Entries from February 2009 ↓

God descended from Air Force One, climbed into the Beast (even the Deity needs five-inch-thick glass) and sped off to Parliament Hill, where a supplicant nation had blown this month’s defence budget on American flags.

Back in the real world, life was disintegrating at the usual clip.

* Today’s numbers show the Canadian economy is contracting at an annual pace of 9.6%. By way of comparison, the definition of a depression is a decline in activity of 10%, and this week we heard Japan has tumbled 12%. Bummer.
* Today we discovered 6.54 million American are unemployed and 600,000 a week (more) are applying for unemployment benefits.
* House building in Canada will collapse by 25% this year, says CMHC. In Saskatchewan it will crumble by 40%. Sales of existing homes will drop another 15%, too. These, by the way, are government estimates. Hence, you can probably double them.
* Construction of new homes in the States plunged by 17% in January alone.
* Oil prices have dipped into the $30-a-barrel range, and look poised to enter the twenties. At least they can still dig up valuable dino bones in Alberta.
* And new numbers show almost 30% of all American homeowners – 14 million of them – are now in negative equity. Imagine that. A country when one in every three families has a mortgage bigger than the value of their home.

Let’s dig into that last number for a minute.

US home prices (which foreshadow ours), have dropped on average by 25% in the current meltdown. In some markets, the collapse is 50% to 80%, but the median hit is a quarter of value. This will erode further by about 15% before a bottom is reached – hopefully in a year or so. That means another 8 million homeowners could slip into negative equity, yielding the unfathomable result of 40% of American families who own real estate being underwater.

This is what Canadians have to look forward to, of course, as markets here also slide and valuations crack after the faux Spring market about to take place. While we will not have a foreclosure crisis here (due to the differing nature of our financing regs), we will have a negative equity calamity. It will be the first time, ever.

Meanwhile the United States is entering the second phase of its foreclosure mess, as $1.3 trillion worth of Alt-A mortgages come due – loans which were given to borrowers with better credit ratings than those who got subprimes. Many of these folks are self-employed who, in this credit crunch, simply can not get a renewal of their mortgages.

All of this brings us to one inescapable conclusion: God’s mortgage bailout plan announced yesterday won’t work. It’s impossible.

The sum involved – $75 billion – is but a tinkle in the ocean of debt and despair. The plan does not to help most of the families coping with plunging home values and uncertain mortgages, and it gives no hope whatsoever to any of the 6.5 million unemployed people who will be simply unable to make mortgage payments within two or three months.

All the Divine One seems to be doing now is egging on the public with a rolling bailout plan – a financial striptease that throws one more vestment to the throng each week, so they don’t lose patience and start burning down the temple. This plan will not stabilize the housing market, prevent more foreclosures or do anything to stem the horrible slide into negative numbers for millions more people. And with every new home going into negative equity, a bank somewhere gains a new toxic mortgage. All this performance does is delay the day of reckoning.

But, in Ottawa, they do not seem to know yet that God is but a man. Lo, perchance, merely the Holy Ghost.

“This was taken by a friend up on Parliament Hill during the visit of the President of the United States… thought it really shows how much Canadians (especially black Canadians) are into Obama.” – P.D., Ottawa

Hey, do I scare you? Apparently I scare Rick Anderson, former Reform Party chief strategy whiz and now a Stephen Harper closet advisor. Oh yeah, and CBC-TV talking head. He wrote the words below for his Globe and Mail online column Wednesday.

This actually is an interesting point. Will economic times improve if we don’t talk about them? Are we better not to have guys like me writing books explaining the mess and travelling around the country getting people stirred up and mulling their options? I mean, is Canada but a willow in the global winds, helpless to protect its citizens and mitigate the bad times. Do we just take this crap and play the victim?

Or does Rick Anderson have a really big sucker of a house in suburban Calgary?

Beware the merchants of fear

Turns out there are good ways to profit from hard times. One way is to publish books and hold seminars about how grim it is, as Garth Turner is doing.

To be fair, Garth is hardly alone in scaremongering. The head of the IMF inexplicably pronounced a “depression,” even though his own organization forecasts global growth this year and next. Lessened growth, to be sure. But last time I checked, a weaker year was not the definition of depression. Get a grip.

GM, Chrysler, and the UAW are terrific at the scaremongering game, and may be earning more at it than by making cars. Yesterday the two companies and their union allies told the U.S. government to ante up another $21-billion. This is on top of the $17-billion they got, way back in… December.

In one of the strangest lines in the auto tragicomedy, GM reportedly “said it might need as much as $100-billion in financing from the government if it were to go through the traditional bankruptcy process.”

Huh? Companies in bankruptcy now just get to tell governments how much they “need”?  And that works, governments will just pay up? That’ll sure be a lot easier to settle debts.

Let’s get back to business.

Comments

Dan Baril from Oakville, Canada writes: I think of the term “scaremongering” as something someone does by way of exaggeration or deceitfulness in order to misrepresent the facts for some desired purpose of gain.

I have read both of Garth Turner’s recent books GREATER FOOL and AFTER THE CRASH. Based on the facts presented in those two books versus the way things have actually turned out, Garth Turner in fact underestimated the negative impact on US and Canadian Economies. How is that scaremongering? Would we be better to hear nothing at all, or the rosy picture painted by Harper/Flaherty.

If scaremongering is deliberately painting a worse picture than reality, which Turner did not do, then what do you call painting a better picture than reality, which Harper and Flaherty did? Lest we forget the answer, an election campaign!