Housing Bubble

And this just in:

An Australian housing and economic bust is reality—time to act

Australia’s housing market is tanking fast and the economy is facing an Ireland-style economic bust. We must act, now, to avert a social catastrophe and restructure the financial system to fix the cause of this crisis.

Australia’s big four banks account for 80 per cent of the financial system, and mortgage lending is around 65 per cent of their business. This concentration on housing is the highest by far of any banks in the world. Thanks to decades of deindustrialisation, financial services is the biggest sector of the economy, and, thanks to the housing bubble, construction is second. A crash in housing is economic Armageddon.

The fall in house prices that started in late 2017 continued all through 2018, and has now accelerated in 2019, with the biggest falls in the biggest markets of Sydney and Melbourne. Melbourne is experiencing the fastest falls ever recorded. The real estate sector is desperately trying to talk up the market by wheeling out improved auction clearance rates and highlighting one-off large sales, but the auction figures are distorted by very large numbers of auctions that are not being reported, and real estate reporters have been caught out faking claims.

The downturn is being blamed on bank lending, but that is only half the story. The real issue is the borrowers, the Australian people, who are saturated in debt.

Banking and real estate analyst Martin North of Digital Finance Analytics, and economist John Adams, have recently posted important video presentations on YouTube which expose the reality of where Australia is at, and how bad it can get based on the Ireland precedent.

In “Just How Much Trouble Are We In?”, North reports the latest Bank for International Settlements (BIS) statistics on household debt. Australia’s household debt-to-GDP is now 120 per cent, higher than all equivalent nations and second only to Switzerland, and far higher than the USA, UK, and Ireland were in 2008 when they all experienced devastating housing bubble crashes. Australia’s household debt service ratio is also the second highest in the world, which is a measure of the mortgage stress being experienced by over a million households which are struggling to meet their repayments, despite record low interest rates.

We know from the banking royal commission last year, and the work of Denise Brailey of the Banking and Finance Consumers Support Association, and Lindsay David and Philip Soos of LF Economics, that the only way the banks were able to push the market up over the last decade was by ignoring household debt and committing outright fraud in their mortgage lending, based on grossly understated living expenses. It would seem they can’t do that now. As prices are still not back to affordable levels, though, where are the buyers going to come from to stop the price falls?

Economist John Adams tweeted the news on 7 March that the giant American bank JP Morgan last week flew its top housing experts in to Melbourne for a conference, and is telling its clients to get out of Australian real estate. This is ominous, as a 2017 report by the US Studies Centre at the University of Sydney, “Indispensable economic partners: the US-Australia investment relationship”, revealed that the United States has been the “overwhelming” source of the funding for the Big Four banks.

The fall in house prices, combined with the fall in the number of house sales, is hitting the stamp duty revenue of state governments. Stamp duty revenue almost doubled in the four years to 2018, such was the frenzy of buying in the housing bubble, providing a windfall to state governments. That’s now over. On current trends, Victoria could suffer a $1 billion hit to its budget this year, and NSW will also take a big hit.

Out of options?

The last time house prices were falling like this, back in 2008, prices were lower than now, and interest rates were far higher—the Reserve Bank’s cash rate was 7.25 per cent. In response to the falls, which threatened a banking crash, the RBA slashed its cash rate from 7.25 per cent to 3 per cent within a few months, which averted mass foreclosures and, combined with the Rudd government’s tripling of the First Home Owner Grant, drew a lot more people into the market. But that means that to save the market they created a lot more household debt, and effectively only “kicked the can” of a crash down the road. The can has now stopped, but this time the RBA rate is 1.5 per cent, so it doesn’t have the option of cutting rates by 425 basis points to save the bubble.

Another Martin North video, “A First Hand View from Ireland”, is a confronting account of the Irish housing bubble and banking crash in 2008. Financial commentator Eddie Hobbs relates the disturbing similarities between Ireland and Australia, which many expatriate Irish who migrated to Australia as economic refugees after 2008 are starting to see here. In a third video, “The Document that will Shock You”, Martin North and John Adams reveal that in 2007 the IMF had stress-tested Ireland’s banks for steep falls in house prices and large withdrawals of deposits, and announced they would survive both. Ireland eventually suffered house price falls of 50 to 70 per cent, and a massive exodus of bank deposits, and its banks collapsed, plunging Ireland into deep economic and social misery. Indebted Irish homeowners suffered through a hellish bankruptcy process, and the nation witnessed a spike in suicides.

Act now!

Australia’s government, financial authorities and banks are right now desperate to prop up the bubble again, but that would be insane, if it would even work. It’s time to acknowledge it’s a bubble and let it burst, but implement measures to protect the economy. The CEC is fighting to:

restructure the banking system to protect the public and stop such bubbles recurring, through a Glass-Steagall separation of banking from speculation, and a national bank to regulate banking and credit;
avert a social catastrophe with an immediate moratorium on home and farm foreclosures (not investment properties) to stop families being thrown out on the streets;
launch an infrastructure development program to create jobs and restructure the economy and employment back on to a productive footing. 

Join the CEC’s fight!

What you can do

Get involved in the fight, starting with the immediate campaign for a Glass-Steagall banking separation. The CEC drafted legislation that Pauline Hanson introduced in Parliament on 12 February, the Banking System Reform (Separation of Banks) Bill 2019, into which the Senate Economics Legislation Committee is now conducting an inquiry. Make a submission to that inquiry in support of banking separation today.

Click here for instructions on making a submission. http://cecaust.com.au/releases/2019_02_18_Submission.html

Protect Your Bank Deposits!

The Senate has launched an enquiry into the breakup of the banks. You can learn more on it here: http://cecaust.com.au/releases/2019_02_18_Submission.html

Here is my submission. Please add your voice to protect our bank deposits.

I would like to address the desirability of separating the deposit/lending activities of banks from the investment/insurance/advice activities.

I consider it mind-bogglingly unconscionable that parliamentatrians elected to represent the people should have allowed the possiblility of depositor’s funds to be stolen to support the investment activities of a commercial bank.

That the IMF should be promoting this misuse of depositor’s funds is completely wrong.

Separating the investment and deposit taking activities of the banks is the sanest guarantee that those deposits will not be used without the consent or permission of the depositors.

A corporation is by nature a risk taking venture and the rewards and losses of that venture belong primarily to the shareholders, secondarily to debenture holders. Not the depositors. Not the government. Not the public. The shareholders. Period. Anything else is a perversion of the construct of a corporation.

Providing the banks have securities against which they lend the depositor’s funds there is no honest reason at all the depositor’s funds need be placed at risk.

Depositors partake of neither risk nor reward in the investment activities of a commercial bank. No depositor I know of asks to see the commercial portfolio of a bank prior to making a deposit. That risk was not part of the explicit or implicit contract the depositor effected with the bank on depositing his funds.

The risk should lie where it naturally falls, with the alternative of reward, at the shareholder’s feet. And depositor’s funds should be completely removed from that arena.

Failure to do so is an irresponsible act of gross negligence towards depositors.

Thank you for your time.

Tom Grimshaw

Banks struggle with bail-in capital requirements; go with Glass-Steagall instead

The farce of bail-in is playing out in Australia right now, with the banks complaining to the regulator that they can no longer find suckers to buy the bail-in bonds that are supposed to be their buffer against a crash.

It’s the latest example of why the whole bail-in system should be scrapped, in favour of Glass-Steagall laws that keep deposit-taking banks safe by separating them from risky investment banking and other financial services.

Bail-in is the scheme concocted by the Bank of England following the 2008 banking crash, and implemented through the Bank for International Settlements (BIS) and Financial Stability Board (FSB) based in Basel, Switzerland. Stripped of all of the confusing technicalities, their plan amounts to protecting banks from crashes by increasing their capital buffer against losses, instead of requiring them to stop the reckless financial gambling that causes crises in the first place. The buffer is called Total Loss-Absorbing Capacity (TLAC), at the centre of which are pernicious instruments known as “bail-in bonds”—hybrid securities that are sold as tempting, high-interest bonds, but which, when a bank runs into trouble, convert into effectively worthless shares in the bank.

Bail-in also includes deposits, which the FSB mandates can be written off or converted to shares to save a failing bank. The bail-in systems legislated in the USA, Europe, UK, New Zealand and Canada all include deposits in a bail-in; the Australian government snuck bail-in legislation through Parliament in February 2018, which they denied includes deposits, but which has loopholes big enough to drive a truck through that in an emergency can allow deposits to be bailed in. However, the government doesn’t deny that its legislation includes bail-in bonds.


On 8 November 2018, the bank regulator, Australian Prudential Regulation Authority (APRA), issued a paper that said the banks should raise $75 billion in extra TLAC capital by selling more so-called “Tier II” bonds, a.k.a. bail-in bonds.

On 14 January, Jonathan Shapiro reported in the Australian Financial Review that in their responses to the paper the banks asked APRA to reconsider the plan, because it would be too difficult to sell bail-in bonds in the current market.

Shapiro reported: “Westpac treasurer Curt Zuber said he supported the APRA proposal to build a large buffer in the form of Tier II capital in principle but said the global fixed income market had moved away from buying Tier II bonds. ‘As we go through cycles, it is potentially problematic for the banks to get the volumes they need in an economic way for the system which allows for the balance we want to achieve,’ he said.”

This is a major admission, which reflects the growing concern that the financial system is in danger of another crash. With APRA’s encouragement, Australia’s banks were able to sell around $100 billion worth of bail-in bonds over the last 6-7 years. These bonds were very tempting to investors, for two reasons. First, they carried interest rates of up to 8 per cent, offering unbelievably good returns in the post-GFC low-interest environment.

Second, and more importantly, the investors assumed that because the bonds were being issued by Australia’s major banks, which were touted as the strongest in the world, there was no risk that they would be bailed in. That’s assuming they were even aware that these hybrid bonds could be bailed in. While the Bank of England, for instance, forbade British banks from selling bail-in bonds to retail investors, so-called mums and dads, on the basis that they might not understand their full risks, APRA allowed Australia’s banks to aggressively target mum-and-dad investors, to whom they sold bail-in bonds amounting to $43 billion.

The Citizens Electoral Council was the first to warn investors that, contrary to their propaganda, Australia’s banks weren’t safe, and that they were being set up to wear the banks’ losses. In an 8 July 2016 release headlined “Warning to Australian investors: Beware hybrid securities, a.k.a. ‘bail-in’ bonds!”, the CEC warned:

“Australia’s big banks are careening along a cliff’s edge at breakneck speeds with ordinary investors strapped to their bumpers as human shock absorbers. Bank regulator APRA is allowing the big banks to sell to unsuspecting Australian investors products that are illegal for banks in other countries to sell to anyone but other financial institutions.”

On 26 October 2017, Greg Medcraft, the outgoing boss of the Australian Securities and Investments Commission (ASIC), warned in testimony to the Senate that bail-in bonds sold to mum-and-dad investors were “a ticking time bomb”. Medcraft said most investors would not believe that they would be bailed in, but, he emphasised, “Yes, they’ll be bailed in. … Basically, they can be wiped out—there’s no default; just through the stroke of a pen they can be written off. For retail investors … these are very worrying. They are banned in the United Kingdom for sale to retail. I am very concerned that people don’t understand….”

Now, following the revelations of the Hayne Banking Royal Commission and with property prices plunging, the banks are effectively admitting that the market has less confidence in them—there aren’t as many suckers willing to be human shock absorbers. Investors are more aware that if they buy bail-in bonds, there is a very real danger they will be bailed in.


It is past time that we end this farce of bail-in, which is nothing more than a scam to prop up banks’ gambling debts with their customers’ and investors’ savings, and instead impose real restrictions on financial gambling. And that means breaking up the banks along the Glass-Steagall division of commercial banks from investment banking and other financial services.

Glass-Steagall works! It protected the USA’s banks from systemic crises while it was in force from 1933 to 1999, and it’s what Australia needs to protect the people from the risks building up in our banking system. Whether or not the Hayne royal commission’s final report due 1 February recommends it, the CEC has legislation in Parliament ready to go, the Banking System Reform (Separation of Banks) Bill 2018, that will do the job.

What you can do

Phone, email or write to your Member of Parliament to demand they:

Break up the banks, by passing Banking System Reform (Separation of Banks) Bill 2018.
Audit the Big Four banks, using the Auditor-General, to assess the risk of a banking crash. 

Audit The Big 4 Banks

The government should direct the Auditor-General to conduct an independent audit of Australia’s Big Four banks, in light of the collapsing property bubble to which the major banks are massively exposed.

Presently the banks are not independently audited. There is an even bigger “Big Four” that sign off on the banks’ books, the Big Four global accounting firms, an accounting cartel which audits 98 per cent of the world’s largest banks and corporations, and actively covers up the fraud and dodgy bookkeeping that has become the defining feature of the global financial system. The four firms are PricewaterhouseCoopers (PwC), Ernst and Young (EY), KPMG, and Deloitte.

An explosive new report commissioned by the UK Labour Party’s shadow chancellor of the exchequer, John McDonnell, called Reforming the Auditing Industry, exposes the Big Four accounting firms as complicit in the crimes of banks and big corporations. These Big Four are supposed to conduct the independent audits of companies mandated by law, but they make two-thirds of their tens of billions in revenue from consultancy services to those same corporations. The banks that triggered the 2008 crash in London and on Wall Street had all received clean bills of health from Big Four auditors—some, like Northern Rock in the UK, just days before they collapsed. The report also documents a “parade of scandals” involving UK and multinational corporations which have collapsed after being looted by their management and major shareholders, robbing employees, pension funds and small creditors of enormous sums of money owed to them. In every case, the Big Four firms covered up the looting. And the Big Four firms have captured governments and regulators, the most glaring example being their influence over tax laws, which they help to write so that they can help their corporate and super-rich clients avoid paying them.

(Click here to read the full report, Reforming the Auditing Industry http://visar.csustan.edu/aaba/LabourPolicymaking-AuditingReformsDec2018.pdf. For a summary of the report click here to read a two-page article in the 16 January 2019 issue of the CEC’s Australian Alert Service, “Criminal masterminds: the real Big Four” “Criminal masterminds: the real Big Four”,http://cecaust.com.au/aas/AASVol21No03_real-big-four.pdf, by Robert Barwick.)

The report calls for the establishment of a statutory (public) auditor, to conduct truly independent and honest audits of all financial companies and the largest corporations, to which the regulators would have complete access. It also calls for the Big Four and all accounting firms to be broken up, to end the conflict of interest of firms that audit companies also providing consultancy services.

Independently audit Australia’s banks!

The Big Four global accounting firms also dominate Australia’s financial system. Most worryingly, PwC audits CBA and Westpac, EY audits NAB, and KPMG audits ANZ. Given their track record laid bare in Reforming the Auditing Industry, the Australian government and public can have no confidence in the Big Four auditors’ reports of Australia’s Big Four banks. Last year’s banking royal commission has already shredded confidence in the major banks, proving that they are not the best banks in the world as was claimed. It’s a small step to go from lying about their behaviour to lying about their financial position, assisted by their corrupt auditors. As the four major banks control 80 per cent of the banking system, and each have over 60 per cent of their assets concentrated in mortgages, with house prices plunging the government must direct the Auditor-General to conduct independent audits of each of the Big Four, to ascertain their true financial position and the level of risk facing the Australian economy.

Such audits would also expose more details of the criminality of the Big Four global accounting firms in Australia. On 29 November 2017, the Greens and the National Party agreed to include the Big Four auditors in their terms of reference for a banking royal commission to investigate; the next day, 30 November, a panicked then-Prime Minister Malcolm Turnbull hurriedly called the royal commission with different terms of reference, approved by the banks, in which the Big Four accountants were not included.

Conducting audits of the private banks was once a standard function of the Auditor-General. It was recommended in the report of the 1937 Banking Royal Commission, and first legislated in the 1945 Banking Act, and reaffirmed in the 1953 and 1959 Banking Acts. It remained a function of the Auditor-General until the establishment of the Australian Prudential Regulation Authority (APRA) in 1998, when the Financial Sector Reform (Amendments and Transitional Provisions) Act amended the 1959 Banking Act to allow APRA to appoint any firm to audit the banks. And which auditors has the failed and discredited regulator APRA chosen to use? You guessed it—the Big Four.

The reason the 1937 Banking Royal Commission report recommended the Auditor-General regularly audit the private banks was so the government bank, the Commonwealth Bank, would know if it needed to take over a failing private bank to protect its deposits, by either fixing up the private bank or closing it down and taking over its customers. Australia must face the reality of likely banking failures today: Australia’s banks are more exposed to the collapsing housing bubble than their US, UK, Irish and Spanish counterparts were in 2008, when they were wiped out in large numbers. No other banks in the world have come close to having 60 per cent of their loans in mortgages; before their crashes, US and UK interest-only lending peaked at 25 and 18 per cent respectively of all mortgages, compared with almost 50 per cent in Australia in 2016; and Australia’s household debt at 190 per cent of household income is much higher than in those other countries in 2008.

The Citizens Electoral Council has issued a five-point program for Australia to survive economic catastrophe, which includes a call for a moratorium on home and family farm foreclosures, to stop the banks from executing a US-style mass-eviction of homeowners in a housing crash. The policy would require the government to take the measures recommended by the 1937 Banking Royal Commission and know if it needs to take over the banks to protect the public’s deposits, and either reorganise them or shut them down. Accurate audits of their books are therefore essential.

Demand your MP support independent audits of the Big Four banks!

Forward this release to your local MP and Senators with the message that they must demand an independent audit of the banks. (Follow up with a phone call to make sure they received it.)

Labor MPs especially should be challenged: with the ALP expected to win the election this year, will they follow the lead of their UK counterparts and take on the real Big Four, or will they let this global criminal racket go untouched?

Banksters Fleecing and Threatening

Banksters Fleecing and Threatening

The Big Four banks have bluntly rejected Commissioner Kenneth Hayne’s mooted changes, in their virtually identical submissions to the banking royal commission’s Interim Report. We should assume that not only were their submissions probably coordinated with each other, they were also cc’d to the Morrison government, as a week later Morrison and Frydenberg reappointed APRA chairman Wayne Byres eight months early to ensure there would be no major changes imposed on the banks.

Hopefully Commissioner Hayne sees through these manoeuvres, but even if he does and recommends sweeping changes, there is no obligation on the government to implement them.

The ball is actually in the Australian Labor Party’s court, which is on track to be the next government: what will it do, to put the banks in their place and ensure Hayne’s inquiry can lead to real changes? Their support for Byres’ reappointment, albeit while questioning the timing, is not a good sign–there is a huge question mark hanging over Byres and APRA from the revelations of the royal commission.

The 8 November Australian Financial Review reported:

Banks hit back at Hayne’s interim report ideas
The big four banks have launched a strident defence of vertical integration, lending benchmarks and executive bonuses.
by James Frost

The big four banks have launched a strident defence of vertical integration, lending benchmarks and executive bonuses in a direct challenge to a series of radical and probing questions posed by Commissioner Kenneth Hayne.

The banks have baulked at suggestions that current practices are in breach of their legal obligations or in conflict with the best interests of customers…

[The banks resorted to threats:]

Commonwealth Bank in its submission has warned the royal commission to tread carefully with its final recommendations around lending or risk a massive transfer of responsibility from borrowers to lenders.

The banks have also pushed back on suggestions that would tilt the playing field too far towards the favour of customers [shock, horror!], warning of higher costs and reduced services.

NAB has warned of higher costs for financial services companies if Hayne was to proceed with a recommendation for structural separation, seeing many Australians priced out of financial advice altogether.

[What conflict of interest?]

Westpac, one of the few banks to push ahead with the vertically integrated model in which banks offer transactional and investment products, argued that conflicts occur everywhere and do not “arise from the structural features of a business”.