to progress. However, I come from a different viewpoint than the “normal” one but one that I think is becoming more acceptable. My enthusiasm for free markets is based on the idea that free markets are evolutionary systems which are a variation on the more general adaptive learning systems. Evolutionary systems (and I would suggest economic systems) are “unplanned” but we can do better at designing adaptive learning systems using scientific experimental methods and trying out different rules for how they work. Money and the rules around money are a critical part of economic systems and experimenting with these is likely to give good results.

    When we see a system that is not working well – and I would say that any system where we get asset bubbles can be improved. I would say that a system where some enthusiastic lenders in the USA cause Australian borrowers to pay for the bad risk can be improved.

    I would also suggest that a system where the companies who create debt (the banks) are amongst the wealthiest and most profitable companies is not a good sign. Intuitively I would have thought that those who produce and trade things are the ones who should be rewarded more in contrast to those who facilitate trading.

    There is something fundamentally wrong with our financial system when each day the trading in debt assets far outweighs the trading in other assets.

    These are symptoms that trading is not working as well as it should and I am looking at ways we can make trading work more effectively.

  62. Brendan Halfweeg says:

    Kevin,

    Banks manage risk, and most “producers” benefit from this service. If you don’t think that is a valuable service, then don’t use them. Talk of banks being overly profitable is irrational.

    The system does work. Securitisation of mortgages has made it much easier for people to borrow money and finance their homes. The fact that they have borrow large amounts to buy homes is entirely down to the slowly expanding housing supply. Cheap finance and cheap houses are what the goal is, surely? De-regulating the banking and finance industries has delivered us one, de-regulating land development and building can give us the other.

    There seems to be a parallel debate going on here. Some on this board complain about affordability of housing and some complain about the affordability of debt and some do both, asking for loosening of housing supply and a tightening of money supply. It is all rather nonsense really.

  63. Kevin Cox says:

    Brendan why is talking about an organisation being over profitable irrational and where have I ever said that managing risk is not an important service. Of course it is – but is it all that difficult?

    I believe that the ASX is over profitable because it is taking advantage of a set of rules that reduce the ability for others to compete against it in providing the service it does. That is, if some businesses are making more profit than seems “reasonable” for the services they provide then “the market” is not working as we would expect. We expect markets to give rise to choice that will in turn reduce profitability.

    We can recognise these situations because the profitability gets out of sync with what we should expect. It almost always happens when trading and markets have been unable to “work their magic” not because the organisations are so good but because markets are not able to operate effectively for some structural reason.

    My worry about banks is that it seems strange that the banks are more profitable in handling housing loans than the businesses that spend the loans to build houses when the value add of handling risk efficiently would appear to be less than the value add of turning raw materials into a house.

    Why is this so? Perhaps there is a systematic problem with the way we handle risk and perhaps this is because we treat debt assets in exactly the same way we treat house assets. My concern is over “the market” in risk and how the risk market players have a set of rules that remove the risk by passing it on to others who are not in the risk business. We will not get good risk markets when the risk providers have a system where they have no risk!!! That is not managing it – it is passing it on to others who in most cases do not even know they were trading in risk.

  64. Graham Bell says:

    Brenden Halfweeg [60]:

    Oh boy! CentreLink doesn’t just reduce the only source of income for anyone who goes bush without “excuse” – they cut it right out! Thankfully, nowadays they do allow some flexibility for those lucky enough to have a well-established work history in fruit picking or sheep shearing …. but what about the rest? Perhaps some CentreLink management wallah would care to tell us all exactly why it is that farmers have to hire overseas backpackers when there are so many fit and WILLING Australians around ….

    Like so many other stock standard news stories, there’s a template for the shock-horror stories about hordes dole-bludgers lolling around on every beach. I would be very surprised if the actual number of dole-bludging beach-bums was much in excess of the number of Limbless Belgian Babies found [and given all the money collected for them] after The First World War. No doubt there has been a campaign to remove welfare benefits payments from any young people, living in selected coastal towns, who have committed any error or infringement whatsoever, no matter how minor. Any such campaign in ANY place on ANY sub-group would produce similar politically-useful statistics and specimens.

    Allowing those with little or no chance of ever getting a full-time job in a city to move to moribund rural towns would have many benefits, including a multiplyer effect, for the local economy — besides all the social benefits.

  65. Kevin,
    To be frank, I believe that the regulations we currently have act in favour of the established banks and are a major source of their profitability. While working with the regulations is a pain in the posterior, those regulations greatly slow the creation of a new ADI (authorized deposit-taking institution). The Banking Act 1959 and the other APRA laws and regulations make it one heck of a difficult industry to get into.
    There is a view that this is a good thing – that the taking of deposits from the general public should not be something that we should license all and sundry to do.
    I can also assure you that managing the many risks a bank faces is not a trivial task – just ask the management of Northern Rock. While they had credit risk nicely under control they a business risk event on another continent caused a liquidity risk event, which lead to a name risk event that cascaded into what was close to a business failure.
    A similar event in Australia is effectively unlikely due to the straitjacket that APRA imposes on the business models of every Australian ADI.
    Oh, and as a side note – for most Australian ADIs home lending has only been marginally profitable at best over the last 5 to 7 years. The success of Rams, Aussie and the flocks of brokers out there has made this a very low margin business. Banking profits have mostly come from the side of the business that the banks have no competition in – deposit taking. That is why the branch networks are expanding again.

  66. Brendan Halfweeg says:

    Kevin,

    Last I noticed the banking industry was deregulated, giving much less barriers to entry for new players than ever before. Companies like RAMS and Aussie entered the retail mortgage market, foreign banks like HSBC entered the market. In such a competitive market, profits are unlikely to remain above market expectations for long as new and existing players tweak their business models.

    What rules are you talking about that prevents a competitor to ASX opning up an alternative stockmarket? The ASX is probably a natural domestic monopoly in Australia simply because of the size of the equities market, but it doesn’t stop international stockmarkets like the LSE, NYSE and Nasdaq competing for Australian listings. News Limited and BHP all have international listings. Regulation of the US stock exchanges has caused an exodus of IPO’s to the UK, demonstrating the sheer competitiveness of stock trading.

    You may have a lot of feelings about the large profits to be made in managing financial risk, but none of these are related to the real world of what people actually do with their money. Complaining about banks in terms of excessive profits makes you sound like someone from biblical times complaining about moneylenders and usury.

    There is never such a thing as too much profit if that profit is made through voluntary transactions between consenting adults. Do entertainers also make too much profit if people are willing to pay $30 for a CD and $100 for a concert ticket? After all, once the CD is recorded, they don’t have to put hardly any labour into it at all and aren’t really “producing” a concrete “product”. Perhaps we should demand regulation of the entertainment industry and ensure only “fair” profits for the time they put into their art.

    Goods and services are worth what people are prepared to pay for them. Sure, windfall profits can occur, but in competitive industries, you can’t rely on windfall profits unless you manufacture them through rent seeking.

  67. Andrew,

    There are plenty of ADIs – though you are right that deposit taking is highly regulated. But with over ten banks, why can’t competition reduce their margins to normal levels?

    I’m not defending current regulation – just wondering why it provides an explanation of monopolistic profits.

  68. Kevin Cox says:

    Brendan I believe in profits and I believe loaning money is an honourable pastime and that banks and mortgage brokers fulfil an essential service:)

    However, I think we would all agree that the ASX and the banks and the government monopolies, all make extraordinary profits for long periods of time. I contend that if markets were working well then the market would ensure that these profits would reduce to more “reasonable” levels. The difficulty with very large profits for a very long time is that wealth accrues to those organisations – and to those activities generating them – and we get other undesirable “emergent” effects.

    My contention is that too high a profit (and I will not try to define what too high is but let us say if there is a consensus that it is too high then it is probably too high) shows a market failure which we will call “too high profits”. For example I contend that Australian City Water Authorities have made too high profits (greater than 50%) for the past few years and this has in turn caused our cities to now suffer permanent water restrictions.

    There are plenty of banks. There is plenty of competition. Does the service they render really add the value reflected by the profits generated?

    Something like a stock exchange would appear to be a natural monopoly but why shouldn’t a natural monopoly be subject to market forces if it starts to make unreasonable profits unrelated to value it adds?

    If large continuous ongoing profits are seen as a form of market failure then what is going on and how can we fix it?

    There are different reasons but they appear to be caused by the rules and regulations governing the way trading occurs that reduces choice or prevents choice arising or that makes buyers and sellers unequal bargainers.

    One of the things I’ve been trying to understand is the nature of money and what it is that might cause these excessive profits in the finance industry in relation to other industries. I am suggesting that debt assets are over valued because of the nature of the asset and the fact that the risk associated with the asset can be “moved” from the reason for that the debt was created going to other assets.

    The ability for debt assets to be secured against other assets unrelated to the reason for the debt appears to be the issue. That is, we create some debt for a house but the risk of the asset being covered by a different asset in particular future wages appears to be causing a problem. The system has created a housing asset bubble and with it unaffordable housing. Part of the reason is that negative gearing has enabled lenders to bid up the price of housing because they have spread the risk from the houses to their salaries (it is not just the banks, everyone who can will take advantage of it).

    If I understand it correctly the limited liability company was invented to solve the problem of the transfer of risk. That is, the risk was limited to the asset for which the money was loaned. I am not saying that we need to do the same for all assets all the time but when we find that there are undesirable consequences – such as housing asset bubbles – then it is time to look at the reasons and to correct them so that we do not get a market failure of too much profit for too long.

    So back to why ten banks in competition do not reduce their margins? The reason is that anyone of them that did would go out of business because it is more profitable for them to use a “Western” loan system than to have say a Muslim system. The community goals are at odds with the individual goals. All the banks know that the housing asset bubble is not good for them in the long run but how can they work together to solve it? They can’t and if they did they would be breaking the law:) We have to have a system solution and we want one that does it in the simplest way. Putting more regulation onto the existing system is not going to do anything except make matters worse.

    Is there any way of fixing the problem? Take another look at the special currency for trading in houses solution outlined previously. This is a system with the rules built into the currency for the purpose of keeping the risk on dwelling loans with dwelling assets. It will achieve its goal and it could be done incrementally and with simple regulation of the special currency. Trust me:) it would be easy to implement. It does not change the nature of money, it fits exactly into the current way of doing things, it would be easy to understand and it would be easy to police. Better still it would solve the housing affordability problem by letting the market work its wonders.

  69. Niall says:

    The perception that banks make multi-billion dollar profits from Mum’s & Dad’s is little more than a myth. If deposit taking through a branch network or corporate lodgements on short-term rest contribute at all, it must be regarded as as jam. The real bread & butter is and has always been in the realm of foreign exchange. The only reason Banks don’t go down as RAMS has gone down resides with capital adequacy constraints placed upon banking licence holders by the RBA, which force banks to derive some level of capital from a source which isn’t likely to suddenly desire not to lend. Mum & Dad.

    Lenders which exist at the whim of market forces in buying or not buying loans already made must always be considered high risk, either as an investment – RAMS – or source of loaned money. John Symond changed the Aussie Home Loan model some years ago because he saw the current circumstances coming. Surely that speaks volumes.

  70. Kevin Cox says:

    Niall I can understand that foreign exchange is an important money earner but you have to wonder why there appears to be on average $70Billion per day of exchanges of Australian currency. You do not need much of that amount of trading to stick to make a lot of money. Can someone explain why there is so much trading in currencies compared to transfers of money for trading in other assets and goods and services?

  71. Brendan Halfweeg says:

    Kevin,

    You are still talking bollicks. Trying to understand money? Money is a unit of accounting and a storage of wealth. It functions much better as an accounting unit than a storage of wealth. Money was created to enable the exchange of goods and services more easily by decoupling the essential barter. Money in the form of price is simply an indicator of what someone is willing to trade for a good or service. Price indicates what people are willing to exchange for something else. One hundred dollars for a concert ticket to watch Paul Kelly means that someone with a net wage of $20 an hour is willing to trade 5 hours work for 1 hour of Paul Kelly. Someone on $50 an hour is willing to trade 2 hours work for the same. People buy service from the banking and finance sector willingly and therefore any profit they make is by definition fair, i.e. both parties benefit from the transaction, just like Paul Kelly does from people going to his concerts. The profits available to Paul Kelly give hope to aspiring artists and attract them to the entertainment industry, just as banks and building societies are attracted to retail banking and mortgages.

    Your idea of consensus is rubbish. What matters is revealed preference. People may criticise banks, but they use them for daily baking and mortgages. If they truly disliked the fees they payed, they would not use banks and seek alternatives.

  72. Nicholas,
    Currently, banks can maintain a super-normal level of profits due to high entry costs, strong inertia in their client base and partial local monopolies. A good example is the amounts still sitting in non-interest bearing cheque accounts. Why is it there? Customers are behaving rationally – the amount of time / cost taken to transfer everything to a new account is high. Over the medium term these accounts will diminish, but there is a large amount of inertia and high costs to move, meaning customers are sticky.
    .
    Kevin (at #6),
    You raised a question about the nature of money, and whether banks create it – you say you learned this. IMHO, this is wrong and comes from a fundamental misunderstanding of the nature of banks and banking – something you seem to share with Murray Rothbard and the Social Credit movement and is a common error elsewhere. I have written a post on ozrisk giving my opinion on it, but, in brief, when you deposit money in a bank it ceases to be your money – it is the bank’s money to lend out as they wish. You have no say over it except the contractual right to demand repayment of an equivalent sum under the conditions of the contract you have with the bank. That is all. A bank cannot create credit out of nothing and they cannot lend out more than their combined liability and equity.

  73. Andrew I guess I accept your argument, but it seems to show that the banks don’t really compete with each other.

  74. Nicolas,
    The banks do compete with each other – just not as effectively as a theoretically perfect market would allow. The teaser deals show this – in this case attempting to reduce the costs of changing banks. Over the last few years these deals have been getting better as the banks realise the benefits of a large pool of customers are worth paying for.
    For a long time it had been assumed that the branch network was not adding value, particularly under traditional cost allocation methods. This became a dogma within the industry – as you may remember. The branches became the ugly ducklings and banks were closing them, reducing local competition without really realising it. Better transfer pricing, activity based costing and other changes made the mistake obvious enough for even bank management to see it – and now branches are increasing again.
    Over time, the larger branch network will again depress profits; but this will take time.

  75. Graham Bell says:

    Everyone:
    Thank you for enlightening me about some aspects of finance.

    Motives are not often mentioned on blogs.

    My motive in coming to blogs like this is to be better informed and to have my ideas and opinions challenged by knowledgable people [at least I hope they are :-) ].

    IMHO, civil unrest in Australia arising from a whole generation abruptly finding that all their wishes are no longer granted on demand is inevitable. My motive in sounding an alarm on what’s happening at the bottom end of the finance system was certainly not out of any liking for the finance industry …. but out of the knowledge that when civil unrest does erupt, it is difficult to predict who will be harmed and who will be fairly safe. So, if I can say something that will help me protect my own hide, I will do it – it is in my own self-interest to do so. I have also suggested a relatively easy way to reduce the intensity of such civil unrest.

    I have given my opinion. Whether anyone pays heed to my warning and suggestion or rejects them is entirely their own choice. When civil unrest does break out, another choice may well be “Sir, do you prefer to have your necklacing with Bridgestone, Toyo or Kumho?”

  76. Kevin Cox says:

    My apologies for the following explanation but in order to progress the I have to give my view of my understanding of money because people seem to misinterpret what I say – perhaps because I say it in a different way.

    The following is my view of money and how it works.

    Money arises from a promise to give someone something of “value” where the amount of money represents the value of whatever it is we are going to give them. The reason why it is so useful and such a good idea is that it enables us to trade efficiently. We can compare the value of apples and oranges and we can each of us work efficiently at what we are good at and trade for other goods and services that we would like to have but are no so good at producing.

    There are many assets that have value. There are many services that have value. (basically things we can sell) We create money when we have something of value where the value is set by agreement between buyers and sellers.

    Trading and markets are very useful because they enable us to establish a value for different goods and services.

    One of the things we have invented is the promise to pay at some time in the future. This is an asset called debt. Banks do create money when they issue debt and this seems to be how most money is created.

    Governments issue currency and it is a promise to pay something of value back to the person holding the notes.

    People pay for debt by agreeing to pay interest on the money that is issued.

    That is ultimately money has to be “backed” by something of value and it cannot be created out of “nothing” – but the main way money is created is as debt. More money is created for debt than other assets because you do not need to create money to represent your assets if you have no intention of ever selling them. That is, value is established when something is traded so we have no monetary value on our household chores etc. Debt does not exist unless you create some money so that is probably the reason we have so much of it.

    The “underlying value” of money is the value of the service it provides to facilitate trading.

    The difficulty appears to arise when the monetary value of an asset class gets out of sync with its “underlying” value. That is for some reason or other trading has been inhibited in some way so that the value put on an asset class or service is out of line with what it is “really worth”.

    The most common situation is when we have a monopoly of some goods or service with a monopoly supplier who has no effective competitors and so trading is inhibited and it is difficult to get a true value for the goods or service. Telstra, Microsoft, Government Services, Water Supply all come to mind. However, there are other reasons for what I will call market failure where fair trading cannot occur and cannot allow true value to be established.

    Another way markets can fail are things like health services and education services where there are restricted buyers. That is, there is a dominant buyer who purchases the service (like teachers time) and to a large extent decides what will be purchased.

    Another way that markets can fail to achieve what is “best” for society is where the economic benefits are for the whole community, we have no idea how much it is and we have no good way of measuring it and this is at odds with the benefit to individuals which are now and very real. This is the case with GreenHouse Gas Emissions.

    The housing bubble is a particularly interesting one because everyone would say that it is the free market at work but yet the monetary value of houses has got out of whack with the underlying value. Gittins has a good description in his chapter “The Great Australian Home” in his book gittinomics and he comes back to the ideas in his columns. There are many factors that have caused the problem but it manifests itself – as do many other things – by the failure of the market to supply the goods and services (in this case affordable housing for all) that we would like to have and the reason is that the asset class monetary value is out of line with its “true” value.

    That is, there are multiple ways that asset classes monetary values get out of sync with what they would be if the market operated freely and perfectly.

    The “market” will ultimately fix the housing bubble. The “market” will ultimately fix greenhouse gases. The “market” will fix the health system but I think we can do better.

    I would suggest that for whatever reason asset monetary values are too low or too high for whole classes of assets and allowing this too occur and not fixing them quickly enough is not good enough. We have to find ways for markets to work more effectively so we get efficient allocation of resources that best serve our collective interests.

    The proposition to do a better job at getting trading to work effectively for different asset or service classes that are not working as expected is to create a new currency with slightly different rules for that asset class and to keep the new currency until the exchange rate of the asset class currency is on a par with the regular currency.

    That is, I am looking for solutions where trading can do its job of establishing a “true value” for an asset or service and I believe we have a better chance of doing it if we “isolate” trading for a particular asset or service class until it gets into sync.

  77. Kevin,
    No matter how many times you may have heard it from others (including many economists) one part of your discussion is simply wrong. Banks do not create money, that is, unless you believe bank deposits are money. Banks borrow money from one group of people (savers) and lend it to others (borrowers).
    Even those who say that banks do create money usually argue that it is in the act of taking call deposits and then lending for extended periods that creates money. It is not just the issuing of debt that does (as some argue) create money – it is the act of transforming a short-term deposit to a long-term loan that does it. As a result, banks incur liquidity risk – which they manage in all sorts of ways.
    A few other things I disagree with.
    Money does not “arise from a promise to give something of value”. In this sense it is the thing of value – both parties accept something as having value and transfer it as part of the deal, whether that is a piece of paper with some pretty pictures, a lump of gold with a monarch’s head on it or a lump of stone too big to move and propped up against a tree somewhere. It arises from that acceptance, and existed long before legal tender laws and governments issuing it, because (you are right) it is so useful.
    I was also intrigued with your comments on “market failure”. All but one of the examples you gave were not (IMHO) market failures but good examples of government intervention in the market resulting in monopolies. The exception was Microsoft – but this one I would consider arguable. While I am not great fan of Microsoft, the network benefits here are fairly clear.
    On the last part. No market is there to provide what we want – much less “affordable housing for all”. A market is simply what happens when people interact economically. Nothing else. If a market is not giving us what we want from it then it is our responsibility to change – do not blame the market as the market is us.
    To get back to what is actually happening, though, the odd thing is that, through all the interactions the vast bulk of us are getting affordable housing. It just may not be of the quality or in the location we desire; but the very basics of economics tells us that human wants are unlimited and the means to fulfil them are limited. Trying to segregate the housing market (or any other) will simply make the interaction less efficient, giving the ironic (but usual) result of a program to fix an issue actually making it worse.
    The other, and major, problem of course is that someone (maybe Ross Gittins?) would have to pick when a market is out of line. If you can do that you would do a lot better by moving to profit from it. The very act of trying to solve the problem in that way would go some way to fixing it.

  78. Kevin Cox says:

    Andrew

    “Fractional-reserve banking refers to the common banking practice of issuing more credit than the bank holds as reserves. Banks in modern economies typically loan their customers many times the sum of the credit reserves than they hold. – Wikipedia”

    I see nothing wrong with this but it sounds to me like “creating money”.

    It is useful to consider money as having value but it is only a symbol of value. When we transfer value via money I would argue that it is the thing of value that is being transferred not money. This is more than “just semantics” it is at the core of many problems because we start to behave as though it is money that is of value whereas it is a representation of value.

    This is of crucial importance to anyone wishing to introduce new currencies. If money was value then we cannot introduce new currencies without distorting the system. However, if money only represents value then new currencies are just another representation of value and allowing a market in currencies allows value to be moved between currencies.

    I keep hearing people saying that because something has a price on it then we have a market which becomes understandable if you think money has value. For example I have sat in a meeting on water where an adviser has said. “If we put a price on scarcity we will have a market and we do not have to have trading to establish the market as long as we have a price”. I would argue that a market is the setting of the price not the price itself. It is a mechanism whereby buyers and sellers can establish an agreed value for something to be exchanged. It is this process of agreeing on the value that is important. On way of defining market failure is markets where things get in the way of establishing a freely agreed value.

    Creating a special currency does not segregate the housing market from the rest of the economy as there is an market in currencies which means we can exchange value between asset classes. You do not have segregation when you have freely convertible currencies. I would argue it would only be segregation if the currencies were not convertible and that the efficient movement of value between asset classes is not diminished – just made more explicit.

    The assumption that human wants are unlimited is wrong and besides it is an unnecessary assumption to understand what is happening. Also it breaks down when increasingly we have goods and services that are unlimited and at near zero costs. (eg digital music)

    It is not difficult to see when the measure of asset classes is “out of line”. Tulips were once a problem. The tech boom was another. Australian housing prices are another. On the other side we have some value that are too low like the price of water or the price of emitting carbon. However, we only have to be worried about it and it only has to be large enough to be a potential problem for us to consider making a special currency.

    Setting up a special currency for an asset class will tell us if the value established by the market for that asset class is “out of line” and the measure of how out much out of line it is the conversion rate between the currency and the base currency. When there is parity then we could get rid of the special currency. That is, a special currency will tell us if there is a problem and it will fix the problem if it exists.

    The policy options used by governments to try to correct market failures are setting rules and regulations and inventing new commodities that attempt to express the problem. As an example we have a problem with telecommunications and so we get lots of rules and regulations around the industry – but that makes the problem worse. Another example is the problem with water and so we invent water allocations and allow trading in the allocations which are difficult to enforce and whose price fluctuates enormously and so far has been ineffective.

    I am not saying that these policy options will not ultimately work and should not be tried. What I am saying is that there is a another policy option involving the creation of special currencies that will assist in solving many “market failures”. This approach can supplement and possibly replace rules, regulations and invented commodities.

    An objection to the approach is that it is too complicated and it will lead to even more rules and higher transaction costs. I disagree with this but we will only ever prove it one way or the other by trying it out.

    In summary what we are trying to do is to create freer markets. The two main objections are the segregation idea but I contend this is not a problem because of the convertibility of currencies. The second is the complexity of implementation which can only be solved by trying it out.

    The methodology appears to be applicable to many situations where there appears to be a market failure in terms of setting value. It is a simple mechanism to make markets more effective not an “attack” on economic fundamentals but is a way of helping economic systems be more effective in their ability to establish value.

    Andrew and others thanks for reading what I have written and for your comments. They are really useful and they are of great assistance in helping me clarify – at least in my own mind and to my own satisfaction – what it is we are trying to do and why it will work.

  79. Kevin,
    Fractional reserve means to not lend all of the funds deposited, but to keep some of it aside. Banks cannot create assets without equivalent liabilities or equity – that is very basic accounting. Very simply – I walk into a bank and deposit $100. The bank lends out $90, keeping $10 in fractional reserve. It is literally that simple. No money created there.
    Using the wiki quote – this would mean that the banks have a 10% liquidity reserve ratio – but the deposits have to be there in the first place.
    Of course, the problem would be if I walked in and asked to withdraw all the bank owed me. The bank would not have it. The bank solves this problem through liquidity management – a process too long to explain in a blog comment, but it simply relies on not too many wanting to withdraw their funds at once. Northern Rock got on the wrong side of that one recently.
    A market, to me at least, only exists where there are willing buyers and sellers. For example, I could be standing in the middle of a desert offering $100 per ml of water (establishing a price) but unless there is some way of getting that water to me there is no market. Price is only one of the terms of a deal – timing, units, etc. etc. etc. also need to be agreed. All of the terms need to be established, and agreed, before there is a transaction. Most of these terms are reasonably standardised in most markets. A market is much more than just having a price maker or taker.
    To me at least the “cure” of multiple currencies would be worse than the disease of perceived market failure. To take the housing one as an example – prices are up to me for good reasons. Interest rates are low (and, more importantly people seem to believe they will be fairly low into the future) wages and employment are high and supply is constrained in the places where people want to live. If those are not good reasons for higher prices I do not know what would be.
    Adding another currency would just increase transaction costs and difficulty without actually solving the root cause – too little supply.

  80. Kevin Cox says:

    Andrew the bank creates a debt asset of $90 when it loans the money out. This money will “stay” in the bank for a little while or it will go to another bank. There is now $90 deposited which the bank can now loan $81. This can in turn be loaned and it means that if a bank has a deposit of $100 with a 10% fractional reserve the system will create $900 worth of debt. This is new debt that was not there originally. This is 9 times the amount of money that was originally there and the new asset that is created is debt.

    The reason for having the housing currency is a mechanism to increase the housing supply and get the value back to the “real value”. The extra bit of the equation is that housing money can only be converted to “real money” by selling the house money (a currency transfer) or it can be converted if a new house is built or if money is spent on some other form of new dwelling. Rent is paid in house money as well.

    It is not difficult to do and it is easy to police and enforce because new loans for housing have to first be converted into house money then loaned.

    What will happen will be that new housing will be built because that is the best way of converting money back to “real money”.

    A problem with the Australian housing market is that debt assets have increased more than the increase in the actual housing supply. That is the price of houses over ten years has doubled yet we have not had a doubling of the supply of houses – let alone a tripling which we could reasonably expect because of productivity improvements.

    Where has the money gone? Well it has probably gone on consumption not on investment.

  81. Kevin,
    As I stated it comes down to whether you believe a bank deposit is money – if not, there is still only the original $100 there. It has been used several times to purchase financial assets to a total value of $900 in the same way that the money may otherwise have been used to purchase any other assets.
    The difference only arises if you put bank deposits into a special category, that of “money” as somehow special or different. To me, they are not. In fact, the reserve requirement actually slows down the process and brings it to an artificial conclusion, whereas the purchase of any other asset would not have this effect.
    On to your main point. I still do not see how a special currency is going to get a single new house built or drop the demand for housing. All I can see it doing is adding complexity and expense – dropping the headline price of housing, correct, but not actually reducing the total cost of purchase. The only thing that will do that is to either reduce demand or increase supply. Playing around with the money will not achieve that.
    The reason for the lack of increased supply is to me (as someone currently building a house) quite clear. Greenfield sites are only being slowly released, brownfield sites are difficult to obtain due to planning permission and building codes and, once all that has been dealt with, getting tradespeople and materials is difficult and expensive. The currency is not the problem – nor is a lack of investment. The funds are available. The simple problem is that there are not enough new houses being built.

  82. Kevin Cox says:

    Andrew I think I understand what you are saying and I think it is the same as what I am saying except I see the creation of debt as being “the creation of money”. I also think it is a different sort of asset from money created for trading goods as a reflection on the value of those goods. There is a temptation for debt to be abused particularly when the risk associated with it is offloaded via various financial instruments so that the creators of the debt are not responsible for the risk. Banks for example offload the responsibility by requiring the loan be secured against other assets – like a person’s time – rather than the house for which the loan was given.

    That is money is created against a promise of an asset and the reason why the money was created is lost and all money is treated the same. That is we have lost information about money. While this was a practical necessity before we had computers to do our book keeping it is no longer necessary as the information about money and how it came into existence can be kept with the money. This is another way of looking at special currencies. We have been able to do it with countries with special currencies for each country – why not keep the way money was created with the money?

    Why is this a good thing? We will never know until we try it out. We can make some mind experiments and mine say it will be good:) However we can see it is a “bad thing” to have lost the information about how money was created in particular cases. The world still does not know which institutions have the risk for the subprime debt defaults. That is, the risk associated with that loan money in the USA is going to be paid by people all over the world – and that seems to me to be fundamentally wrong. The assumption is that all money is equal. All money – except national money – has been made to be equal but it is different because of the way it was created and the reason why it was created. We are happy to have different country currencies – why not have different asset class currencies when appropriate?

    I have thought a lot about how such a system would be implemented and I believe it would be simple to operate. In fact it will probably be less complex and the transaction costs will be lower than the current system. For dwellings – because there are such large amounts of money involved – the transaction costs could be paid for by the interest on the special money. To create the special money and so that we do not increase the underlying money supply dwelling money is created by depositing real currency in a real bank account and it earns interest.
    Special currencies do not increase the complexity of the transaction – because everything happens the same as it does now except we use different dollars (and that is trivial when it is electronic). The “difficulty” happens when we convert dwelling dollars back to real dollars.

    This is where the special rules associated with the money have effect and it is the reason why dwellings will increase in number and it is the reason that will drive efficiency and innovation in how we construct houses. (That is it will encourage trading that in turn will establish “true” value for houses) The rules associated with dwelling money are that a holder can only convert it to real money by either a currency transaction (where it will lose value) or by increasing the dwelling capacity. This is easy to police because it only requires people building dwellings to give information that is already collected through invoices and payments to the people who look after the conversion of the money. The best value that you can obtain from dwelling money is to build a new house. At the moment the best value you can obtain from money you obtain from selling a house is probably to buy debt – not build a house.

    This restriction on the use of money is the main argument against the scheme. It is argued that money should be free to move where ever it will get the best return. I agree with that and that is still possible with special currencies as a holder of dwelling money can sell it to someone with real money. It is who takes the loss that is different. The holder of money backed by dwellings will take the loss and I would contend that that is the way it should be. However while the money remains with dwellings then the holder does not suffer a loss. That is for genuine trades of buying and selling dwellings there is no difference and no loss.

    This is the reason why knowing how money was created is so important. When we lose that information we allow the system to get “out of whack” because people who allow the risk to be created are able to shift the risk.

    To go back to the reasons why we are doing this in the case of housing. We want more houses to be built. Today anyone borrowing money to build or buy a house is making a bad long term economic decision. It is not a good long term investment because the price of houses in Australia will tend to remain stagnant for several years until the underlying value is closer to the price. Of course the price will remain high and the bubble will not burst but it will come down slowly because investors know this and so why build a new house? This means that the price of dwellings will remain high because we will not build new ones to cope with the demand. That is, we have got ourselves into a situation where the system will keep getting worse before it gets better. We need a way for the asset bubble to lose its air.

    I would suggest that a dwelling currency is a simple solution that is guaranteed to work. It is going to be better and less complex than all the fiddling that will be done around the edges with first home buyers loans, with shared equity schemes, with means tested loans etc.

    What special currencies do are to isolate problems and allow genuine trading in assets to occur because the money better reflects the underlying assets – and it does it without increasing complexity. The argument is to have a monetary system that does not get in the way of trading and one where the money best reflects the reason it was created.

    Still all the words in the world will not mean anything until we try it out and give it a go. Let us run an experiment. I have little hope that it will be used for housing and I have indulged in this dialogue to see if I could argue for the approach to the dwelling problem.

    I am hopeful that we will get experiments underway with the creating asset classes “Renewable Energy Assets” and asset classes “Water Savings and Water Production Assets” where the solutions proposed of creating Emissions Permits and Water Allocations are very complex and are unlikely to solve the problems. Energy Rewards and Water Rewards (the two new currencies) are simple and easy to implement and can work in parallel with the other solutions.

  83. Fyodor says:

    Kevin, I have three words for you: diamond nano rods.

    Trust me on this: this new currency – let’s call it the DiNaR – is going to solve all of our problems. You see, getting these puppies into circulation is only the first step to eradicating the scourge of fractional reserve banking and establishing a mercantilist super-state inhabiting an adamantine orbital skycity and dominating the world economy in an unprecendented Golden Age of capital-accumulationist prosperity in which nerdy blokes like us get all the busty blonde chicks. Now, I know what you’re thinking, but it WILL work! I’ve completed all the calculations and my plan is fool-proof. I tested it myself.

  84. Kevin Cox says:

    Fyodor your assignment is to read the proposal again and this time try to make a better effort at understanding.

    Your Dinars are exactly the opposite to what is proposed and is what we have at the moment except we call them US dollars. Unfortunately diamond nano rods are really only useful for trading diamond nano rods so they will not work.

    I am not against fractional reserve banking. I am against the reason for money being separated from the asset that it is meant to serve. I have presented an idea on adjusting the rules associated with the way we trade so that it is more difficult to separate the money from the backing asset.

    I am not saying it is needed for everything. It is only needed when there is a problem and generally for a small part of the economy. It removes some of the inefficiencies that get in the way of free trade and like Adam Smith I believe in trading as a good way to generate wealth.

    What I find most interesting is that economists, who I would have thought were free trade advocates, are the most vehement critics of the idea. The reasons they give are that it is too difficult (which is not true) and that it prevents the redistribution of wealth across asset classes (which it doesn’t). What it does do is to make value as represented by money tend to stick to the asset to which it applies.

  85. Fyodor says:

    Kevin, your assignment is to prove that pricing housing assets in a different currency is going to improve allocative efficiency.

    Then, if you feel up to the challenge, you can reinvent the wheel.

  86. Kevin Cox says:

    Fyodor,

    Thanks for the assignment.

    There is only one way to prove it and that is to run an experiment. The experiment could be run by an innovative bank in a small part of the market and we would be happy to do it for them. To help me with my assignment if you know a bank (or building society or other lender) who would like to explore idea then please put me in touch with them or let me know who could be receptive to the idea.

    The potential is for them to create a very profitable endeavour as it would give them an “edge” in the housing market and if they played their hand correctly it could get sponsorship from government who are looking for solutions.

    Allocative efficiency – combined with other community goals such as “affordable housing” is what we are all about.

    Kevin

  87. Fyodor says:

    Kevin,

    You’re proposing to spend other people’s money testing a solution to a “problem” you’re unable or unwilling to define.

    I could argue that my DiNaR Masterstroke of Economic Genius needs someone to spend gorillions testing it to see if it’ll work, but it wouldn’t even work in theory (due to obvious costs of implementation negating the alleged marginal benefits), so there’s no practical case for the experiment whatsoever. That’s the point.

    Sulawesi

  88. Kevin,
    I do not agree that “…to make value as represented by money tend to stick to the asset to which it applies…” is a worthwhile aim. Allocative efficiency to me at least comes the ability to allocate as seamlessly as possible between asset classes – adding impediments to that flow would merely make things worse.
    As you (correctly) point out, creating the dwelling money would involve depositing normal money in a bank account (earning interest) meaning that we then have a whole separate transaction system, with currency exchange, forward rates, differential interest rates etc. all being material. As the new currency is hobbled (as it is restricted) it must trade at a discount to normal money – reducing the funds deployed for housing. Sorry, but I simply cannot see this helping in any way.
    .
    Fyodor,
    Not sure you should be trying to replicate your battle with GMB on the thread of doom.

  89. Fyodor says:

    Not sure you should be trying to replicate your battle with GMB on the thread of doom.

    I’m not, even if such a thing were possible.

    I’m just having a little fun. As are you, if I’m not mistaken.

  90. Graham Bell says:

    Fyodor, Kevin C., Andrew R. and lurkers one and all:

    “….just having a little fun”.

    Yeah, maybe.

    The ones who are not having any fun at all, though, are the ones who grew up expecting to be able to buy a “home” [well, actually, a house or flat] just like mum and dad did. They feel they deserve to have a home of their own. Every time they open a paper or turn on their TV, they are told how easy it is to have a magnificent home just like this one.

    When they find out that nowadays, they are the New Poor and so they will never never never have a home of their own, they become unhappy, they become disappointed, they become angry. When they find that listening to that nice man who said it was so easy to own their home because all the legal problems had been sorted out only led them to ruin, they become even more unhappy and even more angry.

    They are certainly not the majoity of home-seekers; they don’t have to be …. there are enough of them and oncentrated enough to cause quite a lot of mischief and disorder. They are the ones who will be listening, listening intently …. but not to fine gentlefolk such as yourselves and not to excellent discussions of the intricacies of the finance system. They will be listening to simpler messages, they will be listening to people who promise them real hope …. and somehow, I don’t think you are going to like what then follows.

  91. Graham,
    With all due respect to Fyodor (and you can decide for yourselves how much that should be) I would agree with you on the primary question – it is important to work out how to get more housing.
    There is plenty of funding around and banks and other lenders (despite rumours to the contrary) are not making much out of it. Margins on home loans are wafer thin. To me, the root cause here is very simple and does not require an advanced degree in anything to work it out. There is simply not enough housing being built to keep pace with demand. It really is that simple. The result is that the price goes up.
    Normally, the rise in price should be enough to stimulate new building, solving the problem. It has not happened here for, as I said previously, 3 reasons. The State governments are not releasing enough land to build on, the local councils are not re-zoning enough land to higher densities and, even where that is occurring there are not enough tradespeople to build the new homes.
    Playing around with currencies, interest rates, tax packages etc. etc. etc. is simply not going to solve any of those problems. In fact, they may make it worse if they distract from solving the root causes.

  92. Graham Bell says:

    Andrew Reynolds [91];
    Thanks for your commnet.

    However, I find it hard to believe that there is a housing shortage when, on one side, in newspapers, on the internet, in real estate agents’ windows there are a huge number of houses and flats for sale and for rent – and which remain on the market for ages; while on the other side, there are still people who want to get into these same houses. These don’t look at all, to me anyway, like supply & demand problems but very much like systemic problems.

    There are, for instance, obvious problems of stick-in-the-mud building regulations that actively discourage innovative, economical and appropriate housing and yet encourage the building of horribly expensive, inefficient “chipboard palaces” and “bludgertoriums”. [Maybe, one day, we could have a thread on Aussie slang and idioms in technical/professional/specialist discussions. :-) ].

    There’s also the very widely publicized problem of a tardiness in releasing or altering the zoning of land for housing or for multple use in certain parts of metropolitan cities.

    However, neither of these seems to come within a bull’s roar of what is, IMHO, the most serious obstacle: that is, old-fashioned and overly restrictive lending practices …. and don’t, for a moment, imagine that the ongoing egregious silliness of banks lending [or gifting perhaps] truckloads of loot to the worst corporate crooks and boofheads in the country has not been noticed by those who just can’t get a home of their own, no matter how hard they try.

    All of this hinders the freer movement of labour; we haven’t quite got to the Poor Laws of Elizabethan times but we are getting there fast.

    Can’t help you with the shortage of building trades tradesmen …. but anybody flying economy class would have notice the number of tradesmen heading to Europe or Asia over that past few years. Making the IR laws less oppressive might entice a few back but only a few; a better plan might be to permit experienced non-journeymen to do certain jobs that they can already do with their eyes shut.

  93. Kevin Cox says:

    Graham and Andrew,

    I agree the evidence is that there is a systematic problem with housing. It appears that like all complex systems there is not just one reason but a multitude of reasons why new entrants to the housing market are having difficulties. My parents and I had few difficulties getting our first house. My son and his wife with their large income needed help from me to get started in Sydney. Australia as a country is falling down the scale of home ownership. Something has happened and as a community I think most would agree it is undesirable.

    What has happened? We have had another housing asset price bubble. The system will sort itself out over time in the sense that people will find places to live but on current trends it appears we will get less home ownership and more rentals and wealth will be transferred to those who can get into the housing market. As a social outcome I think that is undesirable. I think there are good social reasons for most people to “own” their dwellings. If we accept that it is a systematic problem then to fix it we need to address the problem at a system level.

    I have presented a system solution. The critics have said – “This solution is not good because it interferes with the free market in funds and hence will lead to a suboptimal allocation of wealth”. I agree with this if the measure that is used is money as defined today. I disagree if we change the meaning of some of the money.

    My contention is that the system as it exists has not achieving the results that we want with respect to how – as a society – we want housing wealth to be allocated in our society. I have presented a system that will over time make housing more affordable for new entrants because it will create a system which will encourage funds to move to new housing because that is the best way to get funds out of the housing asset class. It will not give the greatest increase in wealth as measured by existing money but it will make it easier for new entrants to get into the housing market.

    What is being proposed does not require any government intervention. It only requires a body that gives house loans to change the rules on some of their loans. The rules on the loans are that as the loan is repaid then the money has to remain in the housing asset class. The house currency idea is just a way of doing the accounting and enforcing the rule. This would seem to me to be a good marketing opportunity for a lending body that wants to get an edge in the house lending market. The building societies were set up to do exactly this but they have become general purpose banks. If they used a house currency for housing loan repayments then they may be able to go back to their roots and compete more effectively in loans for houses.

    Again if anyone can introduce me to a lender who would like to explore this idea then let me know.

  94. Fyodor says:

    Andrew,

    You know as well as I do that Kevin’s idea is daft. If you’d been more direct and less polite about telling him so, he might have been discouraged from embarassing himself. I say this with all due respect, which is considerable as I like your work, even if the opinion’s not reciprocated.

    Now, contra Graham’s bank-bashing plea for the children (“Oh, who will think of the children!”), housing periodically gets relatively expensive. It’s called a property cycle, and there’s usually not much point tinkering with cycles if the market’s reasonably efficient. However, in the case of housing, there do seem to be some major distortions impeding the market from clearing at what we might think are “reasonable” prices.

    You have hit the nail on the head:

    There is simply not enough housing being built to keep pace with demand.

    That is, it’s a supply problem. However, the biggest problem with supply right now is not land. Yes, there are zoning and release issues, but they have always been there. There’s currently plenty of land about, and developers are sitting on land banks that they’re not developing. Why?

    The answer is that the economics of development is pushing towards higher house prices due to the tax burden imposed by all three layers of government: local governments (i.e. direct infrastructure charges, Section 94 charges), state governments (stamp duty, infrastructure charges) and the Federal government (principally GST on state and local government charges).

    What’s happening is that several layers of government are soaking the residential developers for revenue, ostensibly to provide shared infrastructure (i.e. roads, schools, libraries, parks, hospitals etc.), which often is NOT constructed. How do the developers respond? They pass the costs on to the home-buyer, of course, in the form of higher house prices.

    Essentially, buyers of new homes are being asked to pay for infrastructure that is shared by the community. My particular favourite tax (thanks, Carr, you nitwit) is the Special Infrastructure Contribution, introduced in 2003, that charges developers $33K per lot if they develop a house in NW or SW Sydney. What do you think THAT has done to the supply of housing in those areas?

    The Housing Industry Association published back in 2003 a study of the effect of such charges on the cost of housing. They estimated the charges added more than $120K to the cost of a house in Sydney. Just think about that for a minute. I doubt most people know how much tax they’re paying indirectly when they buy a house these days. If a developer has to wear that kind of tax burden before they can produce a profit, what do you think that does to the economics of supply? It’s a deadweight loss that will, inevitably, contribute to forcing up rents and house prices until developers can reap a decent economic return from producing new homes.

    The cycle will reassert itself, but we might want to reconsider whether home buyers – and renters, for that matter – should be wearing such a ridiculous amount of indirect tax due to incompetent fiscal policy.

  95. Jc says:

    Andrew

    It’s always best to ignore Fyodor when he gets into this mood. He is offering the proposition it is taxes and imposed costs that is raising the cost of housing. The idea there could be monetary expansison and asset price inflation is totally lost on him.

    “that charges developers $33K per lot if they develop a house in NW or SW Sydney. What do you think THAT has done to the supply of housing in those areas?”

    And why please tell would the buyer be the one absorbing that cost. Land banks didn’t exactly fall in value when that tax was imposed.

    “The cycle will reassert itself, but we might want to reconsider whether home buyers – and renters, for that matter – should be wearing such a ridiculous amount of indirect tax due to incompetent fiscal policy.”

    True enough, but he leaves that until the end of the missive when it should have be said as the first thing to indicate realive importance.

    I hate it when you get into this mood Fyds.

  96. Fyodor says:

    Its always best to ignore Fyodor when he gets into this mood.

    It’s usually best for you to ignore me altogether, Josephine. Less embarassing for you that way, as I keep proving to you.

    He is offering the proposition it is taxes and imposed costs that is raising the cost of housing. The idea there could be monetary expansison and asset price inflation is totally lost on him.

    Not at all. I’m offering the proposition of those people – i.e. the developers – at the heart of the supply problem. You’re offering the proposition of a monetarist crank.

    And why please tell would the buyer be the one absorbing that cost.

    Because the developer passes it on as part of his cost of doing business. Economics 101, JC.

    Land banks didnt exactly fall in value when that tax was imposed.

    Is that right? How do you know?

    True enough, but he leaves that until the end of the missive when it should have be said as the first thing to indicate realive importance.

    It’s called a conclusion. It’s called this because it concludes the argument, composed of facts and logical structure. Unlike your efforts.

    I hate it when you get into this mood Fyds.

    Is is bonus time already? Now say something about bananas and really make my day.

  97. Kevin Cox says:

    Fyodor,

    I don’t mind people telling me ideas daft because I genuinely want to understand the difficulties and people telling me reasons why things are not going to work are very helpful because we may get to a solution.

    Tell me why or at least point me somewhere that gives some arguments and also point me to places where the concept has been tried and failed. The only things you have offered so far are attempts at ridicule and attempts to say “that is not the way the world works and hence it must be wrong”.

  98. Jc says:

    Fyds

    1. The taxes they raised should cause land bank vlaues to fall all things being equal. They haven’t. They have gone up in value in all cap cities over the decade. To test your proposition that it’s taxes and not monetary induced inflation that is causing it we ought to look the cost of land acroess all segments and all states. You we see the line on the chart points up.

    2. I was involved in a development of some land just outside of Dallas Texas some years ago. The only reason I bring that is to to show you how wrong your proposition is . Basically you can do what you like in Texas in comparative terms. It’s not totally free but it close to that for freedom loving libertarians like you( only partially) and me. You could build on a sewer if your wanted to (kidding). You get the point, right? Land prices went up in Texas just as they did elsewhere in the country.

    It’s a really complicated issue to figure who absorbs the cost of State government theft. In the example you gave, I agree with you it is the consumer who is taking the hit. However it is not always the case as it very much depends on the market conditions at the time. Imagine who would be absorbing the cost of such things in various markets like the US at present.

    Deal with Kevin first, Fyds as I don’t wanna be jumping any lines and he does seem impatient to hear what you have to say. He won’t be long Kevin.

  99. Fyodor says:

    Let us create a special money whose purpose is to conduct transactions in the asset class of houses. When you purchase a house or dwelling then you buy the special currency with regular money and you pay for the house with the new money. The receiver of the money however, can sell it, or they can use it to buy another dwelling. That is they cannot use the money for anything other than a dwelling. They can also use it build another dwelling by purchasing new land, building materials etc. The people who supplied the new land, the building materials etc can convert the new money back to regular currency.

    What would happen would be that the new currency value would fall in relation to the regular currency and to get the best value for selling your house you would have to build a new dwelling. My guess is that the system would soon settle down so that the two currencies approached par when we had sufficient housing to meet demand.

    The new currency is really an extension of the idea of shares in a single house. It just gives a way of trading house shares (or bits of this asset class).

    You’re arguing that using a separate currency for housing will magically reduce house prices. Why? If such a currency is freely traded relative to the AUD, why should the underlying asset, i.e. a house, reach a different price after currency translation? If I sold you my house for House-Dollars (HoDos), and you were smart enough to pay the going exchange rate for AUD:HoDo, why should the AUD-equivalent price be lower? Moreover, if I’m getting a lower AUD-equivalent price, why would I sell in the first place? This is before we consider all the various methods of arbitraging around the HoDo currency away in the first place.

    All you’re doing is adding frictional/transaction costs and doing nothing to the underlying forces of demand and supply.

  100. Fyodor says:

    1. The taxes they raised should cause land bank vlaues to fall all things being equal. They havent. They have gone up in value in all cap cities over the decade. To test your proposition that its taxes and not monetary induced inflation that is causing it we ought to look the cost of land acroess all segments and all states. You we see the line on the chart points up.

    Particularly slow today. I referred to: “Special Infrastructure Contribution, introduced in 2003, that charges developers $33K per lot if they develop a house in NW or SW Sydney. What do you think THAT has done to the supply of housing in those areas?”

    Now, show me your data referring to SW and NW Sydney land banks. Unless, of course, you’re just bullshitting again.

    2. I was involved in a development of some land just outside of Dallas Texas some years ago. The only reason I bring that is to to show you how wrong your proposition is . Basically you can do what you like in Texas in comparative terms. Its not totally free but it close to that for freedom loving libertarians like you( only partially) and me. You could build on a sewer if your wanted to (kidding). You get the point, right? Land prices went up in Texas just as they did elsewhere in the country.

    Ah, so Texas has a property cycle? Wow. How enlightening. Aside from allowing you to reminisce about your distant youth, what purpose does this little vignette serve in discussing the effect of taxation on residential development in Australia?

    Its a really complicated issue to figure who absorbs the cost of State government theft. In the example you gave, I agree with you it is the consumer who is taking the hit. However it is not always the case as it very much depends on the market conditions at the time. Imagine who would be absorbing the cost of such things in various markets like the US at present.

    It’s always much simpler if you just agree with me from the start. Less time wasted all ’round. The US is a particularly irrelevant example as there’s anything but a shortage of housing for sale at the moment. Quite the reverse, actually.

    Deal with Kevin first, Fyds as I dont wanna be jumping any lines and he does seem impatient to hear what you have to say. He wont be long Kevin.

    One of the many occasions where your contribution is nothing but noise. I doubt anyone will ever be as impatient to receive your opinion as you are to give it, Josephine.

  101. Jc says:

    He’s right Kevin. You can’t simply create a special purpose currency for housing as it would have to be convertible, ie. exchangeable against the Dollar. Don’t go looking for free lunches as there aren’t any, that is of course unless when Fyds buying.

  102. Jc says:

    Fyds says:

    “Particularly slow today.”

    At least that isn’t one of your worst put-downs, which shows you’re making progress with blog rage issues. Good effort, Fyds. As a team member helping you through this I must say I’m encouraged with your progress.

    ——————–

    “I referred to: Special Infrastructure Contribution, introduced in 2003, that charges developers $33K per lot if they develop a house in NW or SW Sydney.”

    Whatever. It’s a tax Fyds. If it quacks, has a beak, funny looking feet you can make the reasonable assumption that it is proabably a duck.

    ——————–

    “What do you think THAT has done to the supply of housing in those areas?”

    So you’re telling me that increasing costs would raises demand? That’s unique proposition Fyds even for you.

    ——————–

    “Now, show me your data referring to SW and NW Sydney land banks. Unless, of course, youre just bullshitting again.”

    I’m not doing your homework for you so that can then use to tell the teacher it’s yours. You think this is Summer Heights High? You’re starting to sound like the Pac Islander character. Ask your friendly broker to give you a list of nationally based land developers and smaller regional ones that have land banks as a part of their portfolio. Look at what’s happened to the price. Go on ask, don’t be shy.

    ——————-

    “Ah, so Texas has a property cycle? Wow.”

    Yes it does, but you left out the important bit. Land prices in Texas have gone up as rest of the nation. So much for taxes etc. causing price hikes.
    ——————-

    “How enlightening. Aside from allowing you to reminisce about your distant youth, what purpose does this little vignette serve in discussing the effect of taxation on residential development in Australia?

    Land prices are affected by monetary disequilibrium as much as they are effected other things such as nimbyism etc. For some reason you always ignore this and its very upsetting to see an obviously smart guy wearing rusted up blinkers.

    ——————-

    “One of the FEW occasions where your contribution is nothing but noise.

    There. I corrected one of your few typo erros.

  103. Fyodor,
    Don’t get me wrong, I know and respect your opinion. I sometimes find your turkey (and other) baiting a little OTT.
    I guess I may be just a little too polite at times.
    On the main point, though, Jason has picked up on a post I did on ozrisk on this and GMB is on the case at catallaxy. You may want to join in with some constructive, well thought out comments. :)

  104. Jc says:

    Yea, Fyds. I agree with Andrew. For the most part you opinions aren’t that bad and your formatting (large quotes, small quotes) is out of this world. In fact I would call you the Alexander MacQueen of blogdom with all the neat formatting.

    It’s little issues like monetary economics that has you beat. No hurdle is too big for us to jump together. I’m always there for you Fyodor, you know that and so is Andrew by the sounds of things.

    Andrew. Go easy on the complements you know how all that stuff jsut goes directly to his head. He won’t be able to walk through the elevator door this arvo.

  105. Fyodor says:

    There. I corrected one of your few typo erros.

    Heh. Josephine, you’re the gift that keeps on giving…whether you want it to or not.

    There’s nothing substantive in the rest of that noise you generated. I trust you’ll be offended when I note that I value Andrew’s good opinion more highly than yours.

  106. Jc says:

    Fyodor says:

    “I trust youll be offended when I note that I value Andrews good opinion more highly than yours.”

    Trust me , i’m not offended in the least.
    I think we’re on the same wave length here. I even repsect Andrew’s opinion higher than mine. Hell I even respect yours more. I wouldn’t listen to me if I had a choice. But having said that I think you’re leading Kev 07 down the cul de sac by not introducing unsound money practices as a good part of the reasons why land prices have risen. Far be for me to tell you that though.

    One litle thought that you may be able to help with. You know how you argue that most most price increases have been the result of imposts etc…….
    How would you explain rural land prices increasing too over the decade (despite tough drought conditions which is the result of Global Warming suddenly hitting us:-))?

    Come back Fyds, we all missed ya. There’s no point in holding these long, grudges.

  107. Fyodor says:

    I wouldnt listen to me if I had a choice.

    I think that’s pretty much the consensus view, JC. And yet here you are, generating noise you yourself admit is worthless.

    I think youre leading Kev 07 down the cul de sac by not introducing unsound money practices as a good part of the reasons why land prices have risen.

    It’s unclear what you’re talking about here, but I think it has to do with your usual monetarist crankery. Needless to say, my views on monetary policy have more nuance and coherence than yours.

    You know how you argue that most most price increases have been the result of imposts etc.

    Jeez. Yawn. Where do I argue that?

    How would you explain rural land prices increasing too over the decade (despite tough drought conditions which is the result of Global Warming suddenly hitting us:-))?

    There are plenty of decent explanators (e.g. farm land consolidation, agribusiness productivity, improved prospects for soft commodities, the rising importance of managed investment schemes in rural land markets, the temporary nature of droughts, yada fecking yada) that have bugger-all to do with monetary policy, Josephine. No doubt you’re bound to have a breathlessly simplistic explanation that can’t be substantiated empirically. Spare me.

    Come back Fyds, we all missed ya. Theres no point in holding these long, grudges.

    Come back from where? I’m already here. “Grudges” is typically melodramatic of you – I mock you because you’re offensively pointless. No amount of fatuous and disingenuous praise from you will change that fact, Josephine.

  108. Kevin Cox says:

    Fyodor,

    First thanks. And here is my reply – which I hope you will read from a different viewpoint.

    Your comments

    “Youre arguing that using a separate currency for housing will magically reduce house prices. Why? If such a currency is freely traded relative to the AUD, why should the underlying asset, i.e. a house, reach a different price after currency translation? If I sold you my house for House-Dollars (HoDos), and you were smart enough to pay the going exchange rate for AUD:HoDo, why should the AUD-equivalent price be lower? Moreover, if Im getting a lower AUD-equivalent price, why would I sell in the first place? This is before we consider all the various methods of arbitraging around the HoDo currency away in the first place.

    All youre doing is adding frictional/transaction costs and doing nothing to the underlying forces of demand and supply.”

    No I am not arguing that using a separate currency for housing will immediately reduce house prices. I am arguing that a separate currency will enable the NEW dwelling market to operate efficiently.

    Of course the whole point of the exercise is to make house dollars reflect the price of new houses NOT old houses which are inflated. Of course House Dollars will be a lot less value in real money terms – that is the point of the exercise. All your argument about arbitraging and people selling for house dollars is irrelevant because as you say if you have an old house then you will not sell it to me for house dollars unless there is no alternative and I don’t think that is necessary although it would make the system react more quickly. However, if you have a new house then you will sell it to me for house dollars as they are convertible to real dollars.

    No one is going to sell me a house in house dollars unless they “have to”.

    When a person gets house dollars – which will be less value than real dollars – as expressed by the exchange rate they have two options. One is to try to sell their house dollars for the best they can get and the second is to use the dollars for a new dwelling – those are the rules of the currency. They could be other things but they are the rules we have imposed for this situation.

    What do you think they will do? They will use the house dollars to build a new house not buy an old house.

    What will this do? It will increase the demand for new houses – which many others have said is not the problem as there is capacity to build new houses – and it will reduce the demand for old houses.

    What will this do. It will cause sellers of new houses to come into the market because they have buyers with real dollars and it will cause old houses to drop in value.

    Why will it do this? It will do it because it is more advantageous for a person with house dollars to get a new house or to sell their house dollars to someone who wants to build a new house.

    The trick of course is to get buyers with house dollars. Well any lender can do this. They can say here are some house dollars and here are the rules. In effect you have little choice but to use your loan to buy or build a new house. The loan conditions are that when the loan is paid off it is paid off in new house dollars so that keeps new house dollars in the system.

    Will it be expensive and will there be extra transaction costs? Well as it turns out no. There are very expensive overheads in the way we currently do transfers of land and buildings and create mortgages. House money is all electronic and all transfers, payments etc are all electronic and we know we can do a much more efficient job than any system that requires written signatures and the printing of documents which will be unnecessary with house dollars.

    Now think like a lender that wants to get customers to become loyal customers. You can lend your house dollars the first time and notionally they are devalued but only if you ever try to convert them back from house dollars and that never happens until you run out of customers who want to build new houses. In the long term the house dollars will move to par with real dollars so you will not lose but you will never lose if you keep your house loan money in house dollars.

  109. Jc says:

    “I think thats pretty much the consensus view, JC. And yet here you are, generating noise you yourself admit is worthless.”

    Let’s not carried away here, Fyds. You’re not on the IPCC just yet boyo.

    ——————–

    “Its unclear what youre talking about here, but I think it has to do with your usual monetarist crankery. Needless to say, my views on monetary policy have more nuance and coherence than yours.”

    I was never left to wonder that you were from the banking school. The nuance you talk suggests monetary policy and concomitant effects on hard assets such as land (is there nay other?) is a nuance in itself. “Complex” is the word you used in the Thread of Doom inferring that was edequate to explain the effects a “robust” increase in the money supply of around 350% since 1994 has been having on land prices. Is it any wonder I have always considered you a money is neutral kinda guy?

    “coherence” is your new word to describe “nuanced” and “complex” when explaining this monetary shambles. I wonder at times.
    ———————-

    “Jeez. Yawn. Where do I argue that?”

    Stop yawning and wake up. (get your youself checked out as yawning could be a sign of a Co2/oxygen imablance in your pulmunary system.’

    I uggest you check out what you wrote. Example:

    The answer is that the economics of development is pushing towards higher house prices due to the tax burden imposed by all three layers of government: local governments (i.e. direct infrastructure charges, Section 94 charges), state governments (stamp duty, infrastructure charges) and the Federal government (principally GST on state and local government charges).

    ———————-

    “There are plenty of decent explanators (e.g. farm land consolidation, agribusiness productivity, improved prospects for soft commodities, the rising importance of managed investment schemes in rural land markets, the temporary nature of droughts, yada fecking yada) that have bugger-all to do with monetary policy, Josephine. No doubt youre bound to have a breathlessly simplistic explanation that cant be substantiated empirically. Spare me.”

    Oh no, not other charges imposed by the government…. This time rising the price of rural land. Spare me too.

    ———————

    “Come back from where? Im already here. Grudges is typically melodramatic of you – I mock you because youre offensively pointless. No amount of fatuous and disingenuous praise from you will change that fact, Josephine.”

    I’m not being fatuous, Fyds. We all miss ya. I’ve been worried you don’t seem yourself these days. Can we help?

  110. Jc says:

    Kevin

    Where is the new currency going to appear from? How do you earn it? How to you split earnings in each currencyy. What if someone doesn’t want to except it.

    What are you actually looking to achieve with this new currency of yours? IS it cheaper prices or more supply of land?

    Government imposts add about 35% to the cost of a new home in the outer burbs of Sydney and Melb. Look to reduce that before we wrorry about intropducing house dollars.

  111. Graham Bell says:

    Nicholas Gruen:

    Way back at the Introduction, speaking of Low Doc loans, you said

    “Firstly most of them have rates that are only about half a per cent above the discount rates available on fully documented loans. Secondly they are generally difficult to get without substantially more equity than those on full doc loans”.

    Meant to respond as soon as I read that but neglected to do so; sorry..

    On the contrary, such “loans” are perilously easy to get …. and at sky-high rates that would make a mediaeval usurer blush.

    No deposit … move right in. Nothing to pay for the first 3[?] months. You can pay off your home in 10[?] years. Never mind if you have a bad credit history. We look after all the legal work for you. Your current income is fine. …. and on and on ….

    Are these arrangements actually “loans”? Who can say.

    Are they legal? Probably – but only just legal.

    Are they ethical? Ethics has got nothing to do with making money.

    Will the “borrowers” end up “owning” the dwelling if they actually do the impossible and complete “paying it off”? Who knows? Hope and desire conquer simple arithmetic and prudence every time; beside, have any of these shonky deals reached their completion date yet so that a transfer of ownership would be possible, in theory at least?

    UCCC? What’s that? I myself had never heard of it before [though I’m lucky enough to have the ability to look it up and learn what it is] so what do you give for the chances of it being known to someone at the bottom of the housing market …. and the ones offering these “loans” certainly won’t do anything to dispel that ignorance.

    This is all Royal Commission type of stuff and, sadly, there’s not a chance in million of a Royal Commission into the dodgy and predatory parts of housing ever taking place.

    On another tack …. I had assumed that ownership of a dwelling was the better way of ensuring stability of a home and family …. but what other long-term, very secure ways are there of reaching a similar goal? Once upon a time, there was always the opportunity to rent securely for decades from the Housing Commission …. but that was way back in the Olden Days; what about now and in the future?

    Fyodor:
    So my well-deserved sharp criticisms of some wilfully ignorant knuckle-walkers infesting the finance industry is “bank bashing”, is it? You haven’t even seen “bank bashing” yet so don’t get me started on rural suicides, family break-ups and suchlike jolly happenings caused directly by predatory lending.

    Fyodor, I’m in a good mood so quit while you are ahead ….

  112. Jc says:

    Niall says:

    Andrew, you make a sound point regarding sales and credit, however it is my understanding that currently an imbalance exists in many major lending institutions, whereby sales desires over-ride credits concerns. This is dangerous, and leads to a rapid collapse in prudentiality.

    You have any evidence of this, Niall, or is this an assertion free zone? I haven’t read nything from the RBA suggesting balance sheet are being compromised.

  113. Graham,
    The reason low-doc loans are getting cheaper is simple. Competition is driving the price down so that the pricing reflects the actual costs of the loan – including the risks.
    Effectively, the difference in risk between an 80% LVR low doc loan and an 80% LVR “normal” loan is bloody close to zero as the chances of actually losing money on either has also been close to zero.
    The reason for the high pricing even three years ago was that there was:
    1. no history in Australia of these loans, therefore conservative pricing was the rule;
    2. APRA discouraged them for various reasons, including the reason in 1 above; and
    3. there was no real secondary market in them.
    The reasons why 3 is important is that APRA discouraged the banks from making them by increasing the reserve requirements to the equivalent of a personal loan. This reduced the funds available. The result was what conventional economics said should happen – high prices attracted new entrants, in this case super funds, managed investments schemes, life assurance companies etc. that had not previously been home lenders. They got in by doing securitisation deals.
    All this money chasing houses has had a predictable result if supply is constrained – price increases.
    On to the other points.
    Again, if lending practices in Australia were as lax as you are describing then I would expect to see the arrears figures as high and climbing. The simple fact of the matter is that they are not. They are moving up, but off historic lows. The rates being charged on home loans are not “sky high” they are an infinitesimal amount above the costs of making the loans. I’m sorry, but you are just plain wrong here. If you know of any institution making serious money out of home loans please let me know. I will immediately start selling their shares short as they are simply lying.

  114. Graham Bell says:

    Andrew Reynolds [113]:
    Thanks for your patient clarification.

    We might be talking about two different things called by the same name.

    You seem to be talking about high-risk deals that are still well within the regular finance system.

    Whereas I’m talking about deals that are dishonest and rapacious, that exploit and entrap the vulnerable in our society; they should be illegal but so far, inexplicably, they are not. They are the sort of things that are probably seen only by the charities and by the counter staff in politicians’ electoral offices.

  115. Kevin Cox says:

    jc

    “Where is the new currency going to appear from? How do you earn it? How to you split earnings in each currency. What if someone doesnt want to except it.”

    The new currency appears by someone putting some real money in a real bank account and defining it as housing dollars and selling it to someone one – for example as a loan in the new currency. The person issuing the loan will set the rules on how the money is to be used – as they do now. They may say – I will lend you this money but it can only be changed back to real money (that is money taken out of the account) if it is spent on creating new housing. The loan must also be paid back in housing dollars.

    Expenditure is controlled by having registered suppliers of new housing or things that are used to build a new dwelling. Suppliers will register to get access to this money and if they do not obey the rules then they are excluded from the system.

    “What are you actually looking to achieve with this new currency of yours? IS it cheaper prices or more supply of land?”

    We are seeking to direct money to the building of new dwellings. The market place for new houses is distorted because of the inflated value of old houses because there was too much money chasing old houses – not because of demand but because the money was available to be lent. That is, we have a common situation where the underlying value of the asset is not the reason for the increase but the belief that the asset will continue to rise which becomes the driver even though everyone knows it has to stop sooner or later. The issue is that a market has been distorted (failed) because the price being paid for the asset does not reflect the “real” value of the asset, In this case I believe the fundamental problem is because the lenders of the money used for loans – because of the rules around the use of real money – are insulated from the risk associated with the asset falling too far in price.

    You will say why not just restrict some loans to build new houses. The problem with this is operational and is fiddling with “the asset” which in turn distorts the market. A critical part of any change in the way a market works is enforcement of agreements. We need to make sure the loan money is spent on new houses and we want to keep up the supply of loans for new houses. By making it a special currency then we can keep track of it and ensure that it is only spent where we want it and we can make it “stay” with the asset class. We are forcing money to go to what some economists believe is a “less economic” use of the money and this is why I get such opposition from some economists because they think we are interfering in “the market” and hence it must be bad. We say that sometimes particular markets have “failed” and need to be fixed. An asset bubble in my terms is a “market failure”. Rather than put restrictions on the asset being traded we say that changing the rules of the money used for trading in a particular market can achieve the result in a more efficient manner because it retains the essential features of a free market for the product under stress – in this case new houses.

    In the scenario I have outlined instead of loans being made because they can be made, loans for new houses will be made to build new houses and not for asset speculation on the part of the borrower. The reason is that the lender can only make money from the “real value” of a new house and not from asset speculation because the money can only be spent on new houses and not “leak”. I have full confidence that the market place for new houses will sort itself out and we will get the most efficient allocation of funds in this market place. I don’t have to worry exactly what will happen because I believe the market in new houses will “learn” and adapt if we make it “free”. (A lot of economists seem to have trouble with thinking about separate markets and think of “the free market” as though there was only one but if you are in the business of selling something the concept of separate markets is everyday stuff)

    Sorry it has taken so long to explain but this was the first time I had applied the concept to this asset class – which I did “for fun” and I invented much of it as I went along. I hope the explanation now makes sense to those who have been patient enough to follow it.

    The approach can be applied to any market. I don’t think it is going to happen anytime soon for housing because it is too hard to explain but we are very hopeful it will for the asset class called “renewable energy generation”. What we are proposing is to “force money” to renewable energy by creating a money called Energy Rewards that can only be spent on reducing emissions. This is “uneconomic” but I suggest socially desirable. We force the funds there by restricting the currency because that is operationally efficient. The other two economic approaches to addressing greenhouse gases are to distort the market by creating a fictitious commodity (emissions permits or carbon credits) or to have a command economy where governments direct expenditure to green energy. The fictitious commodity approach is very very difficult to enforce because of measurement problems and in my opinion will fail for operational reasons not because the theory is wrong. We know that command allocation is less efficient than market allocation. We know how to control currencies and measure value with money through free markets and that is why Energy Rewards will work.

    The reason why I am confident we will get Energy Rewards up and running is that I have found it is necessary to disguise what we are really doing because there are a lot gate keepers with economic degrees. We disguise it for Energy Rewards by making it like Frequent Flyer Points but really what we are doing is forcing money into a market place for a particular asset class.

    I am also trying to do the same with Water Rewards to remove the need for water restrictions but this is proving harder to do because governments have distorted the market by using water as a vehicle for taxing and unfortunately governments are the only ones who can fix it because they are the monopoly suppliers.

    It is fun to apply the concept to different things. I particularly like Fat Rewards as the way to “solve” the obesity epidemic. Fat Rewards directs funds to exercise and “good” food which is clearly uneconomic but good for the health of our society.

  116. Fyodor says:

    Kevin,

    Your new currency does not make buying, selling or producing houses fundamentally more efficient. What it does is impose an artificial transaction cost that will do the opposite of what you intend.

    Confusing yourself by contrasting the prices of “old” and “new” houses is equally pointless. If a builder can’t expect to get a decent price (whether you price it in AUD or your new-fangled currency – it makes no difference if they’re fungible) for the house he builds, he won’t build it, and the price of existing homes will be his best guide. Fiddling with currency won’t change that.

  117. Fyodor says:

    I was never left to wonder that you were from the banking school. The nuance you talk suggests monetary policy and concomitant effects on hard assets such as land (is there nay other?) is a nuance in itself. Complex is the word you used in the Thread of Doom inferring that was edequate to explain the effects a robust increase in the money supply of around 350% since 1994 has been having on land prices. Is it any wonder I have always considered you a money is neutral kinda guy?

    coherence is your new word to describe nuanced and complex when explaining this monetary shambles. I wonder at times.

    Im wondering why youre wondering why you dont wonder. Truly, your incomprehension is wondrous to behold. Now permit me to chuckle over your interpretation of my use of language.

    *chuckles at Cranky Joes blundering wondering*

    Stop yawning and wake up. (get your youself checked out as yawning could be a sign of a Co2/oxygen imablance in your pulmunary system.

    And a snappy comeback, too! I have an imablance in my pulmunary system, do I?

    Yawn.

    I uggest you check out what you wrote. Example:

    The answer is that the economics of development is pushing towards higher house prices due to the tax burden imposed by all three layers of government: local governments (i.e. direct infrastructure charges, Section 94 charges), state governments (stamp duty, infrastructure charges) and the Federal government (principally GST on state and local government charges).

    And I disrespectfully uggest that you refer to what YOU wrote:

    You know how you argue that most most price increases have been the result of imposts etc.

    Didja see the word most there, Cranky Joe? The way this game works is that you now have to find the comment where Im supposed to have said what you said I said. Run along now.

    There are plenty of decent explanators (e.g. farm land consolidation, agribusiness productivity, improved prospects for soft commodities, the rising importance of managed investment schemes in rural land markets, the temporary nature of droughts, yada fecking yada) that have bugger-all to do with monetary policy, Josephine. No doubt youre bound to have a breathlessly simplistic explanation that cant be substantiated empirically. Spare me.

    Oh no, not other charges imposed by the government. This time rising the price of rural land. Spare me too.

    Happy to oblige, seeing as I didnt even MENTION government charges.

    Clueless, simply clueless.

    Come back from where? Im already here. Grudges is typically melodramatic of you – I mock you because youre offensively pointless. No amount of fatuous and disingenuous praise from you will change that fact, Josephine.

    Im not being fatuous, Fyds. We all miss ya. Ive been worried you dont seem yourself these days. Can we help?

    Hilarious. I identified you as offensive, pointless, fatuous and disingenuous. And your response?

    Im not being fatuous

    Heres your homework for today, Josephine: look up the meaning of the word fatuous, have a look at the blather youve written so far, just on this thread, then rethink your response.

    [Hint: it’s your other right foot]

  118. Fyodor says:

    Fyodor:
    So my well-deserved sharp criticisms of some wilfully ignorant knuckle-walkers infesting the finance industry is bank bashing, is it?

    Yep.

    You havent even seen bank bashing yet so dont get me started on rural suicides, family break-ups and suchlike jolly happenings caused directly by predatory lending.

    Fyodor, Im in a good mood so quit while you are ahead .

    Ooh, scary. Andrew demolished your argument with the facts before you even attempted to substantiate it, and I dont give a fig for your anecdotal sob stories. So what now?

  119. Graham,
    I would be interested to see who is doing these deals. There are some bottom-feeders in every industry and financial services are no exception to that – but I would be surprised if they were widespread and in need of further regulation.
    To go on to a wider point – the reason the “usurious” interest rates are possible is quite often due to the fact that the regulated institutions are practically prohibited from entering the high yield market by the regulations designed to protect those on the margins. These regulations mean that they cannot go to a bank for a loan as the price of that loan would be too high or would otherwise be prohibited.

  120. Kevin Cox says:

    Fyodor

    You assert the system we propose will be inefficient and create unnecessary transaction costs. That is your opinion. Mine is that the new house money will be more efficient and have lower transaction costs. One of us is right and who is right will be proved when we implement a system.

    Your critique is still missing the point. Perhaps I can try one last time.

    The problem is not the lack of building capacity to meet the demand for housing. It is that there is too much money available to spend on houses and so there is a bubble in all house prices. House prices have NOT gone up because there is a shortage in building capacity for new houses. House prices have gone up because there is too much money available to buy houses.

    You would say that this will sooner or later stop by people building more houses to meet the demand – it may but not until we have suffered the fallout effects of an asset bubble such as “unaffordable housing for new entrants to the housing market”. I believe that that is not good enough and we should be able to construct economic systems that will prevent this happening or control it more rapidly when it starts to happen.

    What we are doing is creating some money that can only be used for new houses and it cannot be used to buy old houses. That is money for new housing only goes on new houses. This will reduce the pressure on old houses by removing some buyers from the market place for old houses and put them in the market place for new houses. This will increase the stock of new houses and will hence reduce demand for old houses.

    You could get the same effect by requiring that – say 50% – of all loans can only be used for new houses and ensuring that the money is spent on new houses – but the problem with this is enforcing it and guessing the percentage. Our system requires money to be spent on new houses and we are doing it in a way that can be policed. It is the bookkeeping that is important when you try to enforce the implementation of these sorts of policies of attempting to direct expenditure. Money is only a mechanism for accounting for value and adjusting the accounting tool and you can often do your bookkeeping more effectively.

    We are about directing expenditure to particular asset classes and allocating the expenditure on the asset classes through the use of a market. We do this because there has been a “market failure” – not because the market has failed in economic terms – but because the market operation has had unintended non economic side effects.

  121. Fyodor says:

    The problem is not the lack of building capacity to meet the demand for housing. It is that there is too much money available to spend on houses and so there is a bubble in all house prices. House prices have NOT gone up because there is a shortage in building capacity for new houses. House prices have gone up because there is too much money available to buy houses.

    The problem is (growing) excess demand relative to limited supply, causing prices and rents to rise. It’s basic microeconomics. And, YES, there IS a supply problem. Check out the ABS statistics on new housing starts if you don’t believe me, as you clearly don’t have a clue about the data. I’ll leave your “too much money” furphy for the monetarist cranks to play with.

    What we are doing is creating some money that can only be used for new houses and it cannot be used to buy old houses. That is money for new housing only goes on new houses. This will reduce the pressure on old houses by removing some buyers from the market place for old houses and put them in the market place for new houses. This will increase the stock of new houses and will hence reduce demand for old houses.

    Why would people decide to buy new houses rather than old simply because you force them to use a different currency for new housing? As I keep telling you, if this new currency of yours is fungible into AUD there will be no difference in price after translation. No difference in pricing = no difference in incentives = no difference in demand or supply. There’s no reason why the stock of new housing should increase as a result of your scheme. All it will do is force people to deal in a currency that merely gets in the way of their normal transactions. The idea is inefficient, pointless and impractical.

  122. Kevin Cox says:

    Fyodor,

    You ask “Why would people decide to buy new houses etc.” The answer is that if you buy a new house you get value in real currency because the people building the new house are been paid in real money not house dollars. And as I keep repeating if you (fungle?) sell your house dollars for real dollars you get less real currency and hence less real value. Of course you will use the new dollars for a new house because you get more for your money. The reason why it is necessary to do this with a different currency is to keep track of the money because otherwise people will fungle. The system is designed to stop what you are say will happen. It won’t.

    Kevin

  123. Jc says:

    Kevin

    At the very least you’re trying to solve the problem of the housing affordability issue for the average person. The idea your putting forward won’t work.

    However I wouldn’t be listening to Fyodor for advice on how to solve the problem. He is only rude and objectionable because he doesn’t really understand the problem.

    Nimbyism, Height restrictions, more nimbyism, tough codes, taxes and various other imposts add to the cost of housing. As someone or I said earlier, 35% of housing costs these days in new estates is made of government charges.

    Add to that the socialist monetary policy model we use these days that cause all sorts of credit mis-pricing and you end up with a real estate boom. In fact what we have is an inflationary problem in hard and financial assets.

    The fact is that there isnt a real shortage of housing these days. Our population isnt really increasing in huge numbers and people aren’t exactly living in the streets to because they can’t find shelter.

    Fyoder, is being rude only because he really doesn’t know the answer.

    Solve all those problems I mentioned -particularly the monetary problem along with all the other issues I mentioned and you would get a reasonably priced real estate market.

    Good on you for trying to figure ways around this though., However I have to be honest with you its a non starter from any economic perspective you look at it.

  124. JC,
    A part of the problem is that the average family size is continuing to drop, so that you need more dwelling units for the same number of people. Additionally, almost all of the population growth is happening in the cities (as Graham Bell noted above) meaning the housing stock that exists in the countryside is partly surplus to requirements.
    Either we manage in some way to stop the demographic trends in our country or we need more houses where people want to live.

  125. Jc says:

    Adrrew

    I’m not arguing against that, but to pretend we don’t have a monetary problem that affects the price of hard assets is laughable.

    That aside:

    Take Victoria….

    About 3 odd years ago the labor government presented what they called a 2030 blueprint as the zoning plan etc for Melbourne. They basically drew a ring around Melbourne and said the burbs weren’t going to go past that ring.

    However there has not been any major and material change to the status of height restrictions in the city except in a few areas.

    Nimbyism stopped the redevelopment of a major housing and commercial development over the Camberwell railway station as people in the area protested it’s “historical” significance. The government capitulated to this horror.

    It’s very basic, if you can’t expand out, you have to be allowed to expand upwards. Couple that with a growing population in Melbourne and you have a shit fight.

    Historic preservation is also a major problem which has gone mad.. They are trying to preserve workers cottages in some very expensive areas of the city. These were homes that were never meant to last maybe 40 years on the outside. The idiots clambering for historical preservation simply don’t realize that the market will do a good darn job of preserving historical dwelling rather than the dead weight of regulation.

    And on it goes.

    Re Your problem

    You argue that the changing face of traditional family structure is changing. Well Outside of Norway the real estate markets havent been the big leaders it the western world. Those countries have led the way in terms of alternate lifestyles, so I dont really see the point.

  126. Jc says:

    And Andrrew

    The cost of housing stock has also risen in the rural areas.

  127. Jc says:

    Meant to says

    Well Outside of Norway the real estate markets in Scandinavia havent been the big leaders it the western world

  128. Kevin Cox says:

    Jc,

    Thanks for the words of encouragement even if you are a non believer:)

    I will try one last example to see your reaction.

    Assume the total loans for housing today is 100.
    Assume the total loans today for old houses is 90 and new is 10.

    Assume we now change over the next year so that the loans for old houses is 10 and new houses is 90.
    Would the price of old houses come down?

    If the answer is yes then I contend that our system will reduce the price of old houses.

  129. Jc says:

    Kevin

    It isn’t a matter of trying to figure out if the price would go up or down. You have to think that the currency you’re issuing will be convertible to the existing one.In other words nothing will change other than the exchange rate. The exchange rate and the value of the house will be the same in either currency.

    think of it this way.

    Two different currencies with the two identical houses sitting side by side and the exhange rate is freely traded. The value of those houses will be the same all things being equal.

    —————————-
    Monetary mismanagment plays a big part if the value of land re-nominating to reflect the addtional currency in circulation. Blame the central banks for this debasement. By and large you didn’t have to be smart in the past , you had to be leveraged.

    The effect of the debasement is that it has now become a capital appreciation story. In other words you can make more “money” holding assets than you can through income. Watch out when the chairs on the Titanic get switched around though.

  130. Kevin Cox says:

    Jc

    Bear with me but I think I can understand why you see things differently from me and why what you say is correct and why what I say is also “correct”.

    I start with the result that we want to achieve.

    The objective is to get more new houses constructed.

    How do we get more new houses constructed?

    We say to anyone that wants to get a loan for the purpose of buying a house – we will give you a loan but if we do then you MUST use it to build a new house.

    This forces them into the market place for new houses. We have stopped them buying an old house.

    Please forget about currencies and whether it is desirable or not and think of it from the point of view of the direction of resources to a particular need.

    If we made all people who wanted to buy a house buy a new house then we MUST get a lot of new houses built. This would increase the housing supply and this in turn would sooner or later solve the housing price problem because we would have so many houses we would not know what to do with them:)

    That is what I am trying to do. I am not worried about currencies. I am worried about direction of resources. We have a mechanism that can direct resources to a particular purpose – but do it using a “free market” mechanism.

    The mechanism we use can be described as the invention of a new currency but that is only a book keeping exercise and is a useful way of describing what is going on but it does seem to cause confusion.

    The system we have is a method of directing expenditure to a particular broad outcome to achieve a given purpose. The reason why this method of directing expenditure is a good one and will work efficiently is that the allocation mechanism to spend the money is market based.

    This is how we stumbled over the idea. We started with the concept of “Where do we want money to be spent”. How can we force money to be spent in that area without directing HOW it is allocated. Solution – give people money that can only be spent in a market place on the goods or services that we want to be purchased.

    Once you start to think like that then ALL expenditure that benefits the community can be allocated this way.

    At this point in the mind exercise do not worry about the mechanism or what will happen. If what I have said above is done will the ultimate objective of a lot more new houses be achieved?

    If yes then the next question is what will happen to the “economy” if this happens.

    This where I get into trouble in the explanation to economists. I think it must work and then I try to explain it in economic terms but it confuses the main message – build lots of new houses and the price of all houses will come down.

  131. Graham Bell says:

    Kevin Cox:
    There’s a lot to think about in what you’ve said here so I’ve saved it to read and re-read later. Very interesting indeed …. though I don’t agree with everything you’ve said. By the time I could get around to commenting, this thread would be gathering cobwebs. Good work. Thanks.

    Andrew Reynolds [119]:
    Finding the parasites is easy enough, just follow the classified ads offing easy money to people knocked back by the regular finance system. [Trouble is, that’s where you will also find tough but honest lenders operating in a high-risk area; they perform a useful service].

    Perhaps what is really needed, rather than more regulation [which I dislike], are: [1] Amendments to the criminal law so that predatory lenders who deliberately entrap the unwary [even those who are as thick-as-a-brick] in deals which they have little hope of completing can be stopped; and [2] Advertising campaigns using lurid, very simple warnings on commercial TV in prime time and in soapie time about the dangers of being trapped by predatory lenders; ads that EVERYBODY can understand.

    Fyodor

    Andrew Reynolds [124]:
    Getting the underutilized housing stock in some rural area back into productive use would be a win-win-win for everyone, even if that also meant the taxpayers paying for removals of basic personal effects as backloads to help those move to country towns; spend several hundred-thousands and get millions in benefit all round. The Do-Badders would scream “social engineering” of course but a bit of vigorous cudgelling by the Riot Squad would soon quieten them down :-) . One serious obstacle to this happening is the risible ignorance of far-away screen-jockeys that has replaced accurate local knowledge since so many local bank branches have been abolished. A temporary way of overcoming this ignorance would be ask for a series of low resolution digital photos to accompany each loan application [each side; each external corner; each corner underneath the house showing bearers, joists, stumps, floorboards; each room, all major plumbing items; a couple of long street views] and then approving the loans on a rational basis rather than on personal snobbery or fashion.

    Fyodor, you really did say

    “I dont give a fig for your anecdotal sob stories”.

    on Post 118, didn’t you?

    A rather unfotunate choice of words for you :-) . The overuse of “ANECTDOTAL” is one of the distinguishing features of Australia’s failed elite; they resort to it, in spite and petulance, whenever they are being beaten in an arguement or when they are overwhelmed by evidence or to cover their own arrogant ignorance. So we may assumed you are one of the White Shoe Brigade, may we? :D L-O-L.

    Thank you so much for volunteering your spare time to help the Salvation Army and all the other worthy charities who are doing such fine work picking up the people harmed in our wonderful economy. It will do much to help your own understanding of the realities of life.

  132. Kevin Cox says:

    Graham,

    Thanks – please have think about it and while you are thinking about it here is “an implementation solution” for your idea on utilising rural housing.

    Problem: Encouraging people to move to rural areas.

    Solution: Provide loans to people to purchase rural homes.

    A government gives lending organisations X dollars for a Rural House Loan Fund. These funds can only be used to pay for rural houses in designated towns where there is unused housing stock. For convenience sake and to keep track of the money and make sure the money is spent on rural houses in designated towns we will call these funds rural homes dollars. When the loans are paid off or interest is paid on the loans then the money is paid in rural house dollars. If a person acquires Rural House dollars and they don’t need them then they can sell them for whatever they can get.

    The other rule is that only a person who had title to a property before the scheme came into existence could convert rural house dollars to real dollars and only when they sold a property where part of the money paid was in rural house dollars.

    Thus rural house dollars could be used for whatever purposes anyone wants but they can only be converted to real money by people who sell them on the free market or who sell a rural property that they had title to before a particular date.

    There is a “one time” allocation of funds to rural house dollars. When the value of rural dollars is on a par with real dollars then rural dollars can be “terminated”. This means that the group allocating the funds in the first place do not lose anything. How much funds need to be allocated? It actually doesn’t matter. The more you allocate the quicker it will happen but I suspect an amount of about 5% the value of unutilised stock will do.

    If we implemented such a system we would monitor exactly what happened and that is easy because you follow the money trail as you know every transaction involving rural dollars. We can see exactly how the system works and if it does not work as expected then we can easily adjust by changing the currency rules.

    The only rule needed to enforce is the one involving conversion of rural house dollars to real dollars – and that is easy to do and easy to enforce and I suggest difficult to abuse.

    The transactions in the system would be paid by the interest on the money in the rural house dollars backing account. We do this to encourage people to spend their rural house dollars.

    So we have a magic pudding scheme to get rural housing fully utilised:) (this comment will be a red flag and challenge to every economist reading it:)

    However, if I am right then this is pretty exciting.

  133. Fyodor says:

    We say to anyone that wants to get a loan for the purpose of buying a house – we will give you a loan but if we do then you MUST use it to build a new house.

    This forces them into the market place for new houses. We have stopped them buying an old house.

    Please forget about currencies and whether it is desirable or not and think of it from the point of view of the direction of resources to a particular need.

    If we made all people who wanted to buy a house buy a new house then we MUST get a lot of new houses built. This would increase the housing supply and this in turn would sooner or later solve the housing price problem because we would have so many houses we would not know what to do with them:)

    That is what I am trying to do. I am not worried about currencies. I am worried about direction of resources. We have a mechanism that can direct resources to a particular purpose – but do it using a free market mechanism.

    Kevin, this is getting crazier and crazier. Am I reading you correctly when you say that people will only be able to buy new houses? So what happens if I already own a house and want to trade up? Who’s going to buy my (old) house and thus fund my (new) house purchase? It’s a mad idea to force all home buyers to buy only newly constructed housing. All it will do is artificially increase the demand for new housing relative to old. Because you’ve done nothing to supply incentives, this will only INCREASE the price of new housing further, making it LESS affordable.

    First, it’s superfluous currencies, and now it’s totally unreasonable restraint on trade. Your solutions are worse than the problem. There’s a whole host of other ways to improve the supply of new housing, including my earlier suggestion of reducing government charges on new development.

  134. Fyodor says:

    Retired hurt, JC? Ad hominems a risky strategy for someone with your many inadequacies. I did warn you, but its refreshing to see that youre learning from your mistakes.

    BTW, when you said As someone or I said earlier, 35% of housing costs these days in new estates is made of government charges, I was the one who introduced the issue of government charges, as I pointed out to Kevin above. This is just another instance where you really should just follow my lead. As you yourself said earlier, my judgement is superior to yours.

  135. Fyodor says:

    Fyodor, you really did say

    I dont give a fig for your anecdotal sob stories.

    on Post 118, didnt you?

    Why, yes, Graham, I really did. I take it you CAN read?

    A rather unfotunate choice of words for you. The overuse of ANECTDOTAL is one of the distinguishing features of Australias failed elite; they resort to it, in spite and petulance, whenever they are being beaten in an arguement or when they are overwhelmed by evidence or to cover their own arrogant ignorance. So we may assumed you are one of the White Shoe Brigade, may we? L-O-L.

    Thats it? Thats your argument? That using the apparently verboten word ANECTDOTAL [sic] in reference to your ANECDOTAL sob stories means Im overwhelmed by your ANECDOTAL evidence, consisting of a couple of incidents proving nothing about the nature or extent of so-called predatory lending practices?

    I must say that I find your perspective on rhetoric refreshingly unique, if idiotically naive.

    Thank you so much for volunteering your spare time to help the Salvation Army and all the other worthy charities who are doing such fine work picking up the people harmed in our wonderful economy. It will do much to help your own understanding of the realities of life.

    You see, NOW youre on firmer ground. The moral high ground, to be more specific.

    The way this emotive, muddle-headed bunk plays out is that you imply Im a terribly bad man because I think people should take responsibility for their actions and you assume the role of sainted moral crusader because you advocate that other people (i.e. the government) do something to protect people from their own stupidity. And somehow, according to your rhetorically bankrupt illogic, this exercise in moral narcissism is supposed to prove that predatory lending is worth worrying about, yes?

    Lets cut the crap and agree that Im a sinner and youre a saint, and Ill even pretend I give a shit. It changes nothing of the argument.

  136. Kevin Cox says:

    Fyodor,

    Now you are getting the message.

    It IS about what you call restraint of trade but what I call making a “fair market”. I say that many markets have failed to deliver the social outcomes we want and one way to make them better is to remove externalities that help cause the problem. The currencies just happen to be the mechanism to get rid of some of these externalities.

    In “pure” economic theory I am lead to believe that putting restraints on trade in terms of directing expenditure is a no no yet it happens everyday of the week with budgets and allocations of money to particular purposes.

    What I say – we have a problem and we need to spend money on it. Let us do it but let us spend the money through a market mechanism and do it in a market that will solve the problem we wish to address.

    My answer to your concerns is – if it works and provides the socially desired solution – for the minimum cost then that is a good outcome. That is it meets other goals as well as the money goal then that is a bonus.

    Of course the systems being proposed will not create the most money as calculated using some arbitrary discount rate. That is what you are arguing and I do not believe that is the best way of measuring the outcomes of a social system particularly when I believe the money measure and the discount rates are suspect in terms of their ability to measure “true” value.

  137. Jc says:

    Retired hurt? Not at all. i just don’t think there is any need in getting into any discussion that simply turns in an opportunity for you to spew abuse because you have a fixation with the stable price rule. It’s bunk, proven to be so and no amount of abuse will change that.

    The guys here don’t want grudges to be carried over from other blogs, which is something you are obviously doing so I would rather oblige them and not carry on with this conversation.

    Let me know if you have a change of heart though as the the thread could turn into something better.

    “Lets cut the crap and agree that Im a sinner and youre a saint, and Ill even pretend I give a shit”.

    It’s that sort of comment directed to others too that makes it obvious you’re simply game for an argument and not a discussion. G Bell doesn’t have economic training so why not go easy on him?

    In short, if you want to have a civil conversation let me know. Thanks.

  138. Fyodor says:

    It IS about what you call restraint of trade but what I call making a fair market. I say that many markets have failed to deliver the social outcomes we want and one way to make them better is to remove externalities that help cause the problem. The currencies just happen to be the mechanism to get rid of some of these externalities.

    Um, Kevin, what you’re proposing is to impose an externality on the market, that will achieve an outcome contrary to what you intend. As to what constitutes a “fair” market, you’re making a normative judgement that won’t necessarily be shared by other people. You make think you know how to allocate resources better than the market, but chances are you’re wrong.

    In pure economic theory I am lead to believe that putting restraints on trade in terms of directing expenditure is a no no yet it happens everyday of the week with budgets and allocations of money to particular purposes.

    Government intervention in markets is distortionary, sure. And thus governments need to produce rationales for their actions. Simply stating the precedent of government intervention doesn’t make your suggestion any more sensible, however.

    What I say – we have a problem and we need to spend money on it. Let us do it but let us spend the money through a market mechanism and do it in a market that will solve the problem we wish to address.

    No, what you’re saying is that the market isn’t working and that you want to skew the market in the direction you think it should go. As has already been explained to you, the interventions you propose would only make matters worse, not better.

    My answer to your concerns is – if it works and provides the socially desired solution – for the minimum cost then that is a good outcome. That is it meets other goals as well as the money goal then that is a bonus.

    That’s a pretty big “if” there, Kevin.

    Of course the systems being proposed will not create the most money as calculated using some arbitrary discount rate. That is what you are arguing and I do not believe that is the best way of measuring the outcomes of a social system particularly when I believe the money measure and the discount rates are suspect in terms of their ability to measure true value.

    Well, IF you have a superior ability to measure value and IF you know how to allocate resources better than the market I really can’t find fault in your argument. That’s IF you’re right, of course.

  139. Fyodor says:

    Retired hurt? Not at all. i just dont think there is any need in getting into any discussion that simply turns in an opportunity for you to spew abuse because you have a fixation with the stable price rule. Its bunk, proven to be so and no amount of abuse will change that.

    Wow, more moralising. What is this, Hypocrisy Hour?

    Your FIRST COMMENT on this thread was an ad hominem attack on me. You can save your crocodile tears for someone who doesn’t know what a craven hypocrite you are.

    As for the “stable price rule”, you’re the first person to mention it on this thread. Your reference to it is simply bizarre.

    The guys here dont want grudges to be carried over from other blogs, which is something you are obviously doing so I would rather oblige them and not carry on with this conversation.

    Again, don’t be such a hypocrite: you’re the one with the grudge, that you started up here again, not me. It’s only now that I’ve comprehensively humiliated you in response that you’re changing tack. You’re not fooling anyone.

    Let me know if you have a change of heart though as the the thread could turn into something better.

    The thread’s doing fine. All you’ve added is noise.

    Lets cut the crap and agree that Im a sinner and youre a saint, and Ill even pretend I give a shit.

    Its that sort of comment directed to others too that makes it obvious youre simply game for an argument and not a discussion. G Bell doesnt have economic training so why not go easy on him?

    No, my comment was directed squarely at his ad hominem attack on my supposed moral failings. If he wants to be sanctimonious with me, I shall respond similarly ad hominem. He’s a big boy; he knows how it works.

    In short, if you want to have a civil conversation let me know. Thanks.

    Hilarious. There you go again: fatuous & disingenuous prattle from a colossal hypocrite. You’re not in a position to lecture anyone on civility, JC.

  140. Jc says:

    So I take it you don’t want to have a civil discussion, Fyodor? It could be good one. As I said let me know.

  141. Kevin Cox says:

    Jc,

    OK I will stop calling House Dollars, House Dollars. This was probably a mistake because it brings other things to your mind and confuses the issue as you are looking at something that was created for an entirely different purpose in a different context.

    Let me call them House Vouchers. House Vouchers are transferable and can be sold. House Vouchers can only be converted when someone builds a new dwelling.

    House Vouchers are a different animal from an external Thai Baht:)

  142. Graham Bell says:

    Fyodor [135 You said

    “You see, NOW youre on firmer ground. The moral high ground, to be more specific”.

    Stuff the high moral ground! Its responsibility and life-experience we’re talking about …. and your deficits there stick out like dog’s balls. I very politely suggested one way you could overcome your failings there and what thanks do I get? What ingratitude!

    Poor diddums. I apply the same standards of stereotyping that are applied to other groups in the community [in this case, the overuse of the term “anecdotal” to excuse the incompetence and lack of credibilty of pompous galoots] and I you don’t like it. “Shoe on the other foot” hurts, does it? :D L-O-L.

    JC [141]:
    Having been in places running two or more currencies, I lack enthusiasm for that [ unless I’m right into blackmarketeering, in which case, let ‘er rip! :-) ]
    However, I think an adaption of some of Kevin’s ideas just might have beneficial outcomes …. but would have to mull over it for a few weeks [As I get older, my brain runs sl o w e r ].

  143. Graham Bell says:

    Kevin Cox [142]:
    “A rose by any other name”? No. Just kidding. I understood what you meant.

    One thing that would have to be welded shut is any possibility of it being misused. Suggest you find an experienced and reformed!! criminal willing to help and run that past him/her so as to identify where and how crooks could make a swag out of it.

    Must run. My internet time is not cheap and if I don’t go now, Fyodor might catch me and beat the daylights out of me. Cheers.

  144. Kevin Cox says:

    Fyodor,

    It is most interesting to read someone take what I say and tell me I am saying the opposite! I could go through each of your comments on my statements and comment but that would be tedious. Let me just take the last one.

    I said

    “Of course the systems being proposed will not create the most money as calculated using some arbitrary discount rate. That is what you are arguing and I do not believe that is the best way of measuring the outcomes of a social system particularly when I believe the money measure and the discount rates are suspect in terms of their ability to measure true value.”

    You said

    “Well, IF you have a superior ability to measure value and IF you know how to allocate resources better than the market I really cant find fault in your argument. Thats IF youre right, of course.”

    I have never said that I want to measure value and I have never said that I want to allocate resources. What I have always said and the whole point of the exercise is exactly the opposite. I say that we let the market in houses decide the value and we let the market do the allocation. We have not changed the underlying house market. All we have done is to create some house vouchers that may be used (along with regular currency) to pay for a house.

    All I am saying is that a person can use house vouchers to help pay for any house. House vouchers can only be exchanged for real dollars if the house purchased was a new house. That is all.

    What we are proposing is simple and it fits right into “orthodox economics”.

    I should never have used words like money, currency and never implied that the market was a different market from the one that already exists because using those words to economists brings up a whole lot of different images than what was intended. I was attempting to describe things in the way that you would understand and in the way I suspect the system will evolve but it achieved exactly the opposite and I have learned a valuable lesson.

    In summary I believe whole heartedly in a free market where buyers and sellers come together to exchange goods and services as this is the best way to establish value and to allocate resources. I also believe that the rules of the way we measure value in the way we exchange goods and services can be adjusted to include other non monetary goals. Our current example is that house vouchers are more valuable if you build a new house than if you use them to help pay for an old house.

    Isn’t the proposed change simple and yet – if I am right – it could lead to an amazing outcome – the elimination of the housing bubble. (which I hasten to add can only be proved by trying it out and is my best guess of the outcome:)

    To get a little philosophical. We shouldn’t really be surprised because the rules associated with the behaviour of termites are very very simple but the outcomes of those rules are incredible when you look at the engineering of a termite mound. I am continually amazed at the complexity of a modern society which is built upon simple trading rules.

    You are right to be very wary of someone fiddling with the rules of trading but when our current rules do not give us the outcomes we desire and there is a consensus that the outcomes should be changed then I suggest the simplest solution is to modify slightly the rules of trading so that we achieve different outcomes rather than the alternatives of building lots of rules and regulations around trading.

  145. Fyodor says:

    Stuff the high moral ground! Its responsibility and life-experience were talking about . and your deficits there stick out like dogs balls. I very politely suggested one way you could overcome your failings there and what thanks do I get? What ingratitude!

    Poor diddums. I apply the same standards of stereotyping that are applied to other groups in the community [in this case, the overuse of the term anecdotal to excuse the incompetence and lack of credibilty of pompous galoots] and I you dont like it. Shoe on the other foot hurts, does it? L-O-L.

    Graham, you obviously enjoy cataloguing your no doubt impressive virtues, but you’ve still proved fuck-all of your case despite your surplus of – what was it again? – “responsibility and life-experience”. What’s the matter? Is your gargantuan repository of accumulated wisdom getting in the way of you constructing a logical argument? Us “failed elitists” in the “white-shoe brigade” need your informed and decisive leadership in these perilous times.

    Excuse me for a moment while I laugh out loud at yet another duffer talking himself up online.

    For those interested in making housing more affordable for first home buyers in Sydney, it appears the Iemma government has just announced a cut in government charges on new housing in NW and SW Sydney. That’s a start.

  146. Kevin Cox says:

    Graham,

    I have thought long and hard about corruption of the system and of market manipulators getting in and doing “bad” things and I think we not only have a system that will make it hard to manipulate but we have a system where it will be easy to detect abuses of the market and even better a system where we can easily “punish” the abusers. I believe keeping the market fair is the strongest part of the system and is one of the reasons why I think the systems will be embraced.

    The reason that the system is going to be hard to corrupt is that we only make changes to the rules of trading that are simple and where it is possible to know that the rules are being obeyed. We also make the system so that the person who does a trade can be “discovered” if something goes wrong. That is, we have a complete record of all trades and we know who said they were responsible. This is only revealed when needed. (The system is built upon strong biometric identification. We actually use your voice print over a telecommunications link so that you sign agreements and trades with your voice.)

    We also build a system that measures – as part of its operation – the other non monetary goals we establish. Energy Rewards for example estimates the emissions saved for all expenditure. If the goal of reducing emissions is not being achieved then we adjust the rules and see if that works better.

    The main way we enforce good trading is that all these systems are voluntary and you do not have to join if you do not want to. There are of course advantages if you join otherwise you would not bother. This is now our weapon against the market manipulators. When you join you make an agreement that you will behave in a particular way and if you don’t then you are not punished in the normal sense but you are excluded from the tribe. You can’t play and that is punishment enough.

    Given that we have a lot of information it will be easy to detect bad things and it is simple to exclude someone from the system. As the system is voluntary then we can make our rules simple which again means that it is relatively easy to enforce good behaviour.

    If someone manages to rort the system we discover how and why and we change our rules so that if they keep doing it we throw them out.

    The most important part of a trading system is trust and fairness. Our systems will increase trust and we can demonstrate that they are fair.

    There a lots of other bits and pieces that can be added to increase fair trading such as giving both sides access to information and giving both sides computer assistance to help in their trades. As we detect problems so we have the ability to correct and build generic solutions.

  147. Fyodor says:

    Fyodor,

    It is most interesting to read someone take what I say and tell me I am saying the opposite! I could go through each of your comments on my statements and comment but that would be tedious. Let me just take the last one.

    I said

    Of course the systems being proposed will not create the most money as calculated using some arbitrary discount rate. That is what you are arguing and I do not believe that is the best way of measuring the outcomes of a social system particularly when I believe the money measure and the discount rates are suspect in terms of their ability to measure true value.

    You said

    Well, IF you have a superior ability to measure value and IF you know how to allocate resources better than the market I really cant find fault in your argument. Thats IF youre right, of course.

    I have never said that I want to measure value and I have never said that I want to allocate resources. What I have always said and the whole point of the exercise is exactly the opposite. I say that we let the market in houses decide the value and we let the market do the allocation. We have not changed the underlying house market. All we have done is to create some house vouchers that may be used (along with regular currency) to pay for a house.

    Kevin, you keep saying that you want to let the market decide…and then suggest ways to fiddle the market because you’re not satisfied with the market’s results. You can’t have it both ways.

    You DID say that:

    “I believe the money measure and the discount rates are suspect in terms of their ability to measure true value”.

    So clearly you DO think you can assess value better than the market.

    Likewise, it was also you that said:

    We are about directing expenditure to particular asset classes and allocating the expenditure on the asset classes through the use of a market. We do this because there has been a market failure – not because the market has failed in economic terms – but because the market operation has had unintended non economic side effects.

    Not only do you NOT trust the market to get it right, you DO want to allocate resources. What do you think “directing expenditure” means?.

    You are right to be very wary of someone fiddling with the rules of trading but when our current rules do not give us the outcomes we desire and there is a consensus that the outcomes should be changed then I suggest the simplest solution is to modify slightly the rules of trading so that we achieve different outcomes rather than the alternatives of building lots of rules and regulations around trading.

    So we should be wary of fiddling…but if you don’t like what the market gives us, we should fiddle with it.

    Kevin, if you think I’m misinterpreting your meaning, you’ve only yourself to blame. You can’t distort markets – and that’s what your “house vouchers” would be: a massive distortion – and then claim not to be interfering.

  148. Jc says:

    Graham:

    JC [141]:
    Having been in places running two or more currencies, I lack enthusiasm for that [ unless Im right into blackmarketeering, in which case, let er rip! :-) ]
    However, I think an adaption of some of Kevins ideas just might have beneficial outcomes . but would have to mull over it for a few weeks [As I get older, my brain runs sl o w e r ].

    Graham:

    When you tax something you will end up getting less of it, in this case it’s the supply of land- leaving aside issues like a socialist monetary regime that only useful idiots support and/or don’t understand.

    Take away those government charges etc. from the equation and you will end up with cheaper land in the estates. Take away nimbyism and stupid code along with height restrictions and it will help settle down the market in the inner burbs.

    If you X out the abusive and condescending way “agatha” is talking to you, she is basically right.

    Most often if not in all cases government intervention is the yellow brick road of good intentions that invariably leads to hell. The market is far better in terms of the allocation business than a couple of public servants.

  149. Fyodor says:

    If you X out the abusive and condescending way agatha is talking to you, she is basically right.

    Heh. I set a little test for you there, Josephine. Did you notice that I DIDN’T tear another strip off you last time around, after you professed a desire for “civil” discussion?

    Yet it only took two comments for you to fall off your moral high horse with a resoundingly loud thump. As ever, you’re your own worst enemy, you clueless hypocrite.

  150. Jc says:

    Hi Fyodor

    Seeing you didn’t respond to my armstice proposal I thought you were still in the trenches pointing that howitzer at me. So you do want to call a truce and leave hostilities in the past. That’s good to hear if it’s true. Do you?

    I suggest you take it easy with Graham Bell. H’s a decent older gentleman who spent a few tours of duty in Vietnam. He deserves a little respect even if you disagree with him. He doesn’t have any economcis training so the softly softly approach goes a long way. Try it for once.

    Oh by the way, let me know if you want a T-shit which says “Thread of Doom Veteran”.

    Thanks Fyodor.

  151. JC,
    If those shirts are around I want one too, please.

  152. Jc says:

    They’re not, Andrew, but I’ll get some made up. How many do you think i ought to get done. Lol.

  153. Graham Bell says:

    Kevin Cox [147]:
    Sounds good …. but human nature being what it is, there will always be crooks who will try to beat the system, even if the crooks are the ones running the country [and we have seen a few kleptocracies lately]. Best you can hope for is making it more trouble than it’s worth for crooks.

    JC:
    Well actually, I did only one tour of duty in South Viet-Nam itself; it was duty elsewhere that was somewhat riskier …. but far more relevant to this discussion is that in my professional life I got to see too many people harmed unnecesarily so I don’t take kindly to ignorant smuggery and scorn at those so harmed.

    Never mind any of the moral issues: depriving anyone, even a complete dill or dropkick, of access to a modest decent place they can be sure of calling home is a stupid and potentially hazardous thing to do.

    If it happens to an individual, it is sad – and it will go unnoticed.

    If it happens to a increasing number of people and those people are intelligent, hard-working and have done everything the system seemed to require of them …. and they still don’t have a dwelling they can call their own home, it will be noticed because civil unrest is hard to ignore.

    If some of these same people, desperate to get a home of their own, get ripped off by predators at the bottom end of the housing and finance markets — predators who are still ignored by politicians and industry leaders alike — you have a recipe for disaster.

    Pointing to the chronically inadequate housing of the defunct Communist bloc and believing that it proves people will put up with anything without causing trouble fails to take into account a major difference between that and the system here: a couple of generations of Australians have grown up with expectations that will be able to enjoy all the good things this economy can offer — including a place to call home; reaction to that frustrated ambition will have a very different outcome to that of a Soviet citizen being unhappy about having to put up with a tiny crowdwd flat.

    Agree with you when you say

    “Most often if not in all cases government intervention is the yellow brick road of good intentions that invariably leads to hell.”

    [tell me about it!] however the market can be just as bad a “yellow brick road” at times too …. and the current non-luxury housing market in Australia is not looking very good at all.

    Fyodor:
    So you don’t like me? Bad luck.
    By the way, since

    “Us failed elitists in the white-shoe brigade need your informed and decisive leadership in these perilous times”.

    Exactly what sort of a salary and goodies package are you offering with the position?

  154. Kevin Cox says:

    Graham, Andrew, Fyodor, Nicholas and jc,

    Thanks for your comments. I’m still interested in comments about the underlying ideas but not in arguing about what was said and the meaning of it. I want to understand trading and how we can improve its operation. The approach I have been using and which I am convinced will prove productive follows.

    A trade is a record of a transfer of something between parties. The record includes the parties, a description of what was transferred, measures associated with the transfer and the rules governing the transfer.

    Nowadays when we do a trade we have all these things in a computer record. That is, the model of the trade is the trade.

    What this means is that I can build a trading system and observe what happens. The “model” of the system is a rerun of trades but with different rules and with different assumptions about the behaviour of the parties and observe the results.

    The problem with mathematical models and with models based on words is that they attempt to model aggregate behaviour and from that infer what we could do to trading rules. Aggregate behaviour is an emergent property of many individual trades and it is the rules around those individual trades that are important in changing the outcomes of the total system. I now believe that the simplest way for me to understand trading systems is to build the real system then to model what happens using the real system.

    I have been attempting to discuss what will happen by using economic models (as I understood them) as a way to see what would happen if we change some of the rules of trading. I see now that while that is interesting it is not terribly productive and a better approach is to change the rules, observe what happens, and then make an explanation.

    For those that are interested the rules we are changing in our Rewards systems with respect to trades are that we keep track of money from the time it was created and restrict its use depending on how it was created – and that is exactly how I will now explain it to potential users. I did it this way on Friday with an organisation with Energy Rewards and it got a good reception and there is every possibility it will lead to them using our system.

    With Energy Rewards we said.

    Your organisation can give people Energy Rewards for whatever reason you decide. You can also decide how those Rewards can be used and we will tell you the outcome of the system. If you are unhappy with the outcome then tell us and we can change the rules for you. The rules that we suggest are that you only allow expenditure of Rewards on ways to build infrastructure to reduce greenhouse gas emissions – but you could only allow it to be spent on “green energy” or ….

    We suggest the organisation use the same system as other organisations because that makes it easier for the consumer – and it will be cheaper for the organisation issuing the Rewards.

    Whenever I attempt to describe what will happen in aggregate terms then the whole thing breaks down because we do not know and we cannot predict accurately what will occur – it just becomes a matter of opinion. You can see what happened in this discussion. As soon as I try to explain things in terms of currency all sorts of extraneous things come into the arguments that have little to do with what will go on.

    If we ever get around to doing something about housing I will first build the system, generate some possible transactions, run a simulation then go to a lending institution and say – give people loans for new housing as housing vouchers with the following rules. Our simulation shows the following.

    For an investment of $X, you gained 20% market share. Housing Vouchers took 5 years to get to par value. Your total earnings were XYZ. The Housing bubble in old houses etc….

  155. Graham Bell says:

    Everyone:
    A solution to several worsening problems would be found by assisting long-term unemployed, welfare recipients and families that just can’t cope move from urban areas to dying country towns.

    Doing so would free up some urban housing, revitalize dying towns, safely disperse concentations of potential rioters, help keep essential businesses and services in regional Australia, bringing unexpected skills into unlikely places without recruiting costs, etc., etc., etc.. Spin-offs and multplier effects galore; some immediate [e.g., having enough children attending to prevent yet another country school being closed down], others kicking in within a few years [e.g., reducing the chances of young people being caught up in organized crime and thus reducing the costs of the prison system]..

    Everybody wins, nobody loses.

    Not quite everybody!!

    Just heard a news item. N.I.M.B.Y. in the extreme.

    Apparently, there are some layabout tax-dodging, tariff-bludging sheepshaggers who are peeved that the urban poor are moving into their little patches. They see it as a threat, an invasion, a problem, a cost. They close their minds to the possibility of it being a terrific opportunity. These born-to-rule ratbags and grizzling fuddy-duddies are disturbed by all the fresh blood coming into their districts. They don’t like having people with funny new ideas coming and maybe challenging their prejudices and their stale thinking.

    Yet it was only two months ago that a local government spokesman said

    “A Rural and Regional Taskforce meeting in Parkes today will be urged to come up with alternative policies for attracting new residents to inland New South Wales. The Mayor of the Warren Shire, Rex Wilson, will ask the State Government to limit further growth of the Sydney metropolitan area.
    He says it would be more viable to give assistance to rural communities to
    create employment than fund more infrastructure for a stressed city.
    Most of our centres would have the infrastructure already in place to handle 20 to 30 per cent more people without any stress at all,” he said. ” [[my emphasis]]

  156. Fyodor says:

    Hi Fyodor

    Seeing you didnt respond to my armstice proposal I thought you were still in the trenches pointing that howitzer at me. So you do want to call a truce and leave hostilities in the past. Thats good to hear if its true. Do you?

    I suggest you take it easy with Graham Bell. Hs a decent older gentleman who spent a few tours of duty in Vietnam. He deserves a little respect even if you disagree with him. He doesnt have any economcis training so the softly softly approach goes a long way. Try it for once.

    Oh by the way, let me know if you want a T-shit which says Thread of Doom Veteran.

    Thanks Fyodor.

    Your “armistice proposal” [FMD you do go in for melodrama, don’t you?] is worthless, as you proved by breaking the last truce, over at Catallaxy.

    No, you can’t be trusted to hold a truce. I’ll just have to keep hammering you so long as you misbehave. Every so often you’ll cross the line and I’ll have to teach you some more painful lessons. If you behave, you needn’t fear me. Much.

    Nice idea on the t-shirt. I suggest a stuffed roast turkey for the logo.

  157. Fyodor says:

    Fyodor:
    So you dont like me? Bad luck.

    Not at all. Fact is, I DO like you – I’ve enjoyed your blogging at LP, f’rinstance. I’m just not inclined to cut you any slack if you adopt a muddle-headed moralising tone with me. It doesn’t progress the argument and, as should be clear from my responses, I take my own counsel when it comes to ethics.

    By the way, since

    Us failed elitists in the white-shoe brigade need your informed and decisive leadership in these perilous times.

    Exactly what sort of a salary and goodies package are you offering with the position?

    The rewards are entirely spiritual, my son.

  158. Liam says:

    Nice idea on the t-shirt.

    I’d be up for one of those too, if they came in a size under XXL.

  159. Jc says:

    Ok Done.

    Liam, its nice to hear your dulcet tones. Where have you been? I hope you didnt lose the beret on a windy day and been looking for it ever since.

    I’ll get them made up and send them out to you guys. You can give Fyodor his. One size fits all. L.

  160. Graham Bell says:

    Fyodor [158];
    Thank you for your kind words.
    However

    Im just not inclined to cut you any slack if you adopt a muddle-headed moralising tone with me

    similarly, having had to pick up the wreckage of humanity time and again after predatory lenders have done their damage, I do get a bit pissed off and less than impressed by elegant sophistry.

    1. It would be nice if the laws on manslaughter were amended so that where a suicide was manifestly caused by predatory lending or by screen-jockeying, the culprits could be chucked in the slammer and upon release fobidden to ever work in finance again. Oh yes, and have their assets confiscated, sold and the money so raised by that given to the victim’s family as compensation. As Voltaire said in another context, “To encourage the others”.

    2.

    The rewards are entirely spiritual, my son.

    No way! Hard cash on the barrel-head will do just fine, thanks. I’ve already put blanco on my shoes and started looking at glossy “lifestyle” ads. When do I start? :-)

    3. Great news yesterday! The Mortgage and Finance Association is tightening their code on predatory lending. [Wonder if they read this thread on Club Troppo? :D ]. I do hope that in doing so, they don’t impede normal honest vendor finance for the purchase of a dwelling; that really would be throwing out the baby with the bathwater.

  161. Fyodor says:

    similarly, having had to pick up the wreckage of humanity time and again after predatory lenders have done their damage, I do get a bit pissed off and less than impressed by elegant sophistry.

    You see? That’s more of it. Not only are you bignoting yourself again, you’re proclaiming the superiority of bleeding-heart sentimentalism over the facts.

    The facts are these: nobody can be legally forced to enter a financial contract. The concept of “predatory lending” is a furphy propagated by the wilfully ignorant to allow the stupid to avoid their financial obligations. So-called “predatory lending” can ONLY occur when the borrower ALLOWS it to happen.

    I’ll cop the “elegant”, but you ain’t seen nothing yet if you think that was sophistry.

    No way! Hard cash on the barrel-head will do just fine, thanks. Ive already put blanco on my shoes and started looking at glossy lifestyle ads. When do I start?

    We pay monthly in arrears. You can go to work right now. Just sign on the dotted line here…don’t worry about the fine print; it’s all boilerplate.

    What do you mean you want to understand the contract? You trust me, right?

    Great news yesterday! The Mortgage and Finance Association is tightening their code on predatory lending. [Wonder if they read this thread on Club Troppo? ]. I do hope that in doing so, they dont impede normal honest vendor finance for the purchase of a dwelling; that really would be throwing out the baby with the bathwater.

    Yeah, it’d be a shame if onerous regulation and compliance costs made borrowing more expensive for people who want to buy houses. That would be a baaad thing, yairs?

  162. Kevin Cox says:

    Fyodor,

    A statement such as “The facts are these: nobody can be legally forced to enter a financial contract” is a one dimensional statement in a multi dimensional world. People can be forced into financial contracts because there is no other realistic choice. If I want to live in Australia I have to pay my taxes. This is an implied financial contract and I have no choice as noone else wants me to live in their country.

    If I want to borrow money for a house I have to put up my salary not my house as security on the debt. I have no choice if I want a place to live and I wish to try to own it myself because the market place has been constrained by the lenders with the compliance of regulators so that there is no other realistic choice.

    Blaming borrowers for the house price bubble is a blame the victim game. It is the same as blaming a student for their HECS debt or a refugee for the “Pacific Solution”. It is a system problem not a moral or legal issue.

    The current Australian house price bubble is the result of lenders being able to divorce their loans from the risk of a drop in house prices. It is not the result of excessive costs or regulations or a reduction in house availability. These are the outcomes of the separation of debt risk from the asset against which debt is created – not the cause of the problem.

  163. Kevin,
    I am sorry, but in this you are just plain wrong, and on several issues.
    1. The marketplace for lenders is not materially constrained – at all. Regulations do prohibit entities other than those licensed under the Banking Act 1959 from setting up shop to take ordinary deposits from lenders, but nothing stops anyone from becoming a lender themselves – witness the large number of non-bank lenders around. The fact that these guys are not constrained by banking regulations (just needing an AFSL) and yet still make only wafer-thin margins (if not losses) clearly shows the banks are not making a fortune out of home loans. I can verify this from my work inside many banks around the country. It simply is a myth.
    2. You can get loans that have limited recourse, so that only the home is at risk. As I said earlier, it is just not common as they are more expensive. Again, here you are simply wrong.
    3. I am not aware of anyone here blaming the borrowers for the house price “bubble”. It is the interplay of supply and demand, as it always is. In this instance supply has not been able to increase sufficiently to meet demand, causing house price inflation. Simple as that.
    I am more than happy to continue, but first I would suggest an intrusion by the facts would be in order.

  164. Fyodor says:

    Again, Andrew beat me to it, Kevin. In my offence, I was going to be more rude.

    Aw, feckit, I’ll give it to you anyway:

    A statement such as The facts are these: nobody can be legally forced to enter a financial contract is a one dimensional statement in a multi dimensional world. People can be forced into financial contracts because there is no other realistic choice. If I want to live in Australia I have to pay my taxes. This is an implied financial contract and I have no choice as noone else wants me to live in their country.

    No, Kevin: it is a fact that you cannot be forced to enter a financial contract against your will.

    Paying tax is the law. Borrowing to buy a house is a choice. You may not have an alternative source of funding, but nobody’s holding a gun to your head forcing you to buy houses. Try that with taxes.

    If I want to borrow money for a house I have to put up my salary not my house as security on the debt.

    No, you almost always have to put up your house as well as your personal guarantee as security. As Andrew noted, limited recourse (i.e. the bank doesn’t get to go after your other assets if you default on the home loan) isn’t very popular with lenders here, for the predictable reason.

    I have no choice if I want a place to live and I wish to try to own it myself because the market place has been constrained by the lenders with the compliance of regulators so that there is no other realistic choice.

    WTF? You could always save your pennies and NOT borrow. However, like most people you will prefer to borrow now and repay later, and there is a plethora of borrowing options for you to choose from. Again, Andrew highlights how detached from reality you are on this point.

    Blaming borrowers for the house price bubble is a blame the victim game.

    I didn’t blame borrowers for the “house price bubble” and, as Andrew noted, nobody else did either.

    It is the same as blaming a student for their HECS debt or a refugee for the Pacific Solution. It is a system problem not a moral or legal issue.

    Dumb and dumberer examples. If a student wishes to pay for their education upfront, they can. If they wish the taxpayer to do so upfront, they can enter into a HECS contract. Again, nobody is forced to either study or enter into a HECS contract. It’s their choice.

    The last time I checked, refugees weren’t offered a choice as to whether they participated in the “Pacific Solution” or not. Home buyers, however, DO have a choice as to whether they borrow, who they borrow from and on what terms.

    The current Australian house price bubble is the result of lenders being able to divorce their loans from the risk of a drop in house prices.

    WHAT? Would you care to explain that with a modicum of factual logic? How are lenders “able to divorce their loans from the risk of a drop in house prices”? A home loan has a face value, i.e. the outstanding principal and accumulated interest, which is owed by the borrower to the lender. A house has a price, which fluctuates with the prevailing market. Why should the two be connected, other than in the event of default, and security recovery etc? Moreover, WTF does this supposed connection have to do with driving up house prices?

    It is not the result of excessive costs or regulations or a reduction in house availability. These are the outcomes of the separation of debt risk from the asset against which debt is created – not the cause of the problem.

    There are all sorts of factors affecting house prices. The “separation of debt risk from the asset against which debt is created”, if such a thing can be identified, isn’t one of them.

    In conclusion, Kevin, I second Andrew’s suggestion that you acquaint yourself with the facts.

  165. Kevin Cox says:

    Andrew,
    Please look at what I have said not what you think I have said.
    1. I have said nothing about lenders and regulations etc. and nothing about constraining lenders in terms of issuing loans – except to make sure that lenders take some of the risk associated with the asset against which they are making the loan – this is not an unreasonable request because people take loans to create a particular asset.
    2. I have not said that you cannot get limited recourse loans – they are as you say more expensive so why would you do that? There are many reasons it is difficult to get a limited recourse loan – the most obvious being that it is worse for the lender.
    3. I am not “blaming” anyone. I am just saying that the rules of the system favour the person issuing the loan because the “rules” say they can divorce the loan from the asset that backs the loan. However, in my reading I find just about everyone saying the housing bubble is caused by a lot of money being available for loans on houses.

    I am more than happy to continue, but first I would suggest a reading of what I am saying not a “reinterpretation”:)

    I have been trying to say that the problem is a systematic one. The systematic problem is that it has become worthwhile for people to give loans because their risk is very low because of the rules associated with loans. I started this whole process the wrong way round. I should have started with the above. That is, established that the housing bubble is caused by too much money chasing too few goods – not from a lack of housing. Then if people then agree with that and that is the way I read most of the comment about the subprime lending debacle – we can try to look for the reason(s). One reason is this off loading of risk.

    Now how to stop the off loading of risk. That is where the idea of tagged money comes in – this is the same money as always just with some restrictions on its use – which we do all the time but not in a systematic way as suggested.

  166. Fyodor says:

    Kevin, people are responding to WHAT YOU ACTUALLY WROTE. If you mean one thing, don’t write another.

    In relation to your latest effort, are you suggesting that if a bank lends money to a home buyer, and the home purchased with that money subsequently declines in value, that the bank should share in the home’s loss of value? Is that an accurate summary?

  167. Kevin Cox says:

    Fyodor,

    The difficulty for a person such as myself who is not familiar with the meaning of words as others on this blog use them is that it takes a “conversation” and interaction to finally understand what the other is saying.

    However, you have reached the point that I have been trying to make and yes that is what I am saying. Of course the revaluation of the asset only becomes an issue when the house is sold. You still pay the interest on the full loan while you have it but when you sell the house then you both share the loss. Loans will cost more but lenders will be more careful. This is a small change but because of the way adaptive systems work it is likely to have significant effects. My previous stuff about money was describing how to implement this idea efficiently.

  168. Liam says:

    That is, established that the housing bubble is caused by too much money chasing too few goods – not from a lack of housing. Then if people then agree with that…

    If you do, you’re sadly wrong. There’s a general housing shortage in most metropolitan areas of Australia, caused by the growth in population over the last decade or two. It goes for the rental market especially, where access to credit is not an issue.
    Also, Fyodor, as we’ve discussed before, as it stands the HECS/HELP/PELS aren’t contracts either, nor exactly loans. They’re just extra tax contributions demanded of students, and the Government has no claim to any ex-students’ assets.
    Thank goodness.

    You still pay the interest on the full loan while you have it but when you sell the house then you both share the loss.

    Where can I sign up for this magical money-burning scheme?

  169. Fyodor says:

    OK, well at least we got somewhere.

    What you’re suggesting is that banks take equity risk (i.e. the value of their asset – the loan – can fall due to movement in the price of houses) for debt return (i.e. the bank doesn’t get any of your capital gain when you sell). They would only do that if they received a commensurately high interest rate to compensate, thus making borrowing much more expensive. This might be, for example, another 5% on the cost of a home loan. So, instead of paying, say, 7.5% on a home loan, borrowers would now have to pay 12.5%. Aside from the (negative) effect on house prices, this would make affordable home-ownership even more difficult than presently. Just imagine what the property market would look like if home loan rates were at 12.5% right now. Sure, houses would be cheaper (they’d fall in value), but who could afford to buy? Certainly not those people on the lower rung you’re proposing to help.

    As Andrew pointed out before, the high cost of housing is a function of high demand relative to low supply. Your solution would reduce demand (because fewer people would be able to afford the interest cost you’re talking about), but also incur massive costs in terms of wealth destruction (all houses fall in value, not just new supply) and market distortion. Not a great idea.

  170. Kevin,
    I can see a number of practical problems in implementing this. Not least of which would be a question of deciding the ratio in which the loss is shared. If the house is paid off, but there is still a loss, can you go back and get some money off the bank? In the event that the house burns down without insurance (more common than you might think) how are the losses split then?

    Would you also propose to share any gain?

    Personally, if you are looking to do this sort of a borrowing, there are two in Australia that do it – MCCA and Iskan Finance, both operating under Sharia principles. Like almost any other finance structure, you can do it in Australia. You just need to look.

  171. Graham Bell says:

    Fyodor [162]:

    ” …. you bignoting yourself again ….”

    Really? Would you expect me to comment on the finer points of playing the violin in concert or on quilt-making or on the history of veterinary science in Bulgaria or on anything about which I have no experience or knowledge, would you? Yet you howl like a banshee when I do speak about matters about which I, along with thousands of others, do have at least some experience and knowledge. You can’t have it both ways.

    ” …. nobody can be legally forced to enter a financial contract. The concept of predatory lending is a furphy propagated by the wilfully ignorant to allow the stupid to avoid their financial obligations”.

    In your Perfect World that might be true; however, here on Planet Earth things are rather different because we are forced to endured the physical laws of the universe as well all as the imperfections of human nature. Here, ordinary sensible people may be forced by their circumstances and by their lack of both options and training to enter into deals which look alright but which an experienced professional person would decline to sign. On Post 165, you did say

    “Borrowing to buy a house is a choice. You may not have an alternative source of funding, but nobodys holding a gun to your head forcing you to buy houses”.

    No guns in sight so no felony has been committed, has it? What if instead of a gun, the victim had been presented with plausible figures that DELIBERATELY!!! gave the false impression that what was in deal [which may not necessarily be a contract or a loan and certainly not a regular mortgage] was, firstly, capable of being completed to the victim’s benefit, and, secondly, was even cheaper than paying “dead rent”. Typically, the victims of this type of shonkiness are not graduates with MBAs or PhDs, they are instead untrained, uninformed, inexperienced, desperate and vulnerable. This isn’t caveat emptor, this is predation.

    You suggested saving

    “You could always save your pennies and NOT borrow”.

    What an admirable idea! Alas, the real world keeps intruding into such brilliant ideas …. where do you think these people are going to live while all this is going on? In a tent in the park or maybe in a hobo camp? If these people are paying rent then they have bugger-all chance of saving up for Christmas cards let alone for the deposit for their own dwelling through the regular mortgage market.

    ” …. itd be a shame if onerous regulation and compliance costs made borrowing more expensive for people who want to buy houses.

    What?? The Mortgage and Finance Association cracking down hard on the crooks and the plunderers ahead of any government action would mean LESS regulation, not more. [As well s reducing the risk of some of those harmed by predatory lenders being recruited by the masties].

    “We pay monthly in arrears”. :-O No, no, no …. pay in ADVANCE, thank you. Remember, “No Pay, No Swiss” so better pick up a halberd of your own and learn to use it very very fast.

  172. Jc says:

    Kevin

    There are financing methods by some private firms that do lend on a shared profit/loss exit. There are also reverse mortgages (It’s called the ghoul market) which is far more developed in the US. Here the lender takes a ghoulish view on how long you will live and lend money agaisnt the house on that basis. The borrower gets the mullah and the lender gets the house when the lender croaks it. This usually suits poeople with terminal illness etc.

    There is really nothing to stop people borrowing and lending on the basis you suggest. However only a very small number of poeople do so.

    The problem with this type of lending is that the lender willl have to carry a narrower spread between the cost of funds and the loan. This is something that won’t happen for the vast majoprity of loans.

  173. Fyodor says:

    Also, Fyodor, as weve discussed before, as it stands the HECS/HELP/PELS arent contracts either, nor exactly loans. Theyre just extra tax contributions demanded of students, and the Government has no claim to any ex-students assets.

    You were wrong last time, too.

    So if you pay full fees, do you pay HECS/HELP/WTF?

    What does the “L” stand for in HELP? And of course it’s a contract. The fact that the government packages up the programme in a nicely wrapped bundle of middle-class porky subsidy doesn’t change its fundamental purpose: it’s a loan.

    You only incur the financial obligation if you consent to let Tommy Taxpayer pay for your education. It’s a choice, and an obligation a student must AGREE to. The issue of asset security is irrelevant. It’s a stupid example with no bearing on this issue, but it’s not mine.

  174. Jc says:

    Kevin

    We have a serious monetary disequalibrium in the country and along with the rest of the world. That’s the real problem that one noted commenter here has avoided like the plague. One of the big reasons land prices have risen is that the RBA basically prints too much money. The result is that people look to protect themselves against monetary debasement having the effect of causing bubble like conditions in land prices.

    Other stuff is important, but this is the biggest problem.

    The sub-prime issue around the world that you read about recently was a symptom of this malaise. The world’s central banks solution was to lend more money- this time even agaisnt risky assets thereby- setting the ground for another bubble ins some other part of the world economy.

  175. Fyodor says:

    Really? Would you expect me to comment on the finer points of playing the violin in concert or on quilt-making or on the history of veterinary science in Bulgaria or on anything about which I have no experience or knowledge, would you? Yet you howl like a banshee when I do speak about matters about which I, along with thousands of others, do have at least some experience and knowledge. You cant have it both ways.

    Actually, Graham, I DON’T expect you to comment on your extra-curricular activities. That’s the point: they’re irrelevant. The fact that you’re keen on bandaging lepers etc. has no bearing on the issue at hand. It may make you feel good about yourself, but does nothing for the argument, because it proves nothing. I can repeat this again if you really want. All you have to do is tell me again what a wonderfully merciful and humane person you are.

    In your Perfect World that might be true; however, here on Planet Earth things are rather different because we are forced to endured the physical laws of the universe as well all as the imperfections of human nature. Here, ordinary sensible people may be forced by their circumstances and by their lack of both options and training to enter into deals which look alright but which an experienced professional person would decline to sign.

    “Physical laws of the universe”? You’re reaching for hyperbole there, buddy. The key question is whether people need to be protected from their own stupidity when entering contracts. You either believe adults should be left free to fuck up their own lives, or you don’t. Clearly you’re in the latter camp of nanny-statists. Tell me something I don’t know.

    No guns in sight so no felony has been committed, has it? What if instead of a gun, the victim had been presented with plausible figures that DELIBERATELY!!! gave the false impression that what was in deal [which may not necessarily be a contract or a loan and certainly not a regular mortgage] was, firstly, capable of being completed to the victims benefit, and, secondly, was even cheaper than paying dead rent. Typically, the victims of this type of shonkiness are not graduates with MBAs or PhDs, they are instead untrained, uninformed, inexperienced, desperate and vulnerable. This isnt caveat emptor, this is predation.

    No, it IS caveat emptor. That’s the point of the expression, FFS.

    What an admirable idea! Alas, the real world keeps intruding into such brilliant ideas . where do you think these people are going to live while all this is going on? In a tent in the park or maybe in a hobo camp? If these people are paying rent then they have bugger-all chance of saving up for Christmas cards let alone for the deposit for their own dwelling through the regular mortgage market.

    No, Graham. Most people do some fucking homework, and don’t let themselves be fooled by the unholy army of financial shysters that seem so terrifying to you. They consequently end up with a bog-standard mortgage that isn’t a free lunch. That’s what the vast majority of mentally competent adults do, Graham.

    Somehow all of these genii manage to get by in their financial dealing without Uncle Graham looking out for their best interests. I ask you, Graham: how on Earth do they do it?!!

    What?? The Mortgage and Finance Association cracking down hard on the crooks and the plunderers ahead of any government action would mean LESS regulation, not more. [As well s reducing the risk of some of those harmed by predatory lenders being recruited by the masties].

    Um, Graham, how does the MFAA “crack down hard on the crooks and the plunderers” if membership of said organisation is voluntary? Please don’t pretend that what you’re asking for is industry self-regulation.

    We pay monthly in arrears. :-O No, no, no . pay in ADVANCE, thank you. Remember, No Pay, No Swiss so better pick up a halberd of your own and learn to use it very very fast.

    Halberds, Graham? What’s there to learn? You just have to know your way around the pointy end. I’m not sure I’d trust you to get the point, however.

  176. Graham Bell says:

    Fyodor [176]:
    In a reasonably serious and informative discussion on borrowing and lending and on ways of solving the housing dilemma, you have made a significant contribution …. unfortunately, little of it was towards the subjects under consideration and much of it was merely slinging insults. You are starting to sound like some of the people I used to see every day when I was an undergraduate: long on “rhetoric” but short on ideas.

    You don’t have a clue about why responsibility, consistency and ethical behavior can improve a firm’s long-term profitability, do you? I’ll give you a clue: it’s got nothing whatsoever to do with being soft and warm-and-cuddly but a lot to do with gaining and retaining customers and with avoiding costly trouble.

    You know diddly-squat about psychology, especially customer behavior, too. That probably comes from your obsessive bookishness and your self-imposed remoteness from the rough-and-tumble of life. I have already offered polite advice about how you can overcome your obvious deficits there: volunteer your spare time to one of the charities. Salvation Army, St Vincent de Paul, Brotherhood of St Lawrence, Lifeline, a Buddhist charity — take your pick — if you really do know something about finance, they will welcome your expertise with open arms; think of it as a FREE part-time postgraduate-level course. Go on. Give it a go. Of course, you could decline to do so but ….

    JC [175]:

    “One of the big reasons land prices have risen is that the RBA basically prints too much money. The result is that people look to protect themselves against monetary debasement having the effect of causing bubble like conditions in land prices”.

    . True but that’s only part of the picture. You didn’t say anything about the costs of holding that land – rates [local government annual property taxes], maintenance costs or the opportunity cost of having so much of one’s loot tied up in a hard-to-move asset. As the dollar heads pesowards, these costs would surely take off like a spacecraft, slight time lag notwithstanding. {no, JC, not being picky; just saying, that’s all :-) ].

    Kevin Cox:
    Won’t be able to look properly through all this for another fortnight yet. When I’ve done so I shall let you know with a short off-topic comment on another thread. Cheers.

  177. Jc says:

    ” You didnt say anything about the costs of holding that land – rates [local government annual property taxes], maintenance costs or the opportunity cost of having so much of ones loot tied up in a hard-to-move asset.

    Running costs aren’t that bad here, Graham if the US is anything to go by.

    ———————-

    As the dollar heads pesowards, these costs would surely take off like a spacecraft, slight time lag notwithstanding. {no, JC, not being picky; just saying, thats all :-) ].

    Which the Dollar, the US Buck? Why? (Assuming)Our doll has actually being appreciating against the basket seeing the US doll has been falling and the Chinese Yuan etc. is tied to the US buck (thereby also falling against the Aussie).

    I’m not sure how the exchange rate has a direct impact on land prices. Marginally, very marginally it could actually have a downwards effect as it costs foreigners more to buy in as our dollar appreciates.

  178. Liam says:

    Graham:

    …a Buddhist charity…

    Name one. I can’t. Anyway, a Buddhist charity set up to help people who’re paying unserviceable debts sounds like something out of CS Lewis.
    Fyodor:

    It’s a stupid example with no bearing on this issue

    Agreed, and I agree it’s not yours. On that enticing note, though, at this late point in the otherwise boring thread, let’s go, boxhead.

    So if you pay full fees, do you pay HECS/HELP/WTF?

    You do not. Full fees buy you a “get out of taxes free” card, subsidising the university system to the relief of the Commonwealth. Hooray!

    What does the L stand for in HELP? And of course its a contract. The fact that the government packages up the programme in a nicely wrapped bundle of middle-class porky subsidy doesnt change its fundamental purpose: its a loan.

    Yes, it stands for Loan, but that’s about where the lending, borrowing and obligation ends. Just because tertiary study’s a choice freely made, doesn’t make its porky subsidy in any way contractual, unless you class the “social contract” in with the other paper kinds. Unlike most Loans, for the lucky student who benefits, there is no collateral, no income test, no equity (apart from the proverbially worthless Australian degree), no cash to hand to nick off to Buenos Aires with, and, should the graduate lapse into unemployment, disgrace and despair, no expectation to repay. Fuck me, I wish I could get a home or business loan like that—I should get into farming.

    You only incur the financial obligation…

    When? Graduates pay the “loan” back if you crack the threshhold, and then, on a sliding scale of contribution. Some financial obligation.
    The Commonwealth’s benefit to tertiary education funding, meanwhile, is in the immediate political advantage of satisfying an electorate who don’t want to live in an unskilled, untrained, uneducated and ignorant country, a state of affairs fully imaginable and demonstrable (without Government assistance!) at another blog we both know.

  179. Liam says:

    Did I say CS Lewis? I meant Lewis Carroll. But you all know who I meant, after all, when I use words, they mean exactly as I choose them to mean.

  180. Kevin Cox says:

    Fyodor, JC, Andrew,

    Rather than try to answer your questions and objections let me now take you through a scenario with respect to Rudds’s latest initiative on selling off Commonwealth Land and how it could be the circuit breaker – because ultimately when you have an asset bubble someone somewhere is going to have to pay for it. The scheme I propose will be the Commonwealth that will take a loss but it will create affordable housing for the foreseeable future.

    First let us agree that there is an asset bubble and that house prices – for whatever reasons have increased more than we would expect. One of the things we could do to alleviate the problem would be to reduce the price of new land or the cost of changing land use from low density to high density. This would reduce the price of new houses which over time would reduce the price of existing houses.

    How can we do this without causing existing house prices to tumble because that would be political suicide.

    The objective is to get many new houses built, without initially reducing the prices of the existing house market but to still get a lot of new affordable houses built.

    Let us change the rules associated with the money raised when houses or dwellings on newly released commonwealth land are sold. Let us make it so that whenever any houses or dwellings built on this land are sold then the money obtained from any such sale MUST be spent on building new houses.

    How can we implement this? Well one way is to tag the money obtained from the sale of houses built on the land and to keep track of the money and only allow it to be used to build new houses. That is tag some money with an extra rule associated with its use.

    Think through the implications of this.

    A builder or purchaser buys the commonwealth land. The Commonwealth sets the price of land to its “development cost” rather than the “market cost”. This means that whenever any house built on this land is sold the then the money must be used to build another house. If someone has taken out a loan to build the house then we have – in effect – tied the loan to the asset class new house. This tagged money will be of lower value than the underlying currency and this difference will reflect the difference between house bubble prices and underlying new house prices built on cheap land.

    Will this work?

    I don’t know because like all changes in complex systems all sorts of emergent effects will occur. However, I think it has a high chance of pricking the house bubble by putting affordable new houses on the market. The really nice thing is that it requires no changes to laws, or to existing markets. All it requires is a change to how we treat some money. The increased transaction costs could be paid for from the interest on money from the sale of houses on Commonwealth Land while the money was “unused”.

    Perhaps you still disagree with the outcome and I agree there is some doubt that it will work. However I suspect many readers will agree that it has a good chance of working. You had trouble with the concept before because I tried to explain what was going on by looking for the underlying reason and then explaining my solution in economic terms.

    However, forget my attempt at the analysis of the underlying reason and my attempts at explaining it in economic terms and just think of what is likely to happen. My guess is that you will agree that we will get some lower cost houses built and that we will get a lot of money available to build new houses so we will get more new houses built. This will reduce the demand for old houses because there is a lot of money that is only available for the “new house market”.

    We can set the system in operation observe what happens then invent our explanations for what has occurred. Even if it works I doubt many of you will agree with my explanation:)

    Graham
    thanks for taking the time to consider what we are proposing. I am convinced that adjusting the rules associated with money can be used to achieve all sorts of desirable social goals while still retaining the “magic of the market” in the way we allocate money. I look forward to your future questions.

  181. Graham Bell says:

    JC [178]
    Sorry, my inexactness. I did mean the AUD but over time as the USD’s problems start having an overall damaging impact on the Australian economy rather than just on today’s AUD:USD exchange rate. Admittedly, the costs of maintaining vacant or unused land are not huge but they are cumulative …. but what about opportunity-costs?.

    What do you think of Labor’s pronouncement just now on releasing surplus government land for housing? Don’t recall them saying anything about long-term affordable housing loans nor about inexpensive, appropriate and technologically-advanced house/flat building and nothing at all about renovating/upgrading the current housing stock.

    Liam [179]:

    “a Buddhist charity set up to help people whore paying unserviceable debts sounds like something out of CS Lewis”.

    What???? Can you name any charity anywhere run by any organization set up with such specific restrictive parameters? Charities help those less fortunate than ourselves and it is only in the details of so helping that they tend to look at specific causes.

    I offered Fyodor a suggestion on helping himself/herself gain a first-hand understanding of why people do some of the unfortunate things they do to themselves; it’s up to Fyodor to decide whether to enlghten himself/herself or not.

  182. Liam says:

    Here’s a list, Graham. I’m still finding myself amused by the idea of Zen financial counselling.

  183. Graham Bell says:

    Liam [183]:
    That’s a partial list of financial counsellors who deal with a whole range of problems, not just those of unservicable debts. Thanks a lot for that though; have saved and filed your list :-) .

    The Buddhist and other non-Christian charities deal with a pretty broad range of distress and need …. but yes, the idea of Zen financial counselling is indeed intriguing; maybe there’s a Nobel Prize for Economics in there somewhere.

    Nicholas Gruen:
    This thread is quite informative but it’s getting a bit long and distant. Any chance of kicking off an updated thread “Will no-one rid me of these evil money lenders. Part Two”, please?

  184. Why is it that (at least in my experience) threads on the (OK – boring, even if I am odd enough to enjoy it) topic of banking and monetary policy seems to regularly end up a lot longer than most others?

  185. Jc says:

    It’s a very emotional subject, Andrew. Funny hey. More enemies have been created as a result of monetary stoushes than anything I can recall.

  186. Graham Bell says:

    Andrew Reynolds [185]:
    Blame Kevin Cox, it’s his fault an innovative [to me, anyway] set of concepts appeared here and caused all the discussion.

    A discussion of matters that affect my own standard of living might be time-consuming and make me feel tired …. but they can’t be boring.

  187. Kevin Cox says:

    Jc

    You must have lead a sheltered life if you find this ‘conversation’ emotional:)

    If you want to hear something that is completely different I will be giving a talk on World Usability Day (now that is something to get your mind around:-) at 2pm at Telstra Experience Centre, Level 4, 400 George Street, Sydney on how giving control to people over their electronic identities can lead to usable health care systems. Go to http://www.worldusabilityday.org/ to find out more. This is an unashamed promotion for this free talk but I can guarantee you will see an interesting demonstration that will surprise you.

    I have just put my name down to attend a conference titled Investment Strategies and Financial Market Dysfunctionality to be held on the 31st November at the Paul Woolley Centre for Capital Market Dysfunctionality Sydney University. With a title like that conducted by an organisation with that name it has to be amusing.

  188. Fyodor says:

    Graham Bell said:
    Fyodor [176]:
    In a reasonably serious and informative discussion on borrowing and lending and on ways of solving the housing dilemma, you have made a significant contribution . unfortunately, little of it was towards the subjects under consideration and much of it was merely slinging insults. You are starting to sound like some of the people I used to see every day when I was an undergraduate: long on rhetoric but short on ideas.

    Look up the meaning of the word rhetoric, Graham. As for substantive contributions, my point earlier was about the effect of government charges on the supply of new housing. Your contribution to-date, in between the narcissistic moralising (which, BTW, commenced your hostilities with me), is incessant whining about so-called predatory lenders, who you proclaim exist, as evidenced solely by some anecdotal sob stories. Long on bullshit, zero ideas: look in the mirror.

    You dont have a clue about why responsibility, consistency and ethical behavior can improve a firms long-term profitability, do you? Ill give you a clue: its got nothing whatsoever to do with being soft and warm-and-cuddly but a lot to do with gaining and retaining customers and with avoiding costly trouble.

    OK, two points here:

    1. If, as you argue (and reasonably coherently, I might add) ethical business behaviour is its own reward, then your concerns about predatory lending are overblown. Why? Because shysters would do themselves out of business, and your bleating would be largely redundant.

    2. You dont have a clue about what I do or dont have a clue about. This is because you know virtually nothing about me. Why? Because Im not terribly interested in talking about myself, and certainly not on your scale.

    You know diddly-squat about psychology, especially customer behavior, too. That probably comes from your obsessive bookishness and your self-imposed remoteness from the rough-and-tumble of life.

    ..and yet more of it. Let me take you aside here and point out that youre making a typical mistake. You know nothing about me and so, in your vain attempt at ad hominem, youre attacking your imagined construct of me – a straw-man if you will. This is both ignorant and pointless on your part, and only a little entertaining for me, particularly as it tends to say far more about you than it does me. So far, Im apparently an elegant sophist of the white-shoe brigade, suffering from obsessive bookishness and self-imposed remoteness from rough-and-tumbledom. I also have a frightful dearth of understanding when it comes to customer behaviour. Actually, maybe this imaginative and contradictory character study is going somewhere after all: from your breathless commentary Im getting the distinct impression that Im vastly more interesting than you are.

    I have already offered polite advice about how you can overcome your obvious deficits there: volunteer your spare time to one of the charities. Salvation Army, St Vincent de Paul, Brotherhood of St Lawrence, Lifeline, a Buddhist charity take your pick if you really do know something about finance, they will welcome your expertise with open arms; think of it as a FREE part-time postgraduate-level course. Go on. Give it a go. Of course, you could decline to do so but .

    As I mentioned to you previously, your ethical counsel – disingenuous and full of moralising self-praise as it is – is worthless to me.

    Now, Graham: be a good chap and throw another orphan on the fire.

  189. Fyodor says:

    So if you pay full fees, do you pay HECS/HELP/WTF?

    You do not. Full fees buy you a get out of taxes free card, subsidising the university system to the relief of the Commonwealth. Hooray!

    Thats novel: a subsidy that actually pays for what you consume? Full fees means you pay – if only indirectly, inefficiently and on a subsidised basis – for your education; I dont subsidise Caltex every time I fill the tank.

    Also, as you well know, paying full fees doesnt get you out of paying taxes the taxes associated with HECS/HELP are simply the repayment of the debt incurred.

    What does the L stand for in HELP? And of course its a contract. The fact that the government packages up the programme in a nicely wrapped bundle of middle-class porky subsidy doesnt change its fundamental purpose: its a loan.

    Yes, it stands for Loan, but thats about where the lending, borrowing and obligation ends. Just because tertiary studys a choice freely made, doesnt make its porky subsidy in any way contractual, unless you class the social contract in with the other paper kinds. Unlike most Loans, for the lucky student who benefits, there is no collateral, no income test, no equity (apart from the proverbially worthless Australian degree), no cash to hand to nick off to Buenos Aires with, and, should the graduate lapse into unemployment, disgrace and despair, no expectation to repay. Fuck me, I wish I could get a home or business loan like thatI should get into farming.

    Coupla points here.

    First, if you take on HECS/HELP, you are entering into a financial contract. By choice. Nobody is forced to take on a HECS/HELP debt. There are any number of ways to finance the cost of education; HECS/HELP just happens to be such a good deal most people take it if they can get it.

    Second, as I pointed out, the fact that the government wraps up the deal with bells and whistles doesnt change the fact that it expects to be paid back, even after embedding plenty opork. HECS/HELP functions as a loan: that is its purpose. The lack of collateral requirements, income test, etc. are all features that make it particularly middle-class pork subsidised lending rather than your bog-standard, wealth-redistributing pork subsidised lending, but it is pork lending nonetheless.

    You only incur the financial obligation

    When? Graduates pay the loan back if you crack the threshhold, and then, on a sliding scale of contribution. Some financial obligation.
    The Commonwealths benefit to tertiary education funding, meanwhile, is in the immediate political advantage of satisfying an electorate who dont want to live in an unskilled, untrained, uneducated and ignorant country, a state of affairs fully imaginable and demonstrable (without Government assistance!) at another blog we both know.

    As Ive mentioned, its a pretty generous deal but, YES, it is a financial obligation. Again, the fact that the government is exceedingly generous doesnt change that fact.

    Your last sentence is a nicely framed regurgitation of the old public good furphy, i.e. that we would be deprived of the *coughs* immense social benefits provided by graduates if the government didnt pay people to study. You know how I feel about that one. You also know that I think HECS/HELP is pretty good policy on the whole. Id like to see it means-tested, but the middle-class will have their fiscal churn, after all.

  190. Liam says:

    You know how I feel about that one. You also know that I think HECS/HELP is pretty good policy on the whole.

    And you know that I’m with you on both arguments, if more strongly on the latter. I’m just saying that the critical negotiations that set up the HECS/HELP scheme weren’t between students and universities, they were between universities, the AVCC, and the Education Department.

    elegant sophist of the white shoe brigade

    Now that’s gotta go straight onto a business card.

  191. Fyodor says:

    “elegant sophist of the white shoe brigade”

    Now thats gotta go straight onto a business card.

    Yeah, I don’t mind the look of that either. Let’s see:

    WHITE SHOE BRIGADE N/L

    (B.F.D., M.Universe, UU)

    Elegant Sophist (Assistant to), Customer Care

    L69, Grayskull Tower
    Dark City, NSW 2666

  192. Fyodor,
    It can’t be an N/L unless it is mining something.
    I would suggest:
    WHITE SHOE BRIGADE LTD
    A company limited by guarantee and not having a share capital

    This would be an appropriate structure.

  193. Fyodor says:

    We mine blue-sky, Andrew. It’s how we keep our shoes so shiny.

  194. Jc says:

    Fyodor

    Love your effusive sense of humor

    Nice to see you refer to yourself as having libertarian instincts (at suitable times) and then reading this:

    “Id like to see it means-tested, but the middle-class will have their fiscal churn, after all.”

    So let’s maintain the same amount of money in the tax pool and means test the outgoings!

  195. Fyodor says:

    Nice to see you refer to yourself as having libertarian instincts (at suitable times)

    Um, where? I don’t think I’ve ever described myself as a libertarian, or even libertarianish.

    So lets maintain the same amount of money in the tax pool and means test the outgoings!

    Sorry, I don’t follow your argument. Which part of that is supposed to be me, and which part your imagination?

  196. Jc says:

    Fyds:

    “Nice to see you refer to yourself as having libertarian instincts ”

    I thought you have expressed such sympathy in the past. Did I mischaracterize you? Sorry. Sincere apologies then.

    1. you say you like HECS.

    2. You think HECS shhould be means tested

    3. It doesn’t seem as though you would prefer seeing the unchurned money returned to the taxpayer. Do you?

  197. Fyodor says:

    1. you say you like HECS.

    Yes.

    2. You think HECS shhould be means tested.

    Yes.

    3. It doesnt seem as though you would prefer seeing the unchurned money returned to the taxpayer. Do you?

    You mean to ask, of course, “Would you?”. The correct and obvious answer, noting in my earlier statement the pejorative use of the term “fiscal churn” and reading the disapproving tone, would be, “yes”.

    That is, I’d rather the government didn’t tax people in the first place if the money was only going to be returned to those people in the form of pork. I hope that’s simple enough for you, as I think my brain will explode if I have to dumb down my response any further.

  198. Jc says:

    Fyds
    I only read you last comment and simply didn’t have the courage to travel through most of the other missives. Quite honestly you lost me when you experimented with humor in these last few.

    Thanks cleared it up.

  199. Philly says:

    What a dull, pedantic, angry man Fyodor is. Excuse me while I wash my hands and disinfect my room.

    Is any one listening to his juvenile diatribes? Or is he an alien cued to entertain a subset of humanoid masochists?

  200. Fyodor says:

    Excuse me while I wash my hands and disinfect my room.

    Make sure you give the keyboard a good wipe, too. Can’t be too careful with them interwebs viruses.

  201. Jc says:

    Philly is kinda right Fyds, you do come across a trite angry, carrying a coupla boulders on those shoulders. Lighten up and be happy, dude.

    Philly:

    He is also quite a bright humanoid who is mostly right, but shows an amazing lack of intellectual clarity when it come to monetary policy. I would call it his biggest failing. But then I shouldnt expect a great deal as only a few of us were born innately perfect

  202. Graham Bell says:

    Fyodor [way back on 189]:
    That’s exactly why I put “rhetoric” in inverted commas ….and then

    “commenced your hostilities with me”

    What hostilities? Since when has insulting me and sneering those who have suffered tragedy been “hostilities”?

    And then

    “You know nothing about me and so, in your vain attempt at ad hominem, youre attacking your imagined construct of me – a straw-man if you will. This is both ignorant and pointless ….”

    Aaahh. So you noticed; don’t like the boot being on the other foot, do you. Sorry about your Queen. Check ….and mate! :D L-O-L ….. Okay, set up the pieces again and give someone else a game.

    So far as I am concerned, you have gone out of your way now to show everyone that are a fool. Probably an intelligent and educated fool. Probably a highly-paid fool. Probably a vicious and wilfully ignorant fool. But a fool nonetheless. Is that enough ad hominem for you? If you can’t contribute anything useful to the discussion then what are you doing here?

    Next?

    Everyone:
    So Housing Affordability, or the lack thereof, is back in the news and on the political stage today. Wonder why? I can’t smell any burning tyres or hear any smashing glass yet.

  203. Fyodor says:

    Philly is kinda right Fyds, you do come across a trite angry, carrying a coupla boulders on those shoulders. Lighten up and be happy, dude.

    But…Cranky Joe, I AM happy! I’m having fun, remember?

    Philly:

    He is also quite a bright humanoid who is mostly right, but shows an amazing lack of intellectual clarity when it come to monetary policy. I would call it his biggest failing. But then I shouldnt expect a great deal as only a few of us were born innately perfect

    Ms Philly, a note of explanation: JC likes to address third parties when making ad hominem comments. It’s part of his juvenile shtick, and he lacks the social competence to appreciate how gauche he appears to spectators. As for cataloguing his many imperfections, you’re evidently new to the joint so I won’t spoil your fun – you’ll discover his delights soon enough.

  204. Fyodor says:

    Fyodor [way back on 189]:
    Thats exactly why I put rhetoric in inverted commas .and then

    Because you dont understand the word? That kinda makes sense…

    commenced your hostilities with me

    What hostilities? Since when has insulting me and sneering those who have suffered tragedy been hostilities?

    Christ, how tedious. You really should be more cognisant of your behaviour and its effects.

    Your first address to me on this thread was at comment #90, where you took it upon yourself to lecture me and others about the benighted woes of wannabe-home-owners. My response at comment #94 – my first to mention you – was to note your commentary as a bank-bashing plea for the children. You then put on a rather pathetic blustering display of bravado at #111, which is worth quoting in its entirety:

    Fyodor:

    So my well-deserved sharp criticisms of some wilfully ignorant knuckle-walkers infesting the finance industry is bank bashing, is it? You havent even seen bank bashing yet so dont get me started on rural suicides, family break-ups and suchlike jolly happenings caused directly by predatory lending.

    Fyodor, Im in a good mood so quit while you are ahead .

    I like a challenge so, at #118 I pointed out the obvious:

    Ooh, scary. Andrew demolished your argument with the facts before you even attempted to substantiate it, and I dont give a fig for your anecdotal sob stories. So what now?

    To which you responded thusly, at #131:

    Fyodor, you really did say

    I dont give a fig for your anecdotal sob stories.

    on Post 118, didnt you?

    A rather unfotunate choice of words for you . The overuse of ANECTDOTAL is one of the distinguishing features of Australias failed elite; they resort to it, in spite and petulance, whenever they are being beaten in an arguement or when they are overwhelmed by evidence or to cover their own arrogant ignorance. So we may assumed you are one of the White Shoe Brigade, may we? L-O-L.

    Thank you so much for volunteering your spare time to help the Salvation Army and all the other worthy charities who are doing such fine work picking up the people harmed in our wonderful economy. It will do much to help your own understanding of the realities of life.

    Which, I think youll agree, was a response comically disproportionate in its gratuitous illogic, vituperative spray and sanctimonious moralising.

    Matters have progressed rather nicely since you STARTED proceedings, and then chose to ESCALATE them, dontchathink?

    Im not complaining, BTW: just pointing out some home truths. I suspect your bubble of assumed moral superiority needs to be popped from time to time.

    And then

    You know nothing about me and so, in your vain attempt at ad hominem, youre attacking your imagined construct of me – a straw-man if you will. This is both ignorant and pointless .

    Aaahh. So you noticed; dont like the boot being on the other foot, do you. Sorry about your Queen. Check .and mate! L-O-L .. Okay, set up the pieces again and give someone else a game.

    Mate, judging on recent form I reckon youd be flummoxed by the tactical complexities of draughts. As for shoes and feet, Ive merely pointed out that youve placed your other left foot in your mouth in your cack-handed and counter-productive attempt at ad hominem.

    But, please, don’t let me stop you. By all means continue: your commentary is a free-fire zone for extended piss-taking.

    So far as I am concerned, you have gone out of your way now to show everyone that are a fool. Probably an intelligent and educated fool. Probably a highly-paid fool. Probably a vicious and wilfully ignorant fool. But a fool nonetheless. Is that enough ad hominem for you? If you cant contribute anything useful to the discussion then what are you doing here?

    I could probably ask the same question of you, though its improbable youd provide an adequate answer. Fool is probably really cutting, though. Did it take you an improbably long time to think that one up?

    Next?

    Check?

    Everyone:
    So Housing Affordability, or the lack thereof, is back in the news and on the political stage today. Wonder why? I cant smell any burning tyres or hear any smashing glass yet.

    Yes, Graham, housing affordability has been on the agenda for some time its what prompted Nicholas post in the first place. And whats your totally unsubstantiated contribution to the discussion on this topical issue?

    PREDATORY LENDING!!!

    Yes, folks, thats right: housing affordability has nothing to do with stuff like high house prices and rising interest rates, and everything to do with a myth that has been comprehensively busted by all sundry on this thread yet still has one deluded believer.

    Check and mate, sport. Thanks for playing.

  205. Liam says:

    He is also quite a bright humanoid

    Planetoid, JC. Spherical, but pointy in parts.

  206. Nabakov says:

    Although this dialogue shows promise, it’ll never turn into a true Thread of Doom while the door policies at Troppo keep Bird & JC Banking Industry Consultants Ltd from being properly reunited here. The custard pies don’t throw themselves, you know.

    [edited by request –Jacques]

  207. Graham Bell says:

    Fyodor [206]:
    There have been those who denied heliocentrism …. and denied the Holocaust …. and denied climate change. Now we have Fyodor denying what is seen every day of the week by social workers, police, parliamentarians’ staffers, health professionals, legal aid workers, the clergy, charity workers and a whole range of other people. It’s magic …. all you have to do is say a problem does not exist and – Shazam!! – it all vanishes, doesn’t it? Time for you to change hands, Fyodor, otherwise you’ll get RSI. :-) L-O-L

    Everyone:
    Just over an hour ago, an unsuccessful applicant for a rather small loan mentioned being invited to make a relatively unimportant false statement that would have looked good on paper and got her application over the line. The lady, deeply religious, declined to tell such a falsehood. She did not get her loan but feels better for having avoided the temptation of sin.

    Not quite predatory lending, of course, but not quite standard lending practice either …. or is it these days?

  208. Jc says:

    Graham:

    If the “false” statement was not fraudalent anf immaterial, I can’t see how that would have had any bearing on her loan. You sure she just didn’t get cold feet and use that as an excuse to walk away?

    Loans are much easier to get than in the older days, but it not an excuse to be dishonest. You drive into a gas station and you’re still expected to pay despite the attendant sitting inside at the counter rather than working the bowser and demanding the cash on the spot.

    People should know what they are getting themselves into and have a statement detailing the repayment schedule.

  209. Well I’ve been away in Korea and Honkers all week, but nice to see you guys are still entertaining yourselves.

  210. And Nabs – I was thinking the exact same thing myself!

  211. Graham Bell says:

    Nicholas Gruen [210];
    Welcome back. How about a debrief on you trip?

    NG and Nabakov[207 & 211]:
    Good idea. He has some intersting ideas about economics – though I don’t necessarily agree with them. However, you mightn’t get GMB to contribute much until after the election; believe he is a candidate in Dobell. [Should that be THE CANDIDATE in DOBELL :-) ]

    JC [209]:
    Thanks. No. It was a hint to falsify her income and the use of her property. No “cold feet”; she declined to be involved in anything so shady …. in her case because of her religious beliefs; if it had been me it would have been out of fear of getting caught [I’m not so religious].

  212. Jc says:

    Nic

    “And Nabs – I was thinking the exact same thing myself!”

    Let us know if there are a select few who are the only ones allowed to throw shit around like the vapid dirtbag Nabakov and get your support.

    You find perfectly OK for the monikered up piece of filth to go round posting other people’s names?

    Judging by the way you’re sucking up to him it’s not a question.

  213. Graham Bell says:

    JC [213]:

    “the vapid dirtbag Nabakov”

    and

    “the monikered up piece of filth to go round posting other peoples names?”

    Jeez. That’s a bit strong. Have disagreed with HA6AKOB at times but nothing that would have made me say anything like that. Have had an odd-bod or so borrow my name without paying the hire charge, is that the sort of thing you mean? Have I missed something major?

    Nicholas Gruen:
    [sorry about digression that added nothing to the discussion of lending and of housing affordability].

  214. Nabakov says:

    Hey, Jacques

    I’m curious to know who requested that my comment be changed to directly mention a commenter here when I originally used a name not seen on threads here. Normally such things are the other way around.

    I mean does JC want to be identified with one of the clowns in the photo?

  215. Jc says:

    Want to respnd to that, Nic, or that the right kind of vapid abuse?

    Notice that it is a twofer. So far not one comment related to the point of the thread.

    But then it really brings this comment to life, doesn’t it?

    “And Nabs – I was thinking the exact same thing myself!”

    only not in the way intended, which is why the vapid creep was turfed off Catallaxy.

  216. JC,

    I have so far desisted from responding to your comments because I don’t see it as my role to arbitrate in this thread or any other for that matter. It takes time and I don’t want to spend it that way.

    I made a very casual aside after a quick skim of Nabs’ comment. I thought it was funny and I agreed – and happened to be thinking – that if we were going for some record of length of thread, Bird would definitely help things along.

    But we’re not going for the record.

    I didn’t even click on the link he presented – so it was a casual response to his mention of Bird. Nothing more.

    I don’t think you should demand that I account for myself like this. I’m not an arbitrator between you and Nabs, but since you’ve demanded I play the role, I clicked on the link and I must admit it’s pretty funny.

    You and Nabs go back a way it seems and perhaps you’re bringing that history to your interpretation of what he said. He certainly seems to like winding you up.

    I can only say that at least from where I stand his link and his comment didn’t seem particularly offensive. I certainly didn’t want to endorse any offence he may have been causing to you. Whether or not I’m right you shouldn’t be calling him a ‘dirtbag’. Am I going to do anything about it? Nope. I’m going to get on with my life.

  217. Graham Bell says:

    Nicholas Gruen:

    “Im going to get on with my life”.

    Fair enough. Any chance of us all getting back onto finding ways for honest people to get a roof over their heads and for lenders to make an honest profit?

    Kevin Cox:
    Still haven’t read through everything you put up earlier.

  218. Jc says:

    Nic
    I wouldn’t ask you to arbitrate because you would never be reasonable, proven with your sideswipe.

    I don’t have a problem with Vapidov’s link. But he used what he thought was my name and coming from someone who is all monikered up is a trife pathetic don’t you thnk?

    “I have so far desisted from responding to your comments because I dont see it as my role to arbitrate in this thread or any other for that matter.”

    But you found the time to comment in the first place, right?

    “I dont think you should demand that I account for myself like this. Im not an arbitrator between you and Nabs, but since youve demanded I play the role, I clicked on the link and I must admit its pretty funny.”

    Yea, but he fogot to mention that CS was carting the Doughnuts, that’s what I was really upset about. You find that funny too? :-)

    “You and Nabs go back a way it seems and perhaps youre bringing that history to your interpretation of what he said.”

    Oh, so you think it’s fine to bring history over here. Funny that, because the site owner, Ken, has always said he never wants that sort of thing to happen. Jasques has said that too on another thread when Vapidov tried the same thing. Ask Jacques and Ken if you don’t believe me. Ask yourself for that matter!

    “He certainly seems to like winding you up.”

    He doesn’t as he’s too vapid for that. He’s holding grudges because he was told to get off threads over at Catallaxy as he always caused issues and never contributed other than vapid unnfuny slop- similar to what he doing here that you’re praising. He thinks I was responsible for getting thrown off for some reason but had nothing to do with it. He did it all by himself.

    “I certainly didnt want to endorse any offence he may have been causing to you. Whether or not Im right you shouldnt be calling him a dirtbag. Am I going to do anything about it? Nope.”

    I’ll decide if my name not my (initials) gets mentioned and no one else. You think that’s a difficult ask? Sure you do.

  219. Kevin Cox says:

    Graham,
    Send me an email to cscoxkatgmaildotcom . The explanation was confused in these posting because I was trying to apply the idea to a new area. It is much simpler in other cases and is not “changing” economics but is a variation on how we conduct trading. In the same way that going from barter to token money changed trading, so changing money so that it contains information other than “value” opens up a new worlds of possibilities.

  220. Fyodor says:

    Fyodor [206]:
    There have been those who denied heliocentrism . and denied the Holocaust . and denied climate change. Now we have Fyodor denying what is seen every day of the week by social workers, police, parliamentarians staffers, health professionals, legal aid workers, the clergy, charity workers and a whole range of other people. Its magic . all you have to do is say a problem does not exist and – Shazam!! – it all vanishes, doesnt it? Time for you to change hands, Fyodor, otherwise youll get RSI. L-O-L

    Ambidexterity’s your secret, is it? I did wonder how you managed to wank on for so long on such a trivial topic. That topic being you, of course.

    As for PREDATORY LENDING[!!!], you haven’t proved it’s a problem, so why should I take it – or you – seriously? Feel free to produce some evidence. That might persuade me you’re not talking garbage again.

    But, soft! What light through yonder window breaks…?

    Everyone:
    Just over an hour ago, an unsuccessful applicant for a rather small loan mentioned being invited to make a relatively unimportant false statement that would have looked good on paper and got her application over the line. The lady, deeply religious, declined to tell such a falsehood. She did not get her loan but feels better for having avoided the temptation of sin.

    Woman declines to lie on loan application.

    Feels better about self.

    Hold the phone.

    Graham has produced an anecdotal story about a woman NOT being the victim of predatory lending.

    I think we’re making progress here, people, just not in the direction Graham favours: one step forward, two steps back, huh, Graham?

    Not quite predatory lending, of course, but not quite standard lending practice either . or is it these days?

    What, lying on loan applications?

    No, that’s not predatory lending; it’s called fraud.

    P.S. L-O-L.

  221. Fyodor says:

    I dont have a problem with Vapidovs link. But he used what he thought was my name and coming from someone who is all monikered up is a trife pathetic dont you thnk?

    Yes, Nabs, how dare you serve up such pathetic trife?

    Which of JC’s real names did you abuse? Dave Curry? S.Brid? It must have been the real real name to get his panties bunched so tight.

  222. Jc says:

    Ha, here’s the galloping Fyodor coming comrade Vapidov’s rescue. How sweet. How ironic that the two russian monikers are talking about other people’s.

    Graham;

    Ignore his abuse. He has some sort of chip on his shoulderS. He needs to prove he knows more about you in economics. Someone at catallaxy once said the chip on his shoulder has to do with the fact he came from the western burbs of Sydney and for some reason it has had an effect on him. Don’t why, as who really cares these days.

  223. Fyodor says:

    Ha, heres the galloping Fyodor coming comrade Vapidovs rescue. How sweet. How ironic that the two russian monikers are talking about other peoples.

    Not that Nabs needs rescuing from you, Cranky Joe. He poked you once with the angry stick and you’ve gone off like a firecracker, spluttering incoherent rage.

    And, yes, the irony is pretty thick here, JC, though not for the reason you think. Hypocrisy, too: you’re not showing much talent for – what did you call it again? – “civil discussion”, are you?

    Ignore his abuse. He has some sort of chip on his shoulderS. He needs to prove he knows more about you in economics. Someone at catallaxy once said the chip on his shoulder has to do with the fact he came from the western burbs of Sydney and for some reason it has had an effect on him. Dont why, as who really cares these days.

    Well, apparently you really DO care, however, even if you don’t “what” or “where”. Probably because you’re making this stuff up as you go along – I much preferred it when you convinced yourself I was a Russian hacker. That was fun.

    Your English homework for today: the semi-colon and its uses.

  224. Graham,
    If you are looking for “…ways for honest people to get a roof over their heads…” then go and discuss the matter with the people who are causing the problems:
    1. State governments for not releasing enough land;
    2. Local councils for not allowing enough subdivision; and
    3. The Federal government for restricting skilled immigration.
    The lenders are already making an honest profit by doing such things as lending to people who want to borrow money to buy a home, checking (unless the person asks them not to and pays extra as a result) they have the capacity to repay and that the house is worth something close to the price being paid for it. Basic stuff, but good lending practice, important under the UCCC, and good for the already low bad debt ratios.

  225. Jc says:

    “Not that Nabs needs rescuing from you, Cranky Joe.”

    And who would rescue him? His attempt at economics discourse, explaining labor market reform as a “Ying and Yang thang” didn’t need rescuing. It ought to go into the hall of fame as the dumbest most vapid comment of 2006. Don’t you think? He seems to steer well clear of that sort of discussion these days as he’s better suited to his core competency; wrecking threads and barb throwing while drunk.

    “He poked you once with the angry stick and youve gone off like a firecracker, spluttering incoherent rage.”

    Na, not really. Like you I would prefer to decide when my name is used, Comrade fyodor.

    “And, yes, the irony is pretty thick here, JC, though not for the reason you think. Hypocrisy, too: youre not showing much talent for – what did you call it again? – civil discussion, are you?”

    Try it some time. Graham would appreciate it. But I guess its the old chip on the shoulder “thang” that holds you up.

    “Well, apparently you really DO care, however, even if you dont what or where.”

    Care about what? You trying to prove how much more you know about economics than Grhaam? Oh, you mean the burbs thing! Only to the extent of how you’re relating to Graham/ the obvious chip on shoulder. He’s a sweet decent guy who doesn’t deserve the abuse/putdowns, Agatha.. Now that does really piss me off.

    “Probably because youre making this stuff up as you go along – I much preferred it when you convinced yourself I was a Russian hacker.”

    I was meant in irony, you mirthless thing. As to the other thing: the burbs thing, dunno just following what was said. Is it true?

    “Your English homework for today: the semi-colon and its uses.”

    Thanks, and yours is money isn’t neutral. Recall? You seemed to think it was.

    Nice to see you’re accusing me of hypocrisy while you’re being so nice to Graham and feeling “used” that others are using monikers. That sure lights a candle to honesty. Pathetic hypocrite.

  226. Nabakov says:

    Ill decide if my name not my (initials) gets mentioned and no one else.

    Or names as the case may be.

  227. Jc says:

    “Or names as the case may be.”

    exactly, Vapidov. Let me know when you’re setting the rules. Mr whatsyourrealnameKOV

    But you may want to address the issues pertaining to the thread or is this another one of your “ying and yang thangs”. Let’s have your economics treatise (opus I would call it) for 2007 in relation to land prices etc, Vapidov. Let’s hear this zapper, as i’m strapped to the chair in wonderment at what will come next.

    Let me start you off:

    Land price are rising/have risen because…………

  228. Nabakov says:

    Happy to respond if it’s Joe Cambria asking.

    But who is this “jc”? Do I know you?

  229. Graham Bell says:

    Kevin Cox [220]
    Thanks for abstract. Shall make contact …. but won’t be able to re-read all your posts – and the responses – until later in the week.

    JC:
    Making of Fyodor’s New Guinea Happy Box delayed by lack of chook feathers here. :-) You are wrong – neither are Russian despite the names; [OMG! I just hit the semi-colon key} one is a Mongolian yakdung recycler who is cunning enough to avoid using the upright Y and the barred O when typing on a Cyrillic keyboard so you think he/she might be Russian; the other is actually an Alien named John who levitates when excited and hopes nobody notices.

    Fyodor [221]:
    You asked for proof. I’ve told you several times where to see it for yourself. If you don’t want to look at it, that’s your problem, not mine.

    “What, lying on loan applications? No, thats not predatory lending; its called fraud”.

    So it is. And when a lender encourages applicants to deliberately make false statements like that, it’s one aspect of what’s called predatory lending.

    Andrew Reynolds [225]:
    And add to that – overeagerness to lend for inapproprate, poorly-designed, badly-located and horribly-expensive palaces and an all too common uncommercial/anticommercial refusal to lend for unfashionable dwellings in unfashionable places.

  230. Fyodor says:

    Not that Nabs needs rescuing from you, JC.

    And who would rescue him? His attempt at economics discourse, explaining labor market reform as a Ying and Yang thang didnt need rescuing. It ought to go into the hall of fame as the dumbest most vapid comment of 2006. Dont you think? He seems to steer well clear of that sort of discussion these days as hes better suited to his core competency; wrecking threads and barb throwing while drunk.

    Who would rescue him? Are you having a “senior” moment, JC? Don’t you remember what you wrote? Please try to keep up, at least with what YOU are saying.

    He poked you once with the angry stick and youve gone off like a firecracker, spluttering incoherent rage.

    Na, not really. Like you I would prefer to decide when my name is used, Comrade fyodor.

    Unlike me, you mean. As you know, I don’t care what you call me. The fact that you object to being called by your real name, when you’ve blogged using it, is bizarre. What makes it ironic, BTW, is your regular whining about other people commenting under pseudonyms. What is it: one rule for JC and his oh-so-many sockpuppets, and another for everyone else? Do you know what “hypocrisy” even means?

    And, yes, the irony is pretty thick here, JC, though not for the reason you think. Hypocrisy, too: youre not showing much talent for – what did you call it again? – civil discussion, are you?

    Try it some time. Graham would appreciate it. But I guess its the old chip on the shoulder thang that holds you up.

    Not at all. I’ve had plenty of civil discussions online, but it takes two to tango, Cranky Joe, and as you’ve shown everyone better than I could you’re not much chop on the dancefloor. As I’ve pointed out to Graham, he’s responsible for the pickle he’s in. If he’s too proud or stupid to acknowledge it, that’s not my problem.

    Well, apparently you really DO care, however, even if you dont what or where.

    Care about what? You trying to prove how much more you know about economics than Grhaam? Oh, you mean the burbs thing! Only to the extent of how youre relating to Graham/ the obvious chip on shoulder. Hes a sweet decent guy who doesnt deserve the abuse/putdowns, Agatha.. Now that does really piss me off.

    The fact that you’re pissed off is just icing on the cake for me, Josephine. I don’t care where you think I’m from. You used to think it was Russia, now you think it’s Western Sydney. No skin off my nose, old chum – you and your fevered imagination can knock yourselves out.

    As for Graham, I agree he’s a decent guy – I’ve already said that I like him. That doesn’t change the fact that he’s chosen to participate in an economic debate armed only with sanctimony and a false sense of moral superiority. Apologies for mixing metaphors, but leading with your chin is never a great strategy when you have a glass jaw. Your defence of his maladroit prattle is no more than disingenuous cant.

    Probably because youre making this stuff up as you go along – I much preferred it when you convinced yourself I was a Russian hacker.

    I was meant in irony, you mirthless thing. As to the other thing: the burbs thing, dunno just following what was said. Is it true?

    “I was meant in irony”

    HAHAHA! Never a truer word was spoken! It’s fortunate for us – and more than a little unfortunate for you – that your gift for comedy is so involuntary, you mirthful thing.

    Anyhoo, who are you kidding? You believe it EVERY time. You’re ready to believe the dopiest shit about me because you’re THAT gormless. So, yes, Cranky Joe, I am a Russian hacker mafioso from Penrith, by the name of Keyser S

  231. Fyodor says:

    Fyodor [221]:
    You asked for proof. Ive told you several times where to see it for yourself. If you dont want to look at it, thats your problem, not mine.

    And yesterday my mate caught a fish that was *opens arms really wide* THIS BIG!

    You’ve presented nothing but unprovable anecdotes, Graham. If you want to keep embarassing yourself, be my guest, but don’t say I didn’t warn you.

    What, lying on loan applications? No, thats not predatory lending; its called fraud.

    So it is. And when a lender encourages applicants to deliberately make false statements like that, its one aspect of whats called predatory lending.

    You really believe that, don’t you? That people aren’t responsible for their actions? I know you’re a nanny-statist, but I shudder to think what kind of police state you’d prefer to live under.

  232. Graham,

    [O]vereagerness to lend for inapproprate, poorly-designed, badly-located and horribly-expensive palaces and an all too common uncommercial/anticommercial refusal to lend for unfashionable dwellings in unfashionable places.

    Did you get refused a loan for a building with huge pillars out the front somewhere out in Sydney’s western suburbs? Banks are not there to be taste arbiters (look at most banks HQs for confirmation). They are there to lend their depositors’ and shareholders’ money out on what they consider to be good credit risks.
    Personally, I think they have actually been a bit to careful in their lending policies, as their bad debt ratios are very low indeed – but that may also be a reflection of tightening up before the cycle swings down.
    The simple facts, Graham, that there is no evidence of any form of widespread lending problems in Australia. You may have a few anecdotes – but I say again, the plural of anecdote is anecdotes, not evidence.

  233. Jacques Chester says:

    This thread has spun wildly out of control and frankly I don’t have time to be polite in reigning it in. So I’m going to invoke the Professor Farnsworth clause and close comments.

Comments are closed.