Well said David, there is a massive subprime problem in Australia.

The situation has been exposed very well on Australian Property Forum (see below for some of the discussions).

http://australianpropertyforum.com/topic/9681427

In fact this huge subprime disaster is unfolding as we speak and the points you raise are just the tip of the iceberg.

http://australianpropertyforum.com/topic/8634082

Denise Brailey of the BFCSA is calling for a royal commission!

http://australianpropertyforum.com/topic/9672375

It's great to see this start to get the media attention it deserves, and agree a Royal Commission is the next logical step. Perhaps you would consider a campaign on 'Get Up!' or similar to increase the media attention and build public pressure on the government?

Excellent piece, David Collyer! As Australia is behind the curve, we shouldn't make the same mistakes, now obvious, countries around the world have made. Look at Ireland: it's taken money from people's pockets, bailed out banks and created unemployment. Their banks may be in remission, but how does empty Irish pockets now help its economy? We mustn't go down the same path, and both parties shouls let us know we won't.

Your idea of a combination of Steve Keen's and Ken Henry's thinking as an alternative to austerity or the USA's mindless money-printing is inspired.

Colour me Unconvinced.

I am hampered by a fundamental commitment to the laws of supply and demand, so I apologize in advance if my thinking is too radical for the audience here. I also live in central Sydney, so my views are ultimately infected by what I see around me every day. Apologies for that, too.

"We see young adults rejecting home-ownership because without future price appreciation, taking on debt-slavery is futile."

Emotive stuff. Young adults aren't "rejecting" home ownership. They simply haven't managed to reach a position where home ownership is affordable in the place that they would prefer to live. That happened in my generation too, and I don't believe that much has changed,. Except that we baby-boomers are sitting on more land than we need, and will only let it go when either a) we have to sell in order to afford managed care or b) we pop our clogs. We're essentially a selfish bunch, with a massive sense of entitlement, which we have carelessly passed on to the next generation.

And what is "debt-slavery"? Over-emotional twaddle for "borrowing money". Which, amazingly, is what my generation did too.

>>Look at Ireland: it's taken money from people's pockets, bailed out banks and created unemployment<<

Chalk, meet cheese.

Ireland created a massive over-supply of housing, thanks to an EU-funded boom that encouraged brainless speculation. A report I read recently calculated that to fill all the properties that are presently empty will take Ireland another forty years of population growth. When we get into a similar position, I will dust off my ancient copy of the laws of supply and demand, and predict a "housing bust".

But not before.

That is not to say that a detailed investigation into malpractice in the home-loan business is not a Good Thing. It most definitely is. But again, the situation is sufficiently different in scale to the US experience - which was exacerbated by (wait for it) excessive supply - to have less overall impact on the property market here.

A few sharks will lose their gold teeth, is all.

http://www.webofdebt.com/articles/commonwealth_bank_aus.php
Ellen Brown knows all about the inequity of the banking system.She wrote this article about our once great Commonwealth Bank that for the first 11 yrs of its life created money debt free to equal some of our increases in productivity and inflation.It was King O'Malley a Canadian/American who joined the Labor Party and initiated the Commonwealth Bank in this form.Billy Hughes by the early 1920's scuttled the power of the Commonwealth to be truely a bank of the people.After this time private banks created from nothing all the money to equal increases in our productivity.We became their debt slaves.It could have saved Australia during the Great Depression.

With the mining sector slowing our RBA can save us.Prof Michael Hudson visited our RBA in 2009 and asked the really big question.If the RBA is our Central Bank,why does it not create from nothing all the money to equal our increases in productivity,population and inflation? He was met with a wall of silence.Our Banks continue to borrow from OS Central Banks like the US Federal Reserve ( A cartel of private banks) who just create this money with the click of a computer mouse.They own our productivity by virtue of creating from nothing to equal it and give it back as debt.

We need to put pressure on our Govts to get the RBA to express some our productivity debt free.They can loan to our private banks and this would be a tax saving of at least $40 billion pa plus interest.

If we want to end the debt,we have to get politically active.

I'm beginning to wonder, Arjay, whether even you understand what you are saying. 'Cos I'm pretty sure that no-one else does.

There is this recurring phrase that you employ, at the drop of the proverbial hat, whenever you want to grizzle about the banking system. Yet I become more and more certain, each time you use it, that you couldn't actually explain what you mean by it - neither in simple terms that non-bankers can grasp, nor in the technical jargon of finance.

>>...our once great Commonwealth Bank that for the first 11 yrs of its life created money debt free to equal some of our increases in productivity and inflation... After this time private banks created from nothing all the money to equal increases in our productivity... If the RBA is our Central Bank,why does it not create from nothing all the money to equal our increases in productivity,population and inflation... They own our productivity by virtue of creating from nothing to equal it and give it back as debt<<

Could you give us a quick example, do you think, of how this creation occurs? Either debt-free, or making us into "debt slave", it doesn't matter which, so long as you enable us to distinguish between the two.

I have ignored it to date, on the basis that you usually only include the phrase it once in each post. But employing it four times is simply too much.

So let's hear it: show us how you "create money debt free to equal our increases in productivity and inflation", and how you "create money from nothing to equal our increases in productivity and inflation".

I'm sure I'm not the only one on tenterhooks here. Especially when you manage to get the entire banking system of China so spectacularly wrong, using the exact same terminology...

Pericles you are the master of deception.How does this money creation happen? Well QE3 in the USA is about to happen.The US Federal Reserve creates money in their computers and loans it to the US Govt.The people are then taxed by the Govt and have to pay back inflationary money plus interest to a private cartel of banksters.

A partial audit initiated by Ron Paul found that the US Federal Reserve in 2008 created an additional $16 trillion in off balance sheet transactions to the $15 trillion they put the US people in debt for illegal wars,bailouts and scams.This is criminal activity for which no one has been held accountable.

You either have a total disconnect with logic and reality or are profiting from this scam via the dervivative market that feeds off it.

Sort of vaguely right, Arjay, as far as it goes. I know many ten-year-olds who can describe the process better than this, but you do get props for at least trying.

>>The US Federal Reserve creates money in their computers and loans it to the US Govt.The people are then taxed by the Govt and have to pay back inflationary money plus interest to a private cartel of banksters.<<

But you have missed out quite a few steps along the way, including a very important one, how the money thus "created" actually gets into the economy. So far, you appear to have it stuck with the government. Any thoughts on that?

Anyway, you failed to respond to the question. I'll repeat it here, in case you missed it earlier.

"...show us how you 'create money debt free to equal our increases in productivity and inflation', and how you 'create money from nothing to equal our increases in productivity and inflation'.

Those are the phrases that you continually employ in order to disguise the fact that you haven't the vaguest clue about how the financial system works.

>>A partial audit initiated by Ron Paul found that the US Federal Reserve in 2008 created an additional $16 trillion in off balance sheet transactions<<

I'll wager a small amount that you cannot distinguish between on- and off- balance sheet transactions, as they apply to the government. Care to take me up on that?

>>You either have a total disconnect with logic and reality or are profiting from this scam via the dervivative market that feeds off it.<<

There you go again. We have already established that you do not understand the derivative market, yet here you are again, waffling on about it as if it is some kind of scam.

Admit it, Arjay. You haven't a clue, have you.

Pericles,you think that you can confuse people with accounting porcedures.Fannie May and Freddie Mack had leverage of 333:1.This meant that for every dollar of deposits they could create a loan of $ 333.00.This is how the housing bubble was created.Prof William K Black said that 90% of these loans were fraudulant and no one has been charged.

Perhaps you could explain how the US Federal Reserve creates its money?

*This meant that for every dollar of deposits they could create a loan of $ 333.00.*

No it does not, Arjay and this is where you remain confused. Banks
need to hold reserves in relation to the amount of loans issued.
It equates to around 10%, under Basel 3. Clearly Fannie and Freddie
were nowhere near that. Banks still have to borrow money to lend it
out again. This notion that they can just accept 1$ in deposits and
then lend out 333$, is what you still don't understand and have so
wrong. We can take stubborn donkeys to water, but we can't make
you have a drink. So continue living in dreamworld.

"Accounting procedures", Arjay?

>>Pericles,you think that you can confuse people with accounting porcedures<<

The number of questions that you have failed to answer is beginning to mount up, isn't it. And they all relate to the crazy accusations that you keep making, not to any "accounting procedures". Let's see if I can do a quick recap.

"...show us how you "create money debt free to equal our increases in productivity and inflation", and how you "create money from nothing to equal our increases in productivity and inflation".

You have employed those phrases so many times, you must have some idea what you mean by them. It is about time you shared an explanation with us. Otherwise, I shall simply call you on it every time it appears. Which would be tedious for you, but fun for me.

You could also let us know what you understand by "off balance sheet transactions", as they apply to the Fed. Here is your claim:

>>Ron Paul found that the US Federal Reserve in 2008 created an additional $16 trillion in off balance sheet transactions<<

Just a few examples would do, just to let us know that you understand the words you bandy around so freely.

And a couple of words also on the derivative market, too, would help us understand why you believe that its existence poses such a threat to the world economy.

Now you add further weight to the popular theory that "Arjay speaks from his fundamental orifice", with this little beauty:

"Fannie May and Freddie Mack had leverage of 333:1.This meant that for every dollar of deposits they could create a loan of $ 333.00"

(I love the precision of the ".00", by the way. A nice touch)

I've had a look through some historical quarterly (10Q) reports of FNMA, and can find no evidence of this "leverage" of which you speak... here's the latest for you to look through. Perhaps you could let us know where you found your numbers...?

http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2012/q22012.pdf

D'you know, I somehow doubt that you can.

Admit it, Arjay. You haven't a clue, have you.

This was not the case with Fannie and Freddie.Pericles tell where the money for the derivatives of $15 trillion which our private banking system holds,came from.How can our banks be worth 14 times our GDP?

It is at this point, Arjay, that someone should take you gently aside and impart the age-old wisdom: when you are in a hole, it is best to stop digging.

>>This was not the case with Fannie and Freddie...<<

What exactly "was not the case", pray tell? I gave you the URL of Fannie's latest 10Q, which speaks plainly enough. Which part do you disagree with... no, don't tell me - you haven't actually bothered to read it, have you.

But that is as nothing, compared to this load of codswallop:

>>Pericles tell where the money for the derivatives of $15 trillion which our private banking system holds,came from<<

Good Grief. Have I laboured in vain?

To suggest for one moment that $15 trillion of derivatives require $15 trillion in actual dollar bills, demonstrates the most fundamental ignorance of what a derivative is, or how it is accounted for. I have attempted to introduce you to the concept on so many occasions, I am profoundly disappointed that you continue to make the most elementary mistakes.

Would it be easier for you in a different language, perhaps?

>>How can our banks be worth 14 times our GDP?<<

They are not.

Look, maybe we would have a more constructive conversation discussing the complete absence of any evidence for the 9/11 conspiracy that is so dear to your heart. For example, we never did work out how many people it took to plant all those explosives, did we?

But please, Arjay, do us all a favour and stop crapping on about financial stuff that you don't understand, have never understood, and - as far as I can tell - are totally incapable of ever understanding.

It will only get more embarrassing for you, as the sheer depth of your lack of knowledge becomes increasingly apparent.

Have a great day.

If you won't have me as a friend, Arjay, at least have me as an amicus curiae…

Those 171 pages of the Form 10-Q can be daunting. Fortunately the nice Mr N. Eric Weiss from the Congressional Research Service has prepared an excellent 26 page report for Congress – RL34661, titled Fannie Mae’s and Freddie Mac’s Financial Problems.

http://www.fas.org/sgp/crs/misc/RL34661.pdf

I'm heartened that if the saying is true your life is bliss. Good luck with your research.

http://barnabyisright.com/2011/12/12/world-banks-707-5-trillion-derivatives-time-bomb/ Here Barnaby Joyce has quoted the Bank of International Settlements on the Derivatives Carried by all our banks.It is more than 10 times the GDP of the planet.

He wrote another article saying our bank exposure was $15 trillion to derivatives.

Suck up the truth long and hard Pericles and Yabby,because you lot will go down the toilet too.

Arjay, I'll keep it simple. There are derivatives and there are
derivatives. Let me give you an example and you can perhaps think
about it and understand them better.

Let's say I am an importer or exporter and I want to hedge the
Australian $. So I ring the bank and take cover for 100 million
Australian $ at 1.00 US $/ 1 Australian Dollar. How much money
do you think the bank actually stands to lose?

If only, Wm Trevor. If only.

>>Good luck with your research<<

Research is not a word that Arjay takes seriously, more's the pity. It would be much more edifying for us all if we were able to discuss the parlous state of the world's economy without having to indulge in speculation on such imaginary friends as the New World Order.

The irony of using Barnaby Joyce as supporting evidence is simply too rich.

>>Barnaby Joyce has quoted the Bank of International Settlements on the Derivatives Carried by all our banks.It is more than 10 times the GDP of the planet. He wrote another article saying our bank exposure was $15 trillion to derivatives.<<

Finding that Mr Joyce himself uses such sources as Money Trends Research (motto: "Trends. Finance. Corruption") only adds to the sad risibility of the exercise.

It is telling that Joyce uses the same technique as Arjay - his entire contribution is based on regurgitating an MTR article, but without any indication at all that he understands its content.

MTR does actually contain a nugget of useful information - that "soon we have to pay the mean reversion price". This is presented in such a way that it seems to indicate that we will somehow have to fork out the $707 trillion that it bangs on about, and that this will - clearly - drown the entire world economy. This is the foundation of Joyce's and Arjay's mistake.

The term is not usually employed in the derivative market - it is more common in straight stock trading circles - but it is just possible to apply it to the unwinding of derivative contracts. Which of course is an amount far distant from the gross value of the contract itself, as Yabby tried to illustrate.

Because of course the gross number includes both puts and calls...

Duh.

Too true, too true, Pericles… But for the moment I still live in hope – faint not fond.

On the plus side, I've enjoyed hours of unplanned and unexpected research into heaps of topics whose only common link was Arjay's misinterpretation.

[I now know that as of the last update the Bank for International Settlements "balance sheet amounted to SDR 255.6 billion at 31 March 2012, a decrease of SDR 5.5 billion since its financial year end in March 2011." They also own 116 tonnes of fine gold – but don't tell Barnaby.]

It still saddens me, because it has the effect that each phantom menace is a distraction from the real ones – which is why I've shared my suspicion that Arjay works for 'THEM'.

The banking system is also being irresponsible in giving enormous loans to young people with little or no deposit.This policy continues to over-inflate house prices and put these people in unnecessary debt.

The other issues are one of Govt policy who restrict the supply of land to maximise their taxes.Also the taxes/charges on developers restrict the supply of dwellings.

The RBA can and should create at least 3% of our new money to equal inflation + growth.The private banks can create another 3% via fractional reserve banking.Why borrow from foreign private banks who just create it from nothing anyway?

That's better, Arjay. Stick to real-world issues.

>>The banking system is also being irresponsible in giving enormous loans to young people with little or no deposit.This policy continues to over-inflate house prices and put these people in unnecessary debt.<<

I suspect the Banks are less irresponsible today than they were, say, five years ago, but yes, you are absolutely correct to say that irresponsible lending has been occurring. Some of the stories that are emerging from the "no-docs, lo-docs" scene are entirely reprehensible. Nevertheless, they are still only a small fraction of the market, so are unlikely to unduly destabilize the system.

>>The other issues are one of Govt policy who restrict the supply of land to maximise their taxes.Also the taxes/charges on developers restrict the supply of dwellings<<

I'm not entirely sure how you work out that this is a good way for a government to maximize its tax base. Surely, the more land they release, the more dwellings, the greater their revenue catchment area. Same goes for the various taxes on the development itself - surely this is also counterproductive, tax-wise? But it is nevertheless a problem, as you quite rightly say.

>>The RBA can and should create at least 3% of our new money to equal inflation + growth.The private banks can create another 3% via fractional reserve banking.Why borrow from foreign private banks who just create it from nothing anyway?<<

Oh dear, you spoilt the new image, by venturing into territory that is outside your field of understanding. Leaving aside for a moment your mantra about creating "new money to equal inflation + growth", which I thought we had agreed is a nonsense proposition... what is your problem with borrowing from foreign private Banks?

If they are, as you put it, "creating it from nothing anyway", wouldn't that be their problem, not ours?