David Koch - Sydney Morning Herald - Oct 5,2008

[mam544]

I have always had great respect for David Koch until I read this rubbish in the Herald.

http://www.smh.com.au/news/business...1223013835499.html?page=fullpage#contentSwap1


..The banks are already starting to ration credit, making it more difficult for people to borrow. The banks are lifting their standards. We're starting to see the old-fashioned request for a 25 per cent deposit on a home loan and demands that mortgage repayments be less than 30 per cent of the borrower's income.

Tightening the criteria for home loans means fewer borrowers will be eligible.

There will be fewer potential buyers and less competition in the market.

On the other side of the coin, because of the fall in the sharemarket, more existing homeowners will be under pressure from their banks to boost the level of security behind their loans and may even be asked to sell their properties.

 

[Nathan]

its true, could happen...

banks can recall a loan @ any time.

check the fine print..

i dont like the guy now days, he knows his stuff tho.

 

[mam544]

Oh thanks, I am well aware of the fine print. You seem to have completely missed my point.
When was the last time that banks asked anyone to sell a property because they thought it had dropped in value?...Never!
This is just scare mongering of the worst kind..(That was my point).

 

[Kennethkohsg]

I have always had great respect for David Koch until I read this rubbish in the Herald.

http://www.smh.com.au/news/business...1223013835499.html?page=fullpage#contentSwap1


..The banks are already starting to ration credit, making it more difficult for people to borrow. The banks are lifting their standards. We're starting to see the old-fashioned request for a 25 per cent deposit on a home loan and demands that mortgage repayments be less than 30 per cent of the borrower's income.

Tightening the criteria for home loans means fewer borrowers will be eligible.

There will be fewer potential buyers and less competition in the market.

On the other side of the coin, because of the fall in the sharemarket, more existing homeowners will be under pressure from their banks to boost the level of security behind their loans and may even be asked to sell their properties.

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Dear Mam544,

1. In his article, David Koch assumes that the Australian Federal Govt will do nothing and simply allow the various Australian housing markets to tank down by itself.

2. If this is indeed so, it is politically un-viable and there is an increasing likelihood that Kevin Rudd and his ALP may govern Australia for only one office term instead.

3. In the US, the American Govt is already planning to come out with some legislation at the last minute to prevent the mass foreclosure of homeowners and to allow the existing homeowners to keep their houses and to stay in them.

4. Consequently, I believe that the Australian Federal Govt is likely to "copycat" their American counterparts, if things are actually turing out to be that bad for Australia in the near future, too.

5. For your further comments and discussion, please.

6. Thank you.

regards,
Kenneth KOH

 

[willair]

This is just scare mongering of the worst kind..(That was my point).

I agree but there maybe something in what he is trying to say,i have heard from several people this morning telling me if i have any money invested in a aussie owned high level insurance company to get all the funds out now,because mid next week will be a different story..imho..willair..

 

[The Fence]

...so what is the story...?

 

[Ausprop]

Oh thanks, I am well aware of the fine print. You seem to have completely missed my point.
When was the last time that banks asked anyone to sell a property because they thought it had dropped in value?...Never!
This is just scare mongering of the worst kind..(That was my point).

if a bank is worried about their exposure they do close off books... I know of a big 4 that did this a couple of years back. I have also just heard of a bank insisting on collecting more than the sale proceeds of a property to square up the banks exposure to the client because the property was sold under valuation.

 

[Sustainability]

Lol - Talk about scare mongering (Aussie Insurance Company about to go bust).

1. In his article, David Koch assumes that the Australian Federal Govt will do nothing and simply allow the various Australian housing markets to tank down by itself.

2. If this is indeed so, it is politically un-viable and there is an increasing likelihood that Kevin Rudd and his ALP may govern Australia for only one office term instead.

3. In the US, the American Govt is already planning to come out with some legislation at the last minute to prevent the mass foreclosure of homeowners and to allow the existing homeowners to keep their houses and to stay in them.

4. Consequently, I believe that the Australian Federal Govt is likely to "copycat" their American counterparts, if things are actually turing out to be that bad for Australia in the near future, too.

O.k. - lets assume the government will be very generous and saves ALL current mortgage holders.

Moving forward, that's great for existing owners. But do you really believe the banks are going to loan 100% with houses at 9.5x wages like is the case in Sydney?

So even if there is a bail out of existing mortgage holders (doubtful - the excessive debt is just too much), how do you sustain the housing market at ridiculous prices (hence ridiculous debt levels)? Most people have to borrow money, and that means they must be able to service those debts.

Maybe on top of the expensive bailout of current mortgage holders, the Australian Government co-contributes to everyone's wages 100% to 150% indefinately? That should help new comers into the market to prevent falling prices.

I was talking to my Father last night - His entire career was with the NAB, left high school and joined the bank. Retired a couple years ago as a bank manager. He was telling me when at one stage there was credit rationing. If you went into the bank to get a loan, the bank would look at a allocation and say, well we can't lend to you this month, but we will put your name down for a loan in January 2009. Come back then.

 

[Red Car]

I was thinking today while watching the Government refusing to guarantee extra bank savings I cant see them bailing out peoples mortgages. I guess the cost would be to high.

 

[VYBerlinaV8]

I think we're in a for long(ish) period of stagnation, meaning that prices drop a bit in real terms, but not by more than 15% or so in good areas. I suspect this period will last 5-8 years, as the world recovers economically (much like the 90's, really).

If this is really the case, I suspect I have 5-8 years to get my ducks in a row as far as buy more IPs. The current plan is to buy 4 more in the next 6 years.

 

[Kennethkohsg]

I was thinking today while watching the Government refusing to guarantee extra bank savings I cant see them bailing out peoples mortgages. I guess the cost would be to high.

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Dear Red Car,

1. I do not think that Kevin Rudd and Wayne Swan know exactly what is needful and absolutely neccessary and required to be done by the Australia Federal Govt during times of financial/banking/economic crisis like this.

2. Both Kevin Rudd and Wayne Swan have previously been barking at the wrong tree regarding the risks of a runaway inflation occurring in Australia and trying to get the RBA to slow down the Australian Economy a few months earlier, midst the present unfolding of the global economic tsunami.

3. Furthermore, Kevin Rudd and Wayne Swan have chosen to side with the banks, rather than the Australian households, who have voted them in power in th first place. Hence the narrowness of their own "either-or" perspective and mind-set in crisis management for the Australian Economy

4. Fortunately, the RBA under Glenn Stevens was more broad-minded and has decisively and creatively cut the official interest rate by 1% "unexpectedly" earlier this week to stablise the local volatile financial situation. In this respect, the RBA has succeeded well, to a certain extent.

5. Consequently, the rest of the OECD countries follow suit subsequently, thereby demonstrating the RBA's economic management leadership over its own Western world counterparts.

6. Restoring the local depositors' confidence in the local Australian banking system is paramount and critical at this stage in time, midst the world-wide panic and fears spearding rapidly throughout the entire global financial and banking system, which is present fast collapsing all over the world.

7. By refusing to guarantee the local depositors' extra savings upto A$100,000 per account, Kevin Rudd and Wayne Swan risks causing a bank run in Australia in the immediate near future, by their lack of decisiveness, policy hesttancy, in the absence of having a clear cut policy regarding its required Governmental intervention/direction for the Australian Economy midst the present atmosphere of global panic and fears.

8. For your further comments and discussion, please.

9. Thank you.

regards,
Kenneth KOH

 

[Nathan]

Oh thanks, I am well aware of the fine print. You seem to have completely missed my point.
When was the last time that banks asked anyone to sell a property because they thought it had dropped in value?...Never!
This is just scare mongering of the worst kind..(That was my point).

Im talking about that.

they can call a loan in @ any time they feel fit. i remember @ peter spann seminar last year he spoke about an idiot valuer who undervalued a high end sydney property and if that had of gone to the banks they could have called in the loans.

its a part of the loan and doesnt genrally happen but by sure it can... even if your servicing all payments

 

[Kennethkohsg]

...so what is the story...?

***************************
Dear Thorpey,

1. The story in David Koch's article, is as follows:

"It's all about letting the investment cycle play itself out and understanding where we are in that cycle at any given time

A few months ago industrial stocks were being hammered but the overall impact was cushioned by strong resource shares. Commodity prices were holding up because of the supposed strong future economic growth in China.

Many investment experts were still preaching the China story as the reason why Australia would be immune from the US credit crunch. At the time I explained that this rationale was fundamentally flawed because simple logic says if China's biggest customer slows then China will follow.

If US consumers stop spending at big retailers like Walmart, Walmart in turn will not order as much from their Chinese manufacturers, who won't need to buy as much steel from their Chinese steelmaker, who won't buy as much coal or iron ore from their Australian miners - and certainly not at the boom prices of previous years.

It just makes sense.

Last week that message started to hit home to investors as commodity prices dipped and resource shares followed. It had to happen and is a natural part of the cycle.

It's the same with the property market.

Hopefully nothing here will be as bad as the property market in the US, where 3 million properties have been repossessed and there are predictions of another 1 million to come.

The key Standard & Poor's/Case-Shiller housing index of the top 20 US cities came out last week and the results were ugly.

Home prices had their biggest annual drop in July. Average home prices were down 16.3 per cent for the year and more than 20 per cent since their peak in July 2006.

Las Vegas home prices were down 30 per cent, Phoenix by 29 per cent and Miami by 28 per cent. Almost one-third of US households will have negative equity in their homes by the end of the year.

It is very unlikely the Australian residential property market will plunge by anywhere near as much as in the US because we haven't been through a huge construction boom, borrowers haven't leveraged themselves to quite the same extent and we have strong immigration to underpin demand.

But - and it is a big but - the tightening of bank finance will have an impact on residential property values. Again, it makes sense. It is simple investment fundamentals.

The banks are already starting to ration credit, making it more difficult for people to borrow. The banks are lifting their standards. We're starting to see the old-fashioned request for a 25 per cent deposit on a home loan and demands that mortgage repayments be less than 30 per cent of the borrower's income.

Tightening the criteria for home loans means fewer borrowers will be eligible.

There will be fewer potential buyers and less competition in the market.

On the other side of the coin, because of the fall in the sharemarket, more existing homeowners will be under pressure from their banks to boost the level of security behind their loans and may even be asked to sell their properties.

Fewer bidders combined with more homes on the market equals a softening of prices. That is all ahead of us.

At the top end of the market, the tightening of finance is already starting."


Cheers,
Kenneth KOH

 

[Sustainability]

It is very unlikely the Australian residential property market will plunge by anywhere near as much as in the US because we haven't been through a huge construction boom, borrowers haven't leveraged themselves to quite the same extent and we have strong immigration to underpin demand.

You right, we haven't leveraged ourselves to the same extent - we have exceeded that of Americans!

You have to look at Household debt.

What it shows is in the '80s for every dollar the average American household earns, they had 70 cents of debt. Prior to the collapse of housing, this figure increased to (peaked at) about $1.30 debt for every dollar they earned.

If you contrast this to Australia, in the '80s we, the Average Australian had 40 cents debt for every dollar we earned (less than Americans). However, now our debt is something like $1.60 for every dollar we earn. Over this time, our household debt has accelerated much faster than Americans and at a household level, we have exceeded what they have.

Looking at the data, it probably now comes at no surprise that the biggest household asset, our housing, is much more overvalued than the states and has caused this. In 2004 OECD data showed US housing was 1.8% overvalued, UK housing 32.8% and Australian 51.8% overvalued. Since 2004, house have only got more overvalued (or at least in Australia where prices haven't corrected yet)

So the real question is, if Americans are struggling to service their debts at $1.30 for every dollar they earn and with an federal funds rate of 2%, what hope does Australian's have at $1.60 for every dollar they earn at with an official cash rate (now) of 6.0% ? This is when the debt binge becomes unsustainable.

You also have you watch that immigration. UK house prices are down 12.4% to September, Northern Ireland down 29.8% and US Case/Schiller down 16.3%. Emigration, that is people leaving the country is accelerating with 18.4% of the emigrates deflecting to New Zealand, 17.8% heading for Britain and 9.3% to the US. (Remember all off them had cheaper housing and that's before their house price crashes).

If house prices don't come down, Australia might just price themselves out of the market. (Plus,banks overseas guarantee your deposits!) That won't be good for immigration which is suppose to put a "floor" under house prices. It does sound like market forces to me.

 

[The Fence]

Hi Kenneth,

I saw the story from Koch.....I'm wanting to know Willair's story.....

 

[spark]

1. In his article, David Koch assumes that the Australian Federal Govt will do nothing and simply allow the various Australian housing markets to tank down by itself.

2. If this is indeed so, it is politically un-viable and there is an increasing likelihood that Kevin Rudd and his ALP may govern Australia for only one office term instead.

I cannot see any problem, neither with 1 nor with 2.

If they "let" the sharemarket plunge why would they intervene to prop up property? How is it more eligible than shares?

And more so, even if they wanted to (which I doubt), the capitalisation of the property market is much much higher than the capitalisation of the sharemarket.

If Rudd wants to play with the future fund's money to prop up banks (wrong move I think) at least he can defend it by sustaining the system. Do you really think the govt will start buying off IPs? What for? And more important - what with?

The hand of nature and public opinion will prevail, both with 1 and with 2.

 

[boomtown]

Nathan

Your fear is misguided. Banks are not stupid.

Banks want money. The last thing in the world a bank wants is a house.

If they start margin calling mortgages which are currently being serviced because the house has dropped in value they will have 2 problems: (i) many people will not be able to make the margin call and the bank can only get the house - triggering a cycle of house price declines + margin calls and (ii) it will become a serious political issue.

You will note that despite the serious decline in US residential RE values - there is no talk of margin calls on US home owners.

Of course if you fail to service your mortgage that is a different story.

 

[Kennethkohsg]

I cannot see any problem, neither with 1 nor with 2.

If they "let" the sharemarket plunge why would they intervene to prop up property? How is it more eligible than shares?

And more so, even if they wanted to (which I doubt), the capitalisation of the property market is much much higher than the capitalisation of the sharemarket.

If Rudd wants to play with the future fund's money to prop up banks (wrong move I think) at least he can defend it by sustaining the system. Do you really think the govt will start buying off IPs? What for? And more important - what with?

The hand of nature and public opinion will prevail, both with 1 and with 2.

&&&&&&&&&&&&&&&&&&&&&

Dear Spark,

1. Unlike what is happening in America at this point in time, Australia is still not in, such a dire state as the Dow Jones at this point in time, such that both the American Treasury Secretary and the American Federal Reserve Chairman have to take turn to frequently and directly intervene into its share market operations on a daily/weekly basis.

2. Let us wait and see what the Australian Federal Government and the RBA will truly do when the ASX has plunged sufficiently low enough so as to put the entire A$1 Trillion strong Australian Economy in danger to being totally wiped out, in the near future.

3. Consequently, we still do not see such desperate market intervention by the Australian Federal Government at this point in time, beside observing the RBA keep pumping money into the Australian money markets to boost its local liquidity and cutting its official interest rate, at this point in time.

4. The scenario painted by David Koch is a totally different one, which Kevin Rudd and his ALP Government could ill-afford the political costs if they are to remain in power for another office term.

5. With local properties prices falling by some 30%-40% Australia-wide and with as many as one million of the Australian household/families increasingly likely to be dispossessed of their present home ownership in the near future as a result of the bank foreclosures and deteriorating negative house equity situation, I believe that the disaffected Australians are likely to get increasingly disillusioned with the present ruling ALP Federal Govt and would have no hestitancy voting out the ALP out of the Federal Government at the next Federal Elections to be held.

6. This is the kind of political costs which I believe that both Kevin Rudd and his ALP Federal Government can ill-afford to take the risk, at this point in time.

7. While Kevin Rudd and his ALP Federal Govt are also presently trying to significantly impact the local housing markets through the proposed National Affordability Rental Housing Scheme, or/and the First Starts Shared Equity Scheme etc, they have achieved no real success to date.

8. For your further comments and discussion, please.

9. Thank you.

regards,
Kenneth KOH

 

[WinstonWolfe]

On THurs morning, I had Kochie on. He looked right in the camera and said bank deposits were 100% safe.

I cannot take him seriously after that.
He is not in a position to make statements like that. The Aussie major banks do not make their exposure to bad paper known. Further, they don't even know how much exposure they have to bad investments, because those investments have not necessarily bottomed.

Nevertheless, if Kochie said anything else, he could cause run on banks.

It is the same for the polies and RBA. You cannot rely on them to give you the truth about the seriousness of the crisis. Their overriding mandate and responsibility is to stop the situation from deteriorating further. And if they have to lie to do so, they will and do.

 

[Kennethkohsg]

Nathan

You will note that despite the serious decline in US residential RE values - there is no talk of margin calls on US home owners.

Of course if you fail to service your mortgage that is a different story.

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Dear Boomtown,

1. In the US, there is no margin calls on the US homeowners simply because all their loans provided are fully "non-recourse" in nature.

2. In other words, the American homeowners can simply walk out on their existing home loans and then hand over the negative equity house back to their lending banks by choose to rent to stay in the house, instead.

3. In Australia, the local housing loans are mainly given on a "re-course" basis.

4. Consequently, if we fail to service our housing loan interest payments in Australia, the lenders can possess our house and force-sell them in the market.

5. If there is still a shortfall in recovering its loan after the forced house sale, the local home owners are still required to repay back the lending banks whatever the outstanding housing loan shortfall/balance

6. For your further comments and discussion, please

Cheers,
Kenneth KOH