The Payday Loan Housing Bubble

Pondering all this talk of property bubbles today and will it, won’tit burst, I suddenly thought “It all makes sense”.

Banks are not using the business model we think they are. They have moved to a Payday Loan model of business.

Let me explain. we think banks are charging us interest according to market forces, cost of funds and deposits. They are not.

Governments are trying to kickstart the the economy by pushing interest rates as low as possible. The banks are grabbing the cheap money and leveraging it to the sky and ‘Securitising’ the loans it makes.

In layman”s terms, they on-sell your mortgage and it’s payments to an investor wanting a return paid monthly. They are selling your mortgage for a small discount on the capital but taking a percentage of the interest as compensation. They get 0.5% of your interest each month and the buyer gets the rest, along with the liabilities of you defaulting. As they have the power to manufacture 14 times the actual money they have, securitising the loan makes for an endless loop of income greater than the expenses with almost no liability.

By loosening money and credit supply, prices are free to rise.

The banks are setting interest rates according to what we can afford to pay to ensure constant profit.  If the interest rate drops, they encourage the price to rise to compensate, so the net income remains the same. Despite the drop in interest rates, their profits haven’t dropped, so either the quantity of money in circulation has increased or the profitability has increased or both. Obviously, it”s both. Government increases the total amount of money to provide stimulation, the banks then lend 14x the ‘Supply’ then continually securitise it.

What the buyer sees is the ‘Low Weekly payments’, not the total price paid. Therefore, banks are helping push prices higher through their policies of low interest rates and loose credit criteria BUT, 5% interest on a 500k loan is the same as 10% on a 250k loan. The capital sum does not matter – what matters to the banksters is the total interest paid. If you do the sums, you will see the total outgoings relatively unchanged.

The killjoy of perpetual profit and debt is the ability of the victim to make the ‘Low weekly payments’, especially if the economy slows and unemployment increases.

The banksters are already charging interest on deposits in some countries. America has indicated that they will raise interest rates later this year, so expect a bumper dividend to the banksters as the victims are caught in a classic squeeze of rising costs, declining income and a rapacious FIRE industry. (Finance, Insurance and Real Estate).

This will be the quiet ‘Explosion’ in the property market as banksters become landlords. Having ‘proven’ they are too big to fail and that weak Governments will do their bidding for a few hundred thousand in campaign donations, they feel invincible.

They will come up with a product called ‘Real Estate Shares’ and get Governments, Mutual and Superannuation funds to purchase the shares. The banks will take nominal ownership at mortgagee sales and on-sell the management rights to Lendlease whilst the Title Deed will go to the superannuation funds (Yours) as they clip the ticket every which way. Yet another toxic derivative.

The Governments will spin this as ‘Securing your future from greedy landlords and overseas buyers’.

…and so we return to serfdom.