Debunking bubble economies - Australia pt7

Another amazing report that shows how much Australians are in denial about the bubble and just tends to confirm to me that we're peaking. It's also a proof of how amazingly incompetent and blind Fitch is:
Oct. 13 (Bloomberg) -- A 40 percent tumble in Australian house prices and a home loan default rate of 8 percent would be “manageable” for the nation’s banks and mortgage insurers, Fitch Ratings said.

Banks would see a maximum A$10 billion ($9.9 billion) of losses in the third year of a severe mortgage stress scenario and mortgage insurers would lose a little more than A$7 billion, John Miles and John Birch, directors for financial institutions at Fitch, said at a briefing in Sydney today. The findings are the preliminary results of a stress test announced last month.
How realistic are these numbers?
Very simple to assess.

According to Google's Public Data figures, Australia's GDP is about $USD1 trillion, which given the approximate parity of the USD and the AUD, gives us a A$ 1 trillion for the GBP.

According to this Steve Keen blog post, the mortgage debt in Australia represents more than 90% of GDP.

It means that the total outstanding mortgage debt in Australia is about A$900 billion.

Simple question: do you think that banks would see a maximum total losses of A$10 billion in case of a 40% price tumble in houses? That is a mere 11% losses on all the debt.
[...] Fitch’s analysis suggests “losses, even in the most severe scenario, are manageable,” Miles said. The three scenarios Fitch tested are mild stress, with mortgage defaults of 2.5 percent and a 20 percent drop in home prices; medium stress with 6 percent mortgage defaults and 30 percent decline in prices; and severe stress with 8 percent defaults and a 40 percent price slump.

Australian banks’ stringent lending standards compared with overseas counterparts, and improving loss ratios for insurers after premium increases, are among factors that would allow them to handle losses in the severe scenario, Miles and Birch said.
If the lending standards were stringent, the credit bubble wouldn't exist.
[...] A downturn in Australian home prices over the short-to- medium term isn’t Fitch’s central expectation, the ratings company said Sept. 29 when it announced the stress tests.
They are not even able to see of the biggest bubbles in history just before their eyes. That could explain why they can't imagine the impact that such a bubble might have when popping?

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