In this week’s adventure, intrepid Jon almost gets pulled into a conspiracy to distract and alarm the public…
This week, I’ve been writing about an interview I did with the AFR, here and here. Today, I want to pick apart exactly how a media beat-up works, and expose what I think is a deliberate attempt to ‘distract and alarm’ the Australian public.
Ok, to start with let’s have a look at the questions I actually got from the AFR’s journalist.
- What is your reaction to what the RBA is saying? Are they right?
- Should the RBA bring in tougher lending measures?
- What will happen if the RBA made it harder for investors to get a loan from the banks?
- Do you think it will have an impact on appetite for investment property?
- Do you think it will impact on your business?
- Do you believe there is a housing bubble or risk of a housing bubble building?
The first 5 questions are pretty straight forward. But look at the last one – about the housing bubble.
Now, nowhere in the RBA’s statement was there any mention of a ‘bubble’. There wasn’t any mention of house price growth being excessive, or of people getting carried away, or of prices departing from fundamentals.
Let me be completely clear: The RBA is not worried about a bubble.
So why are we tying these two together?
And why are we ignoring what the RBA’s warning was really about – the banks.
If you read the RBA’s statement careful (check out my first post), they say what they’re actually concerned about is a rise in price competition between banks, and the possibility of Mac-P policies are about:
additional steps that might be taken to reinforce sound lending practices, particularly for lending to investors.
The RBA’s not targeting a bubble. They’re targeting banks and sloppy lending practices.
So why aren’t I getting a question about that? I’m at the coalface of the property investment industry. I talk to investors everyday. I’m as well placed as anyone to talk about price competition or loose lending practices.
These are the real issues, so why am I being asked about a bubble?
The truth is the media has an agenda to talk up the bubble.
And it works, now everyone you speak to thinks the RBA is worried about a bubble, and Mac-P is all about deflating a bubble, even though that just isn’t the truth of it.
But that just isn’t what the RBA is saying.
So the question is why?
I think there’s a deliberate attempt to distract us – to lead us up the garden path, and to make sure no one’s looking too closely at what this is really about.
Banks.
And what have the major banks had to say about the RBA’s warning?
Precisely nothing.
Funny, don’t you think? The RBA is talking about measures that would directly impact on the way they run their business, and they’ve got nothing to say about it?
We did hear a little bit from The Australian Banking Association’s CEO, Steve “evil Baron Von” Munchenburg early in the piece. He said that there was no evidence that banks had lowered standards, and complained that,
We are meeting demand. If people don’t want us to meet that demand there is a case for macro-prudential regulation but if you are not meeting demand there are people that are missing out on getting into the property market.
It’s a veiled threat at our beloved first home buyers, but its also reinforcing a narrative that banks are keen to drive home.
And that is, if lending gets out of hand, it’s the people’s fault, not ours.
This is exactly what we saw in the US. There loose lending practices descended into outright fraud, but the banks refused to take responsibility. The bubble became a story of people getting carried away and getting in over their heads.
Silly people.
The banking industry worked very hard to paint the GFC as a story about individual buyers, or of an abstract ‘market’ getting out of hand, you know the way markets sometimes do.
And how many banking executives have been jailed, or fined, or made to stay behind and write ‘I must not defraud America and put the entire global financial system at risk’ 100 times?
Precisely none.
Aussie banks are being extra quiet right now because they don’t want this to be a story about them. They want this to be a story about the ‘market’, about the ‘bubble’, about ‘greedy’ investors getting in over their heads.
It’s got nothing to do with us. We’re just providing the supply to meet demand…
… like a gun-shop owner selling automatic weapons to children.
The fact is that not everyone who wants an investment loan should get one. It’s a booming market right now. There’s probably a crack-head on a disability pension who’d love an interest-only loan on a Melbourne shoe-box.
But that doesn’t mean he should get one.
It’s this rationing, this separation of good borrowers from bad that allows the market to function. Without it, investing would simply be too risky a game.
And it’s an ability to assess credit-worthiness that is a condition of a bank’s (very lucrative!) license to issue mortgages.
The banks shouldn’t be allowed to duck responsibility here. But talk of a ‘bubble in the market’ helps them do exactly that.
And the media (who happen to profit a lot from bank advertising) are only too happy to play along.
And what happened to the interview I did? Well, the journo was fishing for someone to get hysterical and accuse the RBA of destroying their business, but all he got was a bunch of fairly level-headed replies.
And a bit of a fizzer of an article in the end. You can read it here.
And all that came of my wonderful and witty response?
Despite the RBA’s warnings, Melbourne spruiker Jon Giaan continues to talk up the market. Mr Giaan said any housing boom was localised to large segments of Sydney and Melbourne. “Just because prices are rising, or out of reach of some segments, doesn’t mean that the market isn’t working,” Mr Giaan said.
I’m a ‘spruiker’ now am I?
I don’t sell properties. Never have. So what’s the apparent definition of a spruiker as far as the AFR’s concerned?
Anyone who doesn’t obediently swallow this bubble nonsense, it seems.
nobody says
All wars are bankers wars: https://www.youtube.com/watch?v=5hfEBupAeo4
Tom says
Wonderful summary of many things we have heard bits and pieces about – all pulled together into a very clear and logical expose. THANKS!!!
Mike says
John I really don’t know how you do it – I don’t agree with everything you say but seriously, a spruiker? You sell education, and while some of those educators sell property, most don’t and even those that do are just trying to make it easier for investors who don’t want to do the work themselves.
I agree completely with your stance on this overhyped bubble nonsense – and it’s interesting to see that AFR (which I thought was reasonably respectable) would attempt to defame an interviewee for having a view different to the angle the reporter was moving towards.
That said, I doubt Larry Schlesinger will get too much hate mail about it…
Jarad says
As someone who has secured a few investment loans in recent times, I can’t say I’m finding it ridiculously easy. I’ve had to jump through a lot of hoops and work hard to get finance that I know that I have no issue covering. They even seem to be tweaking their policies to make valuations harder to achieve and cover their asses in more ways. If their lending practices are getting a bit loose, I’m not seeing it with the group of banks I’m dealing with.
Vanessa King says
I’m with you on that one Jarad!
Watcher says
Spot on with the motivation for the banks staying silent. Very nicely summed up and unpacked as you so skillfully do – with your ‘tell it like it is’ style. Thanks