A lot of mom and pop investors made incredibly poor decisions in Australia's mining boom, buying up properties in mining towns to rent for $800k+ and after the bottom fell out of the market only being able to sell at sub $200k. Often using equity in existing loans after appreciation to pick up three, four properties.

It seems insane to me to buy even one property in a mining town, let alone multiple.

That is capitalism doing its optimization work. It will punish the people that give credit in these risky cases and the people that make risky decisions like these because of greed.

If you buy property in more diversified regions you won't make as much money, but you have less risk and short term crises will usually pan out.

The people that gave credit in these risky situations are making record profits and their dubious banking practices have made them the subject of a royal commission.

Sure they’ve been theoretically ‘punished’ for lending too much by making a little bit less profit but it sure doesn’t seem like much of a corrective action to me.

That's because the government is corrupt. If the government actually let the banks fail and bailed out the citizens instead the bad banks would be gone, the citizens would have put the money into the economy again, and you'd have an economic miracle happening quickly, as it is common after such resets.

Government subsidized failure is one of the main reasons why communism never worked out. Bad companies need to fail and make way for more efficient or less stupid companies. Otherwise you end up with all your companies operating at roughly the same efficiency as the government (close to 0), because there's no incentive for them to avoid risk. They're rewarded either way.