Bailout a bust. Holy crap.

Colour this the nightmare scenario for George Bush and the American political establishment. The American Congress has reached a total stalemate on the passage of the $700 billion bailout of Wall Street. At this hour, the bill has been technically defeated, a development which has caused the Dow to sag more than 500 points and the TSX to plunge over 800 points.

This comes just hours after three more banks failed – one in the US, one in Britain and another in Europe. Without the bailout, American leaders are warning of the possibility of Depression-like consequences, including the failure of dozens, perhaps more than a hundred, banks.

Congress is paralyzed at the moment, as members horsetrade in the corridors and hallways, with the White House desperate to find enough votes to get this deal done. With the US Presidential election less than 40 days away, this has the potential to be a game-changing development of historic proportions, virtually guaranteeing the defeat of Republican John McCain, and seriously hobbling the coming presidency of Barack Obama.

If Congress does not pass this bill when it comes before the legislature once again, the market drop seen thus far will pale in comparison to the consequences at the end of the day.

From the Globe and Mail, and wire services:

Mr. Bush and his economic advisers, as well as congressional leaders in both parties had argued the plan was vital to insulating ordinary Americans from the effects of Wall Street’s bad bets. The version that was up for vote Monday was the product of marathon closed-door negotiations on Capitol Hill over the weekend.

“We’re all worried about losing our jobs,” Rep. Paul Ryan, R-Wis., declared in an impassioned speech in support of the bill before the vote. “Most of us say, ‘I want this thing to pass, but I want you to vote for it — not me.’ “

With their dire warnings of impending economic doom and their sweeping request for unprecedented sums of money and authority to bail out cash-starved financial firms, Bush and his economic chiefs have focused the attention of world markets on Congress, Mr. Ryan added.

“We’re in this moment, and if we fail to do the right thing, Heaven help us,” he said.

From the Wall Street Journal:

Investor sentiment on Monday also suffered a blow from aggressive selling in European markets after four financial institutions there sought rescue plans. Three governments bailed out Fortis, the U.K. government nationalized mortgage lender Bradford & Bingley, Germany’s Hypo Real Estate Holding was rescued by a consortium, and Iceland stepped in to save a local bank. All major European indexes were down more than 4% , with financial stocks leading declines.

The troubles in Europe sent the dollar rallying against the euro and the British pound. The U.S. Dollar Index, which measures the greenback’s value against a basket of six overseas denominations, rose 0.7%.

Oil futures dropped slid almost $8, trading under $100 a barrel in New York as fears about slowing demand due to global economic weakness gripped the commodity markets. The broad Dow Jones-AIG Commodity Index slid more than 4%.

Analysts said the flurry of developments around the world is confirming fears that the global financial contagion is likely to spread further before any recovery. “There’s an increasing realization that the cleanup and the mending of all that’s gone wrong is going to take an extended period to work through, and we’re going to see an extended recovery period,” said Jamie Spiteri, senior dealer at Shaw Stockbroking in Sydney.

Well, it looks like there will be no further voting in Congress today – at least, that’s the buzz. Too dangerous. Too much risk of another failure. Stakes far too high.

The immediate consequences are unknown, but it would appear this development will accelerate the financial meltdown currently taking place. Given current events, consumers might well expect higher borrowing costs, just as homeowners face stiffer mortgage costs and new home buyers encounter a cold shoulder from bankers. In our modern world, credit is the lifeblood of commerce, and the failure of this bailout is potentially monumental.

So, are there consequences for Canada? For our election? For the government?

The coming few days will tell, of course, but the fact remains we are vulnerable. As detailed in the post below, the current administration has not taken defining steps to safeguard Canadians.

The middle class is at risk. Will it notice in time?

122 comments ↓

#1 Rasputin on 09.29.08 at 3:41 pm

Well what do you know? Congress grew a pair.

#2 Greg in Victoria on 09.29.08 at 3:50 pm

so… if I am at risk, how will I know when/if my canadian bank is about to fail?

How can I learn the extent of overpriced mortgage exposure a particular bank owns (e.g. mortgages issued since we entered bubble territory in 2004/5)?

Where should I put my money?

#3 tickytac on 09.29.08 at 4:00 pm

Wow, we live in interesting times. It seems to me the choices are fail now or fail later. Maybe it is better that the metaphorical bandaid is ripped off quick.

#4 The Tallyman on 09.29.08 at 4:24 pm

It’s All In The Packaging.

If you want people to jump into something you have to at least whisper a few sweet nothings in their ear.

Right out of the gate Bush, Paulson & Bernanke have shown there is nothing for Joe citizen other than paying the check for the planned pigfest.

No Trust= No Support.

#5 Brad on 09.29.08 at 4:31 pm

Amidst all this, number of people in Alberta behind on their mortage payments doubles:

http://www.cbc.ca/canada/edmonton/story/2008/09/28/mortgage-woes.html

#6 Rob in Madrid on 09.29.08 at 4:40 pm

For the election, nothing, Harper will get re elected, Canada will tip into a recession and Harper will have the last laugh for calling an early election!

#7 David on 09.29.08 at 4:46 pm

There must have been a lot of stomach churning on Bay Street today. The 800 point drop on the TSX index must be a world record among the G8 nations. Congratulations!! That was enough of a screaming short to make overnight billionaires out of janitors. Undoubtedly, my federally locked in private pension plan took a financial flaying and I have no macabre desire to peek at the NAV today. The over compensated financial wizards and oracles have no bag of tricks anymore to dupe the financially unenlightened or the unwitting holders of these garbage assets.
Too bad there is not some metric for national anger, because it is probably at a near record today, just like the record TSX plunge.

#8 y3maxx on 09.29.08 at 4:54 pm

…To my Renter Friends who are waiting for Real Estate prices to drop.

You guys wont be buying homes at any price…because you wont have jobs with the way things are going down.

You need jobs along with a downpayment to buy a home.

SO BE CAREFUL WHAT YOU WISH FOR MY FRIENDS.

…Ontario is a manufacturing and financial economy with an overpopulation to boot.

…Quebec and the Atlantic Provinces are even less desirable.

…Move west young man, move west to the new “Centre of the Earth” of Canada.

Sask and Alberta are boom/bust due to Natural Resources…..Vancouver will become the new capital of the Centre of the Earth for Canada….if it isn’t already….Financial, Shipping, Natural Resources with the Far East… there are only @ 1 million people and the city has international citizens.

Real Estate is not as expensive there as you may think.

…You get lots and lots of propoganda from guys like Uncle Garth.

jmo

#9 ballkan on 09.29.08 at 4:58 pm

Sell your house and…………..

Well start buying Gold

if you have not got it yet !

#10 Westcoaster on 09.29.08 at 4:59 pm

Garth’s last line: “The middle class is at risk. Will it notice in time?”
You would think peoples’ attention would be directed in a very focussed manner to Wall Street and the White House right now. Personally, I don’t envy the decision-makers right now as there is obviously a choice for them that is quite unenviable. To quote Woody Allen:
“More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.”
Well, it’s not quite that bad.

#11 S.G on 09.29.08 at 5:01 pm

I think they made the right move to vote against the bailout. Why should taxpayers pick up the bill, when people on Wall st have been making money hand over fist. Let the companies that were not responsible meet there destiny, if it means going belly then that’s what is means.

#12 dd on 09.29.08 at 5:02 pm

What is up with the US government? Inaction at this point might be worse than action!

#13 nearmilton on 09.29.08 at 5:27 pm

How will this failed bailout passing event affect the Canadian elections? Citizens will generally be miffed that weekend and have opportunities to discuss amongst family members after eating too much turkey. They will look at their RRSP and MF balances, house values, then the next day they will take it out with their vote. The timing of these elections isn’t very good in hindsight, as it will lead to many people making knee jerk reactionary decisions. Wonder what the politicians have planned?

#14 Calgary Rip Off on 09.29.08 at 5:38 pm

Garth,

Nice post. $700 billion of paper wont fix the problem. It may provide the “oil” for the market but it doesnt solve the problem. Greed is the central problem here. There is no fixing that problem. I managed to get out of the USA(married to a Canadian) in 2003. The USA is a third world country now owned by China. So there is no fixing it. Period.

Consequences to Canada are that USA wont be able to afford Canada. Lumber, oil, etc. More than likely the dollar in the USA will be worth half what the Canadian dollar should be. However, that is how it should be. :)

#15 Bailing in B.C. on 09.29.08 at 5:43 pm

Unbelievable! I literally gasped when I heard this.

Glad that I planted a garden, learned to can food, paid off all my debt and started watching re-runs of The Waltons.

Now I just need to get a cow and some chickens and I’ll be set.

What about you?

#16 Ski Goddess on 09.29.08 at 5:57 pm

However, what of the $630 Billion the Fed is going to pump into the market? The tail is wagging the dog I feel. It’s disaster politics at its best.

http://bloomberg.com/apps/news?pid=20601087&sid=a9MTZEgukPLY&refer=home

#17 Dropper on 09.29.08 at 6:00 pm

Looks like “Repo Man” will be the next hot career for a while.

#18 Garry on 09.29.08 at 6:47 pm

However, prices in Mississauga,Oakville,Milton,Georgetown,Burlington are higher from last year between 5% to 15% even when we have nine months decline of sales and high inventory level.
Stock Market is different world, so even gold today hit $918/oz,It went up over 25% within 2 weeks .
I don’t think that will be any negative correction in prices for GTA-West. Wait and you’ll see from March/09,
prices will incease 10%.
I am seller and If somebody wants to buy my house than he’ll pay my asking price. I’am god, and my word is final for price. PERIOD

#19 MBS-Economy on 09.29.08 at 7:22 pm

Garry #17 – You sound like exactly those people in Vegas/Arizona/Florida who were still in denial until late last year. Hahaha. Good luck to you.

#20 dave on 09.29.08 at 7:37 pm

# 11 SG…
(and others…)

The bailout is not to bail out just Wall St, and leave the rest of us in the lurch.

The bailout is to bail out Wall St, and by extension allow credit to continue to lubricate our economic engine(s).

Yes, collectively we have gorged on credit over the past several years (both sub-prime and other). But the shortage of credit now, and the lack of trust, leave our economic engine at risk of grinding against itself in an proportionately subtantial slowdown due to the lack of lubricating liquidity.

If you all think this bailout was unpopular on Main St, try to imagine for one moment how incredibly unpopular it would have been in Washington.

Think about what could have possibly motivated George W. to stain the final chapter of his administration with this bailout.

Imagine how much the Democratic leadership, Obama, and even McCain would have loved to say NO to the bailout.

And yet they didn’t.

Because despite the ridicule that they receive there are some very smart people in washington, and they have some very smart advisors.

This bailout was killed by the rank and file congress who were scared of their re-election prospects.

It has been said that democracy is the tyranny of the uneducated majority, and this tragic turn of events is proof of that.

The populist mainstream, who are braying against this “Wall St bailout”, have just cut their noses off to spite their faces.

Personally, I am a low asset, no debt, high income young person and so this is a great turn of events for me.

But for our society and economy as a whole, it is a tragic turn of affairs.

#21 Wooss on 09.29.08 at 7:41 pm

However, prices in Vancouver, Richmond, Burnaby and so on are higher from last year between 5% to 15% even when we have nine months decline of sales and supper high inventory level.
Stock Market is different world, so even gold today hit $918/oz,It went up over 25% within 2 weeks .
I don’t think that will be any negative correction in prices for GRVD. Wait and you’ll see from March/09,
prices will increase 7%.
I am seller and If somebody wants to buy my house than he’ll pay my asking price.
And I will play domino with Garry at the nuts house……sometime after March 09
Lunacy rocks……

#22 JO on 09.29.08 at 8:06 pm

I am very happy the “bailout” (of Morgan Stanley and GS which is what it really is) was voted out. Never have we seen such a brazen attempt at a pwer grab by Paulson and Bernanke. The bailout would do nothing do create jobs nor help the banking system as a whole. No recap of banks, and the taxpayer would be left holding the bag. The bailout as proposed was a fraud. The Treasury secretary had ample discretion on pricing and the decision on warrants. The fact taxpayers are told they “have” to bailout speaks to the house of cards that is the US and by extension golbal financial system. Debt on debt, fiat money garbage. Yet a quick look at a long term Dow/Gold chart indicates the whole system is a farce..credit is not money and all credit based systems eventually self-destruct as the amount of “new”credit is not large enough to overcome the amoutn of debt in default and about to go bad/being paid down. Thanks to the dizzying array of pathetic and fallacious “interventions” and “bailouts”, government is assuring that the outcome will be what it does best: Turning serious but managable crises into outright catastrophies. Keep this going and GD 2 is upon us within 12 months. Unfortunately, the US will have to do “something”. The issue has never been that the public does not support the bailout in any way, but only that the initial bailout draft voted on is a complete fraud. Hopefully, a re-worked plan that is much more sound will be forthcoming. We are on the verge of a total economic collapse over the next 12 months if governments continue their current course. The housing market in most places in GTA is showing obvious strains and should be declining for 4-5 years at least..by the way, can anyone believe the NDP jokers with their platform announcement ? Basically amounts to increasing corp income taxes to pay for social spending…I’m all for spending more on kids and hospitals, but increasing income taxes of any kind will only result in a worse economy..less jobs, deficits due to less tax revenue despite the higher tax rates and a destruction of ther very social programs they claim to sponsor..usually done out of necessity by the government that follows..if NDP win at the Federal level, i will sell everything I have, move in with a bunch of artists who share a Queen street loft, collect welfare, and buy myself some paint brushes and paper and spend my days throwing paint at paper. Be prepared for a powerful wave of socialism/populism to sweep the world in the next 4-5 years..maybe a good time to get a government job now since they will likely be the only ones hiring in the next decade !
JO

#23 islander on 09.29.08 at 8:06 pm

ymaxx writes: “Real Estate is not as expensive there (Vancouver) as you may think.”

Load up.

Garry writes: “I am seller and If somebody wants to buy my house than he’ll pay my asking price. I’am god, and my word is final for price. PERIOD”

That may be how it worked in the Soviet Union, but it ain’t how markets work over here.

#24 Shifty on 09.29.08 at 8:22 pm

JOHN PARTRIDGE

Globe and Mail Update

September 29, 2008 at 4:51 PM EDT

A hurricane of bad credit card debt will start crashing ashore in the United States in the first quarter of next year, even as the mortgage crisis continues, analysts at New York research firm Innovest Strategic Value Advisors warned Monday.

#25 dd on 09.29.08 at 8:27 pm

14 Calgary Rip Off,

If the US cannot buy our oil then the CDN buck will go in step with the US buck against all others. Oil is not easily exported outside of Canada except for pipeline going south. It would take Canada years to develop this market too.

We are joined a the hip with the US

#26 dd on 09.29.08 at 8:29 pm

#9 ballkan,

Is that your diversification strategy?

#27 Calgary rip off on 09.29.08 at 8:30 pm

y3maxx:

More assumptions again. Ever heard of health care? Im the guy you will see if you have a heart attack at your hospital. Think hospitals/health care will go out of business? Dont think so buddy.

Bring on the Calgary crash. Houses costs $200,000 for them thar shacks. Yippee!!!

#28 dd on 09.29.08 at 8:32 pm

#5 Brad,

Reading a little more into the article …

” the people in trouble make up only 0.28 per cent of all the mortgages in Alberta, and that’s not enough to affect property values. “

#29 dd on 09.29.08 at 8:34 pm

#6 Rob in Madrid,

Going into a recession what party is best to govern? What leader is best to lead?

#30 Garry U R N Denial on 09.29.08 at 8:36 pm

Garry,
Reality check:
Your word is the final price. But as a buyer, we have the final say and your house will sit and sit and sit some more on the market.
PERIOD.

#31 JMack on 09.29.08 at 8:44 pm

You will have to be God, with mind control powers to get what you are asking, for your Urban sprawl dump in loser land. I’m sure someone will give you what it was worth in 02/03 in a couple years. Once everyone in your neighbourhoods job gets shipped to Mexico or China, who is gonna want it or be able to pay for it.

#32 Peter in Toronto on 09.29.08 at 8:49 pm

God eh Garry?

When you lose your job or pension fund craps out and you need to liquidate to pay mortgage or property tax what then?

We are a society all are members no one is god you idiot!

It is inane comments and attitudes like that that have gotten us in this mess.

BTW yes prices in Toronto west will go down. There is no exeption. That is as retarded as those who said Canada is different.

#33 Mark on 09.29.08 at 8:52 pm

“I am seller and If somebody wants to buy my house than he’ll pay my asking price. I’am god, and my word is final for price. PERIOD”

So.. i hope you arent planning on selling it any time in the next 5 years?

#34 Bailing in B.C. on 09.29.08 at 8:58 pm

Garry #17

You’re not god, you’re a dumb arse.

I am a seller and if somebody wants to buy my house than (sic) he’ll pay my asking price. My asking price is 700 billion.

Any takers?

#35 Tony on 09.29.08 at 9:11 pm

Home prices are going to come crashing down as more and more people wake up to the coming crash. Homes in the GTA weat, east, north, and south have been coming down in price as increasing inventory and falling sales ALWAYS lead to lower prices. People like Garry are delusional people clueless to reality. Homes are not selling. In fact home prices are dropping and still they are not selling. Garry when you wake up from your RE propaganda sleep you will wake up to a nightmare as you find yourself upside down on your mortgage. Many people RIGHT NOW are losing their homes as the “power of sales” are popping up more and more on MLS. The financial bubble (markets) and housing bubble are all crashing back down to earth all around the WHOLE WORLD. FYI garry Canada is part of the world.

#36 observer on 09.29.08 at 9:34 pm

y3maxx,
You must be smoking the local agriculture in BC. I too am a West coaster. My family has been in the land development business for almost 50 years here. I’ve got a new flash for you, REAL ESTATE IS VERY EXPENSIVE ON THE WEST COAST!!. I know, it’s a shocking development, by try and keep up. When the average house hold income going to support payments on the home reach over 70%, guess what, it’s because………wait, here it comes again……..REAL ESTATE IS VERY EXPENSIVE ON THE WEST COAST!!

#37 wealthy renter on 09.29.08 at 9:40 pm

“Well what do you know? Congress grew a pair.”

Even the congresswomen? :)

#38 brazer on 09.29.08 at 10:05 pm

The next step of this panic could become the mother of all bank runs, i.e. a run on the trillion dollar plus of the cross border short-term interbank liabilities of the US banking and financial system as foreign banks as starting to worry about the safety of their liquid exposures to US financial institutions; such a silent cross border bank run has already started as foreign banks are worried about the solvency of US banks and are starting to reduce their exposure. And if this run accelerates – as it may now – a total meltdown of the US financial system could occur. We are thus now in a generalized panic mode and back to the risk of a systemic meltdown of the entire financial system. And US and foreign policy authorities seem to be clueless about what needs to be done next. Maybe they should today start with a coordinated 100 bps reduction in policy rates in all the major economies in the world to show that they are starting to seriously recognize and address this rapidly worsening financial crisis.

http://www.rgemonitor.com/roubini-monitor/253801/the_us_and_global_financial_crisis_is_becoming_much_more_severe_in_spite_of_the_treasury_rescue_plan_the_risk_of_a_total_systemic_meltdown_is_now_as_high_as_ever

#39 brazer on 09.29.08 at 10:08 pm

Bank of Canada lines up more U.S. cash in case markets freeze
http://www.cbc.ca/money/story/2008/09/29/swap-line.html

“This facility would be accessed, should the need arise, to provide U.S.-dollar liquidity in Canada. If drawn on by the Bank of Canada, the swap would provide liquidity facilities for use by financial institutions in Canada,” it said.

yikes.

#40 y3maxx on 09.29.08 at 10:09 pm

Congress will draw a better deal.

…It is not about Main Street bailing out Wall Street Bankers or any foreign debt owed.

The U.S. should Nationalize some or all of its foreign debt…except Mexico’s or Canda’s.

Real Estate 101…..near public transportation, shopping with simple 2 0r 3 bdrm suites/homes will retain or even increase in value.

Luxury 5 – 7 Bdrm, 5 bathroom 3 car garage homes are history.

#41 Marky Mark and the funky bunch on 09.29.08 at 10:21 pm

maybe this will mark the day when people finally wake up that life isn’t all about making the mighty dollar at any cost…..maybe just maybe when people finally realize it was all a smoke screen, they’ll come to appreciate the small things in life………..but I doubt it.

#42 RE: DD on 09.29.08 at 10:31 pm

DD
Is there anything more diversed then GOLD itself.
Easy to buy easy to sell and you can not just make it.

And if you still do not get it :

GOLD has no liability to anyone.
Try that with stocks bonds houses and anything you can think of ???
All of the above have some form of counter -part liability.

#43 y3maxx on 09.29.08 at 10:35 pm

War is ineveitable too, will take people’s minds off any recession/depression.

U.S. vs Cuba, Venezuela?

China vs Russia over Siberia and all its natural resources?

Israel vs Iran?

or a

North American Union, Mexico/U.S./Saskatchewan/Alberta/British Columbia.

Big changes on the horizon my friends.

You heard it here first.

#44 Ballkan to DD on 09.29.08 at 10:35 pm

DD try to buy any gold or silver coin or bar at KING AND BAY in Toronto this week and tell me if you found any.

#45 Rasputin on 09.29.08 at 11:05 pm

Gary…You should grow a pony tail and do standup.

#46 Republic of Western Canada on 09.29.08 at 11:38 pm

The key here is to ensure that those most guilty of the most greed take the biggest hit(s).

The Lehman Bros, Country-wide Mortgages, Enrons, and leased-Hummer-in-MacMansion types all deserve the biggest shock. Not those of us who painfully attempted to live within our means (at whatever salary we have). Let the mortgaged-to-the-hilt crowd and the greedy bastards on Wall St and banking HQs be the first (and only) to cough up blood.

If we really need extra liquidity (which I doubt), then LEGISLATE MANDATORY LOANING between financial institutions instead, and let them writhe in the poisons of their mutual risk – not those of us who refused to wallow in squandering luxury, or rip off the financial establishment ad nauseum.

There will be 3 possible scenarios to the Cdn Fed election, in this order of probability. a) Conservative majority – where any attempt to do bailouts will be tempered & limited by the same arguments in the U.S.; and where I get to keep my hunting rifles b) Cons. minority – where it’s pretty much gridlocked business as usual; and where I can still feed myself with my hunting rifles c) Lie-beral minority (not majority) – where slow but humongous expansions to the public debt will start, to bail out overextended house-owners, and where the ‘nanny-state’ will slowly attempt to grab my last means of feeding myself away, through stupid, wasteful ‘gun-control’ initiatives. To say nothing of a foreseeable 20% GST under Lie-beral government.

#47 Dawn in Calgary on 09.29.08 at 11:45 pm

The Rich Are Staging a Coup This Morning …a message from Michael Moore

Friends,

Let me cut to the chase. The biggest robbery in the history of this country is taking place as you read this. Though no guns are being used, 300 million hostages are being taken. Make no mistake about it: After stealing a half trillion dollars to line the pockets of their war-profiteering backers for the past five years, after lining the pockets of their fellow oilmen to the tune of over a hundred billion dollars in just the last two years, Bush and his cronies — who must soon vacate the White House — are looting the U.S. Treasury of every dollar they can grab. They are swiping as much of the silverware as they can on their way out the door.

http://www.michaelmoore.com/words/message/index.php?id=235

++++

His politics aside, I like Michael Moore’s style — he’s trying to get the Americans to pay attention.

Back on topic — anyone know what the Kitchener/Waterloo market is like right now? Might be looking to relocate from Calgary. At least house prices have some sense there (via MLS).

d

#48 POL-CAN on 09.29.08 at 11:54 pm

confesion from a bankster :)

We on Wall Street feel somewhat compelled to take at least some responsibility. We used excessive leverage, failed to maintain adequate capital, engaged in reckless speculation, created new complex derivatives. We focused on short-term profits at the expense of sustainability. We not only undermined our own firms, we destabilized the financial sector and roiled the global economy, to boot. And we got huge bonuses.

But here’s a news flash for you, D.C.: We could not have done it without you. We may be drunks, but you were our enablers: Your legislative, executive, and administrative decisions made possible all that we did. Our recklessness would not have reached its soaring heights but for your governmental incompetence.

If any of you think that the bailout was going to help in any way for more then a few months…. I want what you are smoking…..

#49 Adil Burney on 09.29.08 at 11:57 pm

Garth said:

The Canadian market is doing exactly what I forecast. This will continue. Declines in prices of 10% or 12% in Alberta will become 20% and 25%. Vancouver ultimately will be even harder hit, and Toronto values will drift lower at the end of 2009 by about 15%. Some neighbourhoods, far more.

While I have the utmost respect for Garth, I think he is understating the declines.

One of the people who has been 100% correct thus far (Meredith Whitney) is looking for a complete unwinding of the post 2001 boom or about a 40% US correction.

I would submit based on Garth’s logic that Canada’s boom being similar in price appreciation to the US that we should also have a similar bust. Therefore, 15% in Toronto given the explosive move up is probably too conservative. Perhaps 30%?

canadahousingcrash.blogspot.com

#50 Mike.Slob on 09.30.08 at 12:01 am

Something has just hit the fan.
OOOhhh, Canada.
Canada has different Market?
Garry, I’m agree with you.. in Canada is still sellers market!And RE prices are too,too expencive.
I don’t know about RE prices for March/09,but
you can see only double digits decline of sales in Toronto Area till March/09. Period.

#51 Noz on 09.30.08 at 12:33 am

Does anyone actually think for a moment that even if this bailout plan goes through, it’s going to help in the near term?

It’s not going to do shit.

#52 David on 09.30.08 at 12:55 am

Bailing in BC, take up urban ranching. Irish Dexter Cattle are famous for production of both meat and milk. Tell the local animal control officer they are pets destined for freezer wrap.
Y3Maxx I really WISH you would make intelligent funny posts, but alas I was not careful what I wished for and have to read your insipid drivel. Real estate not as expensive as you think huh? A million dollar Vancouver 80 year old 2 bedroom shack requires a family income of $350K. Yeah, that is way more expensive than any non psychotic idiot can comprehend.

#53 Mises of Milton on 09.30.08 at 1:07 am

As a financial analyst who works with a pension fund and hails from the Austrian school of economics, I would only add one tidbit for all of you to consider. The one wrinkle in all this is that in our current global monetary system the US dollar is the senior currency. If any other country did what the US has been doing in the last little while (massive debt, 0 % personal savings, massive balance of trade deficit), it would default…Argentina and Brazil exemplified this perfectly a few years ago. Yet while the US engaged in its financial trompe d’oeil over the last few years, there were more than a few institutions in other countries (UBS in Switzerland, Fortis in the Benelux nations, Northern Rock in the UK) that followed its lead by engaging in mass purchases of assets based on crap loaning standards, albeit with a less voracious appetite. Let there be no doubt that the USA was the main culprit in this all; but, my friends, the next point is crucial. If the global situation gets rocky enough, there is a real possibility that the market again perceives the US as a safe haven and the US dollar surges. Yes, this would be a perverse irony, but it could be a very real reality. (Factor in the possibility of some global conflict like Israel vs. Iran, and this becomes even more apparent.) In this situation of a flight to USD safety, gold would not jump substantially in relation to the US Dollar. Indeed, it could even drop. (Again, I realize how perverse this all is. The very people who cause the chaos benefit the most from it. But rest assured that the logic is sound. The US will pass some kind of protection to ease the CDS markets once everyday investors feel enough pain; the broader market will quickly accept this as a standard for confidence and re-embrace the dollar. Google respected and proven contrarian investors like Marc Faber for more discussion on the US dollar.)
As for the perennial gold bulls, I applaud that you have made the first step to see through the MSM nonsense, and know that I believe absolutely in the value of the gold standard. In an absolute vacuum, gold is valueless. But in the reality of this world, the gold standard forces governments and nations to confront their own spending habits. Indeed, history shows that’s the only reason Nixon abandoned it–to help shield the public from feeling the cost of the Vietnam war. Pick up a history textbook or Google this if you don’t believe me.
Nevertheless, I would caution you from swallowing too much of the yellow stuff by mistaking it as a panacea. Consider a few facts:
1) We live in an era of unprecedented central bank manipulation. Central bankers understand the same axiom that we all do (currency devaluation causes gold to surge). Expect them to react accordingly (concerted efforts to short gold and flush out any remaining bullish leverage, trading bans etc.)
2) Government Redistribution: Anyone who profits from the coming market should bank on an envious and angry populace trying to extract their pound of flesh. Of course, I don’t mean this literally. But understand that politicians will exploit the extraordinary ignorance of the populace by establishing rapacious populist policies that attack the prudent (stringent gold possession regulations, gold tax, gold capital gains rules etc.). This will be a particular concern in America, but I see no reason why it wouldn’t pop up elsewhere. Envy is all-too-human. The legislators will cook up some phoney explanation, and the people will happily cheer as the pitch forks are sharpened. If you think my portrayal is baseless or irrational, remember that these are the same people who launched a bogus war and created a system that somehow convinced itself that people making 26 K a year could afford 500 K mortgages. This is not a partisan comment; Democrats share a lot of blame with the Republicans. But don’t underestimate the appeal of a populist redistributionist measure in a time of desperation.

#54 kc on 09.30.08 at 1:15 am

Hi Garth and all rest.

As for what is happening today, only question that enters my mind is, wasn’t this crash actually inevitable with the unraveling of the derivitives markets, the off sheet vegetable soup and the overextended N. American consumer?

I read this article a couple years ago about the property bubble in Japan. Thought I would share this with you all.

http://www.nytimes.com/2005/12/25/business/yourmoney/25japan.html?pagewanted=print <<<<(full article)

Take It From Japan: Bubbles Hurt
By MARTIN FACKLER
KASHIWA, Japan

(first 4 paras)

FOURTEEN years ago, Yoshihisa Nakashima looked at this sleepy suburb an hour and 20 minutes from downtown Tokyo and saw all the trappings of middle-class Japanese bliss: cherry-tree-lined roads, a cozy community where neighbors greeted one another in the morning and schools within easy walking distance for his two daughters.

So Mr. Nakashima, a Tokyo city government employee who was then 36, took out a loan for almost the entire $400,000 price of a cramped four-bedroom apartment. With property values rising at double-digit rates, he would easily earn back the loan and then some when he decided to sell.

Or so he thought. Not long after he bought the apartment, Japan’s property market collapsed. Today, the apartment is worth half what he paid. He said he would like to move closer to the city but cannot: the sale price would not cover the $300,000 he still owes the bank.

With housing prices in the United States looking wobbly after years of spectacular gains, it may be helpful to look at the last major economy to have a real estate bubble pop: Japan. What Americans see may scare them, but they may also learn ways to ease the pain.

#55 Mike.Slob on 09.30.08 at 1:38 am

Ouch!
Yesterday,the S&P/TSX composite index at 4:00 pm, dropped at 954.93 or 11,171 and closed 840.93 points down, or 6.93 percent, to 11,285, its biggest percentage drop since October 2000, when markets were roiled by the bursting of the tech bubble. On a points basis, it was the biggest decline ever.

“This is yet another Black Monday,” said John Ing, president at Maison Placements Canada.

#56 Jeff on 09.30.08 at 2:03 am

Vancouver is tanking… prices are down versus last year and nothing is selling.

#57 Stephen from Toronto on 09.30.08 at 3:48 am

ARE WE STANDING AT THE EDGE OF FINANCIAL ARMAGEDDON-Part II

The Effect of the US Emergency Economic Stabilization Act of 2008

In post #50 of Mr Garth Turner’s Article “The seeds”
I started my post on how the $700 Trillion (now 550 Trillion due to losses) and the $62 Trillion credit default swap triggered a near cascade failure of the global financial system. It has literally or nearly stopped activity in the $1.7 trillion commercial paper market in which banks, businesses and individuals obtain loans, permit interbank transfers, pay for inventory and employees.

In brief it examined how derivatives and credit default swaps were used as well as the short and long term consequences.

Today (11pm, Monday night) the EESA failed to pass in the House of Representatives (205 yeas, 228 nays) as the congressional Republican rejected the package due to pressure from constituents in districts up for election this November.

As a result the DJA fell -777.68 points (a 6.28% drop) to 10, 365.45. The TSX fell -840 points from 12, 126 to 11,285.07 (a loss of 6.98%)-www.thestar.com/business)

Part of the decline in the markets was a result of the governments of Netherlands and Belgium injecting E16 billion in Fortis Bank to prevent its collapse. In the UK the Chancellor of the Exchequer nationalized Bradford and Bingley, a building society organization that became a mortgage bank. A deal was made with a Spanish Bank, Santander allowing it to buy the troubled financial organization deposit book for $20 billion pounds and its 197 branch network for $617 million pounds(www .ft.com)

In the US, Citicorp assumed control of Wachovia Bank for 2.2 billion. According to the FDIC, Wachovia did not fail, but was in trouble due to its exposure to subprime mortgage portfolio of $312 billion($122 billion were losses). The bank (which was founded in 1908) has assets of $783 billion and 122,000 employees and 3,300 outlets in 2007 and was the fourth largest bank in the US. Citicorp will assume control of the bank and assumes its senior and subordinate debt. The FDIC will absorb Citigroup losses above $42 billion and in return gets $12 billion in preferred stock. Citigroup will sell $10 billion in new stock on the open market as well as put up its Japanese hq for sale at a price of $2 billion.

Another bank, National City, located in Cleveland, Ohio is in trouble as its has lost 50% of its stock value mostly due to its exposure to subprime loans. It has $140 billion in assets and employes 31,200.

According to http://www.wsj.com the US government boosted its currency swap facility from $290 billion to $620 billion on Monday Sept 29, 2008 to inject liquidity into the financial system as European banks ran into trouble. The purpose is to inject liquidity on a wekely basis and provide money for interbank loans across the global financial system.

Asian Stock Markets at a glance (Sept 30-4:30pm JST)
(13 hours ahead of EST)
Nikkei-Dow 11,259.86, -483.75 points
Hang Seng 17,607.66, -273.02 points
Singapore Straits Time
2313.40, -47.94 points

SP/ASX 4600.50, -206.90points

(source: bloomberg.com)

What is the Emergency Economic Stabilization Act of 2008 and the conflict over its effects?

Briefly there are 5 major points to the 101 page bill. The entire bill can be downloaded from http://en.wikpedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008
bottom of web page (pdf)

1)$ 700 billion to be used to set up the Troubled Asset Relief Program (TREP) allowing the Secretary of the Treasury to buy mortgages and other assets clogging the balance sheets of banks.

2) EESA allows the US Treasury Department to modify troubled loans due to predatory lending practices. It directs other federal agencies to modify loans such as the Hope for Homeowners through the Department of Housing and Urban Development (HUD).

3)Taxpayer Protection-companies that sell some bad assets to the US government to provide warrants so taxpayers will benefit from any future growth(translation-if the govt buys up distressed properties and sells them when the economy recovers it should receive a profit to reduce national debt etc)

4) No Windfall for Executives-Wall Street CEO involved in the fall of commercial and investment banks will have their compensation limited.

5)Strong Oversight-$250 billion available to the US Treasury Department immediately. President of the US to certify that additional funds are needed to be released ($100 billion, $350 billion).

US Treasury Department must report on the use of funds and progress in addressing crisis every 60 days.

Establishment of the Financial Stabilization Oversight Board (FSOB)
Members- Chairman of the Federal Reserve Board
Secretary of the Treasury
Director of Federal Home Finance Agency
Chairman SEC
Secretary of Housing& Urban Devt

The FDIC is the asset manager of residential mortgages and asset backed securities.

Important Provisions:

Section 119-Judicial Review Process in place
Section 122- US Govt Debt Ceiling of $10 Trillion to be extended to $11.5 Trillion.
Section125- Congressional Oversight Panel to report to congress every 30 days.

The original bill that was presented to US President George Bush Jr by Treasury Secretary Hank Polson and Federal Reserve Board Ben Bernanke was a 2 page letter that would have given them absolute control over the US financial markets. There would be no judicial review and would allow the Secretary to take control over any distressed financial institution. It was not acceptable by the House Democrats. House Republican objected to the bailout through the public debt.

The Case for the EESA

Proponents for the bill argue that it would allow the Treasury to consolidate the distressed assets similiar to a Resolution Trust Corporation (RTC) that was use for the$600 billion Savings and Loan bailout in 1989. The assets could be sold (hopefully for a profit) when the economy recovers.

It allows banks to remove the bad mortgage debt portfolios off their books and create the conditions for interbank lending.

It would restore confidence in the markets.

It would help bailout some of the European Banks that are now in trouble.

The bailout will increase the ceiling of the US public debt. However, if the economy rebounds the sale of assets would be paid back to the US Treasury/FRB?

It will help distressed homeowners renegotiate their mortgages. Allows FDIC to managed foreclosed homes.

Allows the injection of $250 billion immediately

Sets up an oversight board of US financial and Agency managers

Establishes a judicial review process.

The Case against the EESA

1) The EESA does not put in effect strategies to bring the $700 trillion derivatives market under control. There is no disclosure of Level 3 assets (now $5.4 Trillion domestically according to SEC) especially by foreign hedge funds etc. No movement of all derivatives to the Options Clearing Corporation (OCC) and no reinstatement of the 12-1 leverage ruler by the SEC, withdrawn in 2004.(www.denninger.net)

It effectively allows the Secretary of the Treasury the power to take over distressed financial corporations by fiat. This effectively destroys the value of common and preferred stock in these and related companies. The consequences are that it allows the gigantic foreign hedge funds in China, Japan, Europe and Middle East to short sell these stocks to zero and buy them up for nothing (www.denninger.net).

The actual cost of the bailout package is not $700 billion, but closer to $1.2-2 Trillion. The airline and automobile industries will also be asking for a bailout package due to high debt, low sales and a slowing economy. This may result in more bailout plans in the future.

The Bill does not cover the fact that the Federal Reserve Board has used up $900+ billion of its assets of short term paper and is now selling its 20-30 year long term treasuries requiring high interest and increasing the money supply-M3 (Now 15.5 $Trillion) thereby creating hyperinflation(www.denninger.net)

It does not consider the fact that the real estate bubble will result in falling house prices for the next 3-5 years and asset recovery for distressed housing by the FDIC may not yield a profit.

Most importantly it adds $2 trillion to the US public debt and will require borrowing in excess of $60 billion/year on the backs of taxpayers. This will reduce the value of the US dollar and will threaten its AAA credit rating.

It does not put forward solutions to provide liquidity in the $1.7 Trillion commercial paper market.

The Effect on the Public Debt.

Richard Benson, (who is a writer for prudentbear.com) article “Trillion Dollar Deficit” suggest that few Americans actually know the components of the public debt and the consequences of financing between 2008-2012.

As of September 19, 2008 the US government debt held by the public is $5,552,620,101,517.17 . Intra-governmental holdings total $4,174,389,518,377.17 and is the skimming off of excess funds from the Old Age Security Disibility Income Trust fund (OASDI). In 1985 it had a total of $12 Trillion in its accounts.Its surpluses were taken by the Reagan Administration to offset its budget deficits from 1981-1988. Most of the funds in this funds were spent on Iraq War I and II and earmarks for each state. This fund was to be used to help baby boomers cover their retirement.

The total public debt is now $9,727,009,619,894.34 and out of this $3 trillion is being held by foreigners ($1 trillion by China). The rest is being held by Europe, Japan and Middle East.

Mr Benson believes that provided that Americans can continue buying foreign goods from the world, particularly from China, the US Government will be able to borrow an additional $3 trillion from now to 2011($1 trillion/year). If America stops consuming foreign goods the foreign creditors will dump the US Dollar.

Another problem is that because they have spent the surplus from Social Security and Medicare and wont raise taxes, it will have to go to the capital markets for funds. it could have the effect of crowding out money for private investment. This will lead to higher interest rates, inflation and eventually a hyperinflationary depression like the Weinmar Republic in Germany 1920-21 or Zimbabwe this year. (http://www.sfgroup.org/Trillion Dollar Deficit.htm)

Overall the EESA will have the effect of bailing out Wall Street on the backs of the taxpayers and increasing the public debt to almost $12 trillion with an estimated GDP of 14.4 Trillion. The Debt to GNP ratio would be over 80%.

The US Government has not publicly admitted that its indebtedness is not $58 trillion, but $100 trillion and must pay out in excess of $70 trillion in interest per year. If a recession hits with high interest rates the cost would be $10 billion/year. The growth of the overall national debt could become geometrical and could never be paid back without hyperinflation or allowing a controlled deflationary crash like Japan.

Next-Possible Solutions

#58 Pete on 09.30.08 at 4:57 am

The US is reaping what it has sown. Debt is how the American govt controls its massive, highly-armed, over-consuming population. That and the politics of fear. Just watch the US gov ramp up the terrorist threat to compensate for not being able to encourage people into lifetimes of debt in search of the American Dream – as they have been doing for decades.

#59 APCM on 09.30.08 at 8:18 am

The people who are hurt by this the most are going to be the middle-class investors who were told by their banks that they should invest in mutual funds for the “long term”, blah, blah, blah because interest rates are paltry.

If the banks just offered a decent interest rate on savings, most people wouldn’t have gone to the stock market. The banks should have the attitude that they are privileged to be holding your money and pay a decent interest rate and not the other way around.

I bet many stock brokers don’t even have money in the market for the “long term” (probably do a lot of short-selling though) They’re not dumb enough. They just make money screwing around with everyone else’s money.

#60 Mike B formerly just Mike on 09.30.08 at 8:54 am

Y3maxx… Re not being able to buy a house. Get a clue.
Those of us renting already sold our houses for top dollar and are sitting on cash or gold or whatever that isn’t illiquid real estate. SOOOO when the market correction does hit all time lows, and it will, then we can drop into the market and buy whatever we so choose.
ALSO David… your posts are the most incredibly well written bits I have ever read on the internet these days.
Stuff just jumps off the screen. Thanks for keeping things here very entertaining.

As for the American elite asking the American middle class and poor to pay for their yacht lessons and polo matches…. well enough written about that. Bush, Paulson and Bernanke aka Greenspan will go into the history books as the biggest baffoons the world has ever seen. Hitler was insane but these guys are just utterly stupid and slimy.

#61 gee on 09.30.08 at 8:54 am

And this is why I joined city transportation. I gave up my career as a freelance technician and got a secure job with benfits and pension. I made sacrafices to prepare for this meltdown and will wait it out. Wait to buy a house and keep putting money away. I hope it will be enough.
When my parents came to Canada they had 17% interest on their mortgage and had their hose paid of within 5 years. However, house prices in 70′s are not even comparable to today. But I am curious to see what the interest rates will rise to.
Good luck to all, i think we’ll all need it!

#62 Downsized and Delighted on 09.30.08 at 11:14 am

Voting against the bill to keep from supporting the wall street executives is like closing the food bank to keep
“Dad” from spending the saved money on beer.

#63 pbrasseur on 09.30.08 at 11:48 am

Hi all,

The supply of unsold homes in the US market is something like 11 month, so supply is WAY above demand and further price drop is to be expected.

Anyone here knows what the equivalent number is for Canada?

And if that number is lower what effect will it have on our market. I would think that if the market is more balance then there is less pressure towards lower prices.

After all supply and demand is what markets are about.

What do you think?

#64 Bailing in B.C. on 09.30.08 at 11:55 am

David #51

Precisely! When people are putting their pets in a pot, wouldn’t you prefer that your pet was a pig and not a puppy?

#65 Kitchner1 on 09.30.08 at 12:11 pm

His politics aside, I like Michael Moore’s style — he’s trying to get the Americans to pay attention.

Back on topic — anyone know what the Kitchener/Waterloo market is like right now? Might be looking to relocate from Calgary. At least house prices have some sense there (via MLS).

I live in Kitchener/Waterloo area, currently renting after selling my condo in Toronto. The market here is a lot slower then Toronto, houses are on the market for months without offers even when they look reasonablly priced. Offers of 10-20k less then asking are normal and usually accepted by the sellers. Keep in mind that a brand new 1200 sq foot home can be had for 255-270K.

Kitchener/Guelph are being hit hard by the rescession in manufact/transport sectors. There have been a few huge plant layoffs(+500 people) Good payig jobs are hard to find. I think that market here has a ways to go down still as the fall out from these lay offs (there will be more to come as a lot of plants are reducing shifts and cutting overtime) has yet to be seen.

#66 Joe Taxpayer on 09.30.08 at 12:14 pm

Republic of Western Canada said

If we really need extra liquidity (which I doubt), then LEGISLATE MANDATORY LOANING between financial institutions instead.

I think you should change your name to the Socialist Republic of Western Canada.

#67 yikes on 09.30.08 at 12:18 pm

There is an interesting interview with Ron Paul over at townhall.com.

The bailout would help to prop up worthless assets. Instead, these bad assets should be left to go bankrupt, allowing the good assets to be bought up and survive.

http://townhall.com/Columnists/BillSteigerwald/2008/09/29/no_cheers_for_the_bailout_ron_paul_interview

#68 confused and a little crazed on 09.30.08 at 12:35 pm

Gee,

My parents also came in the 70′s as well but it took them 15 years to pay off the mortgage. I remember them telling me % rates were 14- 15% …wow but I still rather have that than these insane prices.

I mean less than 5 % down and 40 years to make housing affordable….How about more higher paying jobs so we can make the 25% down payment instead. That is what affordable means :0

#69 smwhite on 09.30.08 at 12:37 pm

#42 y3maxx

Put your foil hat back on, its making you paranoid, then again, your still bullish on the west coast housing bubble continuing forever, with facts(like an very up and down stock market, credit crunch, etc.) in front of your eyes you continue down the road of fiction and ankle tapping in the hopes that your illogical rhetoric will become real, ever hear the phrase, hold out both hands, piss in one and wish in the other, see which fills up first?

Try it! I expect a full page report riddled with your biased views such as why Vancouver is Superman’s new Fortress of Solitude.

———————————————————-

If the herd’s psychology was leaning the other way in the Spring 08 for RE, it will most certainly be horizontal come Spring 09.

Never been a better time to sit on the sidelines and watch the “experts” explain their “bullish” predictions from the last couple years, yeah, everything looks fine!

That 4% GIA/GIC I pushed “half” into last summer is looking better and better each day…

#70 smwhite on 09.30.08 at 12:42 pm

:)

http://www3.telus.net/Lore/SNL%20Global%20Century.wmv

http://www.financialsense.com/fsn/SNLvideo052005.wmv

#71 brazer on 09.30.08 at 12:52 pm

Closely watched housing index shows home prices dropped at fastest annual rate ever in July
http://biz.yahoo.com/ap/080930/home_prices.html

“The Standard & Poor’s/Case-Shiller 20-city housing index fell a record 16.3 percent in July from the year-ago month, the largest drop since its inception in 2000. The 10-city index plunged 17.5 percent, its biggest decline in its 21-year history.”

yikes.

#72 brazer on 09.30.08 at 12:54 pm

Volvo to cut 1,400 workers at truck plants
http://www.thestar.com/Business/article/508800

“Reports Tuesday also said the company is cutting jobs in Ontario, where it operates a heavy road grader plant in Goderich on the shores of Lake Huron.”

more job losses.

#73 y3maxx on 09.30.08 at 12:55 pm

U.S. recession would drag Canadian housing market lower: economist

But full-scale collapse in real estate is not in the cards, CIBC’s Tal says

LORI McLEOD
Tuesday, September 30, 2008
If the United States falls into a deep and prolonged recession it will drag the Canadian housing market lower and push back its recovery, says Benjamin Tal, senior economist at CIBC World Markets Inc.

Each day that probability seems to be drawing closer, and it’s causing understandable concern about how far home values could sink in the Canadian market, which is already in the midst of a slowdown.

However, while home prices will continue to soften modestly in Canada, conditions in the U.S. will not cause a full-scale housing collapse here, Mr. Tal said.

“Every dollar drop in the value of Canadian real estate elevates the level of anxiety about a U.S-style housing meltdown in Canada,” Mr. Tal said in a report released Tuesday.

“To be sure, house prices in Canada will continue to ease in the coming months. but the triggers that led to a freefall in Canadian real estate markets in the early 1990s and today in U.S. markets are nowhere to be found,” he said.

Mr. Tal has added his voice to those of many other economists trying to determine where the housing market in Canada is headed in the face of economic turmoil south of the border.

While many economists agree the Canadian housing slump will be moderate, others have raised the spectre of a much more serious decline, which could mirror the one playing out in the U.S.

Too much leverage in Canadian households could be the “tipping point” for a U.S.-style crash, warned David Wolf, economist at Merrill Lynch & Co., in a report last week. The housing market here could “take it on the chin” if the U.S. goes into a deep recession, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc.

The average price of a resale home in Canada declined by 4.6 per cent year-over-year in August, according to data released Tuesday by the Canadian Real Estate Association (CREA). The dollar volume of sales fell 5.5 per cent to $11-billion in August from the previous month, with fewer sales in British Columbia responsible for more than half of that decline, CREA said.

At the same time, the median number of days homes are remaining on the market is on the rise. Median days on the market rose by varying degrees for detached homes and condos in Vancouver, Calgary and Toronto, the three markets for which these data were included in the report. Detached homes in Calgary stayed on the market for an average of almost 50 days, the longest since 2000, which is the earliest year included in the report.

The level of new listings across Canada moderated month-over-month in August, although supply still greatly exceeded demand in a number of cities.

Despite the softening market in Canada and chaos playing out in the U.S. financial and housing markets, there’s still no trigger here for an outright collapse, Mr. Tal said.

A spike in interest rates was the trigger that sent the Canadian housing market spiralling in 1990, and a surge in subprime lending is what has toppled the U.S. market, he said.

The subprime crisis, however, will not act as the same catalyst in Canada, Mr. Tal said.

That’s because at the peak of the housing cycle in the U.S., risky mortgages accounted for 33 per cent of originations. By contrast, they accounted for just 5.4 per cent of Canadian mortgages at the peak, he said.

In cities with above-average subprime exposure prices have fallen by more than 25 per cent from their peak in June, 2006, he noted. By contrast, in U.S. cities with single-digit subprime exposure prices have fallen by 5 per cent. This is much more comparable to what has happened in Canada, Mr. Tal said.

“By almost any measure, American households entered the current housing crisis from a more vulnerable position relative to their Canadian counterparts,” he said.

Canadians have a lighter debt load and higher net worth, and there’s been much less speculation in the real estate market here than there was in the U.S., Mr. Tal added.

© Copyright The Globe and Mail

#74 brazer on 09.30.08 at 1:00 pm

U.S. recession would drag Canadian housing market lower: economist
http://www.reportonbusiness.com/servlet/story/RTGAM.20080930.whousing0930/BNStory/Business/home

Too much leverage in Canadian households could be the “tipping point” for a U.S.-style crash, warned David Wolf, economist at Merrill Lynch & Co., in a report last week. The housing market here could “take it on the chin” if the United States goes into a deep recession, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc.

#75 y3maxx on 09.30.08 at 1:06 pm

Dave #51…

80 year old $800K Vancouver shacks have been selling for +$700K for last three or four years.

…furthermore, many of these shacks are built better than new home construction.

Mike B formerly just Mike #59….

…So glad you sold your Winnipeg bachelor condo and now predicting you will buy either a Vancouver Shaughnessy or Toronto Rosedale Mansion at the bottom of the cycle.

Maybe you should run for Canada’s parliament or perhaps write a book.

#76 y3maxx on 09.30.08 at 1:50 pm

FINALLY Someone Said “No” by Richard C. Cook
Posted on September 29, 2008 by dandelionsalad

A little long but worth the read.
http://dandelionsalad.wordpress.com/2008/09/29/finally-someone-said-%e2%80%9cno%e2%80%9d-by-richard-c-cook/

by Richard C. Cook
featured writer
Dandelion Salad
richardccook.com
Sept. 29, 2008

FINALLY, someone said “No” to the criminal gang that runs the U.S. economy when the House voted down the Bush-Paulson $700 billion Wall Street bailout plan by a vote of 228-205.

Shame on the Democrats! Speaker of the House Nancy Pelosi, Majority Leader Steny Hoyer, and Majority Whip Rahm Emanuel delivered “yea” votes from 60 percent of Democratic House members and thereby gave the bill the only chance of passage it had.

Hooray for the Republicans! The bill went down to defeat only because 67 percent of House Republicans voted against it.

The bailout bill is one of the most critical ever brought before Congress. The Republicans who defied President George W. Bush, Secretary of the Treasury Henry Paulson, and the House leadership did so because their constituents demanded it. Ideologically, they acted to let the free market do its work. If overextended financial institutions which had invested recklessly go bankrupt, so be it.

For Democrats who voted against the legislation, the rationale was more complex—not enough taxpayer protection and too little help for homeowners facing foreclosure who would lose their homes even with the bill. But they also bucked the leaders of a party which, since pro-business Democrat Bill Clinton won the presidency in 1992, has completely sold out to the financier elite. Since then, Wall Street investment firms have been the principal bankrollers of a party that in recent years has totally betrayed its New Deal roots.

However it happened, the result of today’s vote was momentous. After rolling over and playing dead for the financial elite that has held the U.S. economy in a death grip due to the deregulation of the last quarter-century, a majority in Congress stood up and said, “Enough,” even after the two parties’ presidential candidates, Democrat Barack Obama and Republican John McCain discredited themselves by voicing support.

Of course the financiers and their many political lackeys attempted to blackmail the country by claiming the economy would seize up and the stock market crash without the legislation, and, in a self-fulfilling prophecy, the Dow-Jones went down 777.68 points today. Traders interviewed on CNN said that if a bill were not passed before the session ended in a week, the fall could amount to 2000 points.

But so what? Everyone knows that the peak of the stock market last year—over 14,100 points—was the result of the bubble economy. Now that the bubble is bursting why shouldn’t the stock market find out where it really belongs, along with the prices of houses, as well as the worth of the banks and stock brokerages that got us into the mess?

So now what happens? It is unclear whether the House leadership will try to revive the bill or just let the voters decide in November who they want to step in to fix an economy which Bush, Greenspan, and their enablers in Congress have ruined.

What then can be done? Well, no one in government has much of an idea, and the huge number of commentators writing about the debacle in print and on the internet and talking about it on TV have offered literally thousands of suggestions. These range from returning to the gold standard to another New Deal. But few of these suggestions really get to the heart of the matter.

We do know one thing—unfettered finance capitalism as a national economic engine, which was the solution offered by Ronald Reagan and his supply-side, trickle-down “revolution,” has totally, dismally, hysterically failed. And we might suspect the same thing of a return to New Deal Keynesianism—i.e., more federal deficit spending—which is what the progressives are offering in an infinite number of disguises.

In discussing the Keynesian alternative, we should remember that it wasn’t until World War II that the Roosevelt administration was able to use Keynesian economics to produce full-employment. So do the new New Dealers want a World War III for the same ends?

They wouldn’t admit it, but let’s be honest. No nation on earth has yet implemented a stable industrial economy. In fact, there is one honest man writing about the crisis. His name is Robert Samuelson, and he is the economics writer for the Washington Post. What Samuelson is saying is absolutely true. This is that no one knows what is going on and no one knows what to do.

He writes:

“What we are witnessing, in the broadest sense, is the bankruptcy of modern economics. Its conceit has been that we had solved the problem of stability. Oh, there would be periodic recessions, but the prospects of a major economic collapse were negligible because we knew how the system worked and could take steps to prevent it. What’s been so unsettling about the present crisis is that it has not conformed to the standard model of business cycles and has not submitted to familiar textbook solutions.”

He goes on to point out the major economic issue of the industrial age is not “supply” as the monetarists—a.ka. Reaganite trickle-downers—said ad nauseum, but demand:

“The word that best epitomizes mainstream ‘macroeconomics’ (the study of the entire economy, not individual markets) is demand. If weak demand left the economy in a slump, government could rectify the situation by stimulating more demand through tax cuts, higher spending, or lower interest rates. If excess demand created inflation, government could suppress it by cutting demand through more taxes, less spending, or higher interest rates.”

“Demand” means, quite simply, “purchasing power.” The trouble is that a modern industrial economy does not produce enough purchasing power through wages, salaries, and dividends to buy what is produced at prices that must be charged to keep the system running. There is a gap, which was Keynes’ main point. The gap exists because of savings, or “retained earnings,” needed for reinvestment to keep the system operating and innovating. Without this savings, the system runs down due to entropy, or the law of diminishing returns.

Few of the writers commenting on the current economic situation—including most professional economists I’ve read on the subject—understand this basic point of Keynes’ thesis. That’s why none of their solutions ever work.

As I said, Keynes wanted to fill the gap through government deficit spending—pump priming. Supply-siders want to fill it by, well—by nothing. They don’t recognize the gap. They think that if more is produced, more will be bought, and there will be more income to do it. This is because they believe in “Say’s Law,” an early 19th century formulation that worked for medieval village economies—as did Adam Smith’s free-market ideas—but not modern industrial ones.

Still, the gap has been filled, except it has been filled by debt, by consumer borrowing, and by the hundreds of different kinds of exotic debt instruments dreamed up by Wall Street firms since Reagan took office in the 1980s. This debt pyramid is what is crashing today.

And behind all the exoticism is the debt-based monetary system run by the banks who own the Federal Reserve, because it is these banks that provided the leverage for it all to happen. It’s the banks that leveraged the bubbles—the merger-acquisition bubble, the dot.com bubble, the housing bubble, the commercial real estate bubble, the equity bubble, the hedge fund bubble, the derivative bubble, the commodity bubble, and on it goes.

So this is what deregulation has done for us. It may very well destroy the U.S. economy. It is already destroying democracy, because the social stress the system has produced is a hot-bed for every type of illness and social break-down and also feeds the anxiety that sees a terrorist under every bed and leads to wars and international crises as well.

It’s the big banks that have been the winners, at least so far. Citibank is eating Wachovia. Bank of America ate Merrill Lynch. J.P. Morgan Chase is eating Bear Stearns and WaMu. They are paying $1.9 billion for WaMu which has assets of $310 billion. Of course the latter is the bank of David Rockefeller and his family, so they are not doing too badly. The Rockefellers also own much of Exxon-Mobil, which continues to run record profits due to the oil price run-up.

But then the system was set up to benefit people like the Rockefellers and their ilk in the first place. That’s why we got the Federal Reserve System, because the bankers of the world already knew in 1913 that if they could control the currency and introduce money into circulation only through public and private debt they would be the big winners when the incredible productivity of modern industry became manifest.

And what is a real solution? It’s a dividend-based economy, as I have written many times, and as the Social Credit movement in Great Britain, Canada, Australia, and New Zealand have known for decades. What we should do is monetize savings and retained earnings by issuing a corresponding dividend to the consuming population to balance production and be able to purchase what industry can produce through a non-inflationary production-based monetary system.

This is how credit really should be used. You can read about it in the many articles I have written over the past year or in my forthcoming book: We Hold These Truths: The Hope of Monetary Reform (Tendril Press, 2008). Among many other benefits, we would have a rebirth of local and regional economies as well as family farming, all of which the banks, under the global monetarist regime, have wiped out.

So that’s what happened today in Washington. But just remember, it’s the big banks that are really the ones behind the bailouts. They are the ones who call the shots with the Bush administration and the leadership of both the Republican and Democratic parties.

But thank God a few real “mavericks” in Congress left the reservation today. Will they have the guts to continue to “just say no” and make a real change in U.S. politics? Was this the day the revolution began? Or just a final rear-guard action in the death of American democracy?

Copyright 2008 by Richard C. Cook

Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared on numerous websites and in Eurasia Critic magazine. His book on monetary reform, entitled We Hold These Truths: The Hope of Monetary Reform, will be published soon by Tendril Press. He is also the author of Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, “the most important spaceflight book of the last twenty years.” His website is at richardccook.com. Comments may be sent via email to [email protected].

see

“Mortgage Fraud”: The Paulson Bail-Out Plan by Richard C. Cook

Ron Paul: You’re Going To Destroy A Worldwide Economy!

Dow falls nearly 7 percent in wake of House bailout defeat

Exclusive: Resolving the Wall Street Financial Crisis: Monetary Reform

Black Monday? Global Investors vote “No” on Paulson’s Bailout

Rep. Dennis Kucinich Rejects $700 Billion Bailout

The Economy Sucks and or Collapse

#77 patriotz on 09.30.08 at 1:53 pm

“You need jobs along with a downpayment to buy a home.”

You need a job to stay in a house you’ve already bought, too.

So who has less to lose from a job loss – the renter with savings, or the “owner’ who put all his savings into his down payment?

#78 dd on 09.30.08 at 1:54 pm

#9 ballkan,

Even the most aggressive fund managers are not 100% in gold. Some are 30% with bars and stocks.

Power to you if this is the big sell off, but if you are wrong… . Putting 100% of your worth in anything is gambling. PERIOD.

#79 y3maxx on 09.30.08 at 2:13 pm

Congratulations, Corporate Crime Fighters! Coup Averted for Three Days! …from Michael Moore

http://www.michaelmoore.com/words/message/index.php

Friends,

Everyone said the bill would pass. The masters of the universe were already making celebratory dinner reservations at Manhattan’s finest restaurants. Personal shoppers in Dallas and Atlanta were dispatched to do the early Christmas gifting. Mad Men of Chicago and Miami were popping corks and toasting each other long before the morning latte run.

But what they didn’t know was that hundreds of thousands of Americans woke up yesterday morning and decided it was time for revolt. The politicians never saw it coming. Millions of phone calls and emails hit Congress so hard it was as if Marshall Dillon, Elliot Ness and Dog the Bounty Hunter had descended on D.C. to stop the looting and arrest the thieves.

The Corporate Crime of the Century was halted by a vote of 228 to 205. It was rare and historic; no one could remember a time when a bill supported by the president and the leadership of both parties went down in defeat. That just never happens.

A lot of people are wondering why the right wing of the Republican Party joined with the left wing of the Democratic Party in voting down the thievery. Forty percent of Democrats and two-thirds of Republicans voted against the bill.

Here’s what happened:

The presidential race may still be close in the polls, but the Congressional races are pointing toward a landslide for the Democrats. Few dispute the prediction that the Republicans are in for a whoopin’ on November 4th. Up to 30 Republican House seats could be lost in what would be a stunning repudiation of their agenda.

The Republican reps are so scared of losing their seats, when this “financial crisis” reared its head two weeks ago, they realized they had just been handed their one and only chance to separate themselves from Bush before the election, while doing something that would make them look like they were on the side of “the people.”

Watching C-Span yesterday morning was one of the best comedy shows I’d seen in ages. There they were, one Republican after another who had backed the war and sunk the country into record debt, who had voted to kill every regulation that would have kept Wall Street in check — there they were, now crying foul and standing up for the little guy! One after another, they stood at the microphone on the House floor and threw Bush under the bus, under the train (even though they had voted to kill off our nation’s trains, too), heck, they would’ve thrown him under the rising waters of the Lower Ninth Ward if they could’ve conjured up another hurricane. You know how your dog acts when sprayed by a skunk? He howls and runs around trying to shake it off, rubbing and rolling himself on every piece of your carpet, trying to get rid of the stench. That’s what it looked like on the Republican side of the aisle yesterday, and it was a sight to behold.

The 95 brave Dems who broke with Barney Frank and Chris Dodd were the real heroes, just like those few who stood up and voted against the war in October of 2002. Watch the remarks from yesterday of Reps. Marcy Kaptur, Sheila Jackson Lee, and Dennis Kucinich. They spoke the truth.

The Dems who voted for the giveaway did so mostly because they were scared by the threats of Wall Street, that if the rich didn’t get their handout, the market would go nuts and then it’s bye-bye stock-based pension and retirement funds.

And guess what? That’s exactly what Wall Street did! The largest, single-day drop in the Dow in the history of the New York Stock exchange. The news anchors last night screamed it out: Americans just lost 1.2 trillion dollars in the stock market!! It’s a financial Pearl Harbor! The sky is falling! Bird flu! Killer Bees!

Of course, sane people know that nobody “lost” anything yesterday, that stocks go up and down and this too shall pass because the rich will now buy low, hold, then sell off, then buy low again.

But for now, Wall Street and its propaganda arm (the networks and media it owns) will continue to try and scare the bejesus out of you. It will be harder to get a loan. Some people will lose their jobs. A weak nation of wimps won’t last long under this torture. Or will we? Is this our line in the sand?

Here’s my guess: The Democratic leadership in the House secretly hoped all along that this lousy bill would go down. With Bush’s proposals shredded, the Dems knew they could then write their own bill that favors the average American, not the upper 10% who were hoping for another kegger of gold.

So the ball is in the Democrats’ hands. The gun from Wall Street remains at their head. Before they make their next move, let me tell you what the media kept silent about while this bill was being debated:

1. The bailout bill had NO enforcement provisions for the so-called oversight group that was going to monitor Wall Street’s spending of the $700 billion;

2. It had NO penalties, fines or imprisonment for any executive who might steal any of the people’s money;

3. It did NOTHING to force banks and lenders to rewrite people’s mortgages to avoid foreclosures — this bill would not have stopped ONE foreclosure!;

4. It had NO teeth anywhere in the entire piece of legislation, using words like “suggested” when referring to the government being paid back for the bailout;

5. Over 200 economists wrote to Congress and said this bill might actually WORSEN the “financial crisis” and cause even MORE of a meltdown.

Put a fork in this slab of pork. It’s over. Now it is time for our side to state very clearly the laws WE want passed. I will send you my proposals later today. We’ve bought ourselves less than 72 hours.

Yours,
Michael Moore
[email protected]
MichaelMoore.com

#80 POL-CAN on 09.30.08 at 2:34 pm

This should scare everyone

Western world will become significantly less wealthy

In one fell swoop, the House of Representatives has applied a sledgehammer to the American economy. The staggering plunge in the value of publicly quoted stocks in the US last night – a $1.2 trillion fall – shows more clearly than anything else just how much it had been holding out for a financial bail-out.

Even so, the longer you stare at a screen of the Dow Jones or FTSE 100, the more abstract it seems. So this is what it means:
It means millions more Americans, and hundreds of thousands more Britons, will lose their jobs; it means the recession will be deeper and more protracted than previously feared; it means borrowing costs will increase on both sides of the Atlantic. Companies will cut back on investment. Pension funds will be depleted.

The Western world, in short, will become significantly less wealthy. There is still time for US policymakers to rescue the deal, but not much. Financial markets are no longer just chaotic, but are close to complete collapse. A number of banks, already on the edge, will be pushed that bit closer to the precipice as a result.

As the past few weeks have shown, companies can go bust very, very quickly. When they collapse they are very difficult, if not impossible, to put back together again. The free market can be very creative but it can also be immensely destructive. This is one of those points where the scale of destruction is potentially so great that it could set the economy back years.

This is why so many people – and not just the politicians putting the deal together – are warning that if the deal fails entirely we could be facing a second Great Depression. The big mistake policymakers made in the 1930s was to allow too many banks to fail. This caused such a financial earthquake that it led to a decade of hardship.

The Troubled Asset Relief Program was not a perfect template for dealing with struggling banks. However, to dangle it in front of markets and then snatch it back again was an improbably unwise move. Aside from the certain fact that shares will plunge, few can guess what today will bring.

There is a growing chance of some co-ordinated interest rate cuts from central banks. This may not solve everything, but in these circumstances, policymakers will be using every tool at their disposal to ensure that markets do not collapse entirely.

http://www.telegraph.co.uk/finance/comment/edmundconway/3105965/Financial-crisis-Western-world-will-become-significantly-less-wealthy.html

#81 The Tallyman on 09.30.08 at 2:34 pm

So Joe & Suzy Shmoe bought a house 3 times it’s real value.

Joe & Suzy roast marshmallows by the fireplace pledging allegiance to the scam until their house price drop so far…
they straight jacketed into the home for the long haul.

George likes Joe & Suzy, their his kinda people…
He knows they’ll dig in and eventually pay off that mortgage.

George also wants 700 Billion dollars… why?… why not!
“I’m prezdent”

So if Joe & Suzy continue to pay off their home and eternally support George’s gambling addiction…

How many times over will Joe & Suzy have paid for that unsellable house?
How long will they continue to be shmoes?

#82 Jimster on 09.30.08 at 2:36 pm

Looks like we may be setting up for Continuity of Government.

#83 Its Coming!! on 09.30.08 at 2:38 pm

Please can I have 700 billion dolars, I’m leaving office soon and need my own severance package.

This guys priceless!!!!!!!!!!!!!!!!!

#84 Future Expatriate on 09.30.08 at 2:50 pm

Observer #35:

Not for much longer, Genius; not for long.

#85 smwhite on 09.30.08 at 2:56 pm

#76 POL-CAN

I’m guessing that the money printing machine won’t be turned off until the American Dollar is more on par with the Chinese Yuan. (That’s one way to pay off your debt.)

That would bring the Canadian, Swiss and Australian all in line with the Euro and the British Pound at 1.5 to 2 times the value.

#71 y3maxx,

A book for you to read:

http://www.irrationalexuberance.com/

What you’ll like even more if if you had have dug through these pages a couple years ago, the debacle in the USA and the current and future dismal state of the Canadian RE market wouldn’t be such a shock to your system.

#86 The Tallyman on 09.30.08 at 3:14 pm

“Don’t you assh…., er… Americans realize how much it costs to throw a shindig in Bohemian Grove”

Hey my American brothers & sisters that quote is not from me.(Don’t lynch Tally!)

A quote like that would most likely originate from a Pennsylvania Avenue Hillbilly… or someone really desperate to raise a few billion.

#87 Calgary Rip off on 09.30.08 at 4:05 pm

The latest from the Calgary Herald: Nothing to get excited about. The only way house prices in Calgary will represent true worth would be a total crash of utter proportions in Calgary, which is unlikely to happen. Unfortunately then, Calgary will remain overpriced an unattractive to the middle class as a city to relocate to long term due to the disproportion between housing costs and income.

Alberta leads nation with biggest decrease in average home sale price
Mario Toneguzzi, Calgary Herald
Published: Tuesday, September 30, 2008
CALGARY – Alberta led all provinces in Canada with the biggest decrease in the average sale price for an existing home in August compared with a year ago, according to the Canadian Real Estate Association.

Statistics released today by CREA show the average MLS sale price in Alberta dipped by 5.2 per cent to $343,148.

#88 Rasputin on 09.30.08 at 4:05 pm

Herd mentality at it’s best. “The sky is falling!!!” So everyone runs to one side of the boat. Next day: “No it’s not!!! Better not miss the bull market!!!” Everyone runs to the other side of the boat. I guess housing prices are now rising, credit is now flowing and nearly ever major bank in North America didn’t go bust after all. This bear market started with a bang but will end in a whisper of complete indifference.

#89 David on 09.30.08 at 4:24 pm

There is some ancient Chinese maxim about living in interesting times and yesterday seemed like one fabulous starting point. The biggest one day market crash in G8 history and Stephen Harper is talking about the “strong fundamentals” of the Canadian economy. That certainly represents a novel and fresh interpretation of a catastrophe in the making.
Bailing in BC, the mini cattle are more environmentally friendly and lower maintenance. Forage is cheaper than feed and in these tough economic times who really wants to be all hat and no cattle in Western Canada.?
Y3Maxx there is no economic justification for $800K aging starter homes that any rational individual could find. If you can provide one good reason for that insanity, please share with the rest of us here.

#90 Ben on 09.30.08 at 5:12 pm

Please people….can you POST THE LINKS to the articles instead of copying and pasting!!!!

…honestly!

#91 nearmilton on 09.30.08 at 5:43 pm

Stephen Harper and Australian Prime Minister John Howard

http://tinyurl.com/45j7xm

I guess this answers my previous post on what the pol. have in mind for this yrs election. Everything about this election is bad timing. Canada’s economy is not sound, it is so intertwined with the US our RE values will not be able to maintain its position.

#92 The Tallyman on 09.30.08 at 6:09 pm

#89 Ben

Could you pass along a tip for a dummie like me on how to get links activated in a message on this blog.

I’m using Firefox and there is no apparent way to do it.
Any help much appreciated.

#93 Bailing in B.C. on 09.30.08 at 6:53 pm

David #88

RE #15

Are you suggesting that watching re-runs of The Waltons is not going to help me either?

Looks like its good night Mary-Ellen for us all :)

#94 Republic of Western Canada on 09.30.08 at 7:33 pm

#65 Joe Taxpayer – hell no.

That would just be simple collaring of the criminal element (Banksters) who’ve perpetrated all sorts of illegal operations to silence any potential opposition and to perpetuate greed.

It would have nothing to do with political orientation, just merely redirecting criminal sleaze back onto itself and away from the general public.

#95 EJ on 09.30.08 at 8:37 pm

I don’t usually watch CNN, but I tuned in this evening. What a crock. They were talking about the rejected bailout and how congress “let everybody down” and that for the next vote they hope congress “does the right thing”.

The WHOLE show was nothing but a huge, stinking piece of propaganda for Paulson’s plan. Not once did they consider the possibility that the plan is flawed, won’t work, flushes good money down the drain, and is HATED by the public. Not once was a single alternative mentioned. They are all under the impression that it’s Paulson’s plan or nothing.

Nothing but a bunch of crooked shills selling out their viewers and their country. Absolutely appalling.

#96 Andrew Toronto on 09.30.08 at 9:10 pm

Housing market could soften more but not crash: CIBC

A deep, protracted U.S. recession would drag Canada’s housing market lower and push back its recovery, but would not spark a crash, a senior economist at CIBC World Markets Inc. says

Each day, the situation in the United States darkens, causing understandable concern about how far home values could sink in the Canadian market.

However, while home prices will continue to soften modestly in Canada, conditions in the U.S. will not cause a full-scale housing collapse here, said senior economist Benjamin Tal.

“Every dollar drop in the value of Canadian real estate elevates the level of anxiety about a U.S-style housing meltdown in Canada,” Mr. Tal said in a report released Tuesday.
Benjamin Tal, senior economist at CIBC World Markets Inc.

Benjamin Tal, senior economist at CIBC World Markets Inc.
Related Articles

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The Globe and Mail

“To be sure, house prices in Canada will continue to ease in the coming months. but the triggers that led to a freefall in Canadian real estate markets in the early 1990s and today in U.S. markets are nowhere to be found,” he said.

Mr. Tal has added his voice to those of many other economists trying to determine where the housing market in Canada is headed in the face of economic turmoil south of the border.

While many economists agree the Canadian housing slump will be moderate, others have raised the spectre of a much more serious decline, which could mirror the one playing out in the U.S.

Too much leverage in Canadian households could be the “tipping point” for a U.S.-style crash, warned David Wolf, economist at Merrill Lynch & Co., in a report last week. The housing market here could “take it on the chin” if the United States goes into a deep recession, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc.

The average price of a resale home in Canada declined by 4.6 per cent year-over-year in August, according to data released Tuesday by the Canadian Real Estate Association (CREA).

The dollar volume of sales fell 5.5 per cent to $11-billion in August from the previous month, with fewer sales in British Columbia responsible for more than half of that decline, CREA said.

At the same time, the median number of days homes are remaining on the market is on the rise. Median days on the market rose by varying degrees for detached homes and condos in Vancouver, Calgary and Toronto, the three markets for which these data were included in the report. Detached homes in Calgary stayed on the market for an average of almost 50 days, the longest since 2000, which is the earliest year included in the report.

“We can’t recall a press release of these data with less ebullient commentary than today’s [Tuesday's],” Mr. Wolf said in a report released after CREA’s data came out.

The level of new listings across Canada moderated month-over-month in August, although supply still greatly exceeded demand in a number of cities.

“It’s not clear whether the listings decline reflects a useful move towards supply/demand rebalancing or simply discouragement on the part of sellers at the pace of sales and the level of prices,” Mr. Wolf said.

Despite the softening market in Canada and chaos playing out in the U.S. financial and housing markets, there’s still no trigger here for an outright collapse, Mr. Tal said.

A spike in interest rates was the trigger that sent the Canadian housing market spiralling in 1990, and a surge in subprime lending is what has toppled the U.S. market, he said.

The subprime crisis, however, will not act as the same catalyst in Canada, Mr. Tal said.

That’s because at the peak of the housing cycle in the U.S., risky mortgages accounted for 33 per cent of originations. By contrast, they accounted for just 5.4 per cent of Canadian mortgages at the peak, he said.

In cities with above-average subprime exposure prices have fallen by more than 25 per cent from their peak in June, 2006, he noted. By contrast, in U.S. cities with single-digit subprime exposure prices have fallen by 5 per cent. This is much more comparable to what has happened in Canada, Mr. Tal said.

“By almost any measure, American households entered the current housing crisis from a more vulnerable position relative to their Canadian counterparts,” he said.

Canadians have a lighter debt load and higher net worth, and there’s been much less speculation in the real estate market here than there was in the U.S., Mr. Tal added

http://www.reportonbusiness.com/servlet/story/
RTGAM.20080930.whousing0930/BNStory/Business/home

I keep hearing this over and over from whoever I talk too, I’am also renting I hope this guys got it wrong how can he say canadians are not as indebited as americans

#97 3rdman on 09.30.08 at 9:25 pm

Yawn – its only paper taking a hit.

Sit tight watch the show.

#98 POL-CAN on 09.30.08 at 9:32 pm

#84 smwhite

Interesting times we live in eh? Time will tell…

My gut feeling is that we are heading straight down, right behind our Amerikan friends…. If the CND $ overshoots the US $ by the margin you suggest, our exports are done….. Without the trade with them we have nothing, nil, nada…..

The UK is in the worse crisis in 60 years… Spain and France are not far behind, and even the economic powerhouse Germany is starting to feel the pain….

We are the size of Cali in population for crying out loud and look what is happening there…. Poland has more people then we do and probably a more diversified economy to boot….

Get ready for some hard times…..

#99 dd on 09.30.08 at 9:51 pm

94 EJ,

At least they have a plan. Credit is frozen. If they don’t do anything the whole picture is going to get really bad really quick.

I work at a large company in Calgary, every clean balance sheet, and it cannot borrow short term money. Something has to give and give quick.

#100 Stephen from Toronto on 09.30.08 at 10:10 pm

Correction from post #56

A US national debt of $100 trillion would require servicing to the tune of 2-4 Trillion of interest (assuming an interest rate of 2-4%) per year or between $150-350 billion/month. Since the US owes $7 trillion to foreign creditors it has to pay $30-60 billion in interest/month.

#101 dotava on 09.30.08 at 10:19 pm

#91 The Tallyman on 09.30.08 at 6:09 pm

this should work:

http://google.ca

instead of ‘google.ca’ put your web site url.

#102 MBS-Economy on 09.30.08 at 10:21 pm

I’m guessing 90% of the american public is saying NO to the bailout, Congress has to do the right thing and kill this deal again because there ARE better alternatives out there to resolve the liquidity issue.

#103 dotava on 09.30.08 at 10:27 pm

#91 The Tallyman on 09.30.08 at 6:09 pm

Working – LOL – but is not helping
Here is how:
{}
{http://google.ca}
{}
{}
just remove { and } from every row – I have to put them there – otherwise your browser will show just link (what you expecting).

#104 dotava on 09.30.08 at 10:32 pm

Let see is this one will trick the FireFox:

{
{http://google.ca
{
{

just remove all {.

#105 Gord In Vancouver on 09.30.08 at 10:37 pm

It’s official – we have/had a real estate bubble……….

Here’s the smoking gun —–

“Canadians heading to debt counselors in record numbers”

http://www.news1130.com/news/topstory/article.jsp?content=20080930_184804_10688

#106 dotava on 09.30.08 at 10:37 pm

Garth – LOL

that I do not try other stuff as using different symbols for ” and try to explain what have to be replaced with what – can you help Tallyman maybe y3max will start to use URLs too and make easier to skip his (y3max) comments.

Sorry for distraction.

#107 dotava on 09.30.08 at 10:52 pm

#91 The Tallyman on 09.30.08 at 6:09 pm

HTML code generator

scroll down and play with Link text, URL, picture …
To see result save that file on your desktop as .HTML file and you can see outcome.
Good luck and welcome in html world.

#108 POL-CAN on 09.30.08 at 11:00 pm

Hat tip to blak swan for this excellent comment/post at

http://globaleconomicanalysis.blogspot.com/2008/09/congressional-most-endangered-list.html

During the Cold War, the US and the Soviet Union engaged in what was called “mutual assured destruction”. In game theory it could be classified as a type of Nash (A Beautiful Mind) equilibrium. In other words, if you attempt to blow us up, we will blow you up. It lasted until the Soviet Union lost the game of defense-budget chicken. The US now finds itself in the same position as the old Soviet Union. Trillion dollar draining Iraq is doing to this country what Afghanistan did to the old Soviet Block, but the real weapons of mass destruction involved in today’s mutual assured destruction are currencies and derivatives. Today’s financial cold war foes are the world’s central banks. The Chinese and Saudi central banks are not doing business with the US because they like us.

The USD, being the most potent nuclear weapon in the world, must be kept from exploding, or the fallout will reach every country. Other nations have no way to decouple from us without setting off a dollar implosion inside their own borders. Ever since we gave the world’s banks, that were foolish enough to do business with us, financially transmitted diseases (FTDs), they have been forced to enter into a non-agression pact with us, or implode. In other words, if we go down, they go down.

Consequently, everything is now done in worldwide unison. If we pump liquidity into our banks, then foreign central banks must pump liquidity in their banks. If they eliminate short selling, we must eliminate short selling. We are now emulating their methods of corporate accounting. Now that we are all infected with FTDs, we have to take the same medicine. By December, we will have all lowered rates. Unfortunately, none of these measures will keep the patients from suffering long, painful, debilitating and possibly terminal illnesses. Leverage is too large and imbalances are too great, nothing will stop the future all world financial collapse.

Now might be a good time for Americans to move money into more solvent countries that don’t have a Department of Homeland Security. By the end of the week, the US Treasury Department will have been given unlimited power. If you expect Goldman Sachs owned Obama or Merrill Lynch owned McCain to give up that Presidential perk, lower your expectations. It will be difficult to convince those who are holding all the aces to give up the card game. Now, if I could only figure out which are the safer, more solvent countries.

#109 DD Ballkan to DD on 09.30.08 at 11:02 pm

DD on Saturday Oct. 4 is the Toronto Resource Show.
GATA is sponsoring a party that night.
If you’d like come with me and with free drinks and appetizers we will have the chance to listen to one of the great minds in the Investing Bussines.

#110 EJ on 09.30.08 at 11:35 pm

#98: dd

Everyone wants a quick fix to a serious problem. But it doesn’t work that way, and nobody wants to hear the truth. They just want to be told that everything’s going to be ok and that the government is going to make everything alright.

Unfortunately, the financial system has a fatal design flaw. It’s a rotting limb and they’re worrying about what brand of cream to put on it.

http://www.financialsense.com/stormwatch/geo/pastanalysis/2008/0926.html

#111 The Tallyman on 09.30.08 at 11:49 pm

Dotava,

Thanks for the pointers on embedded links. I’ll get it sorted and get up to speed.
Really envy the posters who use embedded links to the original articles.

To rest of the readers I sincerely apologize for hijacking the thread.

#112 POL-CAN on 10.01.08 at 12:32 am

And yet another good line :)

“The United States is in a recession and facing the worst financial crisis in almost 80 years because the folks currently in charge were out to lunch”

- Dean Baker, September 2008

#113 POL-CAN on 10.01.08 at 12:35 am

Another interesting comment…

We convinced the world that Iraq had WMD. They didn’t.

We convinced the world that our currency was safe and secure. It wasn’t.

We convinced the world that our mortgages were appraised, triple-A rated, and as good as gold. They weren’t.

We convinced the world, post-Sarbanes-Oxley, that are CEO’s were legit, and that their personal guarantee was on their companies’ financial results. Instead, they were corrupt, the results were fiction, and there would be no prosecutions.

We convinced the world that we should be trusted and respected. Instead, we screwed them all.

So, are we now The Great Deceiver? Should the world ever trust us again? Will the world ever trust us again? And aren’t you ashamed that the good name of America has now been destroyed?

And from our UK friends

http://www.channel4.com/news/articles/politics/domestic_politics/cameron+were+in+this+together/2481757

#114 The Dude on 10.01.08 at 12:40 am

“Canadians have a lighter debt load and higher net worth, and there’s been much less speculation in the real estate market here than there was in the U.S., Mr. Tal added”

I Guess he’s never been to B.C.

#115 anonymous on 10.01.08 at 12:59 am

What the hell is wrong with all of you? You really want the banking system to fall apart? You want another great depression? Why? To prove that you can win a fucking Internet debate?

The bailout isn’t perfect, but it’s something and it should be enough to stimulate the credit markets until private capital steps in.

Look the market was up today BECAUSE the street thinks a package could be passed. It would take a depression-like situation off the table. But don’t fool yourself for one minute, this rally was congress-fueled.

It’s preventative. The credit crunch won’t affect you basement-dwelling rubes for at least three months. You won’t be able to borrow money to buy a new/used car, forget getting student loans, and that’s right, homebuying is going to get that much harder.

BTW, I’m renting right now too. But not some dingy basement suite. I have standards, you know.

#116 David on 10.01.08 at 1:21 am

Watching BNN tonight was not very reassuring. One of the guests was Jim Flaherty and listening to him made me feel quite uneasy. There was happy talk about a Conservative majority and all the wonderful things that will really happen if there is a Harper majority. The wild plunge of the TSX was little more than a minor scratch on the family sedan. The fundamentals are incredibly solid and there is little worry about. There was no reckless finance in Canada and no sub prime mortgages. Canada had no housing bubble in the first place according to Flaherty. At that point I decided to rescue myself with the Detroit vs. Montreal game on TSN.
I saw a picture from the demonstrations on Wall Street today. Someone was carrying a card board placard scrawled with the words “JUMP FUCKERS!” There is enough anger out there now that jump may be converted to push.
Bailing in BC, watching the Waltons syndicated reruns probably won’t help. They ran a sawmill and as you know lumber is in trouble these days. Mary Ellen Walton was no Marcia Brady. Mary Ellen on the Walton’s did not cause much stirring in the loins of adolescent Canadian males. Marcia sure did.
Definitely Yes to the big garden, suburban mini bovines and some chickens will make life more bearable in the new financial dark ages approaching. Turn the heat down, wear socks to bed and get thicker blankets.

#117 The Tallyman on 10.01.08 at 4:02 am

In order to get the bail out bill voted in,
the geniuses are contemplating raising the FDIC insurance from 100k to 250k.

Wow… we are more than doubly protected the public will probably say and ease up on the defiance.

But what if… the system fails and the FDIC cannot
honor the pay out even at the present 100k insurance level…
Good luck trying to collect that 250K!
Quite a slick shell game by Bush & the gang.

As an example,
in Calgary during the late 1980′s
I started a job at a Calgary company and three days in,
I discovered that most employees had not received a paycheck in many months.

Anyways on the morning of day three,
on the day I ran for the hills.
One employee who was angrily pacing up & down the shop floor, finally told fellow co workers he was going to the company president’s office to get his money and quit.
He had not been payed in 8 months.

A few minutes later,
the guy comes back from the president’s office smiling and whistling.
One of his buddies asked him what happened….
“oh I got my pay raised from $7 bucks to $15 bucks an hour and was promoted to foreman of the paint department”

Dumbass was happier than hell and when his buddy said if you got nothing at the $7 buck rate,
you are only gonna get a hell of a lot more nothing at that higher rate.
But the new foreman couldn’t see it or believe it.

True story, and anybody in Cowtown that was around in 1988 might remember hearing about this helmet manufacturing company.
Dark days in Calgary’s sweatshop/immigrant exploiting history.
The govt shut it down a few weeks after that.

But back to the point.
One hundred thousand zeros = 0
Two hundred & fifty thousand zeros = 0
And that’s exactly what FDIC might be handing out if they are unable to honor their contracts with depositors.

Helmet anyone?

#118 Mike B formerly just Mike on 10.01.08 at 12:00 pm

Anonymous…. The bailout isn’t even close to perfect… During the great depression they did nothing like this.
You need to prune trees for them to grow back healthy.
All we are doing is dumping more fertiliser and dropping interest rates… that’s how we got here dude. Alan “free money for all” Greenspan. A woman interviewed a couple days ago noted that during the depression they did no such bailout and forced creditors and banks to come to agreements of settlements… not let them burn out. No one will win in any scenario but the hedge guys and of course Goldman.. ie the ex employer of Paulson and Mark Carney … will be the winner.
Takes the profits and passes the losses to the world again. A viscious cycle must be broken.

#119 Andrew toronto on 10.01.08 at 2:50 pm

It’s coming .. to Canada

http://www.financialpost.com/news/story.html?id=853094

Canada may face housing bust: Shiller
Jacqueline Thorpe, Financial Post
Published: Wednesday, October 01, 2008

More On This Story
Merrill warns of property slump

U.S. home prices fall at fastest pace on record

U. S. housing roller coaster

Don’t count out housing crash in Canada: Merrill
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CME Group Inc.

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Chip Somodevilla/AFP/Getty ImagesRobert J. Shiller, Stanley B. Resor Professor of Economics at Yale University, testifies before the Joint Economic Committee on Capitol Hill on Sept. 19, 2007 in Washington, D.C. The committee held a …
The Canadian housing market could face a similar housing bust to the United States, particularly in more bubbly markets as Vancouver and Calgary, said Robert Shiller, the Yale University professor who predicted both the 1990s stock market boom and bust and the US housing slump.

Mr. Shiller, co-founder of the S&P Case/Shiller Home Price Index, said psychology is the primary driver of bubbles and it appears that Canada has been caught up with home buying fever just as the United States and other countries around the world.

Asked whether that meant Canada could face a similar bust Mr. Shiller said: “Yes, especially in places that went up a lot like Vancouver and Calgary. I don’t think Toronto has been quite as extreme.”

Mr. Shiller said there was a natural connection between the United States and Canada.

“I would be surprised that the bubble that appeared in the United States and elsewhere didn’t appear in Canada,” he said in an interview with the Financial Post. “It’s psychology, I think that drives it.

Mr. Shiller, whose book Irrational Exuberance came out in March 2000 just as the tech bubble peaked, said it was essential for the U.S. government to pass a financial bailout, though he believes the United States is facing a “severe recession,” regardless.

“I’m concerned problems are deeper than can be handled by the bailout but that doesn’t mean the bailout doesn’t do some good,” he said.

He said a bailout might help restore some confidence to the stressed financial system.

“What creates a crisis is a lack of confidence,” he said.

He said the housing crisis was primarily a policy failure by U.S. authorities.

The U.S. government was “totally blind” to it, regulators failed to monitor the mortgage industry properly and the U.S. Federal Reserve had very low interest rates at a time of the greatest housing bubble of all time.

While homeowners should take some personal responsibility for the debacle, they were being goaded into the fevour by an establishment that endlessly pushed an ownership society.

“They were doing what was considered right at the time,” Mr. Shiller said.

Mr. Shiller said human nature seems to predispose people to spectacular excess, fanned by a voracious news media.

“Until we had newsapers and other media we had no bublbles, he said.

While ups and downs in the market can lead to creative destruction the current housing crisis has morphed into a system problem.

“The problem is that perfectly good firms are in trouble,” he told the Financial Post in an interview at the Ontario Economic Summit.

A bailout may not be palatable, government assistance is required when the system fails.

The trick is to reduce conditions that fan bubbles.

In his current book, “The Subprime Solution,” Mr. Shiller proposes several measures to reduce bubble conditions in the housing market including better information for prospective buyers and broader markets that trade risk better, such as the housing futures he has developed on the Chicago Mercantile Exchange.

There should also be new retail products such as “continuous workout mortgages,” that go up and down with the value of the home equity and mortgage equity insurance.

Mr. Shiller, who would not give a precise forecast on the outlook for U.S. home prices, nevertheless said futures markets are predicting more price declines of 10% or more. His Case/Shiller index earlier this week showed home prices down 16.3% year-over-year this summer.

He expects things to get worse for the U.S. economy in the short-term.

“We’re going to have a severe recession, most likely,” he said. How quickly the economy recovers depends on policy.

“Unfortunately the bailout has hit a snag,” he said. “There is resentment of rich Wall Street people. I am worried that the sense of trust, in confidence of each other is being damaged.”

Mr. Shiller said he does not have another bubble in his sights as the U.S. economy will be “damaged for years.”

“The housing bubble was of record proportions,” he said. “Maybe the next big bubble will be your children’s or grandchildrens…The excitement we had in the 1990s and in 2000 in the housing market is a fragile thing and it won’t come back for some time.”

#120 Republic of Western Canada on 10.02.08 at 12:05 am

#76 y3maxx:

Who the hell is this ‘Cook’ guy anyway? Is he so screwed up that he thinks people will buy nonsensical ‘flip-flop’ arguments typical of cheap lawyers and residents of certain provinces of India?

Crap like the following:
“The trouble is that a modern industrial economy does not produce enough purchasing power through wages, salaries, and dividends to buy what is produced at prices that must be charged to keep the system running.”

In reality, the more mature the society and the more mature the industry, the less it needs to maintain its productive infrastructure. Paper-making machines made in Switzerland 100 years ago are still in use in many locations all around the world. Costs have long since been amortized, dontcha think? Same with bridges, roads, and a good pair of shoes.

The recording and software industries are good examples of the ‘next unit of production’ approaching zero while revenues (or wages) AND added consumer utility remain constant.

What Cook really is alluding to is that salaries cannot keep pace with pure, simple, dumb-ass wastage. That implies that the main problem we really have here is a societal discipline and education problem, not an economic one.

-Here’s another stinker:
“What we should do is monetize savings and retained earnings by issuing a corresponding dividend to the consuming population to balance production and be able to purchase what industry can produce through a non-inflationary production-based monetary system”

Gawd, gimmee a f****g break. Typical Lie-beral rhetoric for confiscating your money so that they can waste it on any crap that they want (like stoopid ‘gun-control’ aka confiscation laws, which do nothing of any productive use).

If these two passages are indicative of the glib noise emanating from ‘Leaders’ of the U.S. ‘House’, then it’s no wonder all the backbenchers are kicking them in the pants.

#121 dd on 10.02.08 at 6:12 pm

#117 The Tallyman,

Smart move by the Fed to up insurance to $250K. There is a “silent” run on the banks so they hopefully will stop this.

The sky is not falling, however, people are in a panic. There is still value around. The US still can sell and buy things. The world has been through this before and will go through it again.

A house in Calgary will still be worth something. It will not be zero. Oil will be worth something. It will not be zero. Wheat will be worth something. It will not be zero.

Now come down from the ledge. It will be alright.

#122 dd on 10.02.08 at 6:17 pm

#109 DD Ballkan to DD,

Sorry Ballkan … I am in Calgary.