Entries from April 2009 ↓

In case you missed it, Chrysler’s gone paws-up. But this is no normal bankruptcy.  This is 2009. Rules are made up as governments go along. And money’s no object.

The automaker’s corporate failure will cleansed by Ottawa and Washington in order that one goal be accomplished: save jobs. Well, some jobs.

Shareholders were long ago reamed out. Politicians are taking the car company through bankruptcy court to ensure bondholders and other legitimate debtors and creditors are completely and remorselessly screwed. Then, without a vote going to the people’s representatives in either capital, $15 billion in public funds will be pumped into a new company which an Italian carmaker will effectively be given.

In return for pumping cash into a moribund outfit that crashed because it built too many cars people didn’t want, overpaid its workers and was run into the ground by millionaire managers, taxpayers will get equity. In Canada, according to PM Stephen Harper and Ontario preem Dalton McGuinty, the people will own 2%. That will cost $3.8 billion.

So, will anything be different going forward? What do Canadians get for spending $375,000 on every single job at Chrysler Canada? If there is no guarantee Chrysler will build new products, be run better, inspire buyers once again and suffer no more ruinous losses, would it not have been safer just to inject 375K into every autoworker’s RRSP?

Maybe. But that would be outrageous, and unfair to every other working Canadian who does not earn $75 an hour as these company employees did (the union says people on the line get $45, the rest is ‘all-in’ cost). Hey wait, that’s just about everybody! And I even hear most people who are laid off don’t collect 90% of their normal wages, as idled autoworkers do. No wonder these jobs are special.

It’s just a damn shame nobody asked taxpayers if this was okay.

But you know why.

Chrysler to slide into bankruptcy today. The National Post no longer a daily. Almost 80,000 new jobless in a single month. Political biker babe Julie Couillard’s famous frock sells at auction for a fifth of what she wanted.

The world has certainly turned into an interesting place. And I didn’t even mention the WHO moving to pandemic Defcom 5 or the US economy plunging a scary 6% in the first quarter.

Amid this, believe it or not, Washington says there are signs the economic slump is ending, which the stock market apparently has bought.  The Fed just confirmed interest rates will stay at zero. In fact, a leaked central bank report says negative interest rates may be necessary in the months to come. Given the current levels of joblessness, deflation and despair, the best rate, it asserts, would be minus half a point.

Imagine. Banks paying you interest to borrow money. Is this a wonderful time, or what?

The flip side however, is when governments go insane, as they are now, it’s for a reason. American policymakers are spending $10 trillion they don’t have, running up the biggest debts in the history of man and making money free because they fear a deflationary spiral.

This has been the sweaty thing at night now for many months, and despite the Polyanna statements from politicians, the threat’s grown. Officially, 8.5% of Americans are out of work, but the real rate’s believed to be twice that. In fact, in Indiana, 25% of workers are idle, while in swaths of California, the jobless number is 20%. Those are not far off 1930s levels.

Prices and wages continue to decline right along with the cost of money.

But in all this comes the mother of decoupling.

The lowest interest rates since ever are clearly seducing the weak. Real estate sales have been shockingly robust. Buyers are paying full price. Mortgage brokers say they haven’t been this busy in two years. First-time buyers are maxing out.

Ironically, the one thing that caused our current financial Armageddon – credit – is making a big comeback, thanks to government policy. Suddenly debt is cool again. Not an hour goes by that someone doesn’t email me gloating about their new loan rate. People are falling over each other to lock into 5-year mortgages at 3%, not stopping to think they’ll be renewing at two or even three times that level. Home values are actually rising because buyers can afford to pay more thanks to cheap money, thanks to government. It’s false inflation in the jaws of deflation.

And it will not end well.

We cannot borrow our way to health. Even when bereft politicians plead. Or date babes.

Excuse me. Going to plant carrots.

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On the Road: If you’re hanging out in the Okanagan region on Saturday, join me at the HoweStreet.com Money Expo. The day-long unbuttoned celebration of greed and mammon happens at Kelowna’s Coast Capri Hotel. Registration is free at the door, and make sure you get there by 8:15 am – unless you’ve had enough of me.

For today’s blog, “Pandemic preparedness,” go here.

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For Garth’s latest podcast, go here.

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Attention, class.

As of this day, there are 610,000 Canadians collecting pogey.  In the US, about 6.1 million people are on unemployment benefits. Yes, on a per capita basis, exactly the same.

Ottawa coughed up $75 billion to rescue our banks by buying their soon-to-be-maybe-toxic assets, those 0/40 mortgages. In the US, Washington splashed $750 billion over the banking sector to prevent its collapse. Yeah, right again, proportionately the same.

Governments in Canada will soon be sucking up an equity stake in GM and Chrysler since they are already into these staggering companies for billions. Ditto in Washington.

Canadian households have the highest level of debt as a percentage of disposable income in history, sitting at just under 130%. In the United States, families have also never been so indebted. In that country, it’s just over 130%.

We have newspapers and television stations keeling over, with CanWest battling bankruptcy and CTV begging the CRTC for new revenues. In the US, media in many major markets are on their knees – a reflection of how badly advertisers are doing.

We have swine flu. They have swine flu. Their steel plants are shutting. Ours, too.

Their interest rates are, like, zero. Ours have crashed to nothing. They are paying first-time homebuyers. So are we.

But wait. The median home price in the US dropped 23% in the past year, and in markets like California (the size of Canada), home values are down between 50% and 70%.  But up here, the national average has declined by merely 7.5% in the past 12 months. In fact, as the current magazine cover above shows, some people think this is a giant, double double, made-in-Canada buying opportunity.

Are they prescient? Or just frigging nuts?

Well, if you ever needed a concrete example of how our we-are-not-Americans complex can compromise good judgment and intelligence, go buy a copy of Canadian Business. The mag has set a new low in questionable journalism, I’d say, in a manufactured piece peppered with irrelevant factoids and conclusions intended to get advertiser hormones flowing. I mean, class, let’s not forget some of the true facts here:

* Americans let real estate prices inflate without any attempt at correction by the central bank, and so did we.
* Americans relaxed lending standards with subprime teaser mortgages and liar loans. We dropped them with forty-year ams, zero-downpayments and self-recognition mortgages.
* US banks got lazy and greedy and approved almost all lenders. Our banks okayed mortgages based on postal codes.
* American household debt levels are extreme. So are ours.
* At the height of the American housing bubble, people were spending six times their incomes for houses. In Vancouver they were spending 10 times their incomes.
* The US housing meltdown has lasted for more than 4 years. Ours is one year old.
* The American economy crashed by a stunning 6.2% annualized rate in the last reporting period. Ours plunged by 7.3%.
* The Americans regressed from the worst federal budget deficit ever to an even-worse one. We bungee jumped to one of our worst-ever deficits, from a surplus.
* GM is losing a third of its workforce in the States. In Canada, half the guys on the line will be gone.

And today the feds announced monthly Canadian job losses of 79,600 – equivalent to a US figure of almost 800,000 – a staggering number which they have yet to hit.

So, our housing market correction should last one-quarter as long as the American melt? Based on what, exactly? The fact we’re not Americans?

Sorry. Failing grade. We may have better beer and hockey thugs, more donuts and duck-strewn tailing ponds, but do these things really make us superior? Is a young couple buying a semi in the Beaches for $600,000 getting the opportunity of a lifetime? Or squandering a future?

Time will tell. But the odds are this pathetic blog will be even more relevant in a year than it is now.

Class dismissed. And don’t forget your damn flu masks.

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