Robert Gottliebsen has been impressing me of late. It seems he hasn't drunk the 'everything is fine, carry on' juice. In today's Business Spectator he paints a poignant picture of where the property ponzi bubble came from and where its going.
A wake-up call for Australian banks
Australian banks have been money-making machines because they have paid low rates to bank depositors and supplemented their consequent low Australian deposit base by borrowing between 40 and 50 per cent of their funding requirements from the global wholesale market. (It’s currently around 40 per cent). The banks have then used their fund avalanche not so much to support businesses, but to fund houses. Australian dwellings have become among the most expensive in the world because of the widespread availability of bank credit.
What Standard & Poor’s is telling the bank CEOs, Treasurer Wayne Swan and the Australian public is that it is highly likely that longer-term this game can't continue. Because of the deep problems in the European and US banking communities, plus the demand for funds in Asia, massive wholesale bank borrowing to fund housing markets will not be available unless you are prepared to pay much higher rates of interest.
The wake-up call to Australian banks requires them to become less dependent on wholesale bank deposits and begin to fund much more of their loan book at home. Secondly, banks will need to be much more active in funding businesses that create jobs to generate the capital city employment needed to enable homeowners to service their loans.
And finally, the banks better hope that the mainland Chinese cutback in apartment buying is not a signal for a wholesale mainland Chinese withdrawal from our apartment markets in Sydney and Melbourne (The sting in a China property tale, November 23). Then we really would have trouble.
Australian Debt Clock
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