Comments on: A National Mortgage Bubble http://www.dailyreckoning.com.au/a-national-mortgage-bubble/2009/08/11/ An independent perspective on the Australian and global investment markets Sun, 21 Mar 2010 01:19:20 +0000 http://wordpress.org/?v=2.8 hourly 1 By: M. Forwik http://www.dailyreckoning.com.au/a-national-mortgage-bubble/2009/08/11/comment-page-1/#comment-93090 M. Forwik Sun, 16 Aug 2009 23:30:53 +0000 http://www.dailyreckoning.com.au/?p=6740#comment-93090 Except that banks rarely loose out. If someone can't pay the mortgage, bank sells their house. If it sells at a loss, the mortgagee must pay the bank that loss. If they can't pay the loss, then they just make interest on this loss (even a $100,000 drop is only a few hundred interest per month). If the person can't pay that, they file for bankrupcy. If they go bankrupt the goverment deducts money from their pay check as well as paying their taxes to the bank until the person is no longer bankrupt. If this still doesn't cover the interest the bank will pay for the difference with depositors money, which in Australia our banks have typically a 40% holding. Then the goverment steps in and pays out these depositors since it has garanteed them. So unless prices dropped by 40% and all the homeowners were bankrupt and jobless, then the banks would probably survive easily. This is very different to the Americian system. In americia if a house goes down $50,000 the mortgagee just walks away! The bank has 10% to 0% desposits, and it has no one to pay the interest on its shortfall. Its only option is a bail out or to go under. Very different situation than in Australia. Except that banks rarely loose out. If someone can't pay the mortgage, bank sells their house. If it sells at a loss, the mortgagee must pay the bank that loss. If they can't pay the loss, then they just make interest on this loss (even a $100,000 drop is only a few hundred interest per month). If the person can't pay that, they file for bankrupcy. If they go bankrupt the goverment deducts money from their pay check as well as paying their taxes to the bank until the person is no longer bankrupt. If this still doesn't cover the interest the bank will pay for the difference with depositors money, which in Australia our banks have typically a 40% holding. Then the goverment steps in and pays out these depositors since it has garanteed them. So unless prices dropped by 40% and all the homeowners were bankrupt and jobless, then the banks would probably survive easily.

This is very different to the Americian system. In americia if a house goes down $50,000 the mortgagee just walks away! The bank has 10% to 0% desposits, and it has no one to pay the interest on its shortfall. Its only option is a bail out or to go under. Very different situation than in Australia.

]]> By: Unpopular Truth http://www.dailyreckoning.com.au/a-national-mortgage-bubble/2009/08/11/comment-page-1/#comment-92287 Unpopular Truth Wed, 12 Aug 2009 03:25:57 +0000 http://www.dailyreckoning.com.au/?p=6740#comment-92287 It's actually very clever of the banks to do that. They're tying their own success to something the politicians cannot ignore, and that's the safety of people's homes. If it goes pear shaped, then they'll be rescued by taxpayer money. If it goes well, they keep the profit for themselves (and their share holders). To do otherwise would mean being crucified at the next election. It's actually very clever of the banks to do that.

They're tying their own success to something the politicians cannot ignore, and that's the safety of people's homes.

If it goes pear shaped, then they'll be rescued by taxpayer money. If it goes well, they keep the profit for themselves (and their share holders).

To do otherwise would mean being crucified at the next election.

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