Nonsense. The experience from the 1990s is that if you cut taxes people binge on consumer items – most of which are made overseas and which therefore would make the current account deficit worse.

Then check out our super fund.

I think you’ll see where the money went, and accept the wisdom of it.

Take your blinders off dude.

Banks are asking for their money back. But no other banks will step in and refinance. All are doing it.

They are effectively asking for their own money back (sounds silly but think about it). What do they think is going to happen? There aint no money around to pay it back!

Banks have a lot to answer for.

Remember that in the past it has taken govt intervention to control naughty bank behaviour. examples – taking ownership changed to taking a mortgage, no right to repay before term changed to the opposite.

etc. badly written post sorry but couldnt help it and now have to race out the door.

NZ banks have not been that bad, but they have still been pretty irresponsible in my opinion.

1) They happily provided zero equity loans.
2) They happily provided repayment:income ratios that were obvously going to cause financial hardship.

Some would argue that it’s up to the person taking the loan to ensure they’re capable of meeting its requirements. That is bullsh*t. It is up to the BANK to take defensible risks with the money people have entrusted to it. If that means refusing loans, that is totally reasonable.

And lending terms HAVE changed. Try getting a zero-equity mortgage now!

You have to be careful saying that. If taxes had been lower peoples spending and saving behaviour, along with economic growth, would have been different. As a result, it is possible that the current account deficit could have been significantly smaller in that other situation.

The underlying idea is as follows. Permanent budget surpluses are unsustainable, therefore the surplus is actually forced savings. If the government is forcing you to save money – then why do you need to save out of your remaining disposable income? (Its a version of Ricardian equivalence http://en.wikipedia.org/wiki/Ricardian_Equivalence)

We will know if this is the case if the current account deficit improves markedly over the next few years (given that surpluses will no longer be run).

I don’t consider that to be true. Lending terms and conditions have not really changed in the last few years, but the number of people walking through the door has declined dramatically of late. NZ did not have anywhere near the kind of take-up in Lo-doc and Ninja (no income, no job, no assets) loans as the US or elsewhere. Our banks were actually remarkably constrained in their lending relative to their overseas counterparts.

You only need to look back at some of the old market commentaries from guys like Tony Alexander or, shock horror, Cameron Bagrie, to see that they were very aware of the overextension of the housing market and consumer spending, and trying to bring it to the attention of the public.

I never said anything about these borrowers – and that is what they are – having negative equity or losing their homes. The reverse mortages are structured so that doesn’t happen. But under a falling real estate market such arrangements become quite unattractive to both borrowers and lenders.

25.03.2008
Monetary policy statement by the Board of Governors of the Central Bank of Iceland:

The Central Bank of Iceland raises its policy rate
The Board of Governors of the Central Bank of Iceland has decided to raise the policy rate by 1.25 percentage points to 15%. The assumptions underlying the inflation forecast published in Monetary Bulletin in November 2007 entailing an unchanged policy rate until after the middle of this year have not held.

http://www.sedlabanki.is/?PageID=287&NewsID=1690

Could this be in store for NZ, after 18 months of a Key government

And yet their policy was the same as John Keys, spend up large by borrowing to ‘transform’ the economy.

Arent we glad Cullen built up those surpluses over the years and didnt fritter it away in tax cuts during the boom years when they would have added to inflation( and interest rates)

Rather than putting on your xenophobe…

Um, Phil, there was no mention of the Aussie banks just the banks in general.

Absolutely. But I think criticism of the banks lending policies is also entirely justified. The mortgage terms they were providing both assumed and fueled unsustainable capital gains in housing.

Rather than putting on your xenophobe hat and slagging off the Aussie banks (oh – and kiwibank too, they’ve had huge run-ups in borrowing) you would be better off looking toward the individuals who thought property prices never go down, and the real-estate agents who perpetuate the myth.