For those who deny Australia has a credit-fuelled housing bubble by pointing to the fact that people have been warning of a crash for years and it hasn’t come, the lesson of US fraudster Bernie Madoff is illustrative.
Mr Madoff admitted to running his investment firm as a Ponzi from 1991, and authorities suspect it may have been much longer. He wasn’t found out by US authorities until December 2008.
That’s not because there were no tip offs – financial analyst Harry Markopolos told the Securities and Exchange Commission repeatedly for almost a decade that Madoff was running a fraud.
But it took the aftermath of the global financial crisis to finally bring Madoff’s Ponzi down.
The next international financial crisis risks doing the same to Australia’s housing market, whether negative gearing stays or not.
If a government curtails negative gearing and capital gains tax discounts and deflates the Australian housing bubble before this happens, we could end up with the recession we had to have instead of the depression we could have avoided.