Downturn in Australian Prices an "Increasingly Menacing Risk"

Moody's may be trying to make up for acting as enabler to that little spate of massive scale U.S. mortgage securities fraud.

Australia in blast zone of Europe implosion

It says a downturn in the Australian property market is one of five "increasingly menacing" risks that need to be closely watched in the coming year. The report says mortgage insurance and low loan-to-value ratios provide Australian banks with some protection against falling house prices.

But, if the property market does tumble, the resulting fall in foreign investor confidence would hit the banks' heavy reliance on offshore funding, it says.

When money starts exiting it is really all over. At least Australia can make those foreign bondholders take a haircut the old fashioned way, by devaluing the currency. Pity Ireland and Spain, they can't.

And in case you didn't see it, this is a great chart from the RP Data Blog that really illustrates the psychology of the cycle. Sitting where Australia is right now, the mentality is "it's a little adjustment" sitting at month 36 for the U.S. and "it's a crash! run for your lives!" But you'll notice, it's the same line on the chart.