Responsible borrowing

Australia is on a bank-bashing roll currently. As the market (and by that we mean property market – really the only important market in the Dutch Diseased country) rose solidly over the previous decades, the national psyche shifted to one where the expectation of continued growth became pervasive.

To a certain extent, that’s a rational position to take; if everybody, lending institutions and central banks included, is predicting a double digit rise next year there’s wisdom in listening to them.

There’s a similar theory about “technical analysis” of stock charts, that it might not be based on any underlying science but, because everybody believes in “support lines” and “double tops”, it becomes a self-fulfilling prophecy.

However, trees don’t grow to the sky and no market moves in a straight line.

More importantly, if you’re going to make a bet, any bet, you better bloody well know that you can live with the wrong result should it occur.

Westpac has been hit with the first class action against one of the big four since the banking royal commission’s final report earlier this month.

Lead plaintiff Michelle Tate told a media conference in Brisbane on Thursday she and her husband Ian were ruined after the bank lent them more than $1.8 million across five properties, despite the family having just one income.

Ms Tate said Westpac trusted a loan broker who provided information about her family’s financial position, and did not independently verify the situation. She said her family would now lose all of their properties save for a block of land.

Wait, what?

They bought their first home in 2008 but decided to invest in a further three in 2013 and 2014 while Mrs Tate was a full-time mum, all funded through Westpac loans they locked in as interest only and secured against their first property.

Are you insane?

Maurice Blackburn Principal lawyer Ben Slade said Westpac was “required to comply with strict obligations which are specifically designed to protect consumers from irresponsible lending and the risk of financial hardship”.

“This case will seek to prove that Westpac failed to comply with these obligations and that this failure caused substantial losses for many consumers,” he said.

That highlighted claim reminds me of the regrettable line we all mistakenly say once in our lives;

“Honey, does this dress make my bum look fat?”

“No dear, your bum makes your bum look fat”.

Bill’s Opinion

Michelle Tate and her husband knew exactly what they were doing when then went all in on property. It was a one way bet they couldn’t lose.

Blaming the bank that lent you the money in the hope of compensation is an understandable tactic and a common coping mechanism rather than coming to terms with one’s own stupidity and greed.

But you were still stupid and greedy and you absolutely knew what you were doing.

Bitchin’

More nonsense on my Creepbook For Business timeline. This one is about “Like minded bitches drinking wine“.

A networking club which excludes people on the basis of gender? I thought we’d moved on from those anachronisms ages ago?

Oh, it’s a networking club exclusively for women. Ah, I see. It’s like the difference between Spinal Tap’s album cover being sexy or sexist…..

The comments under the post underline the rule of our time, never read the comments under articles. They are basically a bunch of sycophants saying, “you go girl!” or people wondering why anyone trying to portray themselves as professional would use the noun, bitch.

Anyway, Jane Lu is fighting the good fight for equality equity.

Here’s a photo of her team at Showpo;

Gender diversity is clearly very important to Jane.

Bill’s Opinion

Jane is simply responding to the incentives offered to her. She’s self-promoting and benefiting from the congratulations and social rewards due to those who loudly proclaim the correct messages.

It’s devoid of dignity though, which doesn’t seem to be completely aligned with the point of feminism.

Connecting the dots

Unfalsifiable hypotheses are always a bit silly, and this blog generally tries to steer clear of falling for that trap but, hey, it’s Friday and salacious gossip is fun.

Sometime ago, we brought you the Canberra insider news that has never made it into the mainstream; Julie Bishop enjoys/has enjoyed a full and busy private life and sent a fairly unsubtle shot across the bows of the free press to not go prying into MPs’ private lives.

This week, we learn that China a foreign power power has hacked into the parliamentary computer systems (by which they probably mean the email server).

And now Julie Bishop has announced an end to what was a promising political career that, by any objective view, probably still had greater heights to reach.

Curious.

Ok, let’s suspend our usual reliance on logic, reason and requirement for evidence and just have a complete punt at what’s going on….

There’s plenty of embarrassing personal information on everyone’s email history, none of us would appreciate it being opened up to the public, that’s why we don’t share our passwords.

A prominent politician is no different, particularly if they’ve been a little indiscreet in the past.

If you had evidence that your email was one of the hacked ones and you had something to hide, or at least feel a little regretful about, a simple solution might be to drop out of the public eye. It doesn’t completely prevent the leaked information making it into the news but yours wouldn’t be the most pressing for the media to report on at that point.

Bill’s Opinion

China seems a little less-enamoured with Australia these days. The best we can hope for is a Wikileaks type data drop of all the naughty little secrets about politicians’ petty personal lives.

Unfortunately, blackmail and coercion is more likely.

If you wanted Bill Shorten’s recipe for Pavlova, you could have just asked

Apparently, China or Russia “a sophisticated state actor” hacked into the Australian Parliament IT servers last week.

Shocking stuff. We are truly fighting a new Cold War, thank goodness George Lazenby is still alive.

We are also told that it is too early to know the motivation or what information was accessed.

However….. here at William of Ockham, we have a handy little blade that can slice away all that is irrelevant to reveal the most likely explanation.

Let’s quickly dismiss the possibility that a foreign power was hunting for an important secret of state; if there is anyone reading this who believes Australia has any secrets China, Russia, Indonesia or even bloody Swaziland don’t already know, I have a harbour bridge I’d like to sell you. And anyway, there are better IT systems to hack to gain Australia’s secrets.

In addition to Australia’s defence secrets not being worth the candle, how many of them are likely to be divulged to MPs, or even the Defence Minister and Prime Minister? Given that that last role is only ever a casual appointment, it’s doubtful the security services go through the bother of setting up a userid and password for each new appointee.

So what information could possibly be of interest on the parliamentary servers?

The more I think about this question the more certain I become that they will have learned about just one topic: who’s shagging with/has shagged whom?

Bill’s Opinion

There’s a Federal election this year (there’s a 33% chance of that statement being correct at any random time though), which means Australian politics might finally become interesting.

Imagine the fun we may be about to have with Wikileaks drip-feeding prurient tittle tattle about the sordid details of the sex lives of, say, Julie Bishop, Sarah Hanson-Young, Barnaby Joyce or Richard Di Natale?

Maybe chuck in some scandals involving expenses being used to fund lavish lifestyles or questionable morality and perhaps some unparliamentary language on emails referring to voters as sheep or worse.

Finally, an election we might actually enjoy!

Write down the NBN? Write the whole thing off

We’ve spoken before on the utter disaster that is Australia’s National Broadband Network and how it was unlikely to ever achieve its stated goal and also cost significantly more than budgeted.

Well, things just got a whole lot worse for the beleaguered Australian taxpayer as it would seem reality is starting to rudely impose itself on the business model, such that it is: The NBN will need to write off a huge chunk of value, if that’s even possible now.

Crikey (in the vernacular), who ever could have predicted that?

Oh yes, everyone.

From the article:

It is self-evident that you can’t write $20 billion off a $10 billion (or less) equity base.

Ya reckon?

Rue made the point that when people called for a write-down, what they were actually calling for was a dramatic reduction in wholesale prices. It’s a mechanism, not the objective.

There are alternatives to a write-down that could lower wholesale prices, although they would involve heavy costs for government.

Hold on one second, sunshine…. heavy costs for whom?

The government? Nope, don’t think so. The government only has money for one of the following reasons:

1. Taxes paid by citizens (yes, that includes corporation tax – who do you think buys their goods and services?)

2. Borrowing on behalf of the public….which will be repaid by, yep, taxes

Read this with that in mind:

If the federal government were to cash out the $7.4 billion of subscriber payments and buy out the lease agreement, it would effectively inject more than $20 billion of value into NBN Co by carving those payments from its cost base and boosting its cash flows.

The substantial change in its economics would enable NBN Co to pass through the savings to retailers without damaging its ability to generate a positive IRR.

Or, in English; if the government spent more money it would make the NBN company seem like it was less of a turd.

Bill’s Opinion

The lesson every generation of voters always has to learn the hard way is, if you really want to fuck something up, and I mean really fuck something up and stay fucked up for a bloody long time, get the government to do it.

Australia discovers the internet

There’s an Australian government body, the ACCC, that regulates commercial competition, ostensibly new behalf of the consumer but, as we will discover, perhaps not.

Firstly though, let’s crack that old joke, “why is there only one anti-monopoly agency?”.

The ACCC has recently discovered that people aren’t getting so many newspapers delivered to their houses these days.

No, really.

The ironically-named “competition tsar”, Rod Sims says;

“I was getting the response of people saying ‘isn’t this just creative destruction? You know, classic Schumpeter, the way the world works?” he said in an interview ahead of the speech. “Well… it isn’t. This isn’t just like the car taking over from the horse and buggy, or more recently, Uber taking over from the taxi”.

What is it then?

The internet has been accessible to the majority of Australians since the mid 1990s. Therefore the value destruction of print media and journalists’ careers has been one of the most signalled disruptive industry changes in several generations, yet somehow the media organisations failed to adapt.

The ACCC estimates that the number of journalists employed in the print sector fell by 20 per cent in the three years to 2017; while between 2006 and 2016 the number of journalists employed by traditional publishers fell 26 per cent.

Let’s remind ourselves what those employed in news media are supposed to do every day they come to work…

The harsh reality is their real job description was, “produce interesting content that captures an audience for advertising”.

Perhaps the journalists would prefer something more worthy like, “identify and investigate important changes in the status quo and inform their customers”.

Either way, they’ve failed spectacularly.

Bill’s Opinion

From the mid 1990s, traditional news media failed to spot the impact the internet, cheap mobile phone data and smart/camera phones would have on their profession.

Which is a bit of a problem if your job is called “the news“.

Please don’t make us pay to keep this rubbish alive any longer than it needs to be.

Special pleaders gonna plead specially

For those not following the Australian economy (and judging by the readership statistics of this blog, that’s most of you), there’s some huge fun to be had in observing the logical knots people are currently tying for themselves.

 

The problem is that the Reserve Bank of Australia has again, not lowered interest rates. The last time the RBA moved rates was in August 2016, down from 1.75 to 1.5%.

 

I have a real job, i.e. I’m not an economist, so whether or not the RBA is taking the correct course of action is not really something I’m qualified to comment on. However, I am able to spot blatant special pleading when I see it:

 

The “Kouk is lining himself up for a job as an advisor in the next Federal government, assuming the current incumbents lose the election. This is likely to be a nice final job before his retirement. An ongoing house price crash in the two biggest cities of Australia will make this semi-retirement gig far more stressful than he’d appreciate.

 

 

The “Doc” was recently the “Chief Economist” (whatever that means; how many do they have to employ to need a chief?) at Domain, the only profitable arm of Fairfax…. until it was sold off. He was fired last year and is now pitching himself as “Chief Economist” of a company called My Property Market. The website of this esteemed company is still under construction, but I’m sure it’ll be finished soon. After all, they’ve got at least one employee now….. 

 

One imagines the Doc is personally very heavily invested in property.

One of the unusual quirks of the Australian property market is that there is a tax incentive to run your investment properties at a slight revenue loss.

There are, of course, two minor problems with this; firstly, you’re accepting an operating loss today in the hope of a capital gain tomorrow, and secondly, the tax benefit only works while you’re drawing a salary or other income at a level that attracts the higher marginal tax rates to offset the negative gearing. Amateur property investors who get fired from their regular job are clobbered with a double whammy, in other words. Ouch.

Bill’s Opinion

 

In the words of Upton Sinclair,

 

 It is difficult to get a man to understand something when his salary depends upon his not understanding it.

 

Baby Hubris

Let’s hope this young journo doesn’t look back on this piece with regret.

Throughout 2018, I literally had recurring dreams where I would find out I was pregnant. Part of me blames Kylie – I often watch her content before going to sleep. Stormi is ridiculously cute. Part of me also blames my 26-year-old uterus’ own increasingly vocal biological agenda.

Having a baby right now doesn’t square with my career ambitions or financial reality. And, yet, Kylie has somehow hacked my brain into thinking having my own little Stormi right now is exactly what I want.

So far so biology or another woman’s fault. But wait, surely we can blame men for something?

Oh yes:

Patriarchal societies have a vested interest in making motherhood look like the ultimate utopic end goal women should prioritise above all else. This keeps women feeling “bad” if they can’t have or don’t want kids and naturalises their role as “caregivers” in society, thus helping to keep them from accruing the same influence as men in other domains like business, law, politics and culture.

Wait, what?

You’ve just admitted that your uterus is shouting at you to have a baby but somehow that’s duh patriarchy?

Men keep you feeling “bad” for not having a baby? Do women have any agency in this decision?

Bueller? Anyone?

Bill’s Opinion

Listen, Natasha Gillezeau, if your career was so important to you that you’d put your instinctive desires to give birth on hold, one would hope that it would have paid off by now.

As it is, you’re being paid a pretty crappy salary (you are on the books, right, and not just a freelancer?) working for a company that is very much in decline even for an industry that is in decline in general.

Mr Scientist puts it more eloquently:

No Natasha, if you want a baby and you’ve found the right person to have one with, chuck the contraception away and get on with it.

Finally, the financial reason you mention, which I assume will be something along the lines of, “we’re only renting a small apartment“, is just an excuse. Kids don’t give a stuff whether you’ve got a mortgage or a rental contract.

Westpac’s Diversity and Inclusion Officer writes…

…about banking and house prices. One wonders how that got past the Corporate Affairs twinkies.

Obviously we’re being facetious, Brian isn’t really the Head of LGBTQI123& non-TERF Advocacy (not that you’d know it to look at what he seems to spend most of his time focusing on).

No, he’s the CEO of Westpac

Which means, on balance, the article is even more worrying.

Why?

Ask yourself a question; when the CEO of the 2nd biggest bank decides to write a blog post explaining that the property market isn’t crashing, that the bank is sound and they are still open for business, does that make you feel great comfort and security?

Or, do you think to yourself, “why is he telling me this, why wouldn’t everything be fine, what does he know that I don’t?

Bill’s Opinion

The lady doth protest too much, methinks

It’s highly unlikely any of the major Australian banks are going to be in trouble any time soon. However, the prime candidate if one does hit hard times would be the one with the largest exposure to interest only investment loans and a top of the market (2007) acquisition of a competitor that they never got round to integrating and realising economies of scale….

Australian banks’ dichotomy

This is not a trick question, but what is the primary purpose of a retail (AKA commercial) bank?

 

Assuming it’s not been nationalised, like RBS and other 2008 basket cases, presumably the main function of a bank is to make money for its owners, i.e. the shareholders. Sure, the corporate mission statement might waffle on about helping customers through the key milestones on their life journey, blah, blah, blah, but if they don’t increase the shareholder’s value, they’re dead.

 

Australian retail banks have performed this task very well over the years. CBA’s share price and dividend history is shown below as an example, the other 3 major banks are not dissimilar;

 

 

That the dividends barely missed a beat following the minor difficulties in the banking world in 2008 is amazing. Of course, this masks a slightly inconvenient fact that they were supported by an implicit government guarantee of a bail out should one be required, allowing investors to remain calm and not rush for the exit like in other jurisdictions.

 

Gifts rarely come without an expectation of a quid pro quo, however. In the Australian case, the banks are expected to “do the right thing” by the public, by which we mean, “help the government”.

 

On the way up, when values are increasing and there’s a wealth effect to the public, or at least those exposed to the upside of property ownership, these two purposes (shareholder value and public service) are reasonably well-aligned.

On the way down, as property values decrease and regular members of the public start to experience financial pressure, the two purposes diverge. If the government of the day would like the bank CEOs to show some forbearance to those in distress or even take a haircut on the margin between borrowing and lending costs, the bank shareholders are going to suffer.

 

What might this mean in the short to medium term?

 

There’s a few factors at play currently which may provide us with an indication of how the next year or two might play out.

 

  1. The Royal Commission in to the financial sector has unearthed some unpleasantness by most major institutions. There will be ramifications for the sector in terms of increased oversight and regulation.
  2. Macroprudential restrictions on lending has resulted in a cooling of the housing market with prices down around 10% from the 2017 peak and perhaps, conservatively, 1 in 10 owner occupier mortgages being in negative equity (more, according to some sources).
  3. A likely change of government in May and the possibility of the removal of some tax breaks for new owners of investment properties.
  4. Costs of borrowing from overseas sources (currently about 60% of mortgage funding) has increased and looks likely to continue to do so, albeit mildly, during 2019.
  5. A halving of the number of foreign (by which we mean Chinese) property investors buying in Australia since the peak in 2014.

 

Predictions are notoriously difficult, especially about the future, but this combination of factors suggest that the decline in values is unlikely to halt during the next 12 months.

Whichever flavour of government is in power, and let’s face it, there’s little difference between the two parties other than one group is more competent at being corrupt than the other, won’t really matter; neither of the major parties are going to enjoy governing during a -15% or perhaps -20% property crash.

The calls to “do something, do anything” are going to become deafening.

The professional economic troll, Stephen Koukoulas, and the “Chief Economist” of My Property Market (i.e. the only employee), Dr. Andrew Wilson, are already flooding social media with pathetic begging of the Reserve Bank to cut rates.

God only knows how many more vested interests will come out of the woodwork over the coming months. 

 

Bill’s Opinion

 

Obviously, the government is going to call in the favours owed. At the very least, banks are going to have to take a hit on margins. The banking regulator, APRA, may find itself under political pressure to ease the responsible lending restrictions that have been put in place and then banks will be “encouraged” to open the spigots again. Friendly State Governments may be under pressure to reverse restrictions on overseas ownership.

 

None, some or all of this might “work”. 

 

Regardless though, shareholders of the banks are going to take one in the chops.