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The Forum > Article Comments > Will no one rid me of these evil moneylenders? > Comments

Will no one rid me of these evil moneylenders? : Comments

By Nicholas Gruen, published 11/1/2008

The ins and outs of low-docs, no-docs, and sub-prime loans. And why rationing credit isn't such a good idea ...

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If you stop population growth then there is no housing crisis or housing affordability crisis. Population growth is just a lazy, but very damaging, way of driving economic growth.
Posted by michael_in_adelaide, Friday, 11 January 2008 9:20:53 AM
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Right on the button, Michael
Posted by Leigh, Friday, 11 January 2008 10:08:52 AM
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Ironically, polulation (worker/consumer) growth is the only way to grow an economy, which after all is just people and how they make stuff which costs money. Most of which is vastly surplus to requirements.

The whole 'growth' mantra itself is deeply flawed. Then again its hardly surprising that the house-of-cards, credit-creation, pump-priming illusion that is modern economy is driven by the illusion of 'growth.'

Beyond that, an occassionally distructive war, pestilence, disease or disaster that wipes out a sizeable chunk of population and civilasation, which then needs re-building and repopulation is the way to go. Prolly solve climate change 'crisi' overnight too. Or at least delay it until the next critical mass contrives it self perpetuating emerging crisis.
Posted by trade215, Friday, 11 January 2008 10:52:37 AM
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Please, please, can someone explain what is going on, as it has me totally mystified. I gather that people were offered loans from banks, and they voluntarily accepted them. Why? I must be extremely old-fashioned, but I just can't understand why anyone would borrow money to buy consumables. I can understand people borrowing to buy an asset, but consumables? I was brought up to what is obviously a very old-fashioned idea that if you want something, you save up first, and then buy, doing your best to beat them down, and seeking a discount for cash payment. If you haven't got the money to buy something, you go without. The other idea I was brought up to was that the only necessities in life were food, water, and something to keep off the rain. Everything else is a luxury.

The result of living this way is that I have a wonderful house, with no debt at all, a six figure sum in my super account at call, and feel that I have everything I could possibly want.

Whatever possessed these silly people to borrow all this money?

The secret of happiness in life is NOT to spend.
Posted by plerdsus, Friday, 11 January 2008 3:51:52 PM
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Plerdsus, after the world economy was devastated by WWII, the baby boomers had to work hard to acquire anything that could be described as 'luxury'. This lead to them to understand the value of hard work, but also measure success based on the acquisition of material goods. Unfortunately it seems that few of the next generation have inherited the former while many have inherited the later. This leads to people taking the easy option of credit to acquire material good, and thus achieve 'success'.

I think what we're seeing is the inevitable cost to society of such wide spread undervaluing of financial security, along with an education system that is failing to prepare people for an increasingly complex society. The financial security of buying a house comes not from owning such a high value asset, but rather in the elimination of the liability of rent.
Posted by Desipis, Friday, 11 January 2008 4:16:18 PM
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Plerdsus,

Good on you. There aren't many of us left. Last night or the night before, we were told by a bleeding-heart TV current affairs presenter that our 'hearts (should) go out to' a couple who had just been served a bank notice to quit their house after they had defaulted on the mortgage.

The large swimming pool, large block and large house were obviously completely oustide the means of the couple involved.

There are undoubtedly some shonky lenders out there, but one of the major banks was involved in this case. Now, I don't like banks and use a credit union myself but, I find it hard to believe that a bank that has been around ever since banking started in Australia could be regarded as shonky when it comes to lending. And, it is my understanding that you have to be well behind in your repayments before a bank will foreclose. They are, after all, in the banking business, not real estate.

It is an old adage that you cannot legislate for fools, and there are a lot of fools out there borrowing money they cannot afford.

With apologies to Nicholas Gruen, 'Will no one rid society of these silly borrowers?'

It would be nice if everyone who wanted to own his or her own home could do so. But, while having a home should be a right, there is no right to ownership, and their never will be.

People need to come to their senses. They are not compelled to borrow, and there is no point in blaming the lender for the mess they find themselves in.
Posted by Leigh, Saturday, 12 January 2008 3:31:22 PM
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Along with the illusion of 'growth' goes the falacy of a 'housing crisis'. We currently have population 'growth' in some parts of the country along with a concurrent shortage of residential property. Australias overall population growth is actually very low. What has been happening is people are moving interstate in droves because the grass seems greener somewhere else. Southeast Queensland is dying under the strain of this moving population. By world standards, the population of Brisbane still does not constitute a major city and yet they are experiencing a housing shortage. This is mainly because the influx of people could not be anticipated. Yet in other parts of Queensland there are vast developed areas full of empty houses as well as underutilised real estate. Property prices in these areas have sky rocketed in anticipation of the coming hordes but to no avail. So we have houses in Rockhampton with price tags in excess of $700 000 that remain empty. Don't worry there are still many people in places like this who demand $500 000 from a bank because they believe that is what they need to pay.
Posted by Porphyrin, Sunday, 13 January 2008 12:08:29 PM
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With the advent of modern automated machinery and oversupply of white collar workers what can one do?.... but get into the real estate game as agent or advertiser or whatever... and then perpetuate the whole real estate game!.. and assist others to perpetuate it.

By the way it is of no surprise to me that it all started round about when the Howard lead liberal party was voted in.
Posted by savoir68, Sunday, 13 January 2008 9:35:14 PM
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Savoir68, the problem has been going on for a lot longer than when Howard was voted in. The problem is not a political creation that can be logically blamed on one party or the other.

Since 1964 we have been increasing our borrowing at an exponential rate. See Steve Keen's website www.debtdeflation.com for a monthly update on Australia's borrowing binge. The charts show the problem very very clearly.

The problem as I see it is that we have wasted a large component of our national income on paying off higher priced houses, instead of using that capital to develop additional income through useful investment.
Posted by miner, Monday, 14 January 2008 1:41:27 PM
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"Ironically, polulation (worker/consumer) growth is the only way to grow an economy,"

Not so! An economy can (and usually does) grow by an increase in productivity.
Posted by RobertG, Monday, 14 January 2008 3:23:57 PM
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Porphyrin, you said re SE Queensland population growth that "This is mainly because the influx of people could not be anticipated." On the contrary, the influx was not only anticipated but positively encouraged since the late-80s at least, the state government actively sought to attract businesses and migrants with little conception of the net costs and benefits.

More broadly, I support comments by Nick, Plerdsus and Leigh on the general issues, and support the comment on economic growth. There was very little economic growth anywhere in the world in the 2000 years prior to the industrial revolution which began in the UK in the late 18thC, in all parts of the world the living standards of different classes were very similar, the standards of the wealthier classes in Rome were not surpassed until the 19thC. Population was not the driver, but new technology, methods and institutions.
Posted by Faustino, Monday, 14 January 2008 3:52:28 PM
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Nicholas your analogy of everyone standing up at the football is a good one. We have a system that encourages people to spend their money "upscaling" or standing up so that now 90% or is it 95% of loans are for existing houses whereas even 10 years ago the figure was more like 50%. If the ratio of loans was back to 50% perhaps there is no problem?

One way may be to relate the loan to the asset being purchased rather than to the ability of a person to repay? That is, if the loan could only be claimable against the asset being purchased then it would mean that the lender does not have to worry about the repayments only whether the house can be sold for more than the value of the loan. Surely this would stop the speculative boom? What lender would be silly enough to lend on high priced existing houses that are likely to be less when the bubble bursts. Lenders are probably more likely to encourage people to purchase new homes on cheap land and hopefully the supply of new homes will bring the prices down particularly if we allowed lending for new homes against the ability to repay. However, one lender alone cannot do this because their rates will have to be higher to accommodate the risk and so it has to be one in all in which is why regulation may be needed.
Posted by Fickle Pickle, Monday, 14 January 2008 4:53:51 PM
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