Why the RBA Board Should Be Sacked

Greg Canavan21/03/2017

https://www.moneymorning.com.au/20170321/rba-board-sacked.html

In today’s Money Morning…the RBA has created a housing crisis from whole cloth…all care and no responsibility from politicians and regulators…years of easy money coming back to bite retail investments…and more…

ASIC Chairman Greg Medcraft must have a pretty big property investment portfolio. He reckons the out of cycle rate rises by the banks (or two of them, at least) are ‘disgraceful’, according to a report in The Australian.

I’m not sure why he’s commenting on the issue. It’s got nothing to do with him or his role. As far as I’m aware, there’s nothing in corporate law to stop the banks from managing their business in this way.

Someone who should be commenting on the issue — Wayne Byers, boss of bank regulator APRA — is still sitting on the sidelines, waiting to go on if necessary.

Here’s Byers commenting on the property market at ASIC’s annual forum in Sydney yesterday, as quoted by The Australian:

‘…Byres conceded there was “heightened risk” and the banking regulator would use “various tools available to us” to cool the market if needed.’

Geez, if the regulator isn’t needed now, I think they can just pack up and go home.

Yesterday, I mentioned how nearly 60% of all mortgages written in the past six years were interest only loans. This is reminiscent of the large amount of adjustable rate mortgages that fuelled the US housing bubble in the noughties. When interest rates eventually reset higher, the market imploded.

Investor loan growth also makes a mockery of APRA’s attempts to contain the bubble. In the year to January, investor loans grew at 27.5%!

At the start of 2015, APRA put a 10% cap on investor loan growth. That cap worked for a while, as the growth rate declined during 2015 and the first half of 2016.

But then the RBA, in an epic policy blunder, cut rates twice and reignited the housing boom. And APRA has been powerless to stop the surge in loan growth.

So Greg Medcraft might be disgusted by the banks’ behaviour, but he should be furious at the RBA for igniting the housing market again.

I’m no fan of the banks (really, who is?) but raising rates, even modestly, is about the only thing that will take some heat out of the property market. What they’re doing is sensible.

Really, the regulatory and political management of this country is abysmal. We have a gas crisis, despite having some of the most abundant gas reserves in the world. And we have a housing crisis despite having the most abundant land resources in the world.

And who’s accountable? No one. It’s all care and no responsibility for the politicians and regulators. There’s certainly no one bold enough to take the RBA to task.

If there is one regulatory institution that deserves greater scrutiny, it’s the RBA. Their influence on the economy is profound.

The board should be sacked for economic mismanagement. Or at least questioned by people who know what they’re talking about. Instead, they get a twice yearly ‘grilling’ by members of Parliament. It’s a circus act.