Could Australia’s long housing bubble burst?

That’s not likely.  Especially as the nation’s population is still rising faster than new homes are being built.

Yet very few people, in this country, are giving that risk the slightest thought.  Even though the recent collapse of the US housing bubble, produced disastrous consequences.

It played a significant role in the stock market crash of September 1998.

That – combined with unrealistic expectations – at the highest level – in US banking and financial  circles – led directly to a stock market collapse and a global financial crisis.

All of this suggests that the Federal government should proceed very cautiously with new recommendations that are now before it.

These include simplifying Australia’s tax system for foreign investors.

This recommendation – and many others – are contained in a report that the Federal government ordered, as part of its plan to make Australia a powerful hub, in world finance.

The Australian Financial System Forum, which prepared the 166 page  report, specifically rejected the idea of offering broad tax cuts, to attract foreign investment.

But it said tax measures, which affect expenses on funds borrowed from parent banks abroad should be reviewed.

The government welcomed the report, promising that it would be considered, along with a broader  tax review, conducted by  the Treasury Secretary, Ken Henry.

The Liberal Party has supported moves to make Australia an international financial hub for years.

Australia’s financiers, based largely in Sydney, now manage one of the world’s biggest pool of funds.

That is the $1.2 trillion, built up over recent years, in the nation’s compulsory superannuation system, that Paul Keating launched.

However  Australia’s finance industry is still relatively isolated from those of other world financial hubs, like New York, London and Hong Kong.

As the Forum’s report notes, there are clear advantages for a country like Australia, which still relies heavily on the primary production, of its mines and farms, in acquiring access to a bigger, more broadly based, pool of savings.

But as the global financial crisis, itself, also shows, there are risks, too.  The most obvious is exposure to  reckless speculation.

And recent evidence, given by men regarded as the brightest of the world’s financiers,  to the US Financial Inquiry Commission, shows  all too clearly, just how stark this risk is.

Jamie Dimon of JP Morgan Chase, for example, was asked at that Commission, what he thought had caused the meltdown that led to the global financial crisis.

He replied, simply, that a  financial crisis “happens every five to seven years.

“We shouldn’t be too surprised,” he added.

No great illumination there.

Then there was Lloyd Blankfein, of Goldman Sachs, who compared the latest crisis to a hurricane, that nobody could have predicted.

Blankfein also warned that the US Congress should not press too hard for reform.

“We should resist a response…that is solely designed around protecting ourselves from the 100 year storm,” he said.

Does this kind of weak analysis, from such men, justify the huge salaries and bonuses that both  are still being paid, so soon after their reckless behaviour – and that of others like them – led the world’s financial system to the brink of collapse?

Clearly,  even the global financial crisis, which has produced much misery and despair, has not yet been able to temper the idea that greed is good, in the minds of these masters of the universe.

Australia’s relative isolation from the worst of the greed that produced the collapse has, undoubtedly, played a part in protecting this country  from the worst effects of the global crisis.

We should, certainly, pursue whatever benefits that a bigger role in world financial affairs might offer this country.

But recent events show, beyond any shadow of doubt, that this must be done carefully and judiciously.

The risks, too, remain stark.