April 11th, 2011
Econintersect: Australian economist Steve Keen see looming difficulties for Australian banks as the potential for a bursting housing bubble becomes more real. Keen fears the fallout in Australian banking could be more severe than was the case in the U.S. He has examined the parameters and consequences of three previous housing bubbles in Australia, going back 130 years. Many of the characteristics of home prices and debt in Australia are more extreme now than for the three prior cycles. Follow up:
Follow up:Keen writes in GEI Analysis that the housing bubble is a Ponzi Scheme:
Bank lending drove house prices sky high, and the profits banks made from this Ponzi Scheme dragged their share prices up with the bubble (and handsomely lined the pockets of their managers).
It’s great fun while it lasts, but all Ponzi Schemes end for the simple reason that they must: they aren’t “making money”, but simply shuffling it—and growing debt. When new entrants can’t be enticed to join the game, the shuffling stops and the Scheme collapses under the weight of accumulated debt. There are very good odds that, when this Ponzi Scheme collapses and house prices fall, bank shares will go down with them.
Source: GEI Analysis