Stevens warns government to stop interfering with markets

In a Senate inquiry into the banking sector today, Reserve Bank Governor Glenn Stevens has warned the government not to mess with the banking system too much or face the risk of “unintended consequences”.

“When you think about extensive public intervention in housing markets, we don’t need to go any further than the United States of America to see what can go wrong if you’re not very careful in the way incentives are designed.” he said. “There can be, and there usually are, unintended policy consequences down the track. We should be quite careful about how we assess these things.”

He indicated the Australian Banking system is more competitive today than in the mid 1990s.

Mr Stevens also took the opportunity to warn Australians against any more excessive borrowing in the future. “My view is (that) we’ve managed this fairly well but I don’t think we should push our luck too much from here in terms of gearing up any further,” he said. “I don’t think it would be very wise.” He said 20 years ago Australians enjoyed household debt levels below most of its peers. “We’re not any more. We’d be up near the top (of the pack)”

The ABS announced today that the value of housing finance for owner occupation climbed 2.8 per cent seasonally adjusted in the month of October to $14.1 billion. Australian households now owe a record $1.01 trillion in the June quarter. We highlighted yesterday that Wayne Swan is concentrating too much on Interest Rates (at a time when interest rates are low), rather than the extremely high levels of Household debt. At current rates, the couple of percentage points shaved off interest rates (of any) through increased competition come July next year will be eroded by increases in our household debt levels.

» 5671.0 – Lending Finance, Australia, Oct 2010 – ABS, 13th December 2010.

» Housing loans swell as credit card growth slows – The Sydney Morning Herald, 13th December 2010.


  1. Just after the Gov announced its going to do it AGAIN !


    1. “Empowering consumers to get a better deal” which includes such reforms as banning exit fees for new home loans and boosting consumer flexibility to transfer their deposits and mortgages;

    2. “Supporting small lenders to compete with big banks” which includes the Government committing to invest a further $4 billion in the Australian Office of Financial Management’s investment programme to support the RMBS market and facilitating issuance of bullet RMBS as an alternative to traditional RMBS; and

    3. “Secure the long term safety and sustainability of our financial system” which includes reforms on covered bonds and measures to develop a liquid corporate bond market.

    Please prop that bubble up!!

    1. Is just horse shit. Save 1K on your 500K in interest charges over the life of the loan- WOW! Thanks Mr. Swan! Frick’n Window dressing!!!

    2. Spending tax payers money on funding more housing (stimulus) because no one overseas is willing to buy our RMBS’

    3. The longer term solution to 2, and also to keep people borrowing ludicrous amounts of money! Actually now we will be pouring our super funds into the property market. Previously they could only buy real estate investment trusts (REIT’s). We saw what happened to Super when the stock market dropped 20%, lets now link it to the real-estate market (is this diversifying?) WTF!

    Of course 3 will be based on a few assumptions like

    a. Property values always go up (just like in the UK, US, SPAIN, IRELAND, CHINA, JAPAN, HONG KONG etc)
    b. the Property market will always be liquid (like it is in the US at the moment – NOT).

  2. I hate the concept of ‘covered bonds’. Absolute weapons of wealth destruction.

    You want to legislate that small players can use my deposit money as security in the event that the small player defaults?

    1. Why are savers propping up the housing market? We’ve been building cash while avoiding pumped up assets!
    2. You let my deposit go to the bond holder when the ponzi scheme fails: It’s ok, the deposit is government secured!
    3. When this ponzi does let go, should these reforms get the green light, how low will our dollar go?

    OMG! I can hear the screams already! Interest rates will have NO OPTION but to accelerate as the dollar plunges under the weight of our debt load, coupled with failing credit unions/building societies/banks but with deposits backed by the federal government. Up, Up, Up they go.

    Iceland, can we join you in economic abyss?

  3. Covered bonds are a disgrace. I could explain to a 6yo why they are a bad idea. Just ask any informed American why government back lending (with little risk to the bank) doesn’t work.

    Either the government is pulling the last rabbit out of the hat to limit the correction in property values before the next election or worse they have no idea what they are doing. Either way it is very scary (and annoying)!

  4. Having read this article earlier today I am convinced Australians want a capitalist country with a communist style monetary system, of course these two systems simply can operate in collusion and everyone is dreaming.

    The federal government can legally build a ponzi scheme, anyone else can be jailed. With the new bonds I now am forced to back all the fools, yet I don’t get paid a single cent in interest for it, after all if you take on risk you should always be paid for it.

    I was pleased though that the RBA is not bank bashing, instead sounding warnings about events to come, because as we all know, the government will not leave the markets alone, not when a horde of armchair speculators can vote them out.

  5. Sounds like Stevens will raise interest rates to counter Swan’s foolish deal with the banks.

    Banks are letting Swanny sound off about interest rates and exit fees in return for allowing covered bonds.

    Who covers these bonds – depositors backstopped by taxpayers, or just depositors?

    Interest rates are 6.4% for 1yr TD now (over 500k). Going up rapidly now. Give it a year or so and bonds will be worth buying again.

    Buying and flipping another reno house works if this is yet another vendor boost.

    This crap didn’t work for the Yanks so how stupid are our pollies?

  6. Average bloke: You make negative gearing to be the one reason for a housing boom. I suggest you get on board negative gearing an investment if you think it’s the sure reason for asset inflation.

    Anyone buying a NG investment (property or not) is a fool.

    Ask Warren Buffett:
    Rule #1: Never loose money
    Rule #2: Refer Rule #1

  7. Well these ‘fools’ I’m surrounded by at work who have 6+ IP’s and arent the least bit worried about this slump they are in it for the long haul.

    I’ve never said that NG is the main reason for the Ponzi. It is however one of the major Pillars holding the Ponzi up yet it is never adjusted or questioned by Politics or the Media.

  8. Matty, dont try to talk reason to AverageBloke as he runs around all the sites like this one trying to talk this rubbish about how the market can never fall im part because of NG but it would seem he fails to understand how NG truly works!

    As for his Work mates with 6+ IP’s? if they do have 6 IP’s that are Neg greared they will be burning money for the next 5 years + as prices are going to stay flat or most likely trend down, then it will take them years on top of that just to try and catch up to the money they would have had if all that capital was just invested in simple cash. Or do they own the 6 IP’s outright and in that case they are Pos Geared? then they will pay tax on the investment? with falling prices you will burn money regardless. NG is only worth while if the Capital gain is worth it over the life of the investment and I would say that for the next 10 + years its not going to be a good way to invest your money.

    NG is fine in a bull market like the one we have just had over the last 10 years but all things come to an end and this one has run its race until the market has corrected to a point that it becomes worth while again so unless you sell and buy back in after the correction you will not make money, the USA may be a good place to invest for the long haul as he puts it as long as you pick the correct propertys to buy, but as for Australia all the risk points to the down side until prices have fallen to fair value. If you look around the Nation at the moment you will see that the correction is just starting to take place and unless a stack of cheap credit can be pumped into the econ and quick like they did back in 2008 there is no way prices will not fall. The problem is that all the cheap money has dryed up all over the world just ask the Big 4 banks!! this means interest rates will have to stay high. ie game over! PS Merry Xmass to all Neg geared investors 🙁

  9. Sorry to challenge your dogmatic approach to NG.

    My workmate isn’t worried. If worst comes to worst he’ll just sell a property and put the cash back into the other properties it’s not like he earned the windfall he’s made over the last few yrs so no great loss to him. The area he holds his IP’s in has a tight rental market so his tenants dont really have much choice if he chooses to the rent… it’s not like they could afford to buy the place anyway even if there was a 20-30% decrase in prices it wont make up for the fact that the price of the IP has gone up 300% in 8 yrs.

    You are righ that the sheeple who got into IP in the last 2 yrs will be shafted but the Investors who’ve been in it longer than that arent worried and there are alot of them.

    Apologies for offering up a different point of view.

  10. You dont have to Apologies for a different point of view thats fine, but just understand that NG is not going to stop a property crash once it starts. The example you have sited just backs up the point that investors will start selling property off as soon as the falls set in, thankyou for clearing that up it would seem you agree with me.

    You call a loss of 30% in value no great loss OMG!

  11. So, average bloke, you reckon your mate is losing money every week on 6 different IPs? how much on each after NG? $100? so that’s $600 a week loss out of his paypacket he is covering, week in, week out, year in, year out — that doesn’t sound like a typical outlay for a typical average working bloke, average bloke. how long can those alligators eat him up before he’s bankrupt? in it for the long haul? losing $600 pw for the long haul? that’s a clever leveraged investment if ever I saw one — especially as property prices are already turning down, and rents really aren’t going to go up by much in a soft market.

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