It is a interesting article from Michael Pascoe in the Age, Scary headline syndrome: bark worse than its bite. I like his articles very much since he always gives his independent view with rational and logic reasoning. SCARY headlines get attention That's why we write them. You attract more readers by shouting "YOU'RE ABOUT TO LOSE EVERYTHING" than with a headline that quietly suggests "IT'S A NICE DAY". Some loony American predicted the world was going to end on May 21 and it received massive international coverage. *** Unemployment: 20% and House price Plunged 40% During the worst of the global financial crisis, the most famous economist in Australia was Steve Keen, the bloke who predicted our unemployment rate was about to rocket to 20 per cent while Australian housing prices plunged 40 per cent. The media happily gave Keen's views totally disproportionate coverage. It didn't matter that Keen's was a distinctly minority opinion, that the vast majority of economists thought it was not true, that all the cognitive powers of the Reserve Bank and the Australian Prudential Regulation Authority had been focused on analysing such a possibility and had convincingly, easily and overwhelmingly decided the answer was: "nah". It is easy to be famous to exploit the scary headline syndrome than to make profit in the market Last year when ratings agency Fitch announced it was going to "stress test" Australian banks because of our housing prices. Sounds a bit scary, doesn't it? Sounds like there might be something wrong. The way the test was announced looked to me like a publicity stunt. Our banks' housing exposure had already been well and truly stress-tested by considerably more competent authorities. Given the role of Fitch and the other ratings agencies in helping create the US sub-prime crisis, this struck me as a bit of a joke. And of course the alleged stress test found nothing new. *** Last week when Fitch was again grabbing scary headlines with a report about a particular group of home mortgages recording a rise in borrowers falling behind in payments. One more factor is a week of dubious excuses for lower bank share prices. The prize for beating up the Fitch story the most went to the Herald Sun, which proclaimed: "Home loan defaults continue to soar as more households crumble under financial stress and fail to make mortgage repayments". *** Fitch dealt with only one part of the housing market, residential mortgage-backed securities - mortgages that had been packaged up and sold off by the loan originators - and especially the "low-doc" variety, the closest we come to sub-prime. And Fitch wasn't talking about defaults, but being 30 days late on making repayments - there's a difference. Within those limits, yes, there had been an increase in non-performing loans from 1.37 per cent to 1.79 per cent and the low-doc figure certainly jumped from 5.7 per cent to 6.7 per cent - but the overall proportion of non-performing Australian mortgages is just 0.7 per cent. That has ticked up a little from an even lower base, but in the general scheme of things it remains a low rate of non-performance. *** But "HOME LOAN DEFAULTS NOT SOARING" doesn't make much of a headline. And we have one of the highest interest rate around the world now, which is the acid test! Do you know 6% were the triggering interest rate for the US house crisis?