Australia is in the grip of a “bankocracy”, in which four banks control our access to money. Their profits, and therefore the salaries of their executives, depend on both the volume and the value of their assets growing.
The volume of their assets (that is, the number of loans) increases because Australians believe the only way to increase their wealth is to borrow 80 per cent to 100 per cent of the value of one or more houses. And the value grows because the banks’ customers compete with each other to buy the houses and push up their prices and therefore the size of their loans.
The more house prices rise, the greater the banks’ profits. As US investment guru Charlie Munger says: “Show me the incentive and I’ll show you the outcome.”
The way real estate works in Australia is that the federal government and banks encourage demand for it while state and local governments restrict the supply of it.
Mentions Robert Menzies
in Australian Financial Review
via Mojo