I don't know if many of you know much about Banking and Finance but Banking collapses are possible in Australia.

I hope you all know that 97% of all money doesn't exist. They are just data entries on a balance Sheet.

When a bank gives you a loan, the money is created by the bank. In exchange for collateral, they are giving you a Cash Advance based on your earnings.

So you borrow $100,000 they simply credit your account with $100,000. This money in turn becomes a liability to both the borrower and the bank because the Bank has to potentially honor this credit with its Cash reserves.

These debts need to be supported. The debts need to be secured against an asset, such as your family home.

Therefore, lets say you have a home worth $500,000 and owe $450,000 on that home. You have $50,000 worth of collateral.

But let's say the Government does something silly and abolished Negative Gearing. Quite likely, property values will drop. How much is anyone guess. But let's choose a conservative number of a 20% price drop in property.

All of a sudden, your property is now worth $400,000 and you owe $450,000. Therefore, you are negative $50,000.

Banks as a result will start to panic, and as a result send you a letter that they want you to pay the $50,000 + another $40,000 (10%) to maintain your LVR of 90%. So you now have to pay them $90,000 and they give you 30 days.

Don't laugh. This kind of thing has occurred before in Australia. During the drought, it happened to hundreds of farmers in Australia.

Now most people won.t have the $90,000. No Bank will lend it you either because you need Collateral and because Banks are no longer lending money in this environment. So after about 3 months, they want to foreclose and want you off their property. The Bailiffs and Police come and give you the boot on the arse with papers signed by the Courts.

You are now homeless and destitute.

The Bank puts your house on the market for $400,000 but is exposed by $450,000. Even after 12 months when they eventually sell it for a bargain at $350,000, the liability is now $470,000 because of the addedd and compounding interest.

So they Bank gets $350,000.

Net Loss = $120,000 to the bank. Multiply this by thousands of houses, the Bank becomes stressed and is eating its Cash Reserves of 3%. This results in a Bank Run. The Bank then needs to close and introduce Capital restrictions so it does not go Bankrupt.

It's a slippery slope from there.

Now obviously it is a little more complicated than this. But I have tried to keep it as simplistic as possible so people can understand.

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Edited by Aikhme: 18/5/2016 01:37:19 AM

Ok.

-PB

Damn, maybe they should install some form of Prudential Regulatory Authority to keep it in check.

It doesn't matter what regulatory framework you have in place. Banks can collapse. The Regulatory Framework only slightly reduces the chances or minimises the risks.

However, all Banks are subject to market fluctuations, and property prices are a huge fundamental since Banks lend based on the value of property collateral 97% of the time.

I think I understand mansplaining now.

You know that is nowhere near the capital adequacy ratios set by APRA right?

Don't worry! A lot of people are baffled!

Imagine explaining to someone who has no clue that money doesn't exist and is created artificially.

People are also under the allusion that Australian Banks are strongly regulated. let me tell you that they are NOT more regulated than the Banks in Cyprus or other EU countries.

Edited by Aikhme: 18/5/2016 11:16:17 AM

Id love to have some spare cash ( 5 -10k ) to play the sharemarket
alas, it sits in the offset account trying to pay my mortgage off :(

House prices dropping 20% is a conservative estimate. Spare me :lol:

Ahh the negative gearing argument.

The only socially acceptable way of telling someone your losing money.

I think the banks have caught on to this. Its not as easy to borrow money as it used to be.

When i bought my first unit 10 years ago, the bank offered me a $450k. This was for a 21yo with 0 years work experience.

Now with about 250k equity in my current property plus twice as much income they wont lend me 300k

They know whats happening.

Lets not forget the banks are making heaps of money. If the need to they just sack a few hundred employees to make sure they do.

Best thing to do is consolidate. And reduce your debt. You dont need to be rich to be happy

Yes very!

House prices have dropped by up to 50% in the USA during the Sub Prime Crisis.

In Greece and Cyprus, they fell anywhere between 30 to 50% depending on the location.

Properties have even been left on the market for 2 years or more and just don't sell.

Hence, Banking Collapse.

There are instances in the world where all of this has occurred - Ireland, Spain, Italy, Greece, Cyprus, and even USA.

It can happen in Australia too.

Its Incredibly simplistic to make those comparisons.

Sure there is an over supply of apartments in major cities and there is likely to be some kind of correction in the future but 20% across the board ?

Its reminds me of the mythical grizzly that keeps appearing on the front page of the papers every 6 months when the share market dips.

Damn better blame all those people with 5+ mortgages on investment properties.

-PB

Investors are probably the least likely to be affected.

the most likely to be affected on home owners. Those owning 1 home and with little collateral. These are the people the Banks are going to go after if they are headed towards the wall.

Those not leveraged high, will be ok.

It is always the poorest that will bear the brunt. And Shorten's policies, will expose the poor and renters big time.

Landlords will just lack up rents by $1000 for each property. Those with 5 properties will end up with $5,000 more each year. :cool:

So who pays? The poor pay.

How much do I lose from my tax return? Probably only 1 or 2k each year at most. :cool:

Edited by Aikhme: 18/5/2016 01:06:13 PM

Difference is there was a terrible over supply of houses in the US.

We have an under supply which is cause the price increase more so than things like negative gearing.

Which is why the plans form labor are only to eliminate negative gearing on older houses. New house will still be able to be negatively geared against.

House prices in Sydney and Melbourne as insane. I support a major price correction. Property market is a Ponzi Scheme now. Are you a property investor Aikhme? Even the POM's know Negative Gearing is a rort if used wrongly...

Edited by soft news: 18/5/2016 01:51:21 PM

A major price correction sounds good if you're not an investor (and I'm not one either). If one were to actually happen there'd be a pretty big recession and it's going to impact a lot more than just investors. Not much good having cheap housing if you don't have a job.

Yes I am a Property Investor. I don't think I am Negatively Geared though and I don't want to be Negatively Geared either.

However, there were instances where I was Negatively Geared such as when I suffer malicious damage which leaves me out of pocket not to mention hours upon hours of my own labour and time.

The most I have ever got back in a single year was just a few grand, but generally speaking I have to fork out some tax each and every year.

However, I am deeply concerned should Negative Gearing be abolished even for existing properties only. I believe it will be very difficult to avoid a slump in property demand and that is going to effect single home owners and renters most of all. It also targets specific investor profiles - ethnic middle income investors who do not know other investment classes like stocks.

Then why not abolish Stamp duties on development land? That would be a sure kick-starter.

I also believe a Labour Government will shoot itself in the foot because in gain from abolishing Negative Gearing will be eaten up with slumps in the following revenue streams:
1) Stamp Duties,
2) Land Tax,
3) Emergency services Levy,
4) Capital Gains Tax.

I remember paying $55,000 in CGT once which is a huge amount of tax. This raises the Government Billions. There won't be as much of this anymore because there will be less investment.

I believe the above taxes on property far outweigh Negative Gearing by a lot.

The government will never do it:lol:

:lol: :lol: :lol: =d> =d> =d>

Stamp Duty is a state tax, not federal.

As far as I am aware the changes to negative gearing are also only to impact on new investors (that is you current investments will not be affected).

Also some articles that show model predictions are not "dire" for Australia, and will save billions in the national budget. The top 10% earners will be hardest hit apparently.

http://www.afr.com/news/politics/grattan-institute-backs-labors-negative-gearing-policy-20160425-goe2op
http://www.smh.com.au/federal-politics/political-news/independent-modelling-backs-labors-negative-gearing-policy-20160219-gmyl8o.html

...whoosh..BTW

There are so many things wrong with your doomsday scenario.

1- a fall from 500K to 350K is a 30% drop, not 20%. This is at the upper end of the scare campaign. The only way this is conservative is if you mean that you heard it from a conservative commentator.
2- the idea, that the banks will come after home owners for more money, who are making their payments, just because their home value drops is very unlikely. As you say the bank ultimately has to sell at a loss! Why not just keep on taking the interest payments for 20 years? You may like to elaborate on the farmers example.... farms usually involve much larger business loans, its quite a different situation.
3- then you refer to the proposed changes 'for existing properties only' ?!?
4-..... ultimately, where you take most discussions....you make this into something against 'ethnics. ?!? =;

Ethnicity had nothing to do with it. Www.zerohedge.com have been going hard on Australian Real Estate for a few years now, trying to expose the rort it has become. I won't fight for you in this case... Property market stinks and is full of crooks.

Edited by soft news: 18/5/2016 03:47:24 PM

No I used a 20% reduction which is perfectly feasible in any scenario.

Banks will not accept unsecured loans. They will harass to secure their position which means they will Harrass you to make a lump sum payment, sell assets or they take matters into their own hands.

Once the loans are not secure, they are considered bad non performing loans and that effects their borrowing power and liquidity.

It's what banks would rather do. Sometimes, better to cut your losses. That is how they see it.

Edited by Aikhme: 18/5/2016 05:28:23 PM

Who are the crooks?