Thursday, September 06, 2007

Credit squeeze hits Aussie banks

There you have it -- the banks opened up the credit floodgates 5 years ago, precipitating the boom, and now it's come full circle -- massive levels of foreclosure, housing inflation, indebtedness, borrowing and consumer risk, so they turn tail and restrict credit again. Of course, 'the gummint is managing the economy'. At least APRA could have done something, but they did very little -- it took an international credit squeeze to stop the local largesse.

This could bring down house prices, because

1) people can borrow less, thus reducing bid prices
2) they will probably also have to pay more interest, also reducing how much they are prepared to pay for housing.

Credit squeeze hits Aussie banks


Anonymous said...

Banks and other lenders get a valuation of the property they hold as collateral which is supposed to protect the lender in the event of a default. And all this valuer does is tell you that another house around the corner is also completely disconnected from fundamentals and highly overvalued. The banks and those they sold the risk on to will be hurt badly when it falls over the dumb politicians and their agencies (APRA) will only then wake up. It will be like the rushing in of new laws after Worldcom, Enron, etc. Politicians all over the world are too lazy or too stupid to do it in advance of the problem and then go into overkill afterwards.

Sean Reynolds said...

Yes, I agree.