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‘Aussie’ attacks Reserve for not making him more money

The RBA makes decisions for all of us, not just hypocritical lending sharks. “Aussie” John Symond should bear that in mind when discussing interest rates.

One of Australia’s biggest walking contradictions, “Aussie” John Symond, last week launched a scathing attack on the RBA for maintaining a stance which doesn’t make Aussie John as much money as he could be making.

In a speech to the Australia-Israel Chamber of Commerce in Brisbane, Symond attacked the RBA for being “asleep at the wheel” by not lowering interest rates sooner. At the same time, Aussie John launched a strident defence of Australia’s property market, saying he was “confident, notwithstanding a lot of hype from offshore analysts about a housing bubble, of Australia’s fundamentals”. He continued: “Their argument is that most housing markets around the world have gone through a bust, so why not Australia?”

Symond is no doubt talking his own book — literally. His company, with a multi-billion loan book, makes money from people borrowing to purchase properties — a stiff (continued) correction to the Australian housing market won’t help his bottom line.

Symond’s comments, of course, aren’t necessarily backed by fact or logic. The so-called offshore analysts are critical of Australian housing market precisely because of the fundamentals that Symond refers to. Specifically, Australian property has globally low rental yields (of around 3%) and Australia is a global leader in housing debt. Australia’s mortgage debt to GDP of almost 90% is higher than that of the US before the global financial crisis. Quite simply, Australian banks have allowed the price of housing to completely outstrip its intrinsic value due to their willingness to lend. Even after the GFC, the big four banks (ably assisted by mortgage brokers like Aussie) continued to lend on loan-to-valuation ratios of 90% or even 95%.

Aussie John then noted the RBA has “left interest rates comparatively high … for the last 12 months [and] Blind Freddy could see inflations was not a problem, so why was the RBA holding off?”. Symond is perhaps forgetting the millions of Australians who encounter worse living standards when interest rates fall. Pensioners on fixed income or savers are all materially worse off when the RBA lowers rates. No doubt lower interest rates are better for Aussie John, his paymasters at the Commonwealth Bank and his over-leveraged clients, but that is not the only concern of the RBA.

Symond’s rhetoric is hardly surprising: while portraying himself as a friend of the battlers, he has long since progressed from his days of struggle. Symond, who narrowly avoided bankruptcy in the 1980s after striking a deal with lenders, lives in one of the nation’s most expensive homes, a $50 million mega-mansion overlooking Sydney Harbour in Point Piper (Australia’s most prestigious suburb). The pile comes complete with 75 metres of water frontage, a home theatre and two swimming pools.

Aussie John is also famous for rallying against the big four banks, only to sell a third of his company, Aussie Home Loans, to the biggest bank in Australia, CBA, in 2008. But don’t expect to see it on Aussie’s webpage — the About Us page doesn’t refer to CBA anywhere, not does Aussie’s Wikipedia page which appears to have been penned by the group’s PR department.

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  • 1
    Simon Mansfield
    Posted Monday, 15 October 2012 at 2:25 pm | Permalink

    Since when did it become an entitlement that people who want the security of capital guaranteed investments - ie money in the bank were somehow entitled to a high return.

    In polite terms we might call “savers” the passive economy - but with the growing sense of entitlement to having high returns but low risk - the term parasite economy might be closer to describing this new sense of entitlement.

    It’s time someone with authority in the area of economics put it in simple terms - if you want high interest rates then expect high inflation rates - and watch what that does to the value of passive bank deposits.

    Once upon a time many of these retired “savers” had their money in mortgage funds and enjoyed much higher returns - but when they found out that nothing is free in life - they ran back to the security of the banks - but low risk and sleeping well at night was not enough for the grey haired legions of the passive economy - they also now expect to get a high return - and not have to spend any of their capital to finance their endless overseas holidays.

    The interest rate imbalance that Australia is currently operating under is doing untold damage to businesses exposed to forex risks. Simpletons that suggest that hedging is the answer - are exactly that - simpletons - with no understanding of how forex exposed businesses actually operate. The high Australian dollar has been a problem for vastly longer than the typical forex hedge would cover.

    Glen Stevens as usual is driving backwards looking in the rear view mirror. He and his deputy should retire and let fresh thinking direct the RBA going forward. And either the RBA or the government should face up to the reality that the current agreement between the government and the RBA is out of date and needs to be expanded to include the currency. Which according to the RBA Charter is meant to be of equal priority for the RBA to manage along with domestic monetary policy.

  • 2
    Aussie Rob
    Posted Monday, 15 October 2012 at 3:10 pm | Permalink

    Quite simply, Australian banks have allowed the price of housing to completely outstrip its intrinsic value due to their willingness to lend.

    It’s classical, that difference between historical sales evidence and the hyper-inflated pricing levels set by the vested interest industry players and fueled with low-doc borrowed money supplied by the likes of our vested interest “Aussie” Johns.

    In fact, his argument is so blatantly self vested interest that it’s almost shameful. Complete disregard for the welfare of individuals and families from the impact of neck-noosing mortgages just to improve his selfish bottom line.

    @Simon Mansfield - “Since when did it become an entitlement that people who want the security of capital guaranteed investments - ie money in the bank were somehow entitled to a high return.”

    When I see you laying it on the line and risking life and limb, separation, depression, anxiety, being shunned for what you believe in, speaking the truth for no reward and always considering the wider community at the behest of your own self….then I will be impressed.

  • 3
    tinman_au
    Posted Monday, 15 October 2012 at 5:22 pm | Permalink

    Seems the wiki page was edited on the 15th Oct to add back in the CBA 33% ownership (with citation).

  • 4
    Symo
    Posted Monday, 15 October 2012 at 6:04 pm | Permalink

    And you have no vested interest, Aussie Rob?

  • 5
    George Gazzone
    Posted Monday, 15 October 2012 at 6:41 pm | Permalink

    ”..but low risk and sleeping well at night was not enough for the grey haired legions of the passive economy - they also now expect to get a high return - and not have to spend any of their capital to finance their endless overseas holidays…”

    No, your right and I agree with your manifesto. Old grey haired people have no right to live and should be categorised as useless eaters and their lives terminated at age sixty five.

  • 6
    Simon Mansfield
    Posted Monday, 15 October 2012 at 7:23 pm | Permalink

    George where did I say that old people don’t have right to live. What I said is that you can’t upturn basic economic risk and reward and create a situation where people expect a high return for effectively zero risk.

    Moreover, you can’t call for higher interest rates unless you also want to have high inflation. The two go hand in hand - hence why rates should come right down and in the process take the heat out of the dollar and restart the non mining export economy and the import replacement economy.

    Which will give a much needed boost to employment with more hour being worked and a more stable economy that the over heated mining economy that both parties have allowed to run riot for the past decade. The economy is now facing a major fall in tax receipts due to the high dollar crimping the converted value of the mining profits.

    Howard created an entitlement mentality across the whole of Australia and Labor has been gutless in putting the axe into those entitlements. But to have a situation where people feel entitled to having high returns for effectively a zero risk investment is beyond a joke.

    Especially when it’s impacting the employment and earnings prospects of their children and grand children. And I’d hardly say that the post war baby boomers saw much risk in their lives. Their parent’s generation yes. But the over 55s enjoying early retirement and sitting on a truck load of cash in the bank and wanting high returns risk-free, while they enjoy an endless world holiday without using any of their capital cannot be allowed to become the new entitlement.

    But it seems a strange mix of Labor voting retired public servants who scored a home run with generous government funded super plans and retired business managers who vote Liberal and who also benefited from early super plans - expect exactly that - high returns for zero risk - and way too many economic commentators are cheering them on as the new oppressed - despite what is often a cool million or more in cash sitting in the bank.

  • 7
    Sean
    Posted Monday, 15 October 2012 at 9:53 pm | Permalink

    John Symond started the Australian credit bubble/housing bubble back in 1994 when he started issuing low docs and no docs mortgages and helped double the pool of credit in Australia, forcing the banks to follow suit and start borrowing from unconventional sources to boost the money supply. Nothing but chaos since.

  • 8
    Bill Williams
    Posted Monday, 15 October 2012 at 10:23 pm | Permalink

    How is it possible to be in possession of all the facts, Adam, and to then draw such an ideologically biased conclusion? Your comments about the role of banks in the inflation of Australian house prices, and your scapegoating of Symonds as a symbolic target for your attack on the greed of banks is reminds me of Gillard defending Peter Slipper from Abbott’s sexism.

    You are a full on economic hypocrite, Adam. It’s people like you, members of the neo liberal, rational economists club, who argue for the deregulation of both our currency valuation and our financial services sector. You just can’t run with the foxes and then bay with the hounds Adam, without being called out for it.

    In our under regulated financial services sector banks are relatively free to import borrowed money and lend it to willing borrowers. In the eyes of your free market deity they probably should be free to lend it on a no doc basis if they wish….and let the market take care of them if they make mistakes.

    And that’s just at the Australian end. The whole global financial crisis started with an underegulated banking sector in the US, which had to bailed out through the transference of bank debt from the private sector to the government along with a series of “quantitative easings”. This wholesale money printing, which probably was the root cause of the whole GFC when it started back in the late 90’s has left the world with a flood of paper money….and the banks and finance companies are flat out finding people to borrow it. It’s probably never been easier to buy a new car without any money….and amazingly Australians are buying new cars in greater numbers than ever.

    John Symonds is just an actor in a free market w-t dream play written by neo classical economists like you Adam. You neo-classical guys created the roles, so many of us find your gall in then lampooning the actors somewhat sickening. Booooooooooooooo!

  • 9
    George Gazzone
    Posted Tuesday, 16 October 2012 at 12:05 am | Permalink

    ”..George where did I say that old people don’t have right to live…” Simon Mansfield

    Below

    ”..In polite terms we might call “savers” the passive economy - but with the growing sense of entitlement to having high returns but low risk - the term parasite economy might be closer to describing this new sense of entitlement…” Simon Mansfield.

  • 10
    Aidan Stanger
    Posted Tuesday, 16 October 2012 at 12:45 am | Permalink

    Simon Mansfield, unfortunately you have it the wrong way round. High interest rates result in low inflation - indeed increasing interest rates is how the RBA responds to high inflation. It’s quite an inefficient way of controlling inflation, but it does work for two reasons: firstly it makes borrowing more expensive, so there’s less borrowing, so less money goes into the economy. Secondly it increases our dollar’s short term value because people borrow overseas and park their money in Australia.

    Low interest rates are good for the economy because they enable businesses to invest in equipment that’s more productive and more efficient. And despite Aussie John’s self interested bias, he’s absolutely right. The RBA has been setting interest rates far too high. Inflation’s well below its target level. Australian interest rates are much higher than those of most other countries, and as a result our dollar is much higher than our balance of trade would justify. Our high dollar and high interest rates are making it uneconomic for businesses to expand sufficiently, hence the recent rise in the unemployment rate.

    But it gets worse: The RBA is actually trying to keep the unemployment rate up! To understand why, you need to look back to 2007: One of the things Kevin Rudd promised was tax cuts. And when the Rudd tax cuts kicked in, it meant that a lot more money stayed in the economy. The effects of this included a rise in demand, resulting in a sudden fall in unemployment as businesses took on more staff. But it also had the effect of a spike in inflation. The idiots in charge of the RBA came to the erroneous conclusion that the drop in unemployment caused the inflation, and they’ve been trying to keep people out of work ever since.

    High interest rates are not the only way of controlling inflation, and fiscal policy is a more useful one. Running surpluses generally has that effect - there’s no distinct advantage of running surpluses, but increasing (tax-spending) will reduce inflation no matter which side of zero we’re on. So although Australia will never ever need to eliminate its debt or worry about its interest payments, aiming for a surplus is a good thing as it forces the RBA to reduce interest rates. But a slight policy change could enable them to do so more quickly in a way that’s more conducive to economic growth.

  • 11
    Aidan Stanger
    Posted Tuesday, 16 October 2012 at 12:52 am | Permalink

    George Gazzone, the right to stay rich from work you’re no longer doing is not the same as the right to live. Australia has a fairly good social security system and it can be improved further if needed. But the economy should be run in a way that increases productivity rather than increasing the rewards to those who are unproductive and wish to remain so.

  • 12
    Hamis Hill
    Posted Tuesday, 16 October 2012 at 8:33 am | Permalink

    $1.3 TRILLION of private mortgage debt- what housing bubble?

  • 13
    Hamis Hill
    Posted Tuesday, 16 October 2012 at 9:01 am | Permalink

    High profit companies can afford to borrow and pay high interest rates.
    But if the profits come from speculation, as in the housing market, the increased returns to lenders is not matched by any real increase in wealth and since there is an increase in money without an increase in wealth (SPECULATION!) then the price of the speculated asset INFLATES.
    I thought Adam Smith explained all this in 1776.
    (The Wealth of Nations can be downloaded free from THe Gutenberg Project)

  • 14
    Simon Mansfield
    Posted Tuesday, 16 October 2012 at 9:43 am | Permalink

    Aidan - what I meant by high inflation goes hand in hand with high interest rates - was that higher inflation leads to higher interest rates being used to achieve an economic slow down and in time reduce interest rates. As you know the opposite is generally held to be the case in that lower interest rates leads to faster economic growth which in theory leads to higher inflation as demand exceeds supply and the cycle repeats itself.

    Supposedly the RBA/Govt agreement is meant to address this head on by keeping inflation in a tight band and using interest rates as the moderator. Problem is that Glenn Stevens seems to consistently get his timing wrong while in the current environment completely ignoring the impact of a high dollar - beyond it being an easy way to keep inflation down via cheaper imports - no matter what it does to large sections of the economy. Now that’s it finally so out of whack with the terms of trade and leading to a significant crunch on mining profits when converted to Aussie dollars and hence the flow on to tax receipts - it’s all of a sudden a big issue.

    But coming back to interest rates, inflation and the perception among savers - the problem is that many people were accustomed to much higher returns from mortgage funds and the like, and then when the GFC hit deposit rates went up as banks tried to bring in as much cash as possible. With so many people fleeing non cash investments a sense of entitlement developed where it was just assumed that you could park your money in the bank and collect 6%.

    For self funded retirees with a cool million on deposit - that was effectively 60000 a year - tax free - for zero risk - with many of these self funded retirees owning their home and enjoying all sorts of perks from the Howard years - they were basically laughing all the way to the bank while enjoying yet another PO cruise or visiting the kids in London Paris or New York made all the cheaper by our “China Dollar”.

    With every second economic commentator saying this was perfectly all right as it represented the benefits of the mining boom being spread around - it’s now seen by way too many people as how things should be and remain to be.

    Moreover, the idea that fixed interest income might now decline to 30-40K a year off that lazy million parked in the bank is seen as simply outrageous.

    Meanwhile, only a small percentage of the population actually has anywhere near enough savings for fixed income to amount to more than a few expensive dinners at a fancy restaurant seems to escape these same economic commentators.

    Maybe it’s simply because the oldies are pretty much the only ones still reading the newspapers and getting them all upset and worried sells the news. As the likes of Alan Jones knows so very well.

  • 15
    Hamis Hill
    Posted Tuesday, 16 October 2012 at 10:38 am | Permalink

    That well known Marxist Adam Smith coined the term “Idle Rich” to describe those living off interest.
    He also pointed out that high wages lead to higher bank deposits and lower interest rates.
    The “Idle Rich” must just love that hence the political argument that high wages will cause inflation and destroy the economy, from the mercenary politicians in the pay of the Idle Rich.
    All things being equal, the wealth that results from the combination of capital and labour is divided between profits and wages(Smith again) and if wages are low then profits are high and the ammount of interest that can be paid to the idle rich for the use of their money will be high.
    Conversely, if wages are high and profits low then interest rates will be low and the idle rich will be unhappy.
    If the wealth to be divided between capital and labour is illusory, as in housing speculation, then inflation will ensue.(Smith again)
    Many many parasites are living of the housing/banking cartel and the productive sectors of the economy ie producing actual wealth must compete for boorowingd withh these parasites lodged in the Australain economy like paralysis ticks.
    But is all Labor’s fault.

  • 16
    George Gazzone
    Posted Tuesday, 16 October 2012 at 11:45 am | Permalink

    ”..But to have a situation where people feel entitled to having high returns for effectively a zero risk investment is beyond a joke…”

    Simon, what’s wrong with feeling entitled to a bit of safe and secure interest on your hard earns in the dotterings after years of toil, blood, sweat and a few tears?

    I guess the alternative is a drain on the public purse in the form of pensions.

    I agree that capital should be invested, but where do you put it in this environment in comparison to a safe 4-6%?

    Surely the elderly are entitled to some peace of mind in their twilight years.

  • 17
    Max Brown
    Posted Tuesday, 16 October 2012 at 11:55 am | Permalink

    Att: Adam Schwab

    Subject: Idealogue

    Bill Williams has described you as an ” idealogue ” for the second time in two weeks.

    What even is an idealogue anyway?

    Would you please respond?

  • 18
    Mike Smith
    Posted Tuesday, 16 October 2012 at 2:51 pm | Permalink

    GO for a swim in ‘your’ money, Scrooge style, Symond. I’m not going to call you Aussie.

  • 19
    Hamis Hill
    Posted Tuesday, 16 October 2012 at 4:04 pm | Permalink

    The idle rich might spend their hard-earned like there is no tomorrow because some of them will not be here tommorrow.
    At least that might create some employment for others outside the “Cartel”.
    Or maybe, medieval style, they can buy some indulgences to keep them out of purgatory.
    And if they want to get all religious in their declining years, sitting atop a mound of money, they could contemplate the prospects of getting through the eye of a needle, better than their chances of going to heaven, according to the “Boss”.

  • 20
    Simon Mansfield
    Posted Tuesday, 16 October 2012 at 4:26 pm | Permalink

    George you appear to be answering your own question. If people want safe investments then the return will be very low. We can’t artificially inflate interest rates so a small section of the community can live of their fixed interest income.

    And before someone trots out that silly statistic about their being more savers than borrowers - put it in context - as there is only small number of people who actually have enough cash in the bank to earn enough interest to be more than a few thousand a year. As to the idea that if these people weren’t cashed up they’d be living off the pension.

    Well they are still getting a massive taxpayer subsidy as Howard made it possible for so called self funded retirees to pay no tax on earnings of 53000 a year and reduced tax through 79000 a year. Which means someone else has to pay extra tax to make up for the tax free income people with up to 1.2 million get to enjoy.

    And then egged on by Alan Jones and the like these very same people are the first to whine that interest rates are coming down.

    How did Australia get to the point where it became socially let alone economically acceptable to demand higher interest rates.

    Finally it’s not frail 80 year olds who are complaining - it’s fit and healthy people in their 60s wanting a tax free lifestyle funded by zero risk investments at the expense of their own children and grand children.

  • 21
    Max Brown
    Posted Tuesday, 16 October 2012 at 7:54 pm | Permalink

    ”..they could contemplate the prospects of getting through the eye of a needle, better than their chances of going to heaven, according to the “Boss”..”

    Now, that’s a point.

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