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Irresponsible behaviour by financial institutions

  • Memsahib
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10 years 7 months ago #11 by Memsahib
Yeah, Ness. I agree completely. It's great to see some boundaries being set. We, the public, need to set some rules too. We do have power, but need to act as a group to achieve anything. Good on Obama. it'll be great if he gets them to tow the line.

Cheers
Mem

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10 years 7 months ago - 10 years 7 months ago #12 by Memsahib
G'day

There are some interesting points coming up here - and a bit of creative thinking!

As there are numerous ones, I'll discuss each one separately.

Ezy says:

I think it’s the combination of all parties that has caused the problems in the housing industry. If one considers that the developer builds homes to make a profit and their greed makes them offer houses well above the average price in the area i.e. Cherrybrook homes were put up for sale at $7-800,000, when at the time the average price for a similar house was around $600k. Or the bank for being proactive in their approvals for mortgages of 500K + taking advantages of clever adverts appealing to the Australian dream of owning their own home. Or the over zealous people that thought they could borrow 500k + and pay it off over 30 years with an annual combined income of 100k.

Thanks Ezy, and while I agree with you that a combination of factors have caused problems in the housing industry, I am focussing on the lack of regulation - the reliance on the market sorting itself out - that has caused a whole lot of problems right around the world.

I have absolutely no problem with someone wanting to make a buck. I've been in business and know the hard work, stress and anxiety involved, and how it feels to have everything you own laid on the line. Builders are trying to make a profit. That's fine. If people are stupid enough to pay above market prices, then that is their own fault - they are being greedy too. But I do think that there needs to be some regulation of the financial industry to protect everyone. This recession that is affecting every country in the world is largely caused by the lack of regulation. However, as I have said before, I don't think it appropriate that there be over regulation, but a careful balance of regulation and free market.

Ezy says:

The banks in their insatiable appetite for the almighty Dollar and big profits on the backs of working Australians have devised financial plans. These plans include bankcards tied in with mortgage payments and the clients wages where in ideal times of continuing low interest rates a family could move into their overpriced homes and have their 2 cars plus everything that opens and shuts allowing them to live in luxury they can ill afford.
What they don’t tell them is that bankcard debt can see them in the wrong side of bankruptcy as the absorbent interest rates on bankcards actually eat away at their cashflow causing the bankcard being maxed out and the finance companies chasing the debt.

The banks are not worried because part of their loan approvals is a mortgage insurance that pays the bank the mortgage in case of default.
Perhaps the solution is for the federal and state governments to finance a public department to provide financial advisors for all prospective mortgagees. The federal govt to introduce a mandatory 1 day course for all would be home owners that are entitled to the first home buyers grant.

As I said earlier, Ezy, I don't have a problem with people or businesses making a profit. I'm a shareholder as well as a working Australian, and I'll certainly hold companies in which I have shares to task if they don't make a profit. People do have to take some responsibility for themselves and their own behaviour. It's part of becoming an adult and being a responsible citizen. Our culture does seem to have developed a "I want everything and I want it now" attitude. We are now reaping the results of that attitude. Perhaps a reality check may benefit some of those people whose greed has led them to lose everything. Yes - the individuals who allow themselves to be talked into being overextended are very greedy, so the banks are not to blame for everything. Incidentally, the banks are damned worried, because so many people have gone bankrupt that some of the largest banks in the world have become insolvent. The Bank of Scotland has been bailed out, to name just one! Actually the whole mess was predictable. It's a repeat of the 1980's, when bank managers were chasing people to loan them money. Then, when things got tight, whammo, a stock market plunge and lots of people went bankrupt. This time it's a bit more extreme. "Those who forget the past are condemned to repeat it".

I do love your idea of a mandatory course for all would-be home-buyers who are entitled to the first home-buyers grant. I think it should be funded out of their grant, as a starting point for people to learn about responsible financial behaviour. $500 would probably be sufficient if there were a number of people at a time.

Sozz says:

I agree with what you wrote, ezy, and some of your ideas (particularly the one about compulsorily requiring that first-home buyers attend a seminar on how to manage their finances!!) are really good! However, while I agree that an awful lot of the fault rests with the naïveté, cluelessness, inability or sheer incompetence of people in managing their own finances, I think the point that memsahib was trying to make is that financial institutions must shoulder a lot of the responsibility - and the blame - for the current mess that people and world economies now find themselves in.

Yep, we're in agreement here. There are a lot of factors involved, but it is the greed of some who didn't have any form of boundary to contain them that caused this mess. Incidentally, a lot of the worst ones weren't actually the large banks, but were mortgage brokers and other types of institutions in the US that were lending money without caring that people couldn't repay. Yes, Ezy, these were the ones who had the mortgage insurance to ensure that they eventually got paid. What the fools didn't take into account is that once the interest rates rose and people began to default in large numbers, the insurance companies started to go belly up. The snowball effect then came into play, and so the lending companies began to go belly up, then the larger financial institutions that had financed the lending companies. Hey presto, world wide recession.

Well, my poor old brain is crying for a break now. There are some points to ponder.

Cheers
Mem
Last edit: 10 years 7 months ago by Memsahib. Reason: Adding a closure

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