People who believe the good times will soon return are harder to find these days. It’s not just the loss of trust in our institutions and the political class but a more deep-seated scepticism as to whether the suggested remedies will work.
The laws of economics are not immutable. Many are mere transient beliefs that may provide a reasonable explanation of current machinations, but when a black swan event occurs, like the Global Financial Crisis, something outside previous experiences, the old ways of thinking are of little help.
Likewise, our treasured institutions have failed us. As part of the reported proceedings of the Royal Commission into Banking, investment banker UBS estimated $500 billion out of $1.7 trillion in mortgages across Australia, that’s one third of the total mortgage debt, could be ‘liar loans’, based on dodgy documentation.
With residential mortgages growing faster than the rest of the economy, our economy is out of balance. Everyone knows it. We shuffle existing assets amongst ourselves at ever increasing prices using borrowed funds under the mistaken belief we are growing the economy when the reality is we are involved in a giant Ponzi scheme. Now we discover that up to one third of the mortgage loans may be based on suspect if not fraudulent documentation.