Citizens Electoral Council of Australia  Media Release  Thursday, 24 April 2014 Craig Isherwood‚ National Secretary Email: This email address is being protected from spambots. You need JavaScript enabled to view it." style="font-family: Tahoma, Helvetica, Arial, sans-serif; font-size: 12px; line-height: 1.3em;">This email address is being protected from spambots. You need JavaScript enabled to view it.

Treasury knows property bubble will smash banking system—what’s it doing about it?

The Australian Treasury has inadvertently admitted, in a letter to the Citizens Electoral Council, the deadly threat facing Australia’s banking system from a crash of the property bubble.

This admission is a scandal, because publicly Treasury denies there is a property bubble, so it can deny the threat, and not take any action against the banking practices that are inflating the bubble.

Ironically, Treasury official Meghan Quinn let slip the admission whilst trying to argue in her 14 April letter against the CEC’s call for a Glass-Steagall separation of commercial (retail) banking from investment banking.

Quinn cited the banking crashes in Ireland, Spain and the UK as proof that commercial banking can have the same or even more risk as investment banking:

“Further, risks to financial stability as a result of poor practices in retail and commercial banking can be just as large, if not larger, as those posed by investment banking,” she wrote. “Many of the bank failures in Ireland, Spain and the UK resulted from losses on retail and commercial banking assets rather than from trading activities.” [Emphasis added.]

Exactly! But why? In all three cases, the banking systems crashed because they were heavily exposed to property bubbles—just like the banks in Australia!

The difference is, the property bubble in Australia is an even bigger threat to Australia’s banks, as the CEC’s “Memo: The Great Australian Mortgage Bubble” details:

  • Australia’s Big Four banks have a greater market dominance—80 per cent—than the four biggest banks in any other country in the world, and the same banks have a far greater exposure to the property market—60+ per cent of their business—than any other banks in the world;
  • median house prices are now higher in Australia than they were in those countries when their bubbles burst—median prices in Melbourne and Sydney are 8-9 times annual income, second only to the extreme case of Hongkong, and well above the historical average of 3-4 times;
  • the ratio of Australian household debt to income is at an all-time record of 177 per cent (compared to 60 per cent in 1990), which means that Australians are stretched to the limit of their capacity to service their debt—spelling doom for the property bubble.

Quinn’s letter proves that Treasury knows the threat facing Australia, so why does it publicly deny it, and refuse to act on it?

Treasury is failing in its duty to the public. It is protecting the banks’ reckless gambling on mortgages, which is not just making housing completely unaffordable, it is putting the entire economy in danger, so the banks can inflate their short-term profits.

From Joe Hockey down, the people who run Treasury are too cosy with the banks they are meant to police; too many bankers are at Treasury, and too many Treasury people go to work for banks.

 Glass-Steagall is the only solution, because it is the only way to separate real banking from financial gambling. 

ED:  The evidence of Loan Application Fraud coupled with the Service Calculator Scandal we have presented to Parliament and to ASIC for over a over-whelming. Joe still trying to hit on pensioners instead of the Bankers that engineered this monstrous fiscal tsunami.