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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.

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BFCSA: Aussie Banksters Blowing Bubbles - BIG PONZI ones!

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A plague on Aussie housing

Philip Soos

 

Published 8:33 AM, 16 Jan 2013


 
 

We suggest you read the excellent and entire Philip Soo article on Business Spectator  http://www.businessspectator.com.au

Is Australia’s residential property market in a price bubble? This question has been much debated over recent years as housing prices leaped then slowly receded, resulting in entrenched views on both sides. Certainly, mainstream opinion is opposed to the idea that a housing bubble exists, with the government, FIRE sector (finance, insurance and real estate), and much of academia claiming that prices are linked to fundamentals or intrinsic value.

It helps to have a sound fix on what an asset bubble is when exploring this matter. Otherwise, it becomes like pornography: you can’t define it exactly, but you know it when you see it. A good starting point is the work of the late US post-Keynesian economist Hyman Minsky. His contrarian work revolved around developing a realistic model of how financial markets interacted with asset prices. This theory was called the ‘financial instability hypothesis', arguing that financial markets continually mis-allocate substantial amounts of credit into asset markets, creating Ponzi (pyramid) schemes.

 

 

Minsky defined three phases of finance: hedge, speculative and Ponzi. With hedge financing, income flows from an asset are sufficient to pay down both principal and interest on the debt used to finance the asset purchase, and prices are based upon intrinsic value. Speculative financing results in income flows covering only interest repayments, not principal, requiring debt to be continually rolled over. Investors may experience financial stress, but it is not widespread and fundamentals valuations are kept largely in check.

The terminal phase occurs with Ponzi finance, as income flows cover neither principal nor interest repayments (including running expenses in the case of rental property). Investors rely solely on escalating capital values in order to realise substantial capital gains at sale to pay down the cost of debt and balance their income losses. Asset prices are completely delinked from fundamental valuations at this stage. Investors rely upon ‘greater fools’ to maintain positive price momentum, resulting in a bubble. Once there are no more investors willing to take upon staggering amounts of debt to finance asset purchases, prices stagnate then collapse, as the market finally realises that prices are based upon a pyramid scheme, not fundamentals.

With Minsky’s theory, it is possible to determine whether a housing bubble exists. Unfortunately, there is evidence to suggest that Australia’s residential property market is experiencing said bubble. Figure 1 shows the long-term trend in housing prices, adjusted for inflation and quality. The 1996-2010 period is the largest single boom on record, rising by approximately 130 per cent.

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The latest housing boom provides one piece of the puzzle: rising asset prices. The next aspect to consider is whether investors are running current income losses. Figure 2 indicates that this is indeed the case as aggregate net rental returns are negative, with losses escalating from $1 billion in 2000-01 to $5 billion in 2009-10. Losses peaked at $9 billion in 2007-08 when interest rates were relatively high, though rate cuts during and after the GFC relieved some of the pressure.

continued at:

 

http://www.businessspectator.com.au/bs.nsf/Article/residential-property-house-prices-housing-mortgage-pd20130115-3Y4BY?opendocument&src=idp&utm_source=exact&utm_medium=email&utm_content=164246&utm_campaign=kgb&modapt=commentary

 

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