2008 Interventions

Great article Murray.

Other under the radar actions taken by the federal government in support of the banks and the bubble is the $50 billion mortgage purchase financed by the taxpayers, through CMHC, last fall.

http://www.fin.gc.ca/n08/08-090-eng.asp

With a little help from his friends

You can thank Leonard Asper and his Canwest spin machine for helping promote the economy and housing,especially in BC.

Every other day the Vancouver Sun and Global news is pimping the real estate market,multiple offers,record prices.....Yet if you look inside the numbers....Yikes.

And the crash will be biggest here in BC, I say by june 2010 the big slide will start.

Cheers

So much for faith-based economics

Well, I was aware of the 50 Billion, but who would have guessed that Harper would have already guaranteed 3X that much and is prepared to kite it up to 10X that much.

Proof enough eh, that ideologists can never admit being wrong?

And Gordo hasn't caught on yet, either.

How sad that these guys can BS themselves into power.

Great article and it's about time

The only place I heard anything coming close to this was an article published last January titled: Canada's 75 Billion Dollar Bank Bailout: http://www.globalresearch.ca/index.php?context=va&aid=12007

And what a sweet deal for Canadian banks and realtors: They can pump out as many subprime mortgages as they like and it's all backed up by the Canadian tax payer.

The article in the link I posted points out that during October and November of 2008, the Government of Canada announced what amounted to a 75 billion dollar bank bailout program for Canada's chartered banks (equivalent to the US bank bailout per capita). The funds were transferred to CMHC. CMHC then used the funds to purchase sub prime mortgages from the chartered banks where the funds end up in the accounts of the chartered banks.

To obtain this money the government had to increase the public debt by borrowing it from the Chartered banks who are the creditors of the federal government. The government borrows money from the chartered banks by selling them bonds and T-Bills. The government then takes that money and transfers it to CMHC. Then CMNC uses that money to purchase the mortgages from the chartered banks where the funds end up in their accounts as new cash

The net result of this transaction is the chartered banks now have $75 billion in government bonds on their books (an interest bearing asset in the form of national debt secured by the taxpayers) and $75 billion in new cash reserves (a liquid asset) in exchange for taxpayer backed subprime mortgages assets they previously had on their books.

The chartered banks just increased their assets by $150 Billion ($75 billion in interest bearing government bonds + $75 billion in new cash reserves). The taxpayer has an increased debt on the books of another $75 billion through the sale of government bonds plus they now hold as assets $75 billion in subprime mortgages that the taxpayer will have to pay when a proportion of them default.

This is a great deal for the banks and a lousy deal for the taxpayer which amounts to nothing less than a bank bailout.

In short, the government borrows money from the private chartered banks at interest then uses that money to buy the mortgage debt from the very same private chartered banks that it borrowed the money from.

Harper-nomics 101 [revised]

http://tinyurl.com/HarpersHands

"We will not be running a deficit. We will keep our spending within our means. It is that simple. The alternative is not a plan. It is just the consequence of complete panic, and this government will not panic at a time of uncertainty."
Harper/Toronto / 7 Oct 2008.

"I actually do think we are in a rare period ... where deficits are not only necessary but actually advisable," said Harper.
"It actually makes sense for the government to come in to the market place, to borrow funds, and ... put those funds to productive work."
Cdn Ch Commerce/Toronto/ 21 Oct 09

The winds of recovery ? Or just bubbles ?
http://www.youtube.com/watch?v=OQufxG1GcAk

But not to worry, it could be worse :
http://www.greaterfool.ca/2009/10/21/hos-of-recovery/

If you want to keep your head above water in this Depression

Listen to the Michael Campbell show on Saturday mornings on CKNW. And do the exact opposite of what he says.

Honestly, between CanWest and Corus, the cheerleaders have become quite pathetic and yet, they are so full of themselves, they don't even realize it.

the Cheerleaders should be embarrassed

CTV's Lloyd Robertson is one of the worst cheerleaders for the "Recession is Over" camp.

Robertson must really want to retire and he's depending upon a recovery to ensure a riches can support him in the manner to which he has become accustomed.

Canada's status as the largest sub-prime lender, and Primesident Stephen Harper's lust for a majority are gonna hurt Canada in the end, butt nothing will make Stephen a good leader. Next election, let's convince Harper that it's a photo shoot with world leaders, and he'll show up late.

A misleading article.

The CMHC is not issuing Sub-prime mortgages, period. Without question the mortgages being written are above the banks prime interest rate. They are also NOT the Adjustable Rate Mortgages (ARM) that had sustantial rate increases that caught borrowers off-guard.

No mention is made of what percentage of these mortgages are variable rate, and could therefore be subject to change with any given BoC rate change.

In fact, at current ultra-low rates, the wisest borrowing strategy would be a fixed-rate mortgage with payments fixed for as long as possible - 3 years or longer if available. And I would say that's what most Canadians opt for.

Maybe there is a housing bubble that will burst, but this article doesn't accurately identify one, or an extreme sensitivity to interest rates that would trigger one.

Isn't that one of the major

Isn't that one of the major rules in Economics 101? All bubbles will burst?

thats really rich

so if price go south the canadian government will have to bail out all the mortgages and possible need to create some kind of socialize mortgage corporation so they can guarantee all those mortgages something like ... let me Guess.... "the Canadian Mortgage and Housing corporation" Hello!!! the CMHC is not a predatory Lender!!!
CMHC loans have a fixed rate not a variable rate. the government of Canada isn't going to foreclose on loans also guarantees

Zero-down mortgages

Back when the zero-down mortgages were introduced, Kevin Potvin of The Republic (of Vancouver) wrote a brilliant piece on the role of CMHC. Potvin noted, that since the end of WWII, home ownership was a key driver of the economy. The one way the Feds could influence that was through the Canada Mortgage and Housing Corporation. He asked, what policy levers are left when NO down payment is required? None.

It turns out that Harper & Co. allowed several US mortgage insurers (including AIG) operate in Canada and CMHC had to match their offerings to compete. Recall that AIG is now owned by the US Federal Government. So much for that business model!

Thanks to Murray Dobbin for making clear that the 'revised' program at CMHC is still running flat out and accumulating potentially bad debts that put our Federal government, and us as taxpayers, on the hook.

Article Right On - Not Misleading

A very well researched analysis of what is happening with CMHC and Canada's lending practices. We NEVER see overall discussion of what is going on in the banking sector.

Why is this a subprime fiasco waiting to happen? Because as Mr. Dobbin points out, Canada's Bank of Canada and CMHC policy is a singular driver of lending activity. Unlike the US, where it was driven by a conglomerate of private banks. But the result can be the same, and right now, we are mimicking the US strategy. There is no question the policy is this: keep rates very low; permit CMHC to encourage lending (0% down, 40 year mortage, now 5% down and 35 year mortgages), and most importantly, REMOVE ALL RISK from the lender. Which is the real issue that created the subprime meltdown.

Lenders have no risk, so they lend merrily away. This is where the lack of oversight results in trends that can rapidly go sideways. On top of this, homeowners have to pay $5,000 to $10,000 in CMHC fees for the privilege of getting a mortgage. This is added to the mortgage and often approaches 5% of the purchase price, meaning the house has NO equity.

When Canada's housing prices fall, which they are certain to do, who will be left paying the bill. Homeowners will be under water in a heart beat. Which will be the subprime fiasco all over again, but this time, Made in Canada. Is this what we want?

jwstewart makes some good points.

I'd like to add two more:

First, the approval rate of 42% may sound high, but it also indicates that 58% are still NOT being approved, reflecting a conservatism (or pragmatism) that seems to have been missing from much south of the border lending.

Second, something that is not mentioned about the 40 year amortizations/0% down mortgages is that, unlike in the U.S., they are only available to those with a provably high income, and near perfect credit rating. In other words, the least risky buyers.

"The CMHC is not issuing Sub-prime mortgages, period."

jwstewart wrote: "The CMHC is not issuing Sub-prime mortgages, period. Without question the mortgages being written are above the banks prime interest rate."

Any loan that is secured by the state and not the credit worthiness of the borrower is a sub-prime loan regardless of the interest rate.

It's also important to

It's also important to understand that banks do not lend deposits, as goes the popular misconception, and it's impossible to prove that they do. The chartered banks produce new money for every loan they make by merely making a bookkeeping entry.

So how ludicrous is it that the federal government issues a bond to get new money from a private entity that produces that money by tapping a keyboard? And the federal government puts us all into debt by doing this, and then uses this debt obligation to deny us the programs and services we want? And we even have our own bank, the Bank of Canada, that could pick up these bonds. Now that would be democracy.

This is the banking scam that must be overcome with proper scrutiny and exposure. Here is an excellent attempt:
http://www.ohcanadamovie.com/

jwstewart

I'm 'pleased' that you're still sanguine about the situation.

However, you might care to take a moment and read Boyd Erman's & Tara Perkins' article in last Saturday's Business section of the Globe and Mail...I'll just quote a few lines for you:

That trend, combined with a ramped-up program of buying mortgages from banks as part of the government's strategy to spur the home-loan market, has turned the Crown corporation into one of the country's largest financial institutions. With $203.5-billion in assets last year, CMHC dwarfs the country's sixth-largest bank, National Bank of Canada, and its growth is blistering.

CMHC projects that its assets will hit $345.3-billion in 2009. Bank of Montreal had $415-billion in assets as of July 31.

Critics charge that such growth demands more oversight, pointing to the fact that even though CMHC is now central to the financial system, it is not regulated by the financial industry's main watchdog, the Office of the Superintendent of Financial Institutions. It's also a risk for taxpayers, because while CMHC sets aside billions as a cushion against losses, and is very well capitalized, Canadian citizens are ultimately on the hook for losses on its insurance should the housing market falter and those reserves prove too small.

I'd suggest the parallels between the unregulated derivatives market and the securitization of mortgages in the United States are pretty clear....

You might also care to do a little more research into the unheeded warnings of a certain US public official a lot of people have never heard of - Brooksley Born...

You might care to have a little read:

http://www.cjr.org/the_audit/brooksley_born_finally_on_the.php

We still have, in Pee Wee and the poison dwarf Flaherty, a pair of neo conservative true believers to rival Allan Greenspan....and that's going to be a BIG PROBLEM, if not sooner - then certainly later.

at last someone dares to tell it...

Anything that does not allow prices to fall to levels of real affordability is supporting the bubble. Without CMHC as the mother of all bailout schemes prices would never have become so high and stayed there so long.

On CKNW ....minutes ago

This story was mentioned by Bill Good and...His guest Michael Levy said And I quote...

"Dobbin use old numbers".. "Dobbin states there is a 40 year mortgage with nothing down,it`s false" ....."The lenders don`t do that"....

So there you have it, Dobbin does NOT STATE that there is Still a 40 year 0% down mortgage...Dobbin does state there is a 35 year 5% down mortgage....

Congratulations Mr.Dobbin...You rattled the cage,now comes the Levy/Rennie spin machine to dis-credit you!

I emailed Bill Good the facts and asked for a retraction from Levy...I won`t hold my breath!

Cheers-Ears Wide Open

Money?

They asked Paul Martin what money is and he couldn't answer the question! It should be money is a marker for work done, (labour), but the real fact is money is all make believe. The interest rate I collect on my Credit Union saving acct is 0.010% but credit cards charge a rate of 28% which is 2,800 times what they lend my money out for. Why, because the federal prime rate is make believe. If the USA put their prime rate from .25% to about 6% on a $17 trillion debt load, the world economy would collapse overnight. Why, because the USA would be bankrupt just servicing their debt load!
My home is mortgage free, what I did was buy a house/s change the price tag/s, and with little to no work done by me, I made money. “Money for nothing”, as that song goes.
I really believe that Harper and other Christian’s like George Bush are looking forward to the end of the world within the next 100 years. This puts us all in danger because taxes must be collected to run a country and conservatives want to never pay taxes and just borrow as much cash as they want, knowing its no big deal because Jesus is on his way and he’ll kick out the money lenders and cancel all debt.
With 64% of us not voting for Harper, why is he our leader? (not my leader)!
Its coffee time, so the hell with it

Economic short-termism

Western politicians are afraid to take the medicine. They are afraid to do the right thing because it may involve a loss of popularity. Back in the 1970's Jimmy Carter put Paul Volker in charge of the Federal Reserve and Mr.Volker crushed the inflationary environment of the 1970s and set up the US for a period of stable consistent above trend growth. Right now the current administration is talking tough about financial market reform but so far has done little to ameliorate the problem. This theme along with the need to break up the US money centre banks is discussed in some detail by David Einhorn of Greenlight Capital in the link below:

http://blogs.reuters.com/rolfe-winkler/files/2009/10/einhorn-vic-2009-speech.pdf

Might be an interesting article

if it didn't insist on comparing oranges to bad apples. Sure the oranges can go bad too but will they? Right now that's anybody's guess.

really?

...a bit more from the business page of the G&M:

...the institution's stunning growth deserves new scrutiny. Yet, because CMHC enables more people to buy homes, it's unpalatable for politicians to criticize it, Mr. Lee said.

“That value is embedded in the Canadian consciousness,” he said. “It's not as sacred a cow as health care, but it's right up there.”

Ottawa created CMHC in 1946 to house returning war veterans. Its main objective is now to facilitate access to more affordable and better quality housing for Canadians.

The two main programs it uses to achieve that goal – insurance and securitization – have ballooned in the past year. CMHC planned to insure 578,539 housing units last year for $86-billion in 2008. Instead it insured 919,790 units for $148-billion.

It guaranteed 2.5 times more mortgage securities than planned, an extra $64-billion, which is nearly double the 2007 level. Part of the reason for that is the emergency mortgage purchase program that Mr. Flaherty unveiled at the height of the credit crisis in October, 2008, to help ease the banks' funding costs. But even prior to that program's launch, CMHC's securitization activities were on a steep upward trajectory.

Canada Housing Trust, which carries out CMHC's securitization activities, has seen its assets grow by more than 20 times since it was established in 2001, according to Moody's Investors Service.

For those that missed it..."THE WARNING"

You can watch it online at PBS

THE WARNING

http://www.pbs.org/wgbh/pages/frontline

If the story had no merit,Mr Dobbin`s story...

Michael Levy would not have distorted the story on air,blatantly distorted the story, the RBC mortgage division wouldn`t have distorted and fibbed about what Dobbin wrote on CKNW.

Dobbin was flogged on the air today, Bob Rennie`s name was used as god-like by Levy to rebuke Dobbin.

"There is none so blind as those who refuse to see"

Cheers-Ears Wide Open

Not neccessary wrong, but still misleading.

"Any loan that is secured by the state and not the credit worthiness of the borrower is a sub-prime loan regardless of the interest rate."

Sorry, I don't agree with this definition. Call me simplistic, but to me sub-prime means below the prime interest rate. , hinting at ARMs.

As for the level of risk, certainly there is more risk with longer periods and lower down payment requirements. Maybe enough risk to place loans in jeopardy to home price drops. But that is an issue of insuffucient collateral.

Sure, lending practices have loosened, interest rates are lower than snake spit, and the govt wants consumer spending in the form of home ownership to buoy the economy. It could backfire.

But it won't be because of mortgages lower than prime. It would be insufficient collateralization.

As for the Govt and CHMC actually underwriting or securitizing mortgages, supposedly our banks are the most sound in the world and that's just another pork barrelling corporate welfare scheme.

jw if the banks are so secure

It's the securitizing of debt and the unregulated nature of the 'insurance' vehicles which are a big part of the problem...if the banks hadn't wanted to unload tens of billions of dollars of mortgages on the government why did they do it?

Flaherty and Harper are the same people who said there would be NO FEDERAL DEFICIT during the election campaign one year ago. These guys are cowboy capitalists who have not a single clue what they're up to.

I'm surprised you, or anyone, would believe a single thing either of them says.

I'd suggest that if you knew anyone who is familiar with what happened to the Ontario economy during the Harris years that you ought to speak to them.

BTW, I'm pretty familiar with what went on in the commercial real estate division of one of the Canadian big five banks over the last 14 - 16 months...and it WAS not pretty. In fact, the commercial credit department (Western Canada branch) of the bank I'm most familiar with was being run by a bunch of green cowboys...not a single one of the decision makers in place had more than a year's experience at their level of management...

Trust me, things are not as they seem....

"our banks are the most sound in the world"

"... supposedly our banks are the most sound in the world...."

Maybe that has to do with the fact that the Canadian government greatly reduces their exposure to risk due to the securitization of the largest segment of their consumer lending portfolios: mortgages..

One prick and its all over!

The Bubble that is!

I can only hope the bubble bursts!

I do not want to buy a home whose price is over inflated; especially when my income remains stagnant.

Perharps Harper is the needed prick; maybe we should give him a majority so he can move up the timeline of the bubble bursting!

The sooner the better!

Funny, so few disagreeing postings on this one!

@ salty dog

If I recall correctly Mr Greenspan was dealing with apples was he not?

Right now, in this thread, there is a bunch of scare scaremongering going on that rivals that for climate change.

Certainly there could be a problem but why not come up with suggestions to mitigate any bursting bubble rather than run around like Henny Pennys with their heads cut off yelling, the 'bubble's gonna burst', 'the bubble's gonna burst'.

original research done by a blogger

I first read about this in July on another blog:

http://americacanada.blogspot.com/2009/07/cmhc-and-our-government.html

I wonder if the investment advisor and the author of this article bothered to double-check the facts presented in the blog post. I'm not suggesting this isn't true, but myself I never bothered to double-check it, so I hope somebody did.

What is the alternative?

Agreed that Harper is trying to keep the economy pumped up in order to win a majority. He is our own Canadian balloon boy. He's also just trying to keep us from falling into the abyss. If you care about the welfare of the average Canadian and our poor people, you'd do the same.

The real estate market is a key driver of public confidence and the economy. Demand in the economy for all goods has completely fallen off the table. "Retire your ride" is just pulling sales from the future. This is panic mode. And rightly so.

In order to keep the balloon pumping up, government must spend money in order to keep demand up. And keep public confidence up or at least not down. Balloon boy sees real estate as one way to do that. Keep the money in Canada, at least in our banks, while you're doing it. And hope our real estate market doesn't crash to make all those CMHC mortgages bust.

Some of you cry capitalist conspiracy, bailout for buddies, etc. The truth is capitalism is inherently unstable and prone to collapse. Government must step in. We've avoided the moment of truth for so long since the Great Depression scarred policymakers for generations, we must keep pumping it up. There is no alternative.

BS, you say, let the system fail. Friends, you don't want that to happen. If it does, you'll look back on what we have today with very fond memories because there will be no parties or balloons in that future.

Nope - not at all

If you want to see what'll happen to this country if the insanity doesn't end in a sensible way then have a look at Iceland...that's where we're headed and that's where Harper is taking us and where Harris and Flaherty took Ontario.....

Only a very small percentage of the people have balloons and parties now - breaking theirs won't bother me much.

There are plenty of alternatives that won't give all the gains to the same 5% of the population....it’s just another aspect of the ‘trickle-down’ fairy tale my friends!

Perspective needed

I agree that there is cause for concern but I also agree with jwstewart that this article is very misleading. Here's a link to the letter written by David LePoidevin. http://www.nbfinancial.com/web/davidlepoidevin_2009-09.pdf It's essentially an advertisement advising investors to move their money out of Canada - through him, of course! Dobbin should be more picky about his sources.

WRT CMHC, AFAIK, it doesn't issue mortgages, it only insures them. Anyone who can't come up with a 25% down payment (which is most first-time buyers), is insured by CMHC. Defining all CMHC loans as subprime is ridiculous. When I bought my condo, it was a CMHC loan and I don't consider myself a bad credit risk.

Debt securitization is not new. It's the quality of the debt that counts, not the securitization. CMHC has rules about what loans it will insure. http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_004.cfm

Dobbin needs to do his homework before he starts the panic.

Questions

Dobbin suggests that "this high-risk policy actually prevents the natural playing out of the recession...."

This is a dubious point, coming from Dobbin, who is not normally known for his support for the capitalist free market and Adam Smith's invisible hand. Or is it that such a command economic method has Dobbin all hot under the blue collar because it's a Harper policy? I'm just a bit suspicious of the partisan undertone to Dobbin's article.

Neither the federal NDP or Liberals seem to be wanting to touch this one at all - perhaps for good reason. Because they support this kind of classic Keynesian government intervention during recessionary times. Sure, this particular CMHC policy is a gamble, but so is the alternative; and that alternative (letting the recession naturally play out) looks a lot more risky on some levels.

One of the big risks of the Harper version of this policy is rising interest rates. Well, don't raise interest rates. The Bank of Canada does seem poised for interest rate stability over the next couple years, which could well see real estate flourish among first-time buyers. So, what's the problem here?

I just wonder why Dobbin seems so alone on this one, with little supporting parties or data on. I'd be very interested to read what other independent economists, including the CCPA's Seth Klein and CLC's Jim Stanford, have to say about this issue.

Is this a case of: we love command economics when our allies do, but hate it when our right-wing opponents do it?

@ReeferMadness, CMHC has

@ReeferMadness, CMHC has been buying mortgages it insures back from the banks, so while it doesn't issue mortgages, it now has significant mortgage debt on its books.

If CMHC didn't exist, banks wouldn't lend to anyone who didn't have a minimum 25% down. That's what Dobbin is stating here, so by that very definition, CMHC insured loans are sub-prime, regardless of the credit worthiness of the debtor.

The effect of insuring the banks against loan defaults by over leveraged home buyers with little to no equity on the market has been immense. I'd dare say it's almost immeasurable.

CMHC has $8 Billion in assets versus almost $800 Billion of potential liability. The organization is woefully underfunded should the market take a dive and default rates increase significantly.

All taxpayers should be concerned about this issue. Especially the ones who own homes and don't want to see their market values take a nosedive.

Isn't CMHC insuring the equity shortfall?

My understanding is that CMHC works as follows: in the event of a borrower default, the bank is required to pursue the borrower, up to and including initiating power of sale proceedings. The bank may then make a claim to CMHC for the equity shortfall (i.e. the amount of the outstanding loan, less the proceeds realized from the sale).

Everyone who provides this kind of commentary about CMHC seems to imply that the taxpayer is on the hook for the full amount of the insured loans that are currently outstanding. In turn, the claim that the banks have no risk seems ill-supported, since they are required to follow an expensive process in order to recover their losses.

Finally, CMHC DOES NOT issue mortgage? You can't, as this article claims, be declined by the bank then get a mortgage from CMHC. They insure loans, rather than provide them.

If someone has well-supported information to the contrary, please post it here.

It seems to me that the real reason the housing bubble will pop is much more simple: eventually affordability will decline as interest rates rise. If we see 5-year rates at 8%, people who are treading water with a 2.3% vrm will in many cases not be able to afford their monthly payments.

CMHC is aiding this bubble by insuring loans in which the borrower is putting 5% down and amortizing over 35 years, ensuring that virtually no principal is paid down in the first five years. This reckless strategy will lead to a lot of "buyers" with zero or negative equity and faced with rising monthly mortgage costs. But it's not necessary to tell it like it isn't in order to tell it like it is, if you see what I mean.

@ Wayfarer

And just what independent economists might you be refering to?
The ones that say the HST is the greatest thing since sliced bread?

The ones that love the carbon tax?

The ones that agree with never raising the minimum wage?

Lets be clear, check out real estate in Halifax,then go to Ontario.....

Then come to BC....1.2 million for a 300.000.00$ building.

independent economists, father,son and the holy ghost...You might want to see what`s driving the economy, baby boomer equity is the engine,the gas tanks says E.....

Don`t inhale too many fumes.

Cheers-Eyes Wide Open

Party Time

This article could have been written by hard-core let-the-market-decide believer.

Any truth in this story would be welcomed by socialists who have been clamoring for affordability in the market, which is exactly what absolute rock bottom mortgage rates have brought about. (It's not the price that's important, it's the monthly cost). A $500,000 home at 5% is cheaper per month than a $300,000 one at 12%, and one can get below 5% today and only a few years ago 12% was not a bad deal!

Another bonus for the socialist thinkers is that if the bubble does burst and owners have to walk away then the government is going to indirectly have lots of inventory on its hands. Essentially, the government, in conjunction with the financial institutions, own the properties.

A really big difference is that here in Canada the government will go after the defaulting borrower for the lost money. In the States people just walked away without any recourse.

Salty dog / bluelines

Salty Dog,

I did throw in the likes of Seth Klein and Jim Stanford as among the economists I'd like to hear from. I wouldn't mind hearing Helmut Patrick's opinion. I suppose 'independent' is poor diction. How about I say, I'd like to get some well-rounded economic opinion from experts other than Dobbin and the one economist he cites in the article.

I'm not sure Dobbin even has an economics background, does he?

bluelines,

I see your point, but what's the alternative to the CMHC system, short of shutting out most working/young people from the real estate market, none of whom I know to have 25% cash on hand for a down payment. Would removing CMHC and government involvement from the equation not also come with its own kind of crisis? The recklessness can work both ways.

I also wonder if Dobbin is playing upon the 'sub-prime' meme in order to stir up a bit of sensation to pad his thesis. Is the sub-prime collapse in the US really analogous to the way real estate and banking/CMHC rules operate in Canada?

At this point in the recession, what do we stand to gain by pulling the CMHC rug out from under potential first-time buyers. The benefits of stimulus seem to outweigh the possibility of a sudden spike in interest rates.

I ask all these questions as a layperson. I'm not an economist.

"...quality of the debt that counts, not the securitization"

ReeferMadness says, “It's the quality of the debt that counts, not the securitization. CMHC has rules about what loans it will insure.”

You are saying that the rules established by the CMHC are all that counts when determining the quality of a debt not Government securitization?

I wouldn’t want to put you in charge of lending my money, if I had any to lend. Government securitization is all that counts in the end.

What is a good “quality” debt? Well if I was a lender to me a good “quality” debt is a debt that is guaranteed to be paid in full which is exactly what government securitization does at the expense of the taxpayer of course. Government securitization is a guarantee that the taxpayer will pay the debt if the borrower defaults: there is no better guarantee than that.

The taxpayer also secures the federal debt to the private banks, over $500 billion and climbing with annual interest payments to the private banks at about $40 billion per year. Best business in town seems to be banking because they got us all by the shorthairs. That could stop immediately if our government obeyed the law and used the Bank of Canada but that's a different subject

The one rule established by the CMHC in that link you posted refers to:

“To qualify for CMHC insurance, the total should not exceed 32% of your gross monthly household income.”

This rule comes nowhere near guaranteeing that a mortgage will be paid in full, taxpayer backed mortgages do.

realisticman

You echo some of my reaction to this issue.

One way to look at it: low interest rates make ownership possible for working stiffs and even working poor, and in so doing, this undercuts the slumlord rental market. Why would I want to throw my hard earned cash down a rental rat-hole each month, lining some slum-lord's pockets, with zero chance of return, when I can get a mortgage which offers some prospect of long-term equity?

"...[banks] required to follow an expensive process"

“… the claim that the banks have no risk seems ill-supported, since they are required to follow an expensive process in order to recover their losses."

And what is this "expensive process" they are “required” to follow and who is in charge of overseeing the enforcement of that process?

Quality of Debt

soleprobe, quality debt is debt that is likely to be repaid. You can't guarantee any debt will be repaid (not even one held by the government) but there are likelihoods. I don't know the quality of this debt and apparently, Dobbin doesn't either. He's called any mortgage secured by CMHC subprime, obviously trading on the fear of the subprime mortgage mess in the US. That's just plain wrong. Most new buyers don't have a 25% down payment but that doesn't make them bad risks.

Dobbin has based his rant on a letter from an investment banker to prospective customers. IMV, the banker appears to be trading on investors fears as a way of attracting business. This is a very poor basis for Dobbin to form an opinion and even a poorer basis for this pointless discussion.

That Canada is on the hook for mortgages is neither here nor there. The question is whether CMHC has assessed the risks wisely and how likely it is to get the money back. And I've seen no information from Dobbin or his investment banker to make any assessment on that point. Which is why it would be nice if he would dig up some actual information before he started the fear-mongering.

One other point is that having CMHC in the market has insulated us from an artificial contraction of housing prices caused by banks calling loans and refusing to lend. And if CMHC suddenly did find itself a major landlord in Canada, I wouldn't consider that the worst thing in the world.

In my original post, I did say that I have concerns - that CMHC may have lowered the bar too much by offering no down payments. Even 5% is not a lot. But I have no information to determine whether my concerns are well founded.

Neither, apparently, does Dobbin.

In the States people just walked away without any recourse.

In the States people just walked away without any recourse.

And moved into their cars.
I'd say that's a recourse - perhaps you prefer getting blood from a stone.

One way or the other, this insanity will come to a bad end - either by an increase in the interest rate or an increase in the money supply.

And once again, as always, until there is some fundamental re-thinking of the insanity that owning a home is the only savings a working family has it will come to no good.

Homes are for living in - not for turning into profits....

Again, have a look at Iceland....

Fortune favours the unscrupulous.

The problem with your article is that Canada is a resource based economy and the demand for our resources is ever increasing. That doesn't apply to all of Canada, just huge swaths of BC, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, and many regions of the Maritimes. The only things which could drive prices down in those areas are new labour saving technologies or lack of demand. My guess is the former will come before the latter.
I'm not arguing that we (the people who live here) couln't have done enormously better with what we have; given a decent government which actually cared about us. (and anyone could go on here about what 'history' has offered us in the way of 'leaders') We could. We could have had real free medicare, free dental care, free higher education and money to put aside for the less 'advantaged' among us. But that's not human nature. Fortune favours the unscrupulous.
Nevertheless, with the advantages nature has given our country, it is very unlikely that the sky will fall tomorrow or any time soon. Maybe in fifty years...
If you were saying 'We can't change the tides of 'capitalism' and the misery it engenders, for want of free time and a realistic education.' Then I couldn't agree more. Thus it has ever been and probably will be until we fall off the existential cliff.
'Fifi! Where the devil did you put my tranquilizers?'

Perhaps recourse was the wrong word

Consequences, to the home owners is what I meant. The difference in Canada is that one cannot just walk away because you will be persued for the money owed. This therefore will be avoided as much as possible.

As the financial situation re-stabilizes then interest rates will gradually increase which will slow the market. Those that have been in their homes for a few years will have developed equity and will not want to loose that, as well as not wanting to damage their credit rating, even if values decline.

The Bank of Canada will have to monitor the money supply to keep things flowing and remove liquidity if deficits become to high and if inflation climbs to much; as well as react to the world situation.

So far it's working out very well. Prices have stabilized. Speculators are virtually out of the market. Unemployment is reasonable, compared. Affordability has returned with low rates.

The high dollar is good for corporate retooling and infrastructure expenditures and the prices of commodities are gradually increasing as the downturn eases. Exports of commodities should start to climb, which will bring in revenue and create an easing of the employment downturn.

We're not of the woods but neither is disaster around the corner.

realistically, walking away from the consequences ...

... of Bankers' ineptitude, can take a very long time :

http://search.japantimes.co.jp/cgi-bin/nn20090106i1.html

But with Harper's hands on the pump, how can Canada lose ?
http://tinyurl.com/BubbleStocks

realisticman

That is the kind of thinking that gets people into debt they simply will never pay back and causes housing bubbles. Saying that the monthly payment is what matters is simply not true, when it's in the context of someone who can just afford a $500k mortgage at 2.3% with virtually no cash down. These are financially illiterate people who get in at the top of the market because they fear that, in the language of their realtor, they'll "miss out forever".

What is that person going to do when it's time to renew the mortgage and rates are much higher? They will have paid off virtually no equity in the first five years of their 35-year amortization, and higher rates inevitably will put downward pressure on pricing, which means they could be stuck with negative equity in a house they can no longer comfortably afford.

It is always better to have a smaller principal at a higher interest rate than a larger principal at a lower rate.

people do not walk away from their mortgages with alacrity

The suggestion is offensive.

bluelines

Mortgage rates in Canada have been under 7% for the past 10 years. Only a sudden escalation is disastrous. They haven't been at 10% for 15 years and when they have changed they have at 1% increments over the years.

The realtors may well encourage the financially illiterate to jump into the market. If the borrower is overextending themselves the debt-to-earnings requirements of securing the mortgage by the financial institution and CMHC will override any unrealistic coaxing from a realtor.

I agree that it will take a five year minimum for any equity to start to be realised and the past 15 years have provided stable low rates for buyers to build this equity.

Borrowing money with only short mortgage 'terms' is risky but there are reasonable 10 year terms available today and eligible buyers can pay down the principle to a reasonable level under these rates.

In the US there was no equivalent of CMHC to monitor and require borrowers to be eligible. According to reports there were mortgage brokers driving around and virtually forcing people to take on unrealistic mortgages. The cherry on this stupid cake was that in many cases the borrowers were enticed with dollops of cash added to the scam loans!

This article is very similar to the one published in yesterday's Financial Post by Diane Francis, with 'CMHC bubble' in the headline. Interesting to see the lefties aligning themselves with an article in the Post, all based on a few newsletter scribblings from financial wizards.

As I said before, unless there is a sudden escalation of rates the situation could remain acceptable and good for home buyers. Rates cannot go lower, they will rise. The question is whether one who wants a home should wait again, believing that disaster is lurking around the corner - as many have thought for years now, or whether they should take advantage of reasonable rates and reasonable prices and settle down and work to build their equity and have their own place.

Affordability?

Affordability is not a point in time concept. In reality affordability must be examined with a view to tolerating change in interest rates. By both lender and borrower.

At 2.3%, interest rates are as low as they can go. There is no-where to go but up. How UP can they go, well doubling or tripling would return rates to historical norms. An economic recovery would see this return happen quite quickly.

http://www.bcrealtor.com/d_bkcan.htm

Maybe all mortgages should be variable, then more thought would go into homebuying.

if CMHC suddenly did find itself a major landlord in Canada

Reefermadness, I was making a direct response to you’re statement:

“…if CMHC suddenly did find itself a major landlord in Canada, I wouldn't consider that the worst thing in the world.”

When government becomes a major landlord that’s when the citizens of a free democratic society who can still exercise their freedom of speech have not only the right but an obligation to start “government bashing”.

And from what I have read from the link to this article that was posted earlier and my thanks to fdubs:

http://americacanada.blogspot.com/2009/07/cmhc-and-our-government.html

...CMHC is already a major landlord in Canada. Now that may not be the worst thing in the world but it’s certainly heading in that direction. I’d say it’s time to start verbal “bashing” the government before they start bashing us and governments never bash people verbally.

But

After the changes made in CMHC - as per the Globe article referenced above - that institution is a lot closer to the unregulated big player in the mortgage market that led to and fueled the sub-prime mess in the United States.

CMHC and the Federal Government have already bailed out the Canadian banks and we now have a $50 billion deficit this year...you may think zero to 50 in six months is great performance - I'd suggest it's not.

Please check out Fanny Mae and Freddie Mac and what has happened to them since the Bush/Obama bailout...

In fact, what Harper has actually done - and what he clearly intends to continue to do - is remove the kind of discipline which made it possible for Canada to avoid the worst of the US mess so far.

I don't read Diane Francis for the same reason I don't waste my time listening to Michael Campbell

As for affordability, please don’t make me laugh – we’re talking about Vancouver and the median family wage – there is no such thing as affordability without inflation…if the economy in the US doesn’t improve we are going to be worrying about deflation….

Whether CMHC eats the mortgages or not

...is beside the point. The question is where does the CMHC get the money to eat the mortgages?

From the people of Canada by way of the Bank of Canada issuing money (expanding M3 on its own account) thus spreading the loss among the whole GNP of Canada, rich and poor alike, business and personal inclusive....

Or do they do as the neoliberal psychotics have encouraged, and purchase debt from private banks on the open market by issuing reserve notes to those banks that then turn around and lend them at interest to the CMHC, guaranteeing higher taxes for generations of Canadians to come...

...those that pay them, anyway.

But for a blip in the early 1900s, real estate prices have been stable for hundreds of years. Who here can't see the recent (last sixty years or so) increases in property prices as a credit-driven bubble?

Interest rates of 2%

...are not sustainable in the short term never mind the long term. Such policy is nothing more than a tax on trustworthiness and moderation. Greed has ever spoken thus.

Historically, the rate of return for invested money is 4% - has been for hundreds of years. Anything less, and money flees for capital markets of all kinds. Yet the capital markets we're traditionally invested in are only 10% the size of debt markets such as bonds, GICs and savings. So it doesn't take much money fleeing low interest returns to create a massive bubble in equities, such as we've seen in the stock market to 2001 and then 2001, and now in the real property market.

Economies that penalize debt markets with low returns deserve the crash they're heading for. This is what the invisible hand of Adam Smith foresaw time and again. Economists such as Roubini, Krugman and Stanford acknowledge this is so. Why is it so hard for politicians, business leaders and media pundits to hear the truth? Will it take a severe crash that removes 30% of the value from the economy (equivalent to sending us back to the 1940s in terms of standards of living)?

It would appear so....

People who count on interest rates of less than 6% for their necessities of living such as shelter are foolish. Most gamblers are. I'll do everything in my power to prevent my own money from bailing the foolish out, and that goes double for the idiots who advise them, whether they be realtors, politicians, or some doorknob on a news blog.

realisticman

I also agree that rates aren't going to 10% any time soon, or at all, but the difference in monthly payment between 2.3% and even 6% is very significant. What I'm saying is that thinking in terms of monthly payments rather than principal is dangerous, and the current house-buying climate encourages precisely this thinking.

A $500k mortgage on a 35-year amortization is nearly $1,200 / month more at 6% than at 2.3%. I would bet money that rates will within five years be at 6% for many who are currently at below 3%,and I don't believe the average Canadian family is magically going to have another $14.5k / year of after tax income with which to comfortably pay their mortgage. Most will be OK, many will not, but overall prices will fall or at best remain stagnant, and some people may have negative equity.

Negative equity won't matter for those who can simply continue to pay their mortgage down, but it will for those who need to sell.

Unlike the author of the original post, I'm not equating our situation with the US -- in fact I'm saying that he's out to lunch with his analysis of CMHC. I think (hope) I'm simply offering up a relatively realistic picture of the situation many current buyers will find themselves in in the next five years.

bluelines

I agree with just about all you say, although rates in Canada have historically only moved 1 point yearly, except when they jumped 3 in 1995. Over the years of a mortgage people have traditionally earned more and this can help offset rate rises.

I know of two families that in 1998 thought the Vancouver market was overpriced and they were waiting for a crash before buying. One did buy in '99 and were terrified by the debt load, so they occasionally paid down the principal with whatever dollars they could scrape. They also slightly increased their monthly payment with the extra going straight to the principal. Today, ten years later they have less than 25,000 to pay off and are obviously overjoyed and relieved that their gamble paid off. The current market value of their 'home' is of almost no interest to them.

The benefits of the forced saving component of a high monthly mortgage as opposed to a low rent is very difficult, if not impossible to quantify, yet it is a prevailing phenomenon.

The other couple are still renting and still waiting for the market to crash, while their rent gradually creeps up.

Some can dismiss these tales as silly anecdotes but they cannot be unique.

I'm not shilling real estate. Everyone makes their own choice. I'm also not sure that the end is nigh.

'Sub-prime' refers to high risk borrowers, not interest rates!

jwstewart said, 22 hours ago: "Sorry, I don't agree with this definition. Call me simplistic, but to me sub-prime means below the prime interest rate, hinting at ARMs."
---
No, the term 'sub-prime' has nothing to do with the interest rate on the loan, it refers to the higher risk of default by the borrowing party.
See here -->

"Although there is no single, standard definition, in the United States subprime loans are usually classified as those where the borrower has a FICO score below 640."
http://en.wikipedia.org/wiki/Sub-prime

Rates So Low Renters Forgoing Subsidized Housing To Buy

When low income individuals are forgoing subsidized rentals to buy, how far can a market be from a top? These excerpts from an article that ran in the Georgia Straight 22 Oct 2009, by Carlito Pablo -

The Metro Vancouver Housing Corporation [mandated to supply affordable rental to families with low to moderate income] is losing many of its moderate-income tenants to the housing market. With variable mortgage rates going as low as 2.25 percent, plus incentives being offered by sellers, families are buying homes and moving out of affordable rental properties operated by the public housing body, according to a report by regional housing manager Don Littleford. The housing body has seen two consecutive quarters of increasing vacancy in its properties. “With the efforts of the Bank of Canada and the chartered banks to create economic activity, they’re offering very low-cost money on everything.” — “the next several rental quarters are expected to be challenging until mortgage and consumer-borrowing interest rates return to more normal levels”.

Archived at VREAA -
http://vreaa.wordpress.com/

negative equity

bluelines,

I suspect negative equity is always one of the many risks homebuyers face upon purchase, despite CMHC or the current rules. The concerns you raise really fall into the caveat emptor category. I guess the underlying question is the government's role in encouraging people to enter into high-risk negative equity scenarios. Yet, I'm trying to grasp, at this recessionary time, what your proposed alternative would be. CMHC has tightened up the rules from 0%/40 to %5/35 for first-time buyers. Where do you think the healthy balance is between encouraging responsible real estate sales and stimulating an economy that is desperately in need of some immediate stimulation? Dobbin's wish that the recession be left to simply bottom out 'naturally' - seems really disingenuous coming from a socialist.

When faced with a prohibitive 0% vacancy rental market, in which rents are often more expensive than a monthly mortgage payment at 3%, it just seems like a risk worth taking. In BC we've seen the real estate market and economy at large supposedly crash to all time lows in the last year, yet home prices have barely moved, in fact, gone up.

'We All Fall Down'

Saw this doc at the VIFF this year, and it is well worth seeing what is about to happen soon enough in Canada. The doc's highly informative, and essentially charts the how & why US version of what Dobbin is suggesting will happen here. Securitization is a big joke's-on-you; that Harper et al are pushing this drug, like Bush did, shouldn't come as a big surprise.

http://icarusfilms.com/new2009/fall.html

"people of Canada by way of the Bank of Canada issuing money"

Zalm, the primary method through which the Bank of Canada issues new money is through the sale of Bonds and T-Bills to the private banks that they receive from the federal government. The private banks in turn lend money to the government in exchange for the government bonds via an electronic checkbook entry from the private banks into the account of the Canadian government. The Canadian government then transfers the electronic funds into the account of CMHC. The taxpayer has to pay the interest to the private banks and they rarely pay the principle (national debt).

So the Bank of Canada forfeits its obligation under law to issue the new money interest free and hands that responsibility over to the private banks who issue the currency and lend it at interest (compounded) to the government. This is not a “neoliberal” or “neoconcervative” methodology but an illegal practice that’s been performed by the government of Canada for decades. Is it “psychotic”? Yes. It’s also criminal, ruthless and diabolical.

http://www.youtube.com/watch?v=uFLiGECUUpw&NR=1

Misleading info from Murray Dobin

How did Harper do that?
" In an effort to prop up the real estate market in 2008 (when affordability nosedived), the Harper government directed the CMHC to approve as many high-risk borrowers as possible and to keep credit flowing. "

I have been against 100% mortgages, against 40 year terms and I agree to those points made.
However, in the US, subprime loans were made to people w/o jobs, w/o credit and on welfare.
Our system is very much different.

Yes, MBS are playing a much larger role in Canada, but to say CMHC is providing sub-prime mortgages like the US is nonsense. Other than longer amorts and 5% down Canada’s underwriting practices are conservative. A personal covenant is required in Canada, where US subprime ARMs didn’t. In US terms, Canadian mortgages would be considered prime. At the end of the day there’s no difference between a government guarantee or all the risk with the banks – if the chartered banks fail, the taxpayer will still hold the bill due to CDIC.

wayfarer and realisticman

wayfarer: I'm not sure I'm recommending any action, just caution on the part of buyers who are rushing in. So I agree with you, caveat emptor.

realisticman: I know, you are probably right about prices in the areas I look to buy in. We recently just purchased a property in Calgary for about $100k less than it was listed for last year, and ironically I'm more anxious about the value of that one than the other areas we're looking to buy (nicer parts of Toronto and Vancouver's West Side).

Also, there is a massive difference, I think, between buying a $500k McMansion in the suburbs vs. a small, expensive house in Kits, Point Grey or Summerhill. These areas will ALWAYS be desirable, and whatever the bears may say I think they'll have different market trends than the suburbs.

you make it sound....

like housing prices going up is a recent phenomenon... my parents bought a house in east van 40 years ago for 12,000. yes, 3 zeros. they still own it. seems the bubble has been going on for 40 years if you look at it that way...
all you poopooers are just pissed you didn't get into the market a long time ago.

nat dept

a crown corp will have assets (ownd money) the size of the nat dept soon.

I submitted this tofark. hope you didn't get slashdotted too badly...

and SOMEBODY gets credit for it.

pat

Iceland

A small country (like Canada) with a large, internationally exposed banking sector (You've heard them bragging and you must know about both Enron and Long Term Capital), its own currency (the Loonie - rather than a currency with international credibility) and limited fiscal spare capacity relative to the possible size of the banking sector solvency gap (0 - 50 in 6 months without even trying).

Sound familiar.

The main thing Dobbin explained

to me was:
Why Housing prices in Canada have not followed USA trends.
I was wondering:
Are Canadians generally less intelligent than Yanks?
Is our "Sound Economy" somehow exempt from problems?
The Yanks tried and failed to bolster the "Real" estate thang.
I'm a builder so I have benifited to some degree from this forcing: up till just recently all the local trades were saying: " What Ressecion?" (where has the "Spellcheck" gone? Carpenters should not be asked to spell
But just now things are very slow. Maybe it's just me but my next door neighbour has motivation to sell and been on the market for a year - dropped the price $50G. Still no interest.
I love my place and would not trade for a $700G condo in any city (the neighbour is still dreaming at around $450G) unless I could sell the condo and wait a bit and buy my home back for about $80G.
Wait a minute while I call the "real"tor

Dobbin article

Great discussion! I am as far from an economist as I can be (thank goddess) and I admit numbers make my eyes glaze over more quickly than most. But I have to wonder about the comparison to the U.S. sub-prime crisis. My daughter and partner are looking to buy their first home and I've been surprised at the applied scrutiny by the lending institutions and the hoops this couple must leap. Doesn't sound like sub-prime lending to me. They've been given pretty strict criteria re: the mortgage(s) available vis-a-vis their incomes and history of same, credit ratings etc. Welcome scrutiny to my eyes. I deplored the zero down payment 40 year mortgages and would much prefer at least 10% down and a 30 year limit. But the present system, according to my tiny anecdotal evidence, seems far from the scenario Dobbins describes. My second point: I own a small townhouse in Vancouver, worth about $500,000 last time I looked. Visiting European friends have said that if they could buy such a townhouse in any major city in Europe for such a price they would think they had died and gone to heaven. Vancouver housing prices seem outrageous and they have seemed so for at least the past 20 years if I recollect correctly. But on the world market - are they? I don't condone them. I truly believe we would all be so much better off if housing was truly affordable for all. Just want to add a little perspective.

Why are house prices up?

Reason: Interest rates in Banks are to low and the stock market is too much of a gamble. Gold pays no interest, and is just another gamble!
Realestate is just the best bet.
My house is 250% higher than 10 years ago and when I sell, I'll pay no tax as long as its my main home.
The fact is there is no shortage of cash in our country, the only problem is its forcing the housing market beyond what regular people can pay, or to even rent. Its all a sad sick game.
For me and 50% of people that have their homes paid off, it doesn't matter how high the prices go, we can always afford to move around.
My one child will get my house. But for those with 4 kids or are just renting, well God help you.
In 1995 I had one home that climbed in price at over $3,300 per month, over a 3 year period. That house cost me $125k in 1995 today its priced at $1 million....its all a game....and most people think its real, or they aren't working hard enough...leave the cities there are affordable homes in BC...

At one time, more than 3% interest was considered usury.

I remember reading - some 30-40 years ago? - about Italian families having mortgage-burning parties to celebrate the final paying down of mortgages that 4-5 generations had been chipping away at.

I've no idea how common that was, then or now, but maybe we've been living in dreamland with 25 year mortgages, and perhaps the multi-generational mortgage is the wave of the future?

Let's justify "free money" with 35 year mortgages

As a society, are we that greedy that we will sell our children down the road believing that this is the new normal and make our kids take a 35 year mortgage to inflate our homes wrongly known as our "retirement asset"? Write your MP about the lack of responsibility in the big economic saviour of housing. Give free money out and watch our false economy grow and make people feel better - except it only makes us boomers feel better. We've also decided take a huge risk of doubling taxpayer money/CMHC out there to pump the bubble to prop up the economy as some people are saying is necessary due to a normal recession? Prices go up and prices go down in a capitalist market. To inflate assets even further is a slippery slope when jobs are still being lost. I don't want my kids living with me when they get out of university. Do we really want this asset bubble created by our government? Debt will be huge and then CMHC (read taxpayer) losses will be out of control if it implodes. Asking people desparate that they may never get into the market to restrain themselves with free money is insane. Government has to play a part in responsibility here. We're not all smart enough to figure out that interest rates will not continue to be this low. A $300K-500K mortgage is still a very real after tax money. This is not the USA mortgage fiasco with increasing rates guaranteed but we can almost predict from historical lows here. Also, does anyone not believe that mortgage fraud exists here and Canada is not as squeaky clean as we think? CHMC, that's us folks, will end up holding the bag unless everyone believes that "it's different this time". In that case, enjoy your kids until they're 35 while they save for a house. If CMHC blows this up with tons more debt in 2010 and 2011 along with massive deficit forming, we will not control the interest rate as what we can sell bonds for will be even further dictated to us (or maybe China will just negotiate some major oil sands deals). Of course, that probably won't happen with our excellent government, huh? The warning light is flashing and jumping up and down with Carney finally being forced to make a statement on it this week but we're in deeper than we think and this will not end well if we continue to give free money. Australia is doing something prudent by raising rates to restrain rates to take a bit if pain now rather than a lot later. Hey, the world won't end and Canada will probably will survive but what a waste of taxes to pay while it is handed out behind our backs. CMHC should be audited, regulated and included on the front balance sheet of the budget including a reasonable risk factor provision for bad loans.

If you're comparing prices, compare rents too.

Sharon Rose said: I own a small townhouse in Vancouver, worth about $500,000 last time I looked. Visiting European friends have said that if they could buy such a townhouse in any major city in Europe for such a price they would think they had died and gone to heaven. Vancouver housing prices seem outrageous and they have seemed so for at least the past 20 years if I recollect correctly. But on the world market - are they?

---
Next time, get you friends to also compare RENTS.
Rents reflect the real, day to day price of housing as a commodity. I'll bet you that the rent/price ratios in the cities your friends are thinking of are way LOWER than Vancouver. In other words, those cities have high prices but they also have high rents --- there is REAL demand for that housing. Here we're completely out of whack with fundamentals.
Do us a favour -- get your friends to do the math, compare with Vancouver and let us know.

soleprobe

You said it better than I did. My point was the Bank of Canada doesn't have to do things through the private banks the way it's been done for the last hundred years - it merely takes a government with some spine to authorize the Bank of Canada to issue whatever promissory notes for debt that they like on the account of the Government of Canada and Bob's your uncle.

Unfortunately, Flaherty's our Guv'ner (of the exchequer, I mean, not the BoC) and Harper the puppet-master. Homo politicus is an invertebrate more known for moral turpitude than moral fortitude.

Grameen Bank

...has a much more interesting lending proposition than the commercial banks. And a better track record too. Imagine the borrowers only being accepted for loans if they have no collateral, and no other eway to enter the financial system! And what would be the reaction if word got out that the shareholders of the Grameen Bank are the borrowers themselves, and receive dividends on profits earned?

Sacrilege! To some, at least....

http://www.grameen-info.org/index.php?option=com_content&task=view&id=27&Itemid=176

“Gold pays no interest, and is just another gamble!”

Bob Watts says, “Gold pays no interest, and is just another gamble!”

Gold prices:

October 23 2008: $700 an ounce
October 23 2009: $1055 an ounce
$355 increase in one year or over 50% increase on investment.
And because the $355 increase is not interest earnings it’s subject to no taxes.
Not too many investments that will give you a 50% tax-free annual return.

Mortgage tirade

Dobbin's article is simply nonsense designed to get a rise out of the public who know little or less about economics, finance or public policy.

Just a thought. Are all the major financial experts in the world wrong, except for Dobbin and his paranoid investment banker? The Canadian banking system is viewed all over the world as the best.

There are so many errors in the article it is hardly worth the paper its is written on.

Major Financial Experts ...

... certainly couldn't be wrong. Again.

But just in case, shall we investigate alternatives ?

http://www.youtube.com/watch?v=vaa7wCfZ1z0&NR=1&feature=fvwp

Hath given forth upon usury, and hath taken increase: shall he then live? he shall not live: he hath done all these abominations; he shall surely die; his blood shall be upon him.
Ezekiel 18:13

And found in the temple those that sold oxen and sheep and doves, and the changers of money sitting: And when he had made a scourge of small cords, he drove them all out of the temple, and the sheep, and the oxen; and poured out the changers' money, and overthrew the tables;
John 2: 13-14

O ye who believe! Devour not usury, doubling and quadrupling (the sum lent). Observe your duty to Allah, that ye may be successful.
Sura 3 : 130

DonaldBWilson comment on our great economists - believe them!

Mortgage tirade
Dobbin's article is simply nonsense designed to get a rise out of the public who know little or less about economics, finance or public policy.
______________________________________

Donny, Stick your head in the sand and hope they're right because they are "the experts". Hopefully, you have a government backed pension that will never be taken away either because we're all good Canadians. Hey, government obviously know how big the deficit would get and they didn't tell us, right? They obviously forgot to mention the risk of CMHC loans IF bubble crashes. Of course, it will never crash as we have SO many levers to keep it going with taxpayer money (interest rates can go down even further to negative rates to keep demand humming and will never go up due to international debt reliance). I don't have the same level of trust in our economists that you have to have it all under control. We appear to be building a debt so large and so reliant on international community that we have to mortgage our grandkids future because of our lack of individual political action. Huge intergenerational money transfer (good for big, comfortable voter base) as well as a total transfer of wealth to government/ banks. Are we being apathetic by not acting? I guess not. I'll go get a coffee and relax. I'm all taken care of if I work hard. I've written my MP on these issues and on separation of pension from institution/business (as guys at CMHC already did so do you believe that it is sustainable now!) if you had any energy, you might think about it, too. We might get off our butts and actually demonstrate but we believe as most of us Canadians always have that we're Canadian and everything is going to be alright. Our government right now is relying on that fact.

The main cause for the

The main cause for the housing bubble, and for the collectivized takeover of the world's resources by the corporate mafia, has been and is the deregulated money creation powers of the banks, transferring the responsibility for the conversion of that worthless, imaginary money on society through the governments.

Half million bucks for houses we could by for $15,000 35-40 years ago, and the 1000% increase of our costs of living, with wages remaining stagnant, shows what deregulation has done to this country and the world.

Ed Deak.

Gold Prices over time...

A friend of mine bought gold in 1981 at about $700 oz he had $500k invested, the price dropped to less than half that amount for the last 28 years.
He lost over $250k plus the interest that cash could have generated over 28 years.
In 1979 the prime rate was at 20%
Buy gold or buy realestate.
Gold is only inflated because businessmen bailed out of the stock market. Just like my relative that convert $55 mil into gold, he has already sold back out of gold and is buying wheat farms on the prairies, 100's of square miles of farms, so look forward to wheat going up. Food and shelter has real value. As the ecomomy starts to turn so will gold prices.
Smething I also predected years ago is, you can't have 50% of the population retiring as millionaires, and have this fantasy that you'll have any buying power.

Harper Has Admitted a Preference for American News

http://www.harpers.org/archive/2009/04/0082450
What is history, really, but a turf war between manufacturing, labor, and the banks? In the United States, we shrank manufacturing. We got rid of labor. Now it’s just the banks.
Which is why the middle class is shrinking. Basically, we’re all waiters now; we’re bowing and scraping and working for the banks. Look closely at any American, and it’s even odds that he or she, directly or indirectly, is somehow employed by the “financial services sector,” which covers insurance and real estate and financial instruments of any kind. As brokers, lawyers, loan collectors, loan consolidators, secretaries at big investment firms, chauffeurs of private limousines, or even the high-tech types who exist solely to service banks—all of us, millions of us, are part of it, living off it in some way, as three generations ago we lived off manufacturing.

So it's no real wonder that he would follow the American experience.

Gold vs House

We are so filled up with greed as a result of the garbage fed to us from the “experts” over the last several decades that most people don’t understand the sound fundamentals of gold. Instead of looking at our homes as a permanent place for our families to live we look at this essential fundamental to our progeny as an “investment” like some worthless paper security. Shame on man, we are paying a price as the traditional Canadian family is being shattered into pieces and scattered to the wind.

Gold should never be viewed as an investment, even though I referred to it as an “investment” when I compared it to other options. Gold is a protector of wealth.

The value of gold over time never changes only what we use to measure the value of gold: our currency.

"If you lived in Ancient Rome and you had a 1 ounce gold coin at that time, you could have purchased a handcrafted belt, a very fine toga, and a pair of sandals. That was the price of 1 ounce of gold. Today, thousands of years later; if you've got a 1 ounce gold coin with no numismatic value (just a plain old bullion coin; 1 ounce of gold), you can exchange that for [Canadian Bank Notes], immediately go into a men's store and buy a nice suit, a handcrafted belt, and a pair of shoes. The value of that gold has not changed, in terms of money, for thousands of years."

G. Edward Griffin, The Creature from Jekyll Island

Soon our currency will fail like all currencies throughout history and so will the inflated value of a house.

Property ownership in Canada is an illusion. There is no provision is the Constitution Act 1982 for any Canadian to own physical land in Canada. All that Canadians may hold, in conformity with medieval and feudal law, is freehold tenure: “an interest in an estate in land in fee simple” “Fee simple is the amount paid to represent that freehold is actually tenancy and the Queen is ultimate owner. Free hold land is “held” not “owned”.

The Queen owns all the 2.4 billion acres of land in Canada: 2.1 billion acres are Crown land and the remainder is subleased for freehold tenure.

Canada has no proper constitution and no mention of property in our Charter of Rights. We have no formal right to own land and no constitutional protection against seizure of land without compensation by the government. In practice Canadians are feudal serfs in terms of rights to land ownership.
The Queen’s stake in Canada’s worth is at $5,000 an acre or just over $12.3 trillion in total. There is nothing in the B.N.A. Act or the Canadian charter of Rights and Freedoms to stop the Queen from selling Canada to the highest bidder. The Queen could easily sell Canada as Russia sold Alaska because Russia held, as the Queen holds in Canada, the freehold of that territory via the Tsar.

Enjoy the illusion of ownership while it last because in the end your very soul, and maybe a bit of gold, may be all that you possess.

Fiat Lux

Don't know where you shop Ed but everything is cheaper than ever and most of it's 'on sale'.

Heck you can buy socks for 50 cents a pair, casual pants are $10. Running shoes are less than twenty bucks and hiking casuals are twenty five. Didn't Lee jeans used to be $30, 30 years ago? They're cheaper now. I just saw a Sony 40" flat tv for $760. 30 years ago I bought a 15" Sony Trinitron for around the same money. An 8gb flash drive was $19.99. The 250mb one I bought 7 years ago cost $60! The one I bought today's equivalent cost would be $2,000! There's some deflation. Mini ovens are less than 50 bucks and all the other appliances seem to be dirt cheap too. Ground beef is a buck thirty a pound, oranges are 70 cents a pound. Is this high? Thirty years ago you could fly across the Atlantic for around $600, today you still can!

Bravo Murray Dobson - hes not driven by Canwest or other

I agree there is some deflation and certain things are cheaper ie. tv sets, electronics.

But folks have you taken a trip across the US border lately and looked at their prices? Ocean Spray pure cranberry juice costs approx $4.00 per bottle in BC. In the US its $2. A bottle of Wine that costs $14.00 in canada is $5.00 US. Ok thats just the small stuff....Looking to puchase a new vehicle? In the US you will pay $8000 to $10000 less than what you would pay for the exact same year make and model in Canada. All you would have to do is Pay $800 in order to bring it into Canada. Why not? You can purchase 6 vehicles in one year and basically sell the vehicle in Canada and pocket the profit before the goverment considers you a running a business.

A beautiful mansion or even regular House is far far less that what we would pay anywhere in the lower mainland. In neighbourhoods that are safe and considered equivelant to Vancouver, Kitsilano, Port Moody, etc.

We are getting screwed here people. Wait until the HST comes and Translink increases our gas taxes and bus fares.

everything is cheaper ....really?

realisticman, you’re talking about a bunch of toys and trinkets almost all produced by overseas slave labor. Except for the 1lbs of farm factory produced ground beef which may contain meat from about 200 different cows and the cheap overseas flight at the expense of a decent pilot’s wage and an industry in peril.

Back in 1966, my dad was a sergeant in the army and the sole income earner. He bought a 3-bedroom home in the suburbs for his wife and 7 children for $12,000. He had a brand new 26inch Zenith color TV, a car and enough money to buy materials to renovate the basement.

The toys and trinkets may have cost a little more but try buying a home and raising a family of 8 today on a sergeant’s pay.

Oh, you've gotta laugh

Now it appears that the securitized mortgages may not have been registered as transferred because nobody actually did the paperwork. So the banks may not have the title, the owners of the tranches may not have the title, and it may still continue to rest with the owner, for all we know. It also appears that some titles may have been used multiple times in several securitizations!

Which is why judges are now taking a second look and starting to slap down the banks' applications for foreclosure left and right.

Won't this make for an awful mess! Can you say Bailout #3?

http://www.counterpunch.org/martens10212009.html

CMHC

Reported here first in July:

"CMHC: Canada's Breaking Point"

http://americacanada.blogspot.com/2009/07/cmhc-and-our-government.html

Full analysis including charts extracted from CMHC publications.

helpful...that certainly was....

CMHC and Canada real estate is a ticking timebomb that on a price to income basis is an even bigger bubble than the good old USA.

All the folks with all that 'equity' tied up in their homes are living in la la land.

Becausw the capital requirements for CMHC insured mortgages are basically non-existent, the return on capital seems to be very high for the banks - however, I don't remember a single one of the big five banks declining Flaherty's billions, do you?

In fact, they were selling a pig in a poke, and they knew it.

It's not going to happen

In Canada the Banks have always been part of the state, so there is no bubble to break.
I see the DOW stocks just went over 10,000 gaining 53% since the spring. Time for gold to drop.
Money is very much like water it flows and we the public have little cups to get our share.
New Zealand went Bankrupt about 30 years ago, looks like their OK now.
When I got sick I felt the sky was falling, I'm OK now. We all worry to much...

What Sub-Prime Really Means

I'm seeing rather ridiculous definitions of what people think sub-prime is. The term refers to the borrower.

Anyone who has credit issues or otherwise doesn't qualify for a plain vanilla low interest mortgage as a "prime" borrower at a AAA institution, is therefore a "sub-prime" borrower and this thus results in a "sub-prime" mortgage.

Sub Prime

Sub-prime borrowers didn't create the crisis (except in the minds of a few feverish American right wingers and the Fox network) in the US, unscrupulous and profiteering 'lenders' did. And CMHC is currently playing into exactly the same sort of mess....

It's the securitization of debt, the derivatives market and the blindness of the Canadian government which will be responsible for the coming crisis here in Canada....

"...blindness of the Canadian government"

Canadians are so very kind to let them off so gracefully. “Our poor blind government, if they only would have had a seeing eye dog then maybe they would not have led an entire nation into the abyss.”

Or maybe the government is not blind at all. Maybe they know exactly what they are doing and are just following a script.

It’s easy to see who looses in this madness: the Canadian citizen. It’s also easy to see who wins: the private banks as they seize and possess real assets in the form of cash and real estate.

Now since the borrower is always the servant to the lender and our government borrows from the private banks, could this not be a scheme orchestrated by the government in collusion with the private banks to transfer all remaining wealth from the Canadian citizen via personal debt and higher taxes into the coffers of the private banks?

Could it be that the 2 trillion looted from the Canadian citizen in the form of interest payments is not enough and now they want it all?

The Road to Hell paved with Good Intentions

I'm new here. I signed up specifically to reply to Murry Dobbin's article. Assuming the information is correct and right, two conclusions appear to be come to mind here:

1.) Yes, we now have a 'major' economic problem on our hands, and

2.) The minority Conservative government under Prime Minister Stephen Harper will lose a federal election if this 'real' problem explodes either before or during a federal election !

I will leave it to others to say as to how we 'all' collectively get ourselves out of this problem now that we 'all' are in it together ! But something has to be done, and the sooner the better, even if it means prolonging or bringing on a deeper recession.