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Love that Canada housing bubble..

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Interesting article over at the National Post on the ‘different here‘ argument.

If the Canadian housing market were to collapse, Canadian taxpayers would be hit hard. The federal government is fully liable for any losses incurred by the CMHC, which currently backs somewhere in the order of $600-billion worth of mortgages. It has been bailed-out by the government twice in the past.

The government needs to act quickly to remove the factors that are causing the market to expand so rapidly, as well as to disperse the risk across the financial system. The CMHC should be privatized, much like the Australians successfully did in 1997. Banks and insurance companies should be allowed to do what they do best — assess risk, without standards being forced upon them by government bureaucrats. Doing so would not only spread the risk throughout the financial system and protect taxpayers, it would also reduce the likelihood of Canada experiencing a U.S.-style housing crisis.

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Marcello

As if privatizing it will prevent the government from bailing it out in the future.

Boy, the Nazional Post is such a waste or trees and bits.

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Aleks

My guess on Australia is that they go the Fannie/Freddie route, which is to say that even though it's "private" the taxpayer will still end up on the hook. The alternative is to let the whole thing collapse, and governments haven't been willing to do that for derivatives, never mind mortgages.

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rp1

#37 @patriotz: Canadian funds held Sino-Forrest after the Muddy Waters report. And it was defended in the Globe and Mail for months. I rest my case 😉

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rp1

#5 @patriotz: it's funny because their pitch seems geared towards generating future business. If two people earning $13.50/hr actually bought that $289k home, odds are it would go right back on that website.

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patriotz

@rp1:

"Couldn’t the Feds buy the mortgages and resell them with no insurance? "

Sure at a big discount. That means the Federal budget would take the deficit hit right then and there.

You're not going to sucker the bond market into anything any more. In the US it won't touch high ratio mortgages these days – they all go through Fannie/Freddie/FHA.

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rp1

#4 @patriotz: "But note that the feds can’t get rid of that $600bn liability no matter what"

Couldn't the Feds buy the mortgages and resell them with no insurance? E.g. in the case of MBS, buy back the bonds and resell them without the guarantee? Maybe to pension funds who didn't learn the first time?

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Anonymous

@jesse:

"The stress tests assume the unemployment rate will rise to 13% in 2013, that the Dow Jones (update: Dow Jones Total Stock Market Index) will decline by more than 50% from the current level. The scenario assumes that house prices will fall another 20%+."

I would be surprised if the above or close to it doesn't happen within 5 years. If interest rates rise the dominoes will fall. Look at Italian bonds for an example what might happen to the US in 3 to 5 years. What would the DOW, real estate and unemployment look like with a 7% 10 year bond in the US? There is nothing to indicate they will change course from the current situation which is heading downhill fast and at some point the bonds will spike.

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Makaya

@DEFAULT NAMEe: "You don’t stress test an aircraft by exposing it only to conditions likely to be encountered in normal flight."

That's right, not for normal flights, but for unusual flight conditions that will likely happen once in the lifetime of the aircraft. That's what stress tests are about.

As for the bank stress test, the scenario may or may not occur, but should it happen, banks should be able to survive. What this test shows is that what was once inconceivable is now regarding as a worse but likely scenario…

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Anonymous

@chip: …..Of course, from a govt department that gave us Operation Sidewinder nothing should surprise. ….

And, of course, for those that don't know, you're referring to the Liberals.

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Anonymouse

@jesse:

I guess that's why they call it a stress test? You don't stress test an aircraft by exposing it only to conditions likely to be encountered in normal flight.

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jesse

CalculatedRisk Fed outlines new bank supervisory stress test

The stress tests assume the unemployment rate will rise to 13% in 2013, that the Dow Jones (update: Dow Jones Total Stock Market Index) will decline by more than 50% from the current level. The scenario assumes that house prices will fall another 20%+.

Would never happen.

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RippedtoShit

the chinamen will do fine.

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Patiently Waiting

@Best place on meth: One thing I noticed lately is less things "Made in China".

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jesse

@Yalie: I didn't hear them screaming for controls on banks who have been lending out money at terms that aren't sustainable in aggregate. I'm not against MI, private or public, I'm against people blindly touting the "free market" as a solution without seeing the bigger picture. Australia's private market "success" hasn't been fully vetted yet.

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Best place on meth

China's factory output falls, now contracting.

Back at financial crisis levels.

http://news.yahoo.com/china-november-factory-acti…

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frank

@Yalie:

I don't mean to answer for Jesse, but what I suspect he is saying, is that the National Post is big right-wing money talking, like Macleans, total rags.

When the Tories doubled they CMHC they kept quiet as their backers were losing money, and now that the CMHC is a calamity waiting to happen they suddenly want a free market solution!

Too F888ing late! The time for free market solutions was 3 years ago!

We are already screwed.

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Makaya

@Yalie: let the banks do what they are supposed to: assess risk! No need for insurance.

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paulb.

New Listings 167

Price Changes 57

Sold Listings 102

http://www.laurenandpaul.ca

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Anonymouse

There are currently 18 condos and 7 houses in Vancouver listed as being in foreclosure on ForeclosureGo. Will be interesting to revisit these figures in 6-12 months.

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chip

@PennyStock:

What's really 'disturbing' about that audit of the visa section is that they found no changes were made after an audit ten years ago found the same gaping holes.

Well, I call it disturbing but maybe a bureaucrat would call it another day at the office.

Of course, from a govt department that gave us Operation Sidewinder nothing should surprise.

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Yalie

@jesse:

LOL too late! But nice flawed theory nonetheless.

Fascist Post says markets know best? Whuddasurprize!

I don't get it – are you in favor of government backed mortgage insureance (CMHC) or not? If you're not, what else are you suggesting other than the free market solution?

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PennyStock

"Auditor general finds 'disturbing' flaws in visa system"
http://www.cbc.ca/news/politics/story/2011/11/22/…

The audit identified a number of problems: it found that many of the criteria used by visa officers to identify high-risk applicants are outdated; CBSA analysts who provide security advice to visa officers have not received the necessary training; their work is rarely reviewed; and there was no evidence that mandatory checks were completed.

"This means that CIC and CBSA don't know if a visa was issued to someone who was in fact inadmissible," Wiersema said.

The interim auditor general was asked at his news conference whether the flaws in the system means there are people who were granted entry to Canada who should have been kept out.

"The department is not able to provide us with assurance that that's not happening," he responded.

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SoFaKinG_Good

Oh common people. You poo-pooed my last post about a classic boiler-room operation but none of you are probably familiar with technical analysis.

It's a spinning top. All bets are on. Double or nothing. Everything on red. This casino is heating up.

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jesse

@DEFAULT NAMEe: I don't know of a private mortgage insurance scheme that has survived a housing correction of the magnitude that's in store for Canada and Australia. Australia's private model hasn't been thoroughly vetted, don't know much about the UK model. Housing market busts perpetuated by loose lending policies — supported by the government — cannot be solved with a private solution. It seems intuitively impossible.

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Bally

Interesting idea but the private mortgage insurance industry has not done a great job of assessing risk in other countries. All they've done is package their insurance to hide the risks and sell it on to other suckers. That made a few financial institutions a LOT of money for a few years. Until it didn't. And then the government bailed them out sticking the tax-payer with the bill anyway.

What might be a more interesting option is to look at how the CMHC could avoid paying out on loans where the banks didn't do their homework properly and lent money without a proper assessment of the borrowers ability to pay.

Then again the banks will probably just claim they are too big to fail & the government will bail them out leaving Mark Carney to eat these words (http://www.cbc.ca/news/canada/windsor/story/2011/11/04/mark-carney-financial-stability-board.html)

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