Thursday, July 1, 2010

CNBC housing groupies

Wow.  Apparently the US housing market has gotten so terrible at providing "feel good" stories to the market pumpers at CNBC, they had to whore themselves out to the lowly Canadian realtors/banksters.  For an absolutely hilarious, yet completely innacurate read, check out "Why the Canadian Housing Market Didn't Crash"

A more apt title might have been "Why the Canadian Housing Market Hasn't Crashed YET", or "How the hell are Canadian homebuyers THAT stupid?", or "How the Canadian taxpayers are funding subprime mortgages so that the big 6 can reap monstrous profits".  I could go on all day...but back to the article:
They saw a housing boom, they saw a recession, and yet the Canadian housing market is still cooking with gas.
Fundamental differences in Canadian banking, borrowing and home buying.  Going back to your opening line, we watched you dump gasoline on your housing market and then light yourselves on fire.  So while watching you do this, and wondering, "What the fuck were they thinking?", we have been slowly marinating gasoline pool of debt in large part due to CMHC and are just trying to find someone with a match to get this party started.  In short: the correct answer appears to be: "We're to stupid (or arrogant) to think the same thing can't happen here."
Lloyd Atkinson is an economist and also an empty nester, who just sold his large family home in Toronto and downsized to a condo overlooking the city. He sold his home in one day.

"In the U.S., the whole idea of owning a home, there is almost a national obsession," Atkinson says. He knows because he's an American citizen as well. But he also knows that the banking system in Canada does not allow for the type of irresponsible buying and borrowing that we saw in the U.S. at the height of the recent housing boom (2004-2006).
Really?  Your representation of "normal" is interviewing a BANK ECONOMIST who sold his home in the housing boomville of Toronto (second only to the idiocy of the Vancouver housing market).  Fair and balanced right?

I love how Lloyd is an "expert" on the US housing market as well because he's an American citizen...reminds me of how Sarah Palin is an "expert" in foreign relations because she's aware Alaska is near Russia (don't ask her to find either on a map though).
Finally, the biggest difference is that if a Canadian borrower goes into foreclosure, the bank can and will come after that borrower's assets until the balance is repaid.
There is no easy way to walk away.
These are full recourse loans.
OOOOOHHHHH... The "recourse" argument.  Damn, you guys did your homework...or did you?  How many US states had recourse loans as well?  How did that work out?  And how exactly does a recourse loan help the lender if the owner HAS NO OTHER ASSETS besides their grossly overvalued home?
"There is an element of conservatism that runs right through the Canadian housing industry, from the banking, financing element, to the homebuilders and even in the resale of homes," says Phil Soper, CEO of Brookfield Real Estate Services - Royal LePage. "The innovation has safety valves."
Way to interview a realtor to balance the views of the bank economist.  I wasn't aware 5% down (which you can borrow to boot) and 35 year amortizations was the definition of "conservative".
Bubble it may be, and the air is coming out a bit now, but every one of the realtors, economists, and homeowners I interviewed said no way, no way would the Canadian housing market crash as the U.S. market did. Benjamin Tal put it best: "This was not a made in Canada, this was a made in the U.S. recession, and in many ways Canada was a second hand smoker here."
Wait, what?  NOW YOU ADMIT IT'S A BUBBLE?!?  Don't you guys understand that you can't say "that word"?  And thanks for summarizing that this entire shitpile of "reporting" was based upon the thoughts of a bank economist, a CEO of a real estate company, and a homeowner (oh wait, the homeowner was the bank economist).  Shit.  (I love the double "no way" for emphasis by the way...brilliant)

As for the smoking analogy...we may have used to be a second hand smoker.  But it looked so cool watching you smoke, we had to give it a try.  And we'll be damned if we're now going to give up our 3+ pack a day habit, because we're fucking RESPONSIBLE, and there's no way that we're going to get lung cancer, despite what the massive government adds say on the packs.

Why? Because, "It's different here."

Krugman - STFU

Separated at birth?  Frankly I'd rather hear Clooney's take on the global economy than the shit spouted by his Keynesian fanboy doppelganger.  Krugman has never met a problem that couldn't be solved by throwing piles of government debt at.   Lately he's been yapping about the failure of the G20 to agree to engage in more ridiculous "stimulus" resulting in the onset of the next Depression (somewhere he missed the memo that we can't actually prevent the recession and should have embraced it rather than trying to delay the inevitable and wasting trillions in doing so).
We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.
And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.
Seriously, Krugman needs to shut his frickin piehole, because the more he yaps, the more the people at Nobel should seriously consider yanking the joke of an award the Nobel prize in economics has become.  The only thing Krugman is "correct" about is that this shitstorm has been brought on by a failure of policy.  But he completely misses the mark on what that policy should look like.  Mish has far more on Krugman's ineptitude at in How Policy Errors Cause Depressions (and how "in isolation" some things Krugman says make sense)

The problem of the G20 is that some countries (the EU) are beginning to "get it"; where "it" is that you can't endlessly borrow money to prop up a bunch of zombie banks that lent money to anyone with a pulse because eventually the funding from the bond market dries up when they start demanding yields approximating the likelihood of the weaker players actually being able to make good on their debt (Greece, Spain, and the rest of Club Med).   The bigger idiots (US and Japan) still haven't figured out that the same principle applies to them, (eventually). 

Clearly the solution to the problem of too much debt is even more of it.  If I can't maintain my personal spending level, it makes perfect sense that I should borrow more than I make to come up with the difference.  Even if I'm spending 10-20% more each year annualized while my income is growing at a paltry level of 1-2% which isn't sufficient to maintain my standard of living.  Obviously, tt is the banks responsibility to give me the money I need (want) to spend...and I promise to pay it back the future, assuming I get a big raise...if I feel like paying it back...and if not, well I'll just borrow more and add it to the IOU, right?  Clearly the banks don't really care if I pay back the principle. 

A child could understand the simplistic notion that piling on ever more debt is not sustainable.  Unfortunately for us, many economists and most politicians today do not. 

Friday, May 7, 2010


Oh the markets are stable eh?  This is a sustainable recovery?  Greece isn't imploding?  Spain and Portugal aren't in line to follow? 

What the hell then was this?

Dow down over a 1000 pts intraday.  The market was down all day but there was a massive several hundred point drop within the span of minutes.  The MSM has for months been using leading indicators (ie the giant bear market rally from last March) to claim that we're in a sustainable recover.  How do they spin things if the wheels on that fall off?

What triggered the crash?  Who knows? (us lowly retail folks may never know the real cause).  Of course, there will be plenty of speculation that there was some type of trader mistake, a fat fingered trade, but the point is...if one trader fucking up can trip off a wave of massive (oft computer controlled selling), then how stable is the market?   Stick a fork in it, this bear market rally is done.

Saturday, April 24, 2010

Talk is Cheap

I never thought I'd say it:  But George W. Bush is lookin pretty good compared to the sorry excuse for a President the US has now.  At least Bush wouldn't try to win you over with starry eyed rhetoric (more talk = more Bushism sound clips).   Even if I didn't agree with most of his actions: invading Iraq, instituting a massive new branch of government (Homeland Security), tax cuts that his country couldn't possibly afford, massive deficit least he DID something.

Barack Obama has talked for well over 2 years.  And talked.  And talked.  You'd think he was still in fucking campaign mode.  DO something, jackass!  You have plenty of things that NEED to be done (get out of Iraq, balance the budget, fix the economy, stop bailouts, end fraud).  Yet, all you do is TALK.  Do something.  Fuck, it doesn't even have to be legislative, all you have to do to "fix" the problem of endless corporate greed and fraud is start enforcing EXISTING laws.  Where are the criminal investigations against rampant mortgage fraud?  You can't just fucking scold banks, and then not hold them accountable.  Laws are only meaningful if you actually enforce them.  Reinstate leverage limits if you're worried about "excess leverage".  Start bringing criminal indictments against ALL the fraudulent lending.  Reinstate mark-to-market accounting and get banks to remove all their bullshit off-balance sheet assets.   There's a reason that shit is hidden, it's because no-one wants to see it.  Ban CDS's, move derivitives to be traded on an open exchange.

Or you could give bankers a lecture...ya that will fix everything:

Mr. Obama accused the financial industry of spending millions on lobbyists and offering misleading arguments and attacks to derail the proposed reform legislation, which is aimed at cracking down on Wall Street in the wake of the worst financial crisis in decades.
The U.S. House of Representatives passed a comprehensive set of reforms, while the U.S. Senate is debating a version of the proposals.
Although his tone was stern, Mr. Obama's speech was largely conciliatory, which could help pave the way for passage of the legislation.
"[The] crisis was born of a failure of responsibility--from Wall Street to Washington -- that brought down many of the world's largest financial firms and nearly dragged our economy into a second Great Depression," Mr. Obama said.
Take responsibility for your own actions such as enforcing existing laws, before you start flapping your gums about "banks behaving badly".   It's YOUR responsibility to ensure existing laws are enforced.  Put up or shut up.

If you don't fix the culture of fraud, you will clearly demonstrate the major difference between your presidency and your predecessor's.  While both will be deemed abject failures, I tend to think of your predecessor's defining quality as one of incompetence.  Your legacy, however, will be far worse.  Your presidency will not be defined as one of incompetence, but one of willful complicity with the banking lobby.  Hope and change = more empty rhetoric.

Sunday, April 11, 2010

Canadian Banks - Don't Mess with Our Taxpayer Backstop

Is it really any different here?  Are our banks more prudent?  Are they wise?  Do we have a good banking "system"?

Ask the bankers, and you'll get a resounding "Yes, of course we do!  We didn't need government bailouts!"

Why?  Because they've managed to offload all of their credit risk through lending loads of cash to sketchy borrowers so they can buy houses that they can't afford.  The Canadian banking system is less risky...for the bankers! Risk doesn't magically disappear.  If you lend money to someone who cannot pay it back, and then securitize and sell that debt to someone've just transferred that risk to the bondholder.  And who would that be?  CMHC, ie. the Canadian government, ie the Canadian taxpayer.

So while the banks themselves are safe, everyone else is not.  The Canadian government is already running a massive budget deficit, and this doesn't take into account future spending committments the aging boomers for health care.  Nor does it factor in the costs of covering all these bad mortgage bets for when the housing market corrects. When the MBS's stop generating the returns they're supposed to be providing because the borrowers can't pay...the taxpayer is left holding the bag.

And they aren't giving up that taxpayer gravy train without a fight.  They're worried about global financial reforms that don't take into account "Canada's unique banking system" (ie. Canadian banks mortgages are safe, because the Government is backing them via CMHC - sound familiar? Fannie? Freddie?)
Under Canadian law, mortgage insurance is mandatory if the down payment is 20% or less, in an effort to protect lenders from default. As it happens, the dominant provider of coverage is Crown-owned Canada Mortgage and Housing Corp. Further, the federal government backstops the coverage in the event of a default.
"But there is no credit given to that under the proposed rules," said Don Drummond, senior vice-president and chief economist at Toronto-Dominion Bank. "That's got all the Canadian banks agitated."
As a result, Canadian banks would be forced to have the same amount of capital against their mortgages as a bank in another country operating in a riskier environment.
"Our unique Canadian mortgage market was one of the important reasons why we did so much better than others, and this now may be in peril due to several proposed rules that go over and above the requirements for more capital," Mr. Waugh told shareholders at the bank's annual meeting in St. John's. the much vaunted Canadian banking system, wasn't a result of prudent lending but more about having the government back your assinine mortgage bets? This doesn't sound familiar at all does it?

Mr. Poschmann said the marketplace likes the current setup in Canada, citing that Royal Bank of Canada is able to sell so-called covered bonds to fund a pool of uninsured, but good-quality, mortgages.
Of course, Canadian banks have also benefited from the setup between Ottawa and CMHC. Industry analysts say the mortgage insurance setup has led to relatively low credit risks for Canadian lenders. It is estimated that almost half of mortgages held on bank balance sheets are insured.
Also, CMHC plays a major role in mortgage securitization. Under its Canadian Mortgage Bond Program, established in 2001, financial institutions originate mortgages, pool them and sell them as packages in the form of mortgage-backed securities to an entity called Canadian Housing Trust. The trust, advised by CMHC, issues bonds that pay interest similar to Government of Canada bonds, using the cash flow from the mortgage-backed securities to make the payments.
Gee, duh, I wonder why the banks like this setup where they can take virtually no risk, and can sell overpriced mortgage securities to someone that is guaranteed to buy the shit?   Will the taxpayers like the Canadian "system" when the MBSs blow up and the government is forced to either slash spending (not likely given the spenthrift Keynesian idiocy going in Ottawa), run bigger deficits (welcome to higher interest rates), or increasing taxes (GST back to 7%+). 

To close...let's look at how well this worked out for Fannie:

US housing prices began their fall in 2005.  And delinquencies are still skyrocketing (even though Fannie imploded long ago and has already been seized by regulators).  We haven't even hit our bubble peak yet, as such the CMHC (Fannie North) crisis may be another 5 years out (or more).  This will not end well.