Business

Aug 1, 2014

The next subprime mortgage crisis in the making

We're not as immune from the mortgage lending laws that triggered the Global Financial Crisis as we might think.

Paddy Manning

Crikey business editor

It is a bit of myth that Australia dodged the global financial crisis because we had tougher lending standards than the United States, where ticking-bomb subprime mortgages were packaged up into toxic derivatives like collateralised debt obligations, slapped up with dodgy AAA credit ratings and on-sold to financial institutions investors all over the world.

9 comments

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9 thoughts on “The next subprime mortgage crisis in the making

  1. Yclept

    the big banks chasing growth at all costs must be saved from themselves.

    Just as the taxpayer needs to be saved from them as well.

  2. Dogs breakfast

    Agree entirely Paddy. We will be lucky if we don’t have a crisis, however the non-recourse loans of USA put more risk on the banks.

    Here the risk is with the householder, who is also the consumer, who will stop spending if it all goes pera-shaped, which will ratchet up unemployment, which will lead to more default, etc etc.

    Negative gearing, superannuation being used for direct property investment and other government policies supporting inflated house prices helps no-one, ultimately.

    I just the rubbish hits the fan before my kids enter the market.

    Where is government leadership on this?

    Why am I asking stupid questions?

  3. 64magpies

    No compliance, no government backed guarantees, at the very least.

  4. AR

    Dogs – “pera-shaped’, the foul & toxic fruit resulting from negative gearing for houses bought to rent.

  5. Peter Evans

    FYI Paddy, only 10 states in the US have non-recourse home lending. They are Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon, and Washington.

  6. Graeski

    The LNP has only four strategies available to it for dealing with problems:

    (i) Reduce government expenditure on welfare or services
    (ii) Reduce salaries or working conditions of employees
    (iii) Sell off the country or parts thereof
    (iv) Provide benefits to the wealthy.

    If these four strategies – or some combination of them – do not provide a solution to a particular problem, then that problem is outside of an LNP government’s capability to solve.

    I don’t see how any of them can be used to resolve the issue described in this report. We’ll just have to learn how to live with it, then, I guess.

  7. Alex

    Paddy, you state the case very well and very clearly. Let’s hope you’rre wrong about how much consideration is being given to the critical issues, but with this government’s emphasis on blindly reducing bureacracy, you’re probabaly spot on.

  8. Barbara Bradshaw

    It really helps to reduce regulatory resources. If / when it all goes pear shaped the regulators will be blamed. I would hate to have a million dollar mortgage if that happens whether or not the loan was an investment loan or for purchase of an average Sydney house to live in.

  9. justin stanford

    Australia’s property market is overpriced. There is no doubt about it. A correction is inevitable. The three main drivers are negative gearing, direct superannuation investment and foreign ownership. If we can’t wind back this overheated market the only possible outcome is a massive correction. That is bad for everyone. The feature film ‘inside job’ recorded interviews with many US banking leaders and many of them clearly stated that the industry needs regulation, that they can’t be trusted to put responsible corporate behaviour above profits.

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