Home > Predictions > Did the Commonwealth Bank deliberately mislead its international investors?

Did the Commonwealth Bank deliberately mislead its international investors?

Steve Keen points out that the Commonwealth Bank recently used an inconsistent data set to try to prove that Australian capital city house prices are not overvalued compared to other coastal cities elsewhere in the world.

Further investigation revealed that, when the appropriate data set is used, the figures do show overvaluation in Australia.

It’s unlikely that this would be an inadvertent error, because it would have been easier to use the common data set rather than run around trying to find an inconsistent data set to ‘fudge’ the figures.  This does suggest that the obfuscation was deliberate, although this is difficult to prove conclusively.

The point is this.  If the Commonwealth Bank can be so devious in its presentations to its overseas investors, I wonder how devious it can be with its domestic investors?

And why would the Commonwealth Bank have a vested interest in pushing the line that Oz house prices are not in a bubble?  Well, the Commonwealth Bank, along with Westpac, rely on international wholesale debt markets to fund their lending activity.  And their lending activity is mainly going into ‘safe’ residential housing.  So international investors are ‘buying’ Australian housing debt.  Therefore, they want to know whether the assets that are backing up their investment is sound.  The Commonwealth Bank is a ‘retailer’ and is simply the retail face of international wholesale debt markets.  It offloads housing debt.

So it needs to keep its real clients confident that the underlying assets it is selling are not overvalued.

They are apparently willing to do anything and everything to ‘prove’ Oz house prices are not in a bubble, even though all the data points to the fact that they are.  Price-to-income ratios, rental yields, private debt levels, and historical price growth in the major capital cities over the last 20 years all point to an unprecedented build up of debt and unprecedented bubble pressures in the Oz housing markets.

By the time international and domestic investors find out, the Commonwealth Bank executives would have offloaded the problem on the RBA and the ‘sucker’ taxpayer through the Federal government’s inevitable mini QE2.  They will be gone, with their million dollar bonuses, having already offloaded this overvalued bubble-paper on to sucker-investors.

As John Maynard Keynes put it, “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.”

There’s a bubble alright.  And it will blow when banks like the Commonwealth can no longer access international capital markets in the same volumes they have enjoyed in the past.  With Basel III kicking in at the same time as the massive spike in international government bond issues, the cost of capital must rise.  Little players like the Aussie banks will inevitably be squeezed.

Then interest rates will rise.

And then the bubble will burst.

The virtuous circle of rising house prices will become a vicious circle.

The government will try to step in, but the international capital markets are much, much bigger than the Aussie govt.  It will be tossed around like a cork in the ocean.

I’d lock in fixed rates now for as long as you can.  Because I see volatility and stormy seas ahead.

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