No F#(*!n@ Bailouts!

Noticed some interesting discussion here the other day about personal responsibility and bailouts.  This comment was from Frank Grimes:

I’ve been hoping for a while to see a blog post about preventing a bailout. We all have the general assumption that there will be a crash/burst/melt of the real estate market in Vancouver. Maybe an issue we should concern ourselves with is preventing governments at any level from spending money on flawed and doomed-to-fail subsidies and buyers grants in hopes of stabilizing the market. I see it as being a black hole of money (corroborated by the US experience), and feel that it would hinder the process of resource re-allocation back to parts of the economy that are more “productive”.

Here are a few of my thoughts, how about you guys?

Bulls: Prices are HIGH! If you bought years ago you can cash out and escape Vancouver with quite the bundle now.  Congratulations!  .. or you can let it ride and see if there’s even MORE money to be made!  Exciting times indeed, but how about this: Whichever you choose how about you agree now (while prices are high) that in the event of a housing market crash it’s caveat emptor?  Let’s not try the same failed bailouts and market meddling they’ve tried in the states, how about a real free-market eh?  You win some, you lose some.  No F#(*!n@ Bailouts!

Bears: Election coming, is this the right time to contact candidates and preemptively ask them to pledge to stand against housing market bailouts? In a way the Canadian market is pre-bailed out via the CMHC, maybe it’s time to ask candidates to look at limiting taxpayer exposure to a housing market crash?

Everyone: What is about housing that makes people believe there’s such thing as a free lunch?  Grow some balls and take personal responsibility for your buying decisions.  No one else is going to read your contract for you or protect your bank account, it’s all up to you.  If it’s worth it to you, BUY IT!  .. But FOR THE LOVE OF GOD don’t complain to anyone if it turns out you paid the highest price and nobody else thinks it’s worth that.  It was worth it to you right?  You wanted it, you got the loan, you bought it.  Just shut up and pay for it now, I don’t want to have anything to do with your decision, and I doubt any other taxpayers do, so let’s just say it loudly now:  NO F#(*n@ BAILOUTS!

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jesse
Member
"is this the right time to contact candidates and preemptively ask them to pledge to stand against housing market bailouts?" It's probably a bit late for the federal campaign, as strategies have already been decided. Even when contacting your local MP, I doubt if they see future bailouts as resonating with voters who are overwhelmingly owner-occupiers. You need to find a party who wholly represent a contiguous populace who would end up net negative from a bailout, from a part of the country whose house prices and debt levels are lower than the Canadian average. Write some letters to politicians of the Bloc Quebecois and let them know about how and why French Canada will be bailing out English Canada's Anglo-Saxon profligacy. Even if it's not true, it sounds like a good wedge issue for them and one they have… Read more »
real_professional
Member

Vancouver real estate in Wall Street Journal:

http://online.wsj.com/article/SB10001424052748703

"TORONTO—As much of the U.S. housing market limps along, home prices north of the border are on a fresh tear, fired up in part by a borrowing binge that has sent Canadians' debt to record levels—and now higher than their notoriously profligate U.S. neighbors—while income growth pokes along.

All that has raised worry at the country's central bank, which repeatedly has warned about rising debt levels, and among some economists, who say the market is ripe for a correction—maybe a steep one.

David Madani, Canada economist at Capital Economics, an independent research consultancy based in London, says Canadian housing prices could be in for a 25% drop in the next three years, a correction he says is warranted by the now-inflated ratio of …"

bubbly
Member
bubbly

You can't prevent a bailout of the banks, because it is already happening on the fly via CMHC. They call it "insurance", but it really is just a bailout scheme.

I doubt there will be a bailout for speculators besides the usual "stimulus". The bears have to wait until no stimulus can hold this market…

bubbly
Member
bubbly
@real_professional: The article also contains the usual bullshit: One of the things buoying Canada's market is a global trend that has seen Asian—particularly Chinese–buyers snap up homes in places from Europe to Australia and to Canada, particularly on the West Coast. Chinese buyers have stampeded in to Vancouver and to Toronto, two of Canada's hottest markets. Apparently, the Chinese are also saving Toronto. (and London, Sydney, Miami, Tokyo, etc.) More bullshit: "Canada is seen by Chinese people as a safe haven," (and apparently UK, Australia etc.) and Still, there are a number of safety valves built into the system that would help prevent a U.S.-like meltdown. Yeah, right… and a story about some savvy young buyers: Alex Kuzhel, a 27-year-old, first-time buyer, closed on a two-story home north of Toronto this month, after losing out in several bidding wars. He… Read more »
granite countertop
Member
granite countertop

You know, somebody running in the current election on an anti-CMHC anti-bubble bailout platform could get some good media attention.

Getting your name on the ballot is some work but not difficult if you're determined. There's a deposit that's returned if you get your paperwork back on time, and minimal reporting requirements if your campaign spends less than about $200.

Is there appetite on the board for real-world political action?

registered
Member
registered

#3 bubbly Says: "You can’t prevent a bailout of the banks, because it is already happening on the fly via CMHC. "

Thank you. Why can't people grasp this? My only quibble is 'already' implies a singular event when in fact it's long been at the core of the federal government's 'innovative policies'. Your tax dollars have effectively been shoveled straight into bank profits for the bulk of this run.

Devore
Member
Devore
@granite countertop: Anyone flogging bubble-talk and real estate doom and gloom today is resigning themselves to ridicule and marginalization. Even once the bust is well under way, it will still be very unpopular to be speaking out about it, especially if it has anything to do with swallowing bitter medicine or "I told you so". Only politically palatable talk will have to do with "soft landings" and how the government can help struggling, honest, hard-working Canadian families. Banks will get their bailouts, money renters will get nothing. There will be token measures from various levels of governments, that just throw out relatively small amounts of good money after bad, but accomplish nothing. Some small tax breaks from feds, various incentives for new buyers maybe (like property tax forgiveness). UK, Australia, US, various municipalities in Canada have stepped in with their… Read more »
patriotz
Member
There has never been a homedebtor bailout in any housing bust in Canada. Ever. That includes: 1. The Toronto bust of 1988-93. You know, that metro that decides the outcome of both Federal and Ontario elections. 2. The BC/Alberta bust of 1981-85 (much longer in Alberta). You know, the province that depends on RE and the province that has money to burn. You can add the Alberta midi-bust of 2007-2009 (20% decline) to that. 3. The Montreal bust of 1976-1980. You know, the city that was so crucial to the success of Trudeau and Mulroney. Nor have there been any homedebtor bailouts in the US bust currently in progress. Nowhere. It has never been done because both economically and politically it cannot be done. It cannot be done economically because governments don't have the money. It cannot be done politically… Read more »
CanuckDownUnder
Member
CanuckDownUnder

Just imagine how fast the showies down at the Bank of Canada will have the printing presses running to support that bailout.

zerosum
Guest
zerosum

Patriotz has it half right. What should be discussed is:

(1) Privatize CMHC explicitly in law thereby severing taxpayer backing of the Command Economy pinheads that run the show there now.

(2) Make mortgages in Canada non-dischargeable in bankruptcy as explicit law, just like student loans.

If people want to move real private dollars from their institutional accounts into residential property, they are free to do so. What people should not be free to do is leverage their rent money into a land speculation trade with a tax-payer insured loan from CMHC.

patriotz
Member

@zerosum:

Make mortgages in Canada non-dischargeable in bankruptcy as explicit law, just like student loans.

That doesn't make any sense. The possibility of the borrower declaring bankruptcy discourages irresponsible lending. Removing bankruptcy does not, however, discourage irresponsible borrowing, because borrowers are too stupid.

Regarding your example of student loans, if they were dischargeable in bankruptcy, there would be a lot less lending for students to go to dodgy schools and a lot less student debt.

arbit
Guest
arbit

@granite countertop: Unfortunately, based on the number of comments on the maclean's article (58 as of this posting), the cmhc and its effect on housing is pretty much off the Canadian radar. Better chances with trojan horsing it in with the populist issue of the day.

Though, I don't know if # of comments is a good judge of what's on the canadian mind.

AG Sage
Member

> zerosum Says:

>March 29th, 2011 at 3:13 am

>(2) Make mortgages in Canada non-dischargeable in bankruptcy as explicit law, just like student loans.

That sounds like a great idea, in a Puritanical wonderland it would be, but people are greedy and stupid and you aren't going to stop a bubble by warning people they are on the hook ahead of time. After all, it's a sure thing they are betting on. With this kind of policy in place, the country's recovery from the crash will be 30 years instead of 6-7. Much much easier to choke the flow of money off at the source when it's in speculative territory, if that's your express goal. If punishing people and society is your express goal, then your idea is on the money. (heh)

UnagiDon
Guest
UnagiDon

@patriotz: In the US, some banks have been allowing short sales, where they forgive a portion of the homedebtor's debt, rather than going through the hassle of a foreclosure. In turn, the banks have been bailed out by the Fed. So this is indirectly bailing out the homedebtors.

Crash
Guest
Crash

FYI: if a bank allows a short sale, it will adversely affect the property owner's credit rating. The property owner doesn't get away scott free.

Realist
Guest
Realist
There has never been a homedebtor bailout in any housing bust in Canada. Ever. That includes: 1. The Toronto bust of 1988-93. You know, that metro that decides the outcome of both Federal and Ontario elections. 2. The BC/Alberta bust of 1981-85 (much longer in Alberta). You know, the province that depends on RE and the province that has money to burn. You can add the Alberta midi-bust of 2007-2009 (20% decline) to that. 3. The Montreal bust of 1976-1980. You know, the city that was so crucial to the success of Trudeau and Mulroney. Nor have there been any homedebtor bailouts in the US bust currently in progress. Nowhere. It has never been done because both economically and politically it cannot be done. It cannot be done economically because governments don’t have the money. It cannot be done politically… Read more »
Anonymous
Guest
Anonymous

Vancouver NOT the best place on Earth ? nah, should be a mistake somewhere!

http://www.news1130.com/news/local/article/204523

AG Sage
Member
@UnagiDon: These are non-recourse loans. The home owner only signed a contract that says: I get to keep the house as long as I keep making payments otherwise the bank takes the title. Period. The reason they go with short sale rather than foreclosure is they think it hits their credit report less and it sounds more socially acceptable. Aside from full recourse 2nd liens that might be on the property, short sale vs. foreclosure shouldn't change the financial situation for the mortgage holder, so I can't see it as a bailout. Especially since the bank should want to short sell. Empty properties go to hell really fast and a short sold one has been occupied by someone hoping to get out in what seems to be a reasonable manner so they presumably haven't trashed the place. The billions the… Read more »
bullwhip29
Guest
bullwhip29
@granite countertop: An anti-CMHC anti-bubble bailout platform? Uhh, good luck with this. Too many people (incl each and every pty owner) have a vested interest in keeping the market afloat…forever. CMHC is already considered TBTF by the folks who run this joint as evidenced by the multi billion $ backdoor bailouts it has already received in the last couple of years. Suggestions by others that it should be privatized are only going to fall on deaf ears too. Perhaps after all the $hit hits the fan and some sort of a reorganization is req'd will such options be considered. Of course, splitting this thing into a good bank/bad bank will be par for the course (with the good being stripped out and sold off to RBC, TD etc and the toxic, festering remains being buried somewhere on the taxpayer balance… Read more »
iboughtthree
Guest
iboughtthree

Have you guys seen this youtube about the million dollar home? Sorry if already posted, but made me lol.

http://www.youtube.com/watch?v=SoxbrP-yfV8&fe

joycer
Member
joycer

Interesting, Vancouver was ranked 14th on the list of most prosperous cities. The article makes some remarks about Toronto, ranked 8th, so by extension, we can assume Vancouver was worse:

The gap between Toronto and U.S. cities, such as San Francisco, Boston and Seattle, remains large, particularly on productivity and gross domestic product (GDP).

Toronto sits in the bottom half of the rankings with C and D grades, performing worse than last year on productivity, the report said. The city was in the bottom half of the rankings on GDP per capita.

http://ca.finance.yahoo.com/news/Calgary-Toronto-

Gap with Seattle? Well the gap would be even bigger between Seattle and Vancouver and housing as we all know is half the price.

real_professional
Member

Canadian consumer confidence reverses course in March

http://www.torontosun.com/money/2011/03/29/177928

"The board said attitudes towards current finances were “worrisome,” as about a quarter of Canadians —2.4 points more than last time — said their finances had worsened over the last six months."

"One in five Canadians said they expect their finances to worsen in the next six months."

patriotz
Member

@Realist:

If governments want to intervene to support house prices, there are vastly more cost-effective ways to do it than homedebtor bailouts, namely providing incentives to new buyers. That is where prices are set, at the margin. Writing a cheque to some guy who's upside down on his mortgage does not affect current demand and does not support current prices. It may prevent him from defaulting in the future, but that's the future.

That is exactly why governments which are trying to support house prices, as in the US, Oz, the UK, and of course Canada, rely on tax credits, grants, etc. for new buyers. Why spend $100-$200K to try to keep someone in his house when you can get 10 new buyers for the same outlay?

Manna from heaven
Guest
Manna from heaven
I tried to post this over the weekend but it didn’t appear on the site. Let’s see if it works this time. A lot of talk on the site earlier about how much Vancouverites make. Dave asserted that many in this town make in excess of 250K a year. “So, how much do Canadians actually make? Of the 24.5 million returns filed, 18 million Canadians reported total income of $50,000 or less. That’s not a typo. In other words, ignoring individuals who don’t file returns such as children, nearly 75% of tax-filing Canadians earned under $50,000 in total income in 2009. Add another 5 million Canadians who reported total income of between $50,000 and $100,000 and you conclude that about 95% of individuals have income below $100,000 annually. What about Canada’s highest income earners? 880,000 Canadians reported income in the… Read more »
Dave
Member

@Manna from heaven:

I never said above $250k. It's more like 500,000 Canadians in the range I suggested. BC is about 10% of the population, so let's say 50,000 people in BC, most of which live in Vancouver or West Vancouver.

I think that matches what I suggested.

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