By Aikhme - 18 May 2016 1:32 AM
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
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By Aikhme - 18 May 2016 6:52 PM
canonical wrote:Aikhme wrote:canonical wrote:Aikhme wrote:canonical wrote:
I think I understand mansplaining now.
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 ...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. ?!? =; 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 No, your hypothetical house was worth 500k and sells for 350k...that's a 30% drop. Even 20% is very unlikely. You have no evidence that an Australian bank would force a default on a home owner who was keeping up with payments - ie making the bank money - you tried to use the farmer example but dont know enough about it to know the difference farm businesses and average homes. Your comments show you are confused as to whether the changes will affect existing investments. You inexplicably link the policy to ethnic profiling!!! WTF? Yesterday you were trying to tell us that 10 million Australians have negatively geared investments - you then back tracked to 'more than a million'. ..... You keep getting the details wrong...why would anyone trust you to know ' how the banks see it'? =; =; =;
Yes I mentioned the Bank discounting it in order to sell after 12 months.
I have been monitoring properties that were on the market for 3 years without selling.
It is a fact that property is the favored investment class by migrants and ethnic podiums such as myself regardless of whether data is collected or not.
I think I am fine and whether people believe me or not is a matter for them. All I can do is put my opinions and arguments forward in an honest and sincere manner.
Whether NG goes ahead of not, I do have a plan of action anyway. Grandfathering and overseas investment! Money has no borders, and there is money to be made overseas which is tax free! :cool:
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