Amazing to see the Bank Stocks doing so well when an estimated $500 billion in loans are based on fraudulent loan applications.
Now, thanks to the Banking Royal Commission, foreign investors are getting nervous about it.
The question is, who is to blame for the bad lending? The distinction between bad borrowing and bad lending is very important. If it turns out that the banks are proven to have committed mass fraud in the production of liar loans, as Phil Soos says, then they will be liable for the fallout.
It’s no wonder that foreign investors are spooked by the prospect. If the banks are liable for the liar loans then that will be the end of one of the great bulwarks of the bubble: that borrowers are much less likely to default on non-recourse loans. After all, as prices fall, if borrowers know that their jumbo mortgage was not their fault, then jingle mail will follow.
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