American is chock full of ARMs - variable rate mortgages - sub-prime mortgages. ARMs are one reason why mortgage backed securities all went crashing at the same time. America 30 years ago did not foolishly market or apply for ARMs.

The way I read it, Australians were doing the same irresponsible mortgaging that Americans were doing - ARMs - sub-prime loans.

Fuel prices also contribute. However, to subvert responsible action as a result of higher energy prices, America mortgaged itself (ie 0% car loans) to avoid and ignore the necessary recession. While whining Americans complained about high gas prices (ie $1.80 per gallon), Americans continues to say to industry, "Make the most stupid vehicles that only an accountant would design." Americans complained about high gas prices, then bought even more SUVs. Gas had to go to $4 per gallon before Americans said, “Oh, energy not something to waste.”

BTW, the same stupidity occurred in 1970s America. Then when patriotic Americans with Japanese citizenship provided superior products, Americans put up tarrifs and other corporate welfare to protection the problem. Deja vue.

Then America said the economy is no longer is dependent on energy. Well, those energy bills have yet to start causing job losses - another lesson from the 1970s.

Essentially, you are saying Australians were doing the same money games that business school graduates were promoting in America. As I read it, Australians are not suffering due to events in the American economy. Australians are suffering because they did exactly same as Americans.

Meanwhile, Australia is far more attached to commodity exports. Have economic changes in commodity markets also contributed to problems in Australia? If so, how?

If done properly and house bought within ones means with either a fixed or adjustable rate mortgage was purchased... Where is the issue?
The abuse comes into play when one is sold more house than one can afford and convinced that one can by utilizing an ARM.

In the 1970s, the same reasoning is why interest rates were kept low. Therefore the economy only got worse. Of course. A mismanaged economy that throws money at problems (ie tax cuts without spending cuts, tax rebate checks, excessively low interest rates, etc) only gets worse years later.

How did America finally fix the housing market and all other problems? Housing interest rates were jacked up to 20% because central bank interest rates rose well above 10%. Only then was the American economy fixed in the early 1980s.

High interest rates do not create the problem. High rates and the resulting hardships may be necessary to fix the problem now. Otherwise economic forces take further revenge later.

ARMs were designed to give you a house that you otherwise had no business owning. What made possible those 4000+ square foot houses with three car garages? A more productive America? Of course not. Variable rate mortgages, NINJA, and the ponzi scheme found in Enron style accounting.

Let's see. All those homeowners, expecting to be there only five years, suddenly got stuck with what? Suddenly they can't move? Economics takes revenge many years later on an economy that plays such money games.

I think it's pretty fair to say that most economies in the world have been doing the same as America. These types of trends do tend to be global which is why recessions and depressions do tend to be global. I would suggest that if the US economy had remained stable, many other economies world wide would have done also. obviously that's simply because the US economy is so large and effects all other economies, particularly those running under the same rules.

Having a conservative government that was living out of Bush's pocket definitely contributed to our problems here.

Fuel prices have been much higher in Australia than the US for a long time, as have interest rates. Where your reserve bank dropped interest rates to try and avert the crisis in order to prop up the economy, ours increased them in order to gain some control.

I'm not a financial expert. I simply pay attention to what's going on. Not all of our issues here are because of the US market, but you'd be a fool if you didn't agree that it was part of the problem.

I think we'll come out of this ok in the end, mainly because we do have a huge export industry linked to energy resources, and we all know the world needs energy.

If done properly and house bought within ones means with either a fixed or adjustable rate mortgage was purchased... Where is the issue?
The abuse comes into play when one is sold more house than one can afford and convinced that one can by utilizing an ARM.

That is part of the question. How much intertwined? We know Iceland banks foolishly invested heavily in the American ponzi scheme - mortgage backed securities. And we know some European banks are at risk for doing same. But I have heard very little that suggests Australians had any significant attachment to America's mistakes.

But again, are those exports to China diminishing so much as to harm the Aussy economy? Not just energy (coal). Other exports (grains, meat, metals) are also a major part of the Aussy economy. Have these industries suffered due to Asian downturns?

ARMs made possible that abuse. If homeowners had to buy homes they could afford, then housing prices would not have skyrocketed, the minor recession would have corrected economic mismanagement (ie force out bad management in GM), and homeowners would not have been slapped by the double whammy of a recession AND skyrocketing mortgage payments.

ARMs are equivalent to what George Jr was doing - tax cuts with massive spending increases. ARMs are just another of many examples that explain the 35% stock market downturn - and we have no idea how much lower it may go. But again, economics always takes revenge many years later when finance games rather than product innovation creates a booming economy.

To get people into houses they could not afford – to avoid a necessary recession – the bean counters marketed another money game – ARMs (also called variable rate mortgages or sub-prime loans).

So do you feel richer now that George Jr gave you another $600 tax rebate check? Just another example of an idiot doing things so that you *feel* better rather than addressing the problem - excessive spending.

The cost of money is higher for us now. That's one problem. If we want to borrow it costs more. Our big banks generally are fairly strong though. A couple of our smaller ones have been a bit wobbly because of their ties to the US, but in general, so far so good for Australian banks. I can't tell you exactly what's making them stable, but we've had no big banks even look like folding, as opposed to those from larger economies.

This is a good thing for Australians. At least there is that stability.

I think you have a very biased view towards ARM's tw. Long term variable rate loans can be a big advantage if you take out your loan while rates are high. Then during the normal course of economic cycles, rates drop, and you find that the loan you could afford before, now becomes a breeze and you pay your loan off quicker.

If however, you take out a high mortgage when rates are low, not leaving yourself room for rate increases, you deserve what you get imo.

The problem is, banks allow people to take out a mortgage they can afford today without thought to what they can afford tomorrow. If people are too stupid to realize what's coming down the road, whose fault is that? The lender that knows? Or the borrower who's ignorant? Some say that ignorance is not excuse. I agree. If you're going to borrow money from anyone, you should know how you're going to pay it back.

tw - sorry bout the deletion - I thought I double posted it. I think I still did. Anyway, I took you off ignore today - did you address my point at all? Here I'll quote it for you.

Higher cost of money today means the economy will fix its problems now. In America in early 2000, when the economy needed fixing, instead George Jr threw money at the economy. His people (ie Harvey Pitts of the Security and Exchange Commission) made ponzi schemes easier (ie Enron accounting is now rampant). To mask the resulting debts, George Jr restored the massive government debts that had been eliminated by Clinton. And then promoted myths such a lower taxes to the common man (who never saw lower taxes) while lowering the rich man tax rates to 3% below everyone else.

America desperately needed to correct fiscal mismanagement. Even the $trillion for "Mission Accomplished" has been mortgaged. Americans will pay for that debt years later. Rather than address inflation (that George Jr said did not exist using another money game), America pushed interest rates lower. That means current economic problems were only made worse.

No problem. This economic downturn was not obvious until after the mental midget leaves office. BTW, Nixon did the exact same thing. Problems were corrected during Carter's time by finally running interest rates to 14% and 20+%. Guess who got blamed for Nixon's economic mismanagement.

Your higher interest rates today would only force the economy to fix its problems before jobs are lost and before those problems fester.

I see. So Icelandic banks invested heavily in our mortgage banking, but that isn't America's economy driving theirs in any way?

I gotta learn more about economics.

Then explain this. The greatest economic problems exist where more ARMs were promoted. If you think ARMs solve problems, then the government printing money also solves problems. ARM is simply a money game to avert what is needed - a house that the homeowner can afford rather than larger and more homes that nobody would otherwise buy.

This is not bias. Where ARMs were mostly used (ie Stockton CA), now $million+ homes sit abandoned - cannot even be sold for $70,000. More trophies to people who think such money games (ARMs) make people wealthier. The only reason a person should even afford that more expensive house - he is more productive in his job. Instead we created ARMs - money games - to get him in that house. No bias. These same lessons are found all through history.

The only innovation that should make a larger house affordable is product innovation - not money games. My only bias is found in facts of fundamental economics. If finance games make someone richer, eventually economics takes revenge years later. No way around that reality.

There is not free money. Even free money – printing more – results is far more severe consequences years later. That reality is again being demonstrated. Why do we need recessions? To even create the threat of bankruptcy so that the money gamers get exposed and severely harmed.

Another example is GM who should have been in bankruptcy in 1991. Instead they played money games (ie short the pension funds) rather than fix GM’s only problem (some of the world’s worst products). Now GM is even worse and taking more of the US economy with it. Back then, we could have solved GM’s problems by replacing grossly overpaid bean counters with car guys. Now the average American must suffer because GM was not fixed by bankruptcy in 1991. Just another example of why money games only makes economic revenge more severe later.

BTW, did anyone notice? Separate from the $700billion bailout was another $25billion to automakers. George Jr also gave the airlines $8billion for free bad in 2002. Notice how that corporate welfare fixed the airlines. So what will $25billiion do for GM, et al? Protect the #1 problem such as Rick Wagoner - GM's president and a lifetime bean counter.

Sidebar. The entire MI delegation voted for $25billion in corporate welfare. But most of that same delegation voted against the $700billion bailout. Throwing money like a grenade at a problem does not fix the problem - whether it is corporate welfare or easy money using ARMs. The only solution to houses that people cannot afford - smaller and less expensive houses. The only solution to GM's problem is elimination of management that routinely stifles innovation. Neither problem is solved by using money games. Not a bias. A reality proven repeatedly in history.

tw, an arm is not free money. Australia has been going through the exact same financial cycles as the rest of the world, even though historically, more Australians have always chosen variable rate mortgages.

You're trying to blame a crisis on a particular facet of the mortgage market, and that's just not the answer. Maybe it's part of it, but it's not the root cause.