Monday, April 04, 2011

The Housing Bubble isn't gone it just moved; Part 1

I find it unbelievable that after what the US & Europe have been through over the last 4+ years with the housing bust that folks around the world would be more vigilant to preventing it from occurring. Well at least temporarily from occurring. History teaches us that humans are bound to repeat similar mistakes. Mark Twain's quote says it best, "history doesn't often repeat itself but it sure does rhyme". Anytime I can quote Twain I take that opportunity! Well the shocker in all of this is Australia hasn't learned 1 bit from the suffering of Europe and the US. Their major banks have all the greatest hits from the housing bubble. I am going to pick on one of their banks but most of them are doing similar irresponsible lending practices. Hell they are trying to out compete each other in the quest of market share without regard to the consequences.

I am going to feature Westpac Bank Corp one of the larger Aussie & New Zealand banks out there. All of this information I will be commenting on is in plain sight and can be gathered on Westpac's website. First I will rattle off some of the terminology like the Rocket & Flexi First Option Loans. Interest Only up to 10 years with Low Doc loan Applications: "If you're self-employed and don't have documentation proof, we can still help." Combination loans that combine a fixed and variable component to the loan. 100% offset loan accounts that act like a margin account. Then a laundry list of different options of: Top-up, Redraw, Portability, Repayment Holiday, Parental Leave, Reduced Repayment, Progress draws for Construction, Smart Pay, and Funds Access. Wow! That my friend is a lot of financial innovation. Now granted some of the options can be useful and are nice. You can put lipstick on the pig, but a pig is a pig. Guess what? Debt is still debt no matter how you dress it up too.

I am in debate with a leading Australian bank analyst and he has passed on some of his reports countering my belief that Housing Bubble in Australia is a major danger. After I look through it I will pass on some of the findings.

*Disclosure: No position in Westpac Bank corp as of the date of this post

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