April 03, 2008 | Ronda Jambe

Program on mortgage stress missing a corner



A balanced look it was not: the 4 Corners (ABC) program last Monday showed 3 sides of the figure, but left off a big corner. They did a good job of showing that a) the banks are predatory and irresponsible in their lending practices and b) the regulators are also not up to the task. I remember an article once about ‘why the watchdog never bites’. From the program, which didn’t mention it explicitly, we can also infer that c) the schools and other educators have not done their job, or there wouldn’t be so many suckers out there.
The fourth corner, however, also left unexplored, was d) the role of the borrowers themselves. This is where sensible, prudent people, such as I fancy myself, start to froth and gaggle. The house in western Sydney that was featured as an example of ‘mortgage stress’ was fairly palatial, and inhabited by a couple whose only mention of a job was ‘carpet layer’. The lack of more detailed, multi-faceted reporting started to bring the story’s credibility undone. There was no mention of what sort of income this family had, how much their initial mortgage had been, what their total borrowings from all sources was, and what steps, if any, they had taken to avoid the disaster.
At one point the woman nodded to the child and suggested she pray that they could keep their house. Wonderful for imparting blind faith perhaps, but not much use in managing one’s affairs. At the end of the program, the family was crowded into a double garage, unable to even rent or find short term accommodation. That is sad, but the sight of them surrounded by heaps of consumer goods with probably no resale value countered the image of suffering.
There was no information about whether the wife had tried to seek work: two jobs for her in the short term might have helped. And did they consider taking in boarders, and perhaps shrinking themselves to fit in fewer bedrooms for a while? That would have been one of my strategies, given all the media coverage about the shortage of rental places in Sydney.
And were they growing veggies? Admittedly, that wouldn’t help much, but it wouldn’t hurt, either. Did they go to second hand stores for their clothes, or perhaps cut back on the cable TV subscription, when the pressure got to them? None of this was canvassed, so we can’t really assess how they got into that financial pickle in the first place.
On the surface, it looks like they just bit off more of a house and mortgage than they could chew, and that is primarily their mistake. It was also their responsibility to rectify it, with something more substantial than prayer.
Another example was a young man who had bad debts and then took on more to buy new furniture. Deals that allow you to pay nothing for 4 years have to have a sting in the tail. Surely it is not just arrogance on my part to note that Blind Freddy would know better.
The ABC, and 4 Corners, would serve us better if they didn’t avoid personal responsibility as part of the mix in addressing such issues. Similar analyses have been made of the whole sub-prime smozzle in the US: overreach and collapse.
I close with a reverent nod at that secular priest Nuggett Coombs, who reminded us in one of his last books of the values of frugality and simplicity. Amen.



Posted by Ronda Jambe at 12:41 pm | Comments (23) |
Filed under: Uncategorized

23 Comments

  1. I think that, in most cases, the borrowers are to blame for the predicament they find themselves in with mortagages and other borrowings.
    Too many people now want everything at once; they cannot bear to save and wait.
    Some people even inflate their incomes to trick lenders into giving them the loan they want.
    How dopey is that!

    Comment by Mr. Right — April 3, 2008 @ 3:09 pm

  2. From The Economist this week, an article on initiatives to teach consumers to be financially literate, http://www.economist.com/displaystory.cfm?story_id=10958702
    QUOTE
    It is a “well-established fact” that “a substantial proportion of the general public in the English-speaking world is ignorant of finance,” writes Niall Ferguson, an historian at Harvard University, in his forthcoming book about the history of finance, “The Ascent of Money”. He produces a long list of evidence to support this conclusion. According to one survey last year, four in ten American credit-card holders do not pay the full amount due every month on the credit card they use most often, despite the punitive interest rates charged by credit-card companies. Nearly one-third said they had no idea what the interest rate on their credit card was.
    There is similar evidence elsewhere. For instance, a survey in 2004 by Cambridge University and Prudential, a big insurer, found that some 9m Britons are “financially phobic”, meaning that “they shy away from anything to do with financial information, from bank statements to savings accounts to life assurance.” Research by the British regulator, the Financial Services Authority, found that one-quarter of adults did not realise that their pensions were invested in the stockmarket.
    Financial illiteracy is not limited to subprime mortgage borrowers, then; it is pervasive in all age groups, income brackets and countries…
    Americans still leave school not knowing much about money. A sample of high-school pupils aged 17 or 18 gave correct answers to barely half of a set of questions about personal finance and economics posed in 2006 by researchers at the State University of New York, Buffalo. Less than one-quarter knew that income tax could be levied on interest earned in a savings account. Three-fifths did not know the difference between a company pension, Social Security and a 401(k) savings account.
    END QUOTE
    I agree that there is an onus on people to exercise personal responsibility, but it is hard for them to do that in areas that they simply don’t understand. The Australian educational system does little or nothing to educate young people about finance.

    Comment by MikeM — April 4, 2008 @ 11:04 am

  3. Ronda Jambe:
    I share your concern at corner cutting in reporting what I see as a very serious issue.
    I myself am quite happy to be well-dressed by Vinnies and Sally’s, to dine well on Generics and Specials, to be entertained by Freebies, to live in a humble dwelling that wouldn’t make the pages of a glossy magazine …. but that’s because of my upbringing – an upbringing among the survivors of wars, disasters and depressions.
    Younger people have been brought up in a toxic environment that regards frugality as evil, that despises thrift, that praises waste, that is suspicious of durability, that prefers appearance to utility, that rewards borrowers and punishes savers. Despite being swamped with advertising about how to get this great deal or that, they are not encouraged to be anything but “financially phobic”.
    What we are seeing now among young people is the natural outcome of a succession intensive propaganda campaigns inflicted on them from the day they were born.
    Blaming people for the intensive fay-after-day influences they have had on them from infancy is no way to solve this mess …. a mess that will eventually hurt everyone in Australia, even the ones currently getting rich out of it.

    Comment by Graham Bell — April 4, 2008 @ 11:50 am

  4. Harry Clarke has had a bit of a think about this over at http://kalimna.blogspot.com/2008/03/australias-emerging-debt-crisis.html
    I managed to feel a bit better after a nice “ventilate” on comments but have not yet found “closure”

    Comment by Francis Xavier Holden — April 4, 2008 @ 2:32 pm

  5. There is little hope of getting the regulators, or the banks, or the schools to educate people adequately about either thrift of their financial commitments when the whole system, governments included, is oriented at endless growth and expansion.
    And if it is unreasonable to ask people to take responsibility for understanding at least their mortgage and borrowing arrangements, it is equally unreasonable (perhaps even insulting to the public) to blame all this extravagance on the media.
    Perhaps we need positive role models that celebrate simplicity. There is some of that around.
    And even banks are having trouble working out how much they owe, and the implications of their deals with fancy debt instruments, etc.
    Complexity itself is a policy fault.

    Comment by ronda jambe — April 4, 2008 @ 3:53 pm

  6. Mr Right:
    You seem to be under the delusion that everybody wanting to own a home has choice.
    Yes, those who are well-off, who have a record of big spending and who fit a relatively narrow range of social [NOT commercial] criteria do have choice …. and sometimes it is a bewildering range of choices.
    The rest of us though, have very little choice.
    For instance, just try to buy a century-old weatherboard miner’s cottage in an unfashionable rural area and see how far you get – even though, if a free market in housing really did exist [and it doesn’t], a mortgagee-in-possession would have no trouble at all reselling the same cottage and making money on it.
    Over the years, I have been in the open housing market because I preferred owning my own dwelling to paying dead rent or living in a caravan park. [Like thousands of my fellow WAR veterans I was remarkably “unlucky” in my efforts to get my war service housing loan entitlement; a loan that was readily available to favoured gangplank-dodgers].
    Whenever I applied for a loan, more often than not, the officer with whom I was dealing hinted very strongly that if certain factors [such as the value of chattels] was exaggerated and if certain matters were not mentioned [such as having been cheated out of thousands of dollars because of dishonesty inside a voluntary organization prior to compulsory incorporation] then the application would be successful. And this was invariably so. If I was scrupulously truthful and completely open then the chance of a loan application being successful was reduced.
    This was not the work of an isolated “rogue” officer [unless I met every such “rogue” officer in Australia. :-) L=O=L]. Nor were their actions unknown to their superiors – since in every case they went to their boss for the nod-and-wink. Yes, there are tricks involved; tricks to grab the business before it goes elsewhere …. and to hell with the shareholders.
    And yes, there are dopey people around; people who will squander whatever money comes their way; people who could never save for anything; people who are too stupid to ask a salesman a couple of obvious questions before they commit themselves; people who can never be helped because they are just plain lazy and stupid and selfish. Every society in every age has had its share of utter fools.
    However, do not ever ever ever assume that everyone gets into financial trouble is “dopey” nor that they do not do their utmost to meet their just debts in full and on time!!!

    Comment by Graham Bell — April 4, 2008 @ 3:58 pm

  7. Ronda Jambe:
    Yea verily!!
    As you said ” “Perhaps we need positive role models that celebrate simplicity. There is some of that around” “.
    Thrift and Profitable Business are not mutually exclusive; nor are Frugality and Wealth Creation.
    Perhaps we need to look at, for example, how so many progressive Quakers in 19th Century United States became prosperous while so many of similar [though not identical] religious views stayed in modest circumstances.
    Whatever we do, we must get as far away as possible from the present cancer-ridden financial mess and seek better ways of financing basic, decent housing for ordinary workers and their families.

    Comment by Graham Bell — April 4, 2008 @ 4:30 pm

  8. Ambit
    You say we can also infer that the schools and other educators have not done their job, or there wouldn’t be so many suckers out there.
    I disagree.
    The educators have done a marvelous job.
    Who can forget such educational spruiking programs as: 1 The House or 2 Location, Location, Location or 3 Renovation Rescue or 4 Better Homes and Gardens?
    Those programs have really done a good job on deluding the populace into believing that being a DEBT LEMMING is something to aspire to.
    But now the crunch is about to bite. Who do we blame?
    The government for their discriminatory tax rulings that give massive tax deduction advantage to residential property investors?
    Or perhaps artificially high immigration intake? Let us just plow another 200,000 migrants into the country every year – but do not think of housing them. Let them fight it out with the locals in rental bidding wars.
    Does that sound arch-ridiculous? It should do, it is deliberate plan justified by the Intergenerational Report (Liberals Go For Growth strategy).
    At least the banks have been caught out, but do not expect them to pick up the tab. That will somehow get passed on to tax-payers.
    Housing will be affordable when tax system is made fair (Treasury ), housing vacancies match immigration levels & banks get responsible.
    Thanks for this blog space.

    Comment by mr nobody — April 4, 2008 @ 6:43 pm

  9. Our unnaturally inflated population and our failure to house them are surely part of our economic pickle.
    And the tax system favours over-investment in property.
    And not everyone gets in financial trouble due to their own stupidity, all good observations, and clearly a nerve has been hit with many of you.
    Is the government listening?

    Comment by ronda jambe — April 4, 2008 @ 8:57 pm

  10. Don’t forget Rhonda that Govt is part of the problem.In NSW 37% of a house/land package is made up of Govt taxes and charges.
    No money has been spent on infrastructure like fast trains to decentralise the workforce as they do in Europe and Japan.
    Our state Govt have been an abomination of waste,inefficiency and ill planning.A good start would be a total reform of the Public Service.Make it more accountable!

    Comment by Arjay — April 6, 2008 @ 3:55 pm

  11. Could not agree more, Arjay.
    What do we pay taxes for, if not infrastructure that helps us to live more affordably and sustainably?

    Comment by ronda jambe — April 6, 2008 @ 4:47 pm

  12. If 50% of the people weren’t dumb then the other 50% couldn’t make a quid.
    The banks exploited ill-educated people who were no doubt bought up by their parents to trust the banks.
    No-one rang the bell and said that banks had morphed from responsible lending institutions to shonky sales houses for money.
    Yes, they were dumb to sign such huge mortgages and they wanted too much too soon, but that was the world that Howard & Co were creating. Borrow or be left behind. Free money and prices that were never going to come down.
    For the average person, which includes myself, thrift does not make me rich but neither does it make me poor.
    There is no answer; it will happen again and again as there will always be some people who seek a free ride and others who are happy to take them for a ride.

    Comment by DiablectBlue — April 8, 2008 @ 11:34 am

  13. I agree that the reportuing didn’t properly explain how this couple got so badly into debt … or what they had done to try and solve the problem.
    We live in a consumerist society … everyone wants the big house, plasma TV and two cars.
    When I got married 35 years ago, we spent several months slleeping on a a mattress on the floor; meals were sitting on the floor and eating from a fruit box as a table.
    Price rises would not be needed for fuel and electricity .. if we all just cut back a bit …
    and if there were fewer of us …
    the baby bonus and tax cuts are saying increase populatuion snd spend …. climate change and financials are saying whoa !

    Comment by Kevin — April 8, 2008 @ 3:30 pm

  14. For sure, population and consumerism are the elephants in the room of government policy. Hopefully these will be raised at the 2020 forum Rudd is so keen on.
    But just as the US depends on military spending for its economy, we depend on endless growth. No easy answers….

    Comment by ronda jambe — April 8, 2008 @ 4:31 pm

  15. Funny how the more homework a person does on an issue, the more cogent are their comments.
    I refer of course to Mr Nobody and Graham Bell; both incisive. But no one has mentioned the real bottom line because the media has told them it does not exist. Ironically, the more sophisticated and educated are the most susceptible.
    First we have the progressive winding down of Housing Commissions; in other words, the privatisation of egalitarian shelter. Supply and demand meant home prices and rents could only rise; exacerbated by migrant and refugee intake (with full comprehension of the consequences).
    Then, prompted by inflation primarily created by oil company/government collaboration and the two main supermarket chains, a supposedly independent Reserve Bank raises interest rates, incrementally pushing rents and mortgage repayments through the roof.
    All this while the bottom line has been, not Howard’s 3.2% unemployment, but an average of 20% over the past few years; as can be confirmed by your local Job Network personnel. This has been the coordinated impoverishment of 70% of Australia’s population, with 68% with incomes below $29,000 (AIA 2006).
    On the ABC, SBS, and News Corp, such revelation is forbidden, as viewers of Four Corners, Insight and the Seven Thirty Report must by now be suspecting.

    Comment by Tony Ryan — April 9, 2008 @ 10:19 am

  16. Tony, I agree with most of what you have posted. But is unemployment really that high?
    And of course you are saying that government policy has been to deliberately undermine the welfare of Australians, in favour of the rich.
    While that does seem to be the general outcome, the intention is not so clear. Why destroy the country and foster discontent and social unrest?
    Isn’t it more likely that the gov, like most of us, has been suckered by the vision of endless growth? Like a chorus of Cassandras, those preaching sustainability, housing security and public provision have been swept aside.
    Maybe we can wake up in time to find another model.

    Comment by ronda jambe — April 9, 2008 @ 2:23 pm

  17. Tony & Ronda – Good points both on this issue.
    I agree with Tony on the govt acting with “full comprehension of the consequences”, at least over a short time horizon and with a tunnel vision that focuses only on economic welfare for the few.
    Ronda, you say “While that (govt policy undermining broader Australia) does seem to be the general outcome, the intention is not so clear. Why destroy the country and foster discontent and social unrest?”
    Excellent question. Without thinking about it too much my view is that a narrow selfishness, a wish to provide for self/friends/family but not others in a general sense is the force behind the discriminatory tax system and govt rulings that are basically trashing the social fabric. In one sense, trying to better ones lot in life is not a bad thing per se. The problem seems to be those in power do not know when to stop. Their foresight is not really developed enough to visualise what might unfold as the general temperature increases in the broader community. It is not part of their plan.
    You are right, many are deluded by a “vision of endless growth” propagated by media – that is, a media with an agenda that does not include working Australia.
    The mainstream media is all but unconscious. I feel like sending them a pillow.
    If you wish to glean a deep insight into human behaviour, I recommend the writings of Barry Long.
    Following is the gist of one of his articles that goes a way to explaining the apparent self destruction, or is that self-destruction? (If you have the time, reading the original author would be better, clearer & cleaner)
    Decline and Fall – gist of an excerpt from “Origins of Man and the Universe”
    All civilisations are really attempts at civilisation. All have failed due to an inherent flaw in social conscience stemming from inability to grasp what civilisation is for.
    The means of destruction of a civilisation must not be confused with the cause of destruction. Moral failure has been the cause of every civilisation’s downfall. Our moral failure, the worm in the western flower, was cultured by the drive among the privileged to have more while the many by comparison had little or nothing.
    Ours is the first world civilisation. In that we are unique and represent the end of a phase in man’s development.
    But its failure, and unfitness to endure as the permanently civilising way of life, lies in the expediency of its shifting values. Our particular failure is intellectual duplicity, our double standards.
    For articles by Barry Long try – http://www.barrylong.org/statements/stateindex.shtml

    Comment by mr_nobody — April 10, 2008 @ 9:18 pm

  18. Rhonda most of the unemployment has been disguised by putting people on the DSP.In the 1970’s Govt spending on social security was 20% their revenue,now it is over 40% of total Govt spending.
    The long term unemployed are now classified as disabled.
    We have a $ trillion GDP,the highest per capita in our history,yet people are worse off now,than in the early eighties.Expensive Govt,housing,high taxes,fuel,food etc.
    No infrastucture,no leadership,no passion,and no direction.
    “We are the hollow men,…
    Headpiece filled with straw…
    Shape without form,shade without colour,
    Paralysed force,gesture without motion:”Just love Eliot.
    Without the luxury of an economic surplus,there is no time for this indulgent introspection.
    Globalisation is stealing our most precious asset,time to rise above being slaves to the economic machine.
    For the world to aspire to the depravity of the China syndrome,will indeed be a sad day for human insight.

    Comment by Arjay — April 10, 2008 @ 9:58 pm

  19. Rhonda most of the unemployment has been disguised by putting people on the DSP.In the 1970’s Govt spending on social security was 20% their revenue,now it is over 40% of total Govt spending.
    The long term unemployed are now classified as disabled.
    We have a $ trillion GDP,the highest per capita in our history,yet people are worse off now,than in the early eighties.Expensive Govt,housing,high taxes,fuel,food etc.
    No infrastucture,no leadership,no passion,and no direction.
    “We are the hollow men,…
    Headpiece filled with straw…
    Shape without form,shade without colour,
    Paralysed force,gesture without motion:”Just love Eliot.
    Without the luxury of an economic surplus,there is no time for this indulgent introspection.
    Globalisation is stealing our most precious asset,time to rise above being slaves to the economic machine.
    For the world to aspire to the depravity of the China syndrome,will indeed be a sad day for human insight.

    Comment by Arjay — April 10, 2008 @ 9:58 pm

  20. Arjay and all:
    Unemployment figures have been cooked to such an extent in Australia for the past two decades that it is a miracle that Australia hasn’t been booted out of the OECD.
    A far bigger and much worse problem here is that of misemployment – caused by rampant credentialism, overfussy and pampered employers, weak and misdirected anti-discrimination laws and a complete lack of practical policies [from either side of politics] to eliminate misemployment.
    There are NO statistics whatsoever on misemployment [with its resultant underemployment. lack of job satisfaction and degraded productivity]. More than half the people I know are misemployed – and have little hope of ever satisfying their ambitions.
    Having said that. I wonder if leaping – with eyes wide open – into contracts to buy horribly expensive, inefficient luxury houses might be a way of satisfying some residual ambitions because all other ambitions in the workplace are continually and hopelessly stifled?

    Comment by Graham Bell — April 15, 2008 @ 1:02 am

  21. Thanks for bringing that up Graham, I should have suspected that our unemployment figures are as dodgy as our inflation figures.
    Certainly I feel ‘misemployed’, imagine someone with both academic and public sector experience in Canberra who can’t get a job, or at least not one I am willing to take. My time is worth at least as much as a plumber’s.
    And as for satisfying ambitions with a big house, yes, that is also a good point. It shows how distorted our economic base is, that other avenues aren’t available. Actually, lots of other avenues are available, and we are engaging in one of them right now, but lots of people don’t see it that way.

    Comment by ronda jambe — April 15, 2008 @ 8:14 am

  22. Ronda:
    Like so many of my peers. I was misemployed and underemployed for most of my working life – relevant degree and a swag of other professional qualifications notwithstanding.
    IMHO, the labour market in Australia has been perverted, corrupted and twisted beyond belief for several years. Even with a change of government, I can see no substantial improvement on the horizon.
    The same goes for residential housing.
    Likewise for the distribution and operation of personal credit.
    So there you have it: the main ingredients of a recipe that would gladden the hearts of any political agitators, religious extremists and ruthless revolutionaries. Set the heat to > and watch it all rise before your eyes.

    Comment by Graham Bell — April 16, 2008 @ 10:27 pm

  23. In that case, Graham, we are headed for a ‘perfect storm’ of unsustainability on all 3 fronts: environmental, social, and economic. Batten down the hatches, but what does that mean now, to us? This is the subject of my current offering on the blog.

    Comment by ronda jambe — April 17, 2008 @ 8:25 am

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