The AFR does its best this morning to link the US subprime mortgage mess and the Australian experience by turning some mild precautionary finger-waving by Australian Prudential Regulation Authority chairman John Laker into its front page lead: Bank regulator warns on bad loans, APRA fears defaults blowout, Lending policies scrutinised, Rate rises hurt borrowers.

Yes, they really did run all those headlines, with the latter three strappers deserving some sort of prize for stating the constant and obvious. APRA always fears defaults blowing out; it exists to scrutinise lending policies and I somehow doubt that the fact rate rises hurt borrowers is news. Rate rises are meant to hurt borrowers and thereby discourage them from borrowing. Duh.

The story all came down to two paragraphs from Laker:

We have got a very strong financial system. We’ve got a robust regulatory framework. But we had warned in our annual report that the credit cycle was showing signs of turning. We were seeing the beginnings of a pickup in impaired assets, particularly in the mortgage sector.

So our antennae are twitching a little bit more sharply and we are working more closely with our regulated institutions to make sure they are on top of these emerging signs.

Which means to me that everything here is pretty good with nothing like the US problem to hand or even in prospect and APRA is nudging the banks to keep it that way. But that reading doesn’t make catchy headlines.

What’s missing is any analysis of where the growth in impaired assets is coming from. Part of that story can be gleaned from a conversation I had with a securities analyst who had a friend, or perhaps former friend, in the “financial advisor” racket who boasted about the money made by the vertical integration of mortgage broking, real estate investment advice, real estate sales and select real estate developers.

The mug punters are given “financial advice” to snap up “affordable” investment properties in some of the less salubrious parts of south-east Queensland and Sydney’s outskirts.

The mugs are fitted out with a loan from the related mortgage broker, sold a property by a related real estate agent and the property might well have been something knocked up by a related developer.

Of course, there are fees and commissions all along the way, including nice trailing commissions for the mortgage. Some involved in this game might also say all the relationships in the chain are at “arm’s length”.

Maybe. The end result very often turns out to be that the victims are saddled with loans they can’t afford for housing they paid too much for that is the first to see its value crash in the present market.

Enter the mortgagee salesmen – opportunities for more residential real estate investment spruikers.

The financial institutions that provide the money for these rackets tend not to be the first tier of Australian banking, but the big four still get caught up in from time to time.

Instead of beating up APRA’s gentle warning at the top, the real mileage would be goading the ACCC and ASIC to go feral with the scumbags ripping people off at the bottom.