Survey on Australian House Prices

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I have been asked to post a survey to gauge interest in a potential financial product related to Australian house prices. If you are interested in such a product, please click here to take this survey.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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175 Responses to Survey on Australian House Prices

  1. Jack Spax says:

    # Re Alan Greenspin * Lyonwiss

    Tend to agree, there is a line where two wrongs dont make a right, I get uncomfortable with the fact that someone develops a product similar to what Goldman Sachs did to bet agaisnt the banks, leverages it up, and then takes a pin to bubble or maybe a blow torch to the bubble.

    Make people aware of the bullshit and spin and the likes of Joye, Swan, Howard and the banking system etc re inflating the bubble but care needs to be taken not to be promoting a financial product that that could actually be destabilising in its own right.

    Apart from that I still enjoy the site, and it has helped develop and interest re economics.

    I could see a huge market for this sort of product, though within peoples superannuation, particularly if it became a retail investment and as a counter for all those people that have 3 or 4 homes in their SMSF.

    Its all a bit speculative though and does it really develop or protect real wealth ?

  2. RickW says:

    I do not consider a financial product that hedges bets on the housing market to be consistent with the obvious need for deleveraging in that market. If anything it will encourage more speculation. So to me it appears in conflict with the objective of the blog.

    The only certain winner in this game is the broker of the product. People with little debt on housing do not need it.

    These “products” are the stuff that the likes of Goldman Sachs and AIG dream up to suck the lifeblood out of economies and make themselves rich:
    http://www.guardian.co.uk/business/richard-adams-blog/2011/jan/19/goldman-sachs-bonuses-earnings-live
    No risk- gear up, buy a house. All we want is a small margin on the interest for the money you borrow and a small premium for the protection against falling house prices.

    We will have economic stability when money is stable and people live within their means. Stay out of the get-rich-quick casino, cut spending and save more.

    The only way to prevent future blood suckers like Joseph Cassano from becoming wealthy is to NOT play their game – avoid highly geared debt on unproductive assets like housing:
    http://en.wikipedia.org/wiki/Joseph_Cassano

  3. peterjbolton says:

    Bald Archy Art Prize winner (again) by Artist Xavier Ghazi (French) – Model Australian

    It is good. 😉

  4. AntiMoralHazard says:

    # RickyW

    “I do not consider a financial product that hedges bets on the housing market to be consistent with the obvious need for deleveraging in that market. If anything it will encourage more speculation. So to me it appears in conflict with the objective of the blog.”

    I disagree with that. If hedging is evil, then we should all ban all financial derivatives, including options, swaps, futures and forwards.

    The truth is, these derivatives have legitimate use as hedges. Without hedges, the financial market will become more volatile. Just look at China’s volatile stock market.

    Fire is a good servant but a bad master. The same goes for derivatives and other useful things in life. They can be abused to be used for speculation instead of hedging. But these things themselves do not encourage speculation.

    So, a lot goes to the design of the financial products. It has to be well-designed so that it is extremely difficult to be abused. Without knowing the details of how it works, how can we categorically say that such a product is evil?

  5. Lyonwiss says:

    peterjbolton April 19, 2011 at 12:27 pm

    On home lending, here is a rare report by the regulator:

    http://www.apra.gov.au/Insight/upload/ADI-housing-lending.pdf

    APRA is funded by levies from the regulated institutions and it is constrained by a Secrecy Act. Hence APRA has to be very careful about what it publishes.

  6. sirius says:

    “I disagree with that. If hedging is evil, then we should all ban all financial derivatives, including options, swaps, futures and forwards.”

    I believe that is what is referred to as a “strawman” ?

  7. sirius says:

    “I disagree with that. If hedging is evil, then we should all ban all financial derivatives, including options, swaps, futures and forwards.”

    Are you talking about these things in the context of a virtual world or the current physical world we live in ?

    I leave you with something another poster said ….

    “”Sometimes, folks won’t admit that **** stinks until they smell it. One can’t tell them and they believe it. So, one has to let them smell for themselves.
    As Brooklsley Born told Greenspan that CDS should be regulated and they will cause havoc. Not only did they not believe her, they ran her out of town. Now here we sit. I am sure Greenspan wants that episode buried and forgotten.””

    http://market-ticker.org/akcs-www?post=184151#discuss

    The Fraud is longer than you can count and still we play this “game”

    And so it the never ending un-cussion goes on (Sigh).

  8. sirius says:

    Every tree has roots. Without understanding and appreciating where those roots begin and how they form the resulting tree we are “lost”. There is much to consider ?

    http://www.youtube.com/watch?v=fy3KDYE5KQE

  9. peterjbolton says:

    @ Lyonwisse April 19, 2011 at 7:48 pm | #

    “APRA is funded by levies from the regulated institutions and it is constrained by a Secrecy Act. Hence APRA has to be very careful about what it publishes.”

    Oh aye, and thank you for taking the trouble to d/l the link.

    One must wonder where recently that it has been reported by Kris Kayce in Money Morning that more than a few of our strong and TBTF banks had secretly taken bailout monies from the FedRes and despite the regulations these handouts were not reported to the ASX or in fact – anyone else – for that matter and even now, as far as I am aware, neither APRA (constrained by the Secrecy Act, cough, cough) not RBA, ASX not the MSM have even murmured a word about same, ever? (please correct me if I have missed something).

    One wonders how players ie investors such as pension funds, trusts, service unions, individuals, corporations, brokers, banks etc., etc., are supposed to invest professionally or make serious decisions if substantial information is not making it to the public notice due to … er, The Secrecy Act and or National Security… or whatever… ? maybe just collaborative inconvenience?

    As I have said earlier, this isn’t economics, it is applied Moral Hazard cum politics, ie gambling – where the Bank makes up the rules as it goes along as I remember well my earlier days of youthful adventures in places like Macao and Rio, Vladivostok, and such like, when those like me who questioned the Authority / bank, or won too much, where found floating along the Posada the next morning.

    Reference materials: Bureaucracy by v. Mises

  10. AntiMoralHazard says:

    #sirius

    How is that considered a strawman? From my understanding of RickyW, he considered all forms of hedges as evil because they are all abused by Goldman Sachs and used for speculation and manipulation. This is guilty by association.

    But for me, I think hedging is a good idea. It becomes a bad idea when the instruments used for hedging is badly designed and becomes a tool for speculators and that the derivative itself influences and distort prices in the real economy. The evil is speculation, not the hedge itself.

    Derivatives have been with us for centuries. The Japanese were the first to invent the futures contract hundreds of years ago. They play legitimate role in hedging back then.

    If you believe that Australia’s economy is going to hell because of the housing bubble, then the ability to hedge is a mercy outlet.

  11. Lyonwiss says:

    peterjbolton April 19, 2011 at 8:55 pm

    Ah yes. “Bureaucracy” is a classic by von Mises, who said: “Government jobs offer no opportunity for the display of personal talents and gifts”. This explains why governments stuffs things up all the time, because only the scum floats to the top.

    Regulation is a device to hide information from market participants, so that the markets fail due to information asymmetry. Remember the revolving door of US (and Australian) regulators. You are most vulnerable when you think you are protected.

  12. RickW says:

    The hedge will only be a mercy outlet for those who are overextended in the housing market or heavily geared into “investment” properties. The best way is to aggressively pay down the debt, not hedge against a price collapse.

    Hedges do make sense in their native form as the basis for stability in physical markets but the convoluted gaming and speculation with these so-called “financial products” just opens doors for the blood suckers that skim a margin on every transaction.

    Goldman Sachs are the master players and have created so much personal income that their influence, through bribes, is pervasive:
    http://www.globalresearch.ca/index.php?context=va&aid=13440
    They are the US government. They control the money supply for their own ends and cause the instability in financial markets. The best way to avoid getting trapped into playing the game is to minimise debt on non-productive assets like housing – the basis for this blog.

  13. AntiMoralHazard says:

    #RickyW

    “The hedge will only be a mercy outlet for those who are overextended in the housing market or heavily geared into “investment” properties.”

    Do you think a massive housing crash will only affect those who are overinvested in ‘investment’ properties?

    If you think a massive housing crash will bring down the entire economy and screw every Australian, wouldn’t banning hedging be cruel?

  14. AntiMoralHazard says:

    “Hedges do make sense in their native form as the basis for stability in physical markets but the convoluted gaming and speculation with these so-called “financial products” just opens doors for the blood suckers that skim a margin on every transaction. ”

    Without knowing the details of that financial product and how it works, isn’t it too early to put it in the same box as Goldman Sachs?

  15. peterjbolton says:

    @ Lyonwiss April 19, 2011 at 10:06 pm | #
    “This explains why governments stuffs things up all the time, because only the scum floats to the top.”

    As I have stated many time before: government or better “leadership” sic, inhibits growth, a priori, due to the fact that the political game of “democracy” in action, is , by strict definition, a “Recursive” ie, a ” Profiteering Play by Policy” (RPPP)

    http://verbewarp.blogspot.com/2011/02/recursive-game-is-policy.html

    Politics is all about coveting by stealth and deceit; like a wet-blanket empowered by duplicity and hypocrisy; guilt, fear and projection thereof.

    We who comprehend, must lift the veils for all to see. But the, most do not wish to see but prefer to believe – in anything; hence the paradox.

    Below: Truth apparent but not obvious

  16. RickW says:

    This blog is based on the premise of exploding debt and the financial instability it begets. The way to avoid that instability is to not get overextended and don’t get wound into a game where the scammers can get at you both ways. They cream a little on the interest payments and then they cream a little from you by offering protection after you were encouraged to overextend. You are playing their rigged game. It does not matter if they are Goldman Sachs or a scammer of another name. Despite any good intentions they are always working on new ways to get another margin.

    I have no intention of selling my house and have no interest in what someone might pay for it. It provides me value in the shelter and utility it offers but I have no illusion about it being an “investment”. I own it so I have no need to hedge against its price falling.

    My issue here is that I was surprised to see a blog that makes great sense regarding the instability that debt causes, promoting “products” that give people some comfort if they are overextended. The first phase of the GFC came about by people feeling comfortable with truck loads of debt. I am convinced the next phase is yet to come and Australia has been lucky so far. The safest way forward for individuals is to aggressively reduce debt. The savings can be put to better use to develop productive assets that will help the country improve its net foreign investment position rather than having profits and interest payments going offshore to smarter investors. One day China will stop buying our dirt for premium prices.

  17. DrBob127 says:

    RickW

    ” I was surprised to see [this] blog … promoting “products” that give people some comfort if they are overextended”

    I think that you are overreacting a bit.

    The Prof wasn’t promoting anything, this blog is read by many property bears and all that was being sought was the level of interest in making some real money based on what [the person who invests] thinks may happen to the property market.

    A chance to perhaps put our money where our mouths are?

    That’s all.

    I was also interested enough to start filling out the survey until I was asked for my info.

    As for the hedge, my understanding is that it is a valid way to reduce risk. By hedging your investment you reduce risk to reduce the size of potential losses at the cost of reducing potential profits. I agree with AntiMoralHazard “derivatives have legitimate use as hedges. Without hedges, the financial market will become more volatile”

  18. AntiMoralHazard says:

    RickyW

    “The way to avoid that instability is to not get overextended and don’t get wound into a game where the scammers can get at you both ways. ”

    Unfortunately, it is already too late. Australia is already in a position where it is going to be unstable. No amount of aggressive debt repayment is going to avoid the sh*t that is going to happen soon. If you say this 10 years ago, that might make sense.

    I know people who label ALL lawyers as crooks. But are you doing the same by labelling businesses like BNN as crooks like Goldman Sachs?

    “My issue here is that I was surprised to see a blog that makes great sense regarding the instability that debt causes, promoting “products” that give people some comfort if they are overextended.”

    This product is not for people who are overextended in debt. It is for everyone. Because if/when the sh*t hits the fan, even good guys like you are going to be screwed big time as well.

    Also you think those who are overextended have the inclination to use such a product? Imagine yourself having a gigantic debt, with negative gearing and dozens of IP. Will you be in a state of mind of paying even more money to get that financial product to ‘hedge’? Hell no. Because if you’re thinking of getting that product in the first place, that means you are scared sh*t that a crash will happen. If you scared sh*t, you will be selling your IP first before the thought of getting that product comes to your mind.

  19. peterjbolton says:

    @ RickW April 19, 2011 at 11:43 pm | #

    “This blog is based on the premise of exploding debt and the financial instability it begets. I have no intention of selling my house I own it… so I have no need to hedge against its price falling.”

    I have edited your prose…

    Think again please: 1. Home: is where you live and raise your family 2. House: is a bet, a gamble, an investment, a speculation, etc., etc.

    A hedge is an act of sentience that attempts to protect your interests, you hope – this hope being due to an uncertain World full of risk, “Caveat Emptor, crooks, swindlers and bureaucrats; not to mention “leadership”.

    Okay: You own your home- good start – but please do not go to sleep – because someone wants it: Councils will raise rates, change bi-laws, and basically, if they or someone really wants your home, they will fix the system until they get what they want, if you are not sentient.

    You must always hedge what is obvious to human nature and let me tell you – human nature ain’t that nice! This is the problem that economics has – but refuses to deal with, but is the norm in socio-economics.

    So, to say that you own it and don’t have to hedge, maybe okay for you, but I suggest that you stay alert and hedge that which you believe is “certainty: – because it isn’t – and I say that you should be ready to hedge!.

    Keep your eyes on the bouncing ball and trust nobody.

    Go well… I wish you and your naivety, good luck.

  20. sirius says:

    Results of the USA version of FHOG…

    http://market-ticker.org/akcs-www?post=184512

  21. tonyferreira says:

    Hey Steve, I just thought that I would let you know, that this morning, in the good U.S.A. we came out with our monthly housing starts and permit data, and due to huge revisions upward to February’s data, it now appears that we are not heading back into recession anytime soon. We are having a double dip in housing prices, but not in construction, which has just been going sideways for months.

    Like you, I have learned my lesson. While you need a second cup of coffee before you respond to any blog or e-mail, I need to wait at least for the first revision of data, before pushing the panic button.

    Your weary Denver camera operator.

  22. sirius says:

    Jail ’em

    Hotspots With Max Keiser (Direland)

    http://market-ticker.org/akcs-www?post=184537

  23. TruthIsThereIsNoTruth says:

    there is probably a fair amount of over reaction here, there is nothing wrong with hedging. If you are loaded up with a property portfolio and want to have protection on the downside and are willing to front up some capital the suggested product might be the thing for you.

    Purely as an academic exercise I would be curious about the assumptions that go into hedging a property portfolio.

  24. Steve Keen says:

    I have to agree with TININT here. Some of the comments here are reminiscent of the attack in the USA on “shorts” for causing the financial crisis.

    They didn’t cause it: the crisis was caused by the debt-financed long positions on assets that created the bubbles in the first place. The shorts were simply exploiting the debt-financed collective madness of the mass of the market. The market would have plunged anyway once debt levels stopped growing, as I have argued here many a time.

    As it stands, many, many overseas hedge funds have taken positions on the expectation that Australian house prices will fall, and that this will impact on Australian bank shares. This firm’s mooted product would allow Australian wholesale investors (those with more than A$250K to speculate with) to at least capital guarantee their exposure to bank shares, and possibly gain from a substantial fall in bank share prices.

    The sums Australian speculators will put into such a product will pale in significance compared to the overseas bets that have been placed, and the fall that I expect will occur in bank share prices won’t be caused by them or the o/s shorts, but by the overexposed and overindebted position the banks have got themselves into as they have funded this Ponzi Scheme.

    There is an irony in my decision to assist this firm communicate its product that I think is being missed by some posters here: a proportion (small, but still non-zero) of the funds raised by this speculation will help fund a research centre dedicated to getting rid of financial speculation.

    I’d rather enjoy the irony in that position than stand aside and watch the spectacle unfold anyway, with no benefit to future attempts to rein in financial speculation than mere schadenfreude.

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