*You can skip the first three paragraphs to get to my main point...
Nearly everyone seeks wealth. Nothing wrong with this, but it does depend on the system provided to support and sponsor this goal. It once made a lot of sense for banks to provide a certain amount of liquidity to finance different types of investment goals (property, stocks etc). The gold standard, that allowed a certain amount of money to be printed (maybe squaring a certain value of gold - $100 of gold might provide $10,000 of printed money for lending). This placed a lot of restrictions on investments, and most people don't want to go back to a gold standard.
But the norm today and the future tends to be central banks printing a non fixed amount of money for banks/markets, and lending criteria over the years (and not necessarily the last few) is incredibly lax. One of the principles behind investing in previous decades, and even centuries, was that you would, in principle and practice, be able to pay-off the net amount of the loan + interest etc in a fixed amount of time. Lifestyle, family etc expenses and other financial commitments would also be factored in. If you couldn't 'show' that you can pay off the loan then you probably wouldn't qualify for it or that amount. There are exceptions, but this would have been the general rule.
Following a traditional and conservative investment model like this basically 'sucks' if you want to make some relatively quick money (through eg. capital gains), especially if the opportunity was there. And it often is.
Along came leveraging for the masses, and not just small to big business. But this is where many have gotten themselves in all kinds of trouble. This is where we've crossed the line from relatively 'safe' borrowing/investing to the destruction of the capitalist model. And it is occurring here in Australia just like it destroyed markets overseas.
You have to ask yourself why our lending and investment practices are 'better' than what they were doing overseas. The main difference here is our banks have not pulled rank or cut supply on big mining investments and thus have yet to pull rank on us. They haven't cut supply on the Australian consumer, overall, but this may occur in the future as the potential economic problems here might end up being worse than the US example with subprime, on a per capita basis. I'm not saying we have a sub prime issue here. It's a different dynamic, but one riddled with uncontrollable and hidden debt reinforced by continuous and largely non challenged speculative behaviour over the last decade.
HERE IS WHERE THE CAPITALIST SYSTEM HAS BROKEN DOWN IN AUSTRALIA. Refinancing is a real problem in Australia. There are several individuals and companies (small and large) that have resorted to loans to pay-off loans. So the fundamental practice of repaying a loan with generated revenue or cash is no longer in use for many individuals and businesses. Remember, this was a contributing factor the US subprime crisis; investors couldn't repay loans. We're repaying loans now with other loans (and more than one). This practice has largely gone unnoticed by our regulators and the banks don't seem to care. This is a far greater problem than in the US, per capita, as our loans and debts far exceed those in the US. Remember, many of the loans in the US were $200,000. Compare this to the debts here, per person. They wouldn't have refinanced these loans with layers of loans like we have.
Most in Australia are far ahead in their gains and repayments and any downturn would not really affect their net wealth to a large and painful extent. But the same goes for those in the United States or Europe. The problem came as a result of what the crisis did to a margin of investors not most. The same potential problem will eventually effect a margin of investors here in Australia. It has already begun in many cities throughout Australia.
One of the key differences here compared to the US or Europe, is our bigger banks (mainly the top four; although ones like Westpac might feel the pinch a little more having acquired some potentially risky assets/banks) will not suffer or need a bail out. Three main reasons for this is: 1. they are generating a lot of their revenue from long-term and safer investments (residential etc) 2. business with large and successful mining companies couldn't be better! and 3. the set-up of complex loans will favour the banks as they will collect on collateral etc when bad investments go under. So the bank's bottom line will still look good as they will cash-in the security placed on these poor investments. We just don't hand over the keys when we can no longer repay the loan.
But this is enough to cause a serious problem in Australia as a large proportion of consumers will be priced-out. They will no longer be able to invest in the broken-down model of heavy leverage or even in the traditional or sound model of paying off an investment in a set amount of time with revenue or cash, and not borrowed money to pay-off borrowed money.