A minute to midnight

I like letters like this.You should, too. — Garth


I have read many of your books, columns and have also been following your blog on this site and your other site Garth.ca. The information that you have shared has been invaluable to me. I feel that because of your efforts I have managed  to get out of real estate a minute before midnight.

I was never savy enough to do that well with stocks…nor did I really have enough money to seriously play the game. I have always had a good eye for real estate and have over the last 12 years purchased great properties that needed to be fixed up. My husband is a carpenter/ contractor so fixing was never a problem.

We lived in most of our properties until we sold. This boom cycle has allowed us to make some good money. The reason we were able to make money was that we were willing to sell our houses. We were never “invested” in just one big trophy property, that we would find difficult to sell …like most of our friends. In the last 12 years we have owned a couple condos in Vancouver, a hobby farm and a cottage with a spectacular view on Kootenay Lake in the interior.

The cottage was the crown jewel in our real estate holdings. We purchased it for $200,000.00 and just sold it for $more than three times that. We also sold our remaining condo in Vancouver this October.  We probably could have sold our cottage quicker and for more money if we had listed it last year but I was thinking of retiring there in a few years. Reading your book and blog though, convinced me it was time to sell. We listed the cottage in June of this year and have been really fortunate to sell.  I was shocked that we managed to do this considering the current economic and environmental climate. I am really, really grateful for this sale. We now have no debts at all, a cute house we have rented where our dog and cat are welcome.

We have cash and some metals. I feel that if I didn’t have the benefit of your book Greater Fool, your corresponding blog and the input and links from some of your bloggers I would have missed the minute before midnight and been not nearly as aware or informed. Thank you.

I also am a reader of your web site Garth.ca. I became interested and involved in politics again because of your blog. I was very disappointed when you lost your riding and when Dion’s passion and policies  couldn’t inspire the country to make the changes Canada needs.

I just wanted to let you know that I am grateful for your courage to speak out and stand up for what you believe, and to let you know this makes a real difference to people like me. I have started collecting seeds and amo (sort of joking).

All the very best to you, Dorothy and now Bandit. I look forward to reading your new book.

Kind regards,


#1 dd on 11.15.08 at 11:47 pm

Great Story.

#2 O'Ryan on 11.16.08 at 12:05 am

ou are my soul sister…here I sit in Lake Country… in GASP”RENTED

#3 O'Ryan on 11.16.08 at 12:07 am

you are my soul sister…sitting here in a rented condo….awaiting…what? the last…greatest fool…?

#4 JOJO on 11.16.08 at 12:42 am

I alredy posted that next year you can see the biggest FRAUD and CRIME of THE CENTURY and my friend JO is in denial about economy fundamentals?
YESTERDAY ON THE STOCK MARKETS, TSX and DOW, gold price was up $ 45 and golden stocks fall?
DID you ever seen that OIL PRICE gained $ 100 and OIL STOCKS FALL? Yes, only in America.
My friend JO,if you know the last 7 years you have less gold production from 2,800 tons in 2001 to 2,000 tons in 2008. Less production and higher demand but the Gold price is going down? Only India every year buying
over 500 tons. Turkey,Pakistan and China also 500 tons.
On E-Bay( In The world cheapest market) Gold is over
$1,000/oz and silver $30/0z.
Could you see that overdebt USA (over $58 Trillions) and with currently double money supply in 2008 made the $ US gained over 30% against other currencies
CAD,EURO,Swiss Frank etc.

From Where will money comming for Obama’s new Free Health Care Sistem and better education standards and goverment grands.
From where they can borrow money for infrastructure and rebuilding of thousands old bridges.
More money supply and cheaper Gold,Oil,commodities?
Defflation process in USA with FED interest rate 1%,and very soon 0.5%.
Do you know that every citizen in USA has avg. debt over $140K(including babes and seniors) .
It’s a debt which will create bancrupcy,soon.
It will be bancrupcy of $ US.
You are blind and I’m still not. I had predicted that as Real Estate Bubble(Crime) this current “Defflation Bubble” is also CRIME. It Must be Hyper-Infflation.
$ US is stronger than other currencies because of economics fundamentals? You can’t find any reason.
In the US their FED can printing 1 trillion (official) and 10 trillions (unofficial) every year and create Defflatory process to get cheap Oil,Gold and all commodities?
With strong and valuable $ US they can now even buy cheaper world goods and products.
You can go on “Forex”-currency exchange and you can see what is vallue of any currency and how they estimate currency vallue.
When this “Defflatory process” stop in 2009 and many banks see the CRIME, than $ US will collapse like stone and will be even worst than Depresson, may be even Civil War in US,again.








#5 Tanya Kyi on 11.16.08 at 1:36 am

That’s a lovely letter, but if she’s going to start collecting seeds and amo, she should have kept the isolated cottage on Kootenay Lake. Exactly the right place for that sort of thing…

#6 Jazz on 11.16.08 at 1:48 am

Great story indeed and it feels good to reward oneself with a pat on the back; however, this also reminds me of looking out for number 1 and now boasting about it.

Perhaps Garth can advise you also on any possible tax implications as judging from the number of properties that you had, there may be issues of principal residence designations and perhaps business income from flipping.

What I am trying to say is, good on you, hope the tax department doesn’t seek more tax revenue by looking into your affairs by broadcasting it over the internet.

Please let us know what you intend to do with your pot of gold for society’s greater good rather than buying seeds (and ammo so you can also shoot the desperate improvished sheeple who weren’t as smart, nor smug, as you).

Perhaps your sign off should have also included the following update “All the very best to you, Dorothy and now [making off like a] Bandit.” Yep,you have yours…


#7 Another Albertan on 11.16.08 at 2:00 am

Calgary anecdote:

At a private function tonight, I spoke with a guy whose family owns one of the larger floor covering companies in town. A few attendees were shocked at his comments.

He said that the builders’ market is 100% toast. Zero work in SFH.

“Zero?” someone asked. “It can’t be that slow!”
“Yes. Zero. We haven’t had anything from house builders in quite a while.” was the response.

“What about all these condos going up? There must be a lot of work in the pipeline for those.” was another question from a party-goer.
“We had 5 buildings but all have had termination clauses in the contracts triggered. Condos are now zero for us too.” was the response.

Apparently the only thing keeping this company afloat is their retail store front. “We have laid off essentially all of our installation crews. Retail is what is keeping the lights on right now. We have no current commercial business but, strangely, October was our busiest retail month ever selling directly to home owners. We can’t explain it. Overall, it is not looking good and we do not see an end in sight.”

#8 Stephen from Toronto on 11.16.08 at 2:01 am

If you think that Canada is immune to the US financial meltdown which precipitated a global credit crisis , the following articles courtesy of the automatic earth.com might give you cause for concern.

The Automatic Earth.com

Debt Rattle. Saturday November 15, 2008. One Dollar One Vote

Is this Canada’s ‘last hurrah?’

Analysts doubt country can weather economic storm much longer

As the U.S. economy continues its downward spiral, economists are warning that the relative strength Canada has shown so far will likely be the “last hurrah.” Any remaining hopes that the fallout from the collapse of the U.S. housing market could somehow be contained grew dimmer yesterday. Another volley of dismal economic news cast doubt on recent efforts to shore up battered credit markets and revive consumer and business confidence, just as world leaders gathered at an emergency summit in Washington.

Topping the list of bad news yesterday was a record 2.8 per cent plunge in U.S. retail sales in October as consumers, concerned about their jobs, dramatically curbed their spending. In another sign that retailers should brace for a tough holiday shopping season, another closely watched indicator, the Reuters/University Michigan survey of U.S. consumer sentiment, remained near a 28-year low despite rising slightly in November. U.S. consumer fears are already being borne out in that country’s job market. The parade of layoffs continued yesterday as Sun Microsystems Inc. said it plans to cut as many as 6,000 jobs as sales of its server computers plunge.

Those job cuts come on top of other major layoffs announced recently across financial services, the auto industry and other sectors, and appear to augur badly for the U.S. jobless rate, which hit a 14-year high of 6.5 per cent in October. Evidence mounted this week that the U.S. contagion is spreading quickly to other parts of the world. The European Union said yesterday that the 15 countries that use the euro are officially in recession, after their economies shrank for the second straight quarter. The news came a day after the Organization for Economic Co-operation and Development said its members, representing the world’s developed economies, appear to be in recession.

“Financial markets remain under severe strain,” U.S. Federal Reserve chair Ben Bernanke said yesterday. So far, at least, Canada appears to be weathering the storm better than most. “We’re certainly going into it in a lot better shape than we’ve gone into the prior two serious recessions, in the early 1990s and the early 1980s,” said Douglas Porter, deputy chief economist at BMO Capital Markets. He pointed to strong government balance sheets, “relatively healthy” corporate balance sheets, a strong banking sector and financial markets that “are closer to functioning normally than in most other economies.”

But “despite all those positives, the fact of the matter is that we still export a huge portion of our output to the U.S., and we cannot escape the pull on the U.S. economy completely – there’s just no way,” Porter said. “We’ve certainly hung in there better than the U.S. economy right up to and including October, but I think the weakness in the U.S. is just so pervasive, as shown by the October retail sales results, that it will seep into the Canadian economy more broadly.” A TD Economics research note echoed those concerns yesterday, calling recent upbeat indicators “Canada’s last hurrah.”

“Given the data that has come out of the U.S. in the last few weeks, this strength is not likely to hold up through the last quarter of the year,” economist James Marple wrote. In a troubling sign that Canada’s housing market is softening, the Canadian Real Estate Association reported yesterday that the number of homes sold through the Multiple Listing Service plunged 14 per cent in October to the weakest level since July 2002. The drop suggests “a major downshift in consumer psychology,” CREA chief economist Gregory Klump said.

Canadian housing slump deepens as prices drop most in 26 years

In the six weeks since Vicky and Mike Plover put their house in Kelowna, B.C., on the market, a so-called healthy housing correction has been turned by a crumbling economy into the worst decline in a generation. House prices in the B.C. Interior region tumbled by 11.2 per cent last month from the previous October, the sharpest decline in the province and even worse than the national drop, which was the worst year-over-year monthly tumble in 26 years.

Ms. Plover said she remains confident the home will sell but realizes the economy is now working against her and her husband. “Unfortunately, we were a bit late [to put the house up for sale],” Ms. Plover said Friday morning before her realtor hosted an open house, with another set for Sunday. “It’s definitely tougher than it was six months ago. And the economy this fall has made a huge difference.” The Plovers have lived in their four-bedroom, 1,940-square-foot house for 18 years.

They now plan to move into something smaller. Their situation is playing out in other markets across the country as the housing slump that started with a correction in overheated prices in Western Canada becomes more pervasive as the outlook for jobs and economic growth weakens. Nationally, the average price of a resale home in October fell the most, percentage-wise, since August, 1982, sinking 10 per cent from the year before to $281,133, the Canadian Real Estate Association (CREA) says. It was the fifth consecutive month with year-over-year price declines.

Unit sales fell by 27 per cent from October, 2007, declining sharply in every province except Newfoundland and Labrador and the Northwest Territories. Month-over-month sales fell by 14 per cent, the largest drop since June, 1994. “We declared early this year that the housing boom was over, and these figures on the surface would suggest the bust has begun,” Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., said in an interview. The slowdown in home sales hit more than three-quarters of Canada’s housing markets last month, including the five most active: Toronto, Montreal, Vancouver, Calgary and Edmonton.

Fewer sales in Toronto were responsible for nearly one-third of the drop in sales across the country. In Toronto, Canada’s largest housing market, sales fell by 35 per cent year-over-year in October, and prices by 10.5 per cent. Other hard-hit parts of Ontario included the cottage country regions of Muskoka, Haliburton and Bancroft. The housing market downturn in Ontario, and to a lesser extent in Quebec, is worrisome because it reflects weakening economic fundamentals rather than the sharp price increases that took place in the West, Mr. Porter said.

“In some cities things did get overheated last year, and the correction was what got the ball rolling in terms of lower prices, especially in places such as Calgary, Edmonton and to a lesser extent in Vancouver. But I think more broadly what we’re seeing now is a weakening economy starting to make itself heard in the housing market, and that’s the bigger story for the next year,” he said. In the past six weeks the Toronto market appears to have slowed dramatically as buyers become plagued by indecision, said Chander Chaddah, real estate agent at Sutton Group Associates Realty Inc.

“It’s definitely taking longer for houses to sell. What you’re basically seeing is the decision that people are making is not to do anything,” he said. The depth of the decline in home prices is a worry for buyers, particularly those with low down payments who don’t want to find themselves owing more on their mortgages than their homes are worth if the downturn continues. Job security is also is also on people’s minds as layoffs spread from the auto and forestry industries into the financial, media and technology sectors.

One set of prospective buyers have returned to a home in Toronto’s Bloor West Village area so many times, they’ve probably spent more waking hours there in the past week and a half than the property owners have, Mr. Chaddah said. He currently has three houses listed on the market for less than $450,000 apiece. Each is drawing about one showing every two or three days, a trickle of the interest shown just months ago, he said. Even the curiosity seekers who frequented open houses appear to be staying home, with two recent events luring about ten people each instead of the throngs that used to show up.

The lack of interest means many sellers likely won’t bother with price reductions, but instead let their listings expire after 60 days and wait until a better time of year to relist, he said. “It wouldn’t surprise me if people are saying, ‘If it’s going to take me a couple of months to sell my place, I’m not interested in having the house on the market over the holidays. Why not wait until the early spring?’” he said.

One month’s numbers don’t make a trend, and before drawing conclusions Mr. Porter said he’d like to see the data for the fourth quarter as a whole. “Having said that, there’s little doubt that the market continues to weaken markedly. We’re basically seeing a one-way move since the start of the year, a steady stream of double-digit declines in sales and a slow grind down in prices. It’s tough to see that bigger trend turning around any time soon.”

#9 JET on 11.16.08 at 3:15 am

Fitting for the times…


#10 JOJO on 11.16.08 at 3:41 am

Where is my prvious post?

#11 Stephen from Toronto on 11.16.08 at 5:03 am

Is the US Treasury Department $850 billion (Oh sorry $2 Trillion dollar) bailout a Fraud: Part 1

I am posting a series of three articles courtsey of the Automatic Earth that put forward some very disturbing questions on what the bailout is supposed to accomplish.

The Automatic Earth.com

Debt Rattle: Friday November 7, 2008. Hocus Focus

The New Trough

On October 13th, when the U.S. Treasury Department announced the team of “seasoned financial veterans” that will be handling the $700 billion bailout of Wall Street, one name jumped out: Reuben Jeffery III, who was initially tapped to serve as chief investment officer for the massive new program. On the surface, Jeffery looks like a classic Bush appointment. Like Treasury Secretary Henry Paulson, he’s an alum of Goldman Sachs, having worked on Wall Street for 18 years. And as chairman of the Commodity Futures Trading Commission from 2005 to 2007, he proudly advocated “flexibility” in regulation — a laissez-faire approach that failed to rein in the high-risk trading at the heart of the meltdown.

Bankers watching bankers, regulators who don’t believe in regulating — that’s all standard fare for the Bush crew. What’s most striking about Jeffery’s résumé, however, is an item omitted when his new job was announced: He served as executive director of Paul Bremer’s infamous Coalition Provisional Authority in Baghdad, during the early days of the Iraq War. Part of his job was to hire civilian staff, which made him an integral part of the partisan machine that filled the Green Zone with Young Republicans, investment bankers and Dick Cheney interns. Qualifications weren’t a big issue back then, because the staff’s main function was to hand over stacks of taxpayer money to private contractors, who were the ones actually running the occupation. It was this nonstop cash conveyor belt that earned the Green Zone a reputation, in the words of one CPA official, as “a free-fraud zone.” During Senate hearings last year, when Jeffery was asked what he had learned from his experience at the CPA, he said he thought that contracts should be handed out with more “speed and flexibility” — the same philosophy he cited back when he was in charge of regulating Wall Street traders.

The Bush Administration has since reversed the Jeffery appointment, perhaps thinking better of giving a CPA alum such a central role in the Wall Street bailout. Still the original impulse underscores the many worrying parallels between the administration’s approach to the financial crisis and its approach to the Iraq War. Under cover of an emergency, Treasury is rapidly turning into an economic Green Zone, overrun with private companies collecting lucrative contracts. Fittingly, one of the first to line up at the new trough was none other than the law firm of Bracewell & Giuliani — yes, that Giuliani. The firm’s chairman, Patrick Oxford, could scarcely conceal his glee over the prospect of cashing in on the bailout. “This one,” he told reporters, “is very, very big.” At least four times bigger, in fact, than the post-9/11 homeland-security bubble, from which Giuliani and his various outfits have profited so extravagantly. Even bigger, potentially, than the price tag for the Iraq War itself.

In Iraq, the contractors were tasked with reconstructing the country from the mess made by U.S. missiles. After years of corruption born of no-bid contracts and paltry oversight, many Iraqis are still waiting for the lights to come back on. Today, a new team of contractors is lining up to reconstruct the U.S. economy — reconstruct it from the mess made by the very banks, brokers and law firms that are now applying for contracts. And it’s not at all clear that America can survive their assistance. See if any of this sounds familiar: As soon as the bailout was announced, it became clear that Treasury officials would hire outsiders to perform their jobs for them — at a profit. Private companies wanting to help manage the bailout were given just two days to apply for massive, multiyear contracts. Since it was such a mad rush — after all, the entire economy was about to implode — there was no time for an open bidding process. Nor was there time to draft rigorous rules to make sure that those applying don’t have serious conflicts of interest. Instead, applicants were asked to disclose their conflicts and to explain — and this is not a joke — their “philosophy in fulfilling your duty to the Treasury and the U.S. taxpayer in light of your proprietary interests and those of other clients.” In other words, an open invitation to bullshit about how much they love their country and how they can be trusted to regulate themselves.

The first major contract to be awarded in the bailout was for legal advice — and the choice Treasury made was Halliburton-esque in its audacity. Six law firms were invited to bid, but four declined, either because they didn’t want the contract or because they had too many conflicts of interest. Rep. Barney Frank, chairman of the House Financial Services Committee, said the fact that so many law firms chose not to bid “shows that the guidelines are sufficiently rigorous.”

Or it may just show that the bidder who won the contract — Simpson Thacher & Bartlett — takes a more relaxed approach to conflicts than its colleagues. The law firm is a Wall Street heavy hitter, having brokered some of the biggest bank mergers in recent years. It also provided legal support to companies trading mortgage-backed securities — the “financial weapons of mass destruction,” as Warren Buffett called them, that detonated the banking industry. More to the point, it was hired to provide legal services to the Treasury in its negotiations to spend $250 billion of the bailout money purchasing equity in America’s banks. The first stage of the plan involves buying stakes in nine of the country’s top banks. Incredibly, Simpson Thacher has represented seven of the nine: JPMorgan, Bank of New York Mellon, Bank of America, Citigroup, Morgan Stanley, Goldman Sachs and Merrill Lynch.

According to its contract, Simpson Thacher has agreed not to represent any of the banks “against the U.S.” when they negotiate with Treasury for the equity money. However, the firm has retained the right to represent banks when they apply for other parts of the $700 billion bailout not covered by its contract. (It has promised to erect a “firewall” to stem the flow of “confidential information” to those clients.) The firm will also continue to work for the banks on a range of other lucrative deals — and that’s where the problem lies. Take Lee Meyerson, Simpson Thacher’s lead lawyer on the bailout negotiations, who is specifically named in the contract as “essential” to the project. As the company’s hotshot attorney, Meyerson has personally represented three of the nine banks that were bailed out in the first round, in addition to many others that will surely apply for cash injections. One of the bailed-out banks is Bank of New York Mellon, whose $29 billion merger Meyerson helped negotiate. Mergers like that can bill in the millions. Is Simpson Thacher able to put aside its loyalties to its biggest clients and negotiate deals for the taxpayer that could exact real costs from those very clients?

It might be possible to set aside concerns about divided loyalties if it were clear that Simpson Thacher is helping Treasury to wrangle the best deals possible for U.S. taxpayers. But the firm’s first test — the deal to give $125 billion to the nine big banks to ease the “credit crunch” that is crippling the economy — wasn’t exactly reassuring. Secretary Paulson promised that the banks won’t just “hoard” the money — they will quickly “deploy it” through the economy in the form of badly needed loans. There is just one hitch: Neither Paulson nor Simpson Thacher got that “deploy” part in writing — nor did they put in place any mechanism to require the banks to spend their taxpayer billions. Apparently, the part about lending the money to homeowners and small businesses was sort of implied. “There is no obligation for banks to lend the money one way or the other,” Jennifer Zuccarelli, a Treasury spokeswoman, tells Rolling Stone. “But the banks have the understanding” that the money is intended for loans. “We’re not looking to control their operations.”

Unfortunately, many of the banks appear to have no intention of wasting the money on loans. “At least for the next quarter, it’s just going to be a cushion,” said John Thain, the chief executive of Merrill Lynch. Gary Crittenden, chief financial officer of Citigroup, had an even better idea: He hinted that his company would use its share of the cash — $25 billion — to buy up competitors and swell even bigger. The handout, he told analysts, “does present the possibility of taking advantage of opportunities that might otherwise be closed to us.” And the folks at Morgan Stanley? They’re planning to pay themselves $10.7 billion this year, much of it in bonuses — almost exactly the amount they are receiving in the first phase of the bailout. “You can imagine the devilish grins on the faces of Morgan Stanley employees,” writes Bloomberg columnist Jonathan Weil. “Not only did we, the taxpayers, save their company…we funded their 2008 bonus pool.”

It didn’t have to be this way. Five days before Paulson struck his deal with the banks, British Prime Minister Gordon Brown negotiated a similar bailout — only he extracted meaningful guarantees for taxpayers: voting rights at the banks, seats on their boards, 12 percent in annual dividend payments to the government, a suspension of dividend payments to shareholders, restrictions on executive bonuses, and a legal requirement that the banks lend money to homeowners and small businesses. In sharp contrast, this is what U.S. taxpayers received: no controlling interest, no voting rights, no seats on the bank boards and just five percent in dividend payouts to the government, while shareholders continue to collect billions in dividends every quarter. What’s more, golden parachutes and bonuses already promised by the banks will still be paid out to executives — all before taxpayers are paid back. No wonder it took just one hour for Paulson to convince all nine CEOs to accept his offer — less than seven minutes per bank. Not even the firms’ own lawyers could have drafted a sweeter deal.

The day after it met with the nation’s top banks, Treasury announced that it had selected the firm that would receive the juiciest contract of all: that of “master custodian.” The winning company will be to the bailout what Halliburton is to the military: the contractor of contractors. It will purchase toxic debts from Wall Street, service them and auction them off in the future — a so-called “end-to-end process.” The contract is for a minimum of three years. Seventy firms applied for the gig; the winner was Bank of New York Mellon. Describing the scope of the megacontract, bank president Gerald Hassell said, “It’s the ultimate outsourcing — because the Federal Reserve and the Treasury do not have the mechanics to run the entire program, and we’re essentially the general contractor across the entire program. It’s going to cross our entire company.”

This raises an interesting point: Has the Treasury partially nationalized the private banks, as we have been told? Or is it the other way around? Is it Treasury that has been partially privatized by Wall Street, its massive rescue plan now entirely in the hands of a private bank it is directly subsidizing? Shortly after receiving the contract, Hassell told investors that his institution is now well-positioned to profit from the market meltdown. “There’s a lot of new business that’s going on even in this chaotic marketplace,” he said, “and so some of those things have been very positive to us.” Just how positive, we don’t know, because Treasury has blacked out the 10 lines of the “master custodian” contract that reveal how much Bank of New York Mellon will be paid. Though Treasury says it will release the information eventually, the secrecy goes beyond anything the Bush administration attempted in Iraq. Even Halliburton’s dodgy contracts came with price tags attached.

Still, when the terms of the contract do become public, they may turn out to be surprisingly modest. Goldman Sachs has apparently offered to fulfill at least one bailout contract for free. Altruism may not be their only motivation. The real money at stake in the bailout lies not in payment for the work but in how the work is done. Think about it: If you’re the one selling your debts to the government, wouldn’t you also want to help decide which debts are eligible and how much they’re worth? “The financial firms with assets to sell are in many instances the same firms the Treasury will rely on to value and manage the assets it is buying,” The New York Times observed. “That is an invitation for these firms to set the price too high or to indulge in other mischief at the taxpayers’ expense.”

Bank of New York Mellon has a bad record for mischief. It is embroiled in a $22.5 billion money-laundering lawsuit in Moscow and has been forced to pay out a $14 million settlement in a related case. Though the bank’s “master custodian” contract with Treasury prohibits unethical conduct, the arrangement seems rife with opportunities for abuse. According to its most recent earnings report, Bank of New York Mellon holds $1.2 billion in subprime mortgage securities. That means that in addition to the $3 billion it will receive as part of the equity program, it will also be eligible to apply for taxpayer money from the program it is being paid to administer. Neither the bank nor Treasury would comment on this direct conflict of interest.

On the same day that he allocated the first $125 billion to the banks, Secretary Paulson announced the largest federal budget deficit in U.S. history. Buried in his statement was a preview of the next phase of the financial disaster. The deficit numbers, he declared, reinforce the need to “pursue policies that promote economic growth and fiscal responsibility, and address entitlement reform.” He was referring to Americans who feel entitled to receive Social Security in their old age and Medicaid when they are sick. Those programs, Paulson implied, might not be able to survive the budget crisis he is currently creating for the next administration. This is why the stakes of the bailout are so high: Unless we get a good deal, there will be nothing left over after the banks are done feeding to pay for the meager services now provided in exchange for taxation, let alone for the more ambitious initiatives promised on the campaign trail. The spiraling cost of saving Wall Street from its bad bets is already being used as an excuse for why we can’t solve our many other crises, from health care to climate change.

There is a better way to fix a broken financial system. Treasury’s plan to buy up the toxic debts never made sense and should be immediately scrapped — a move that would also handily get rid of most of the crony contractors. As for purchasing equity in banks, the next round of deals — and there will be more — has to start from the premise that the banks are bankrupt and will therefore accept whatever terms we choose to impose, including real regulatory oversight. The possibilities of what could be done if a chunk of the banking system were genuinely under public control — from a moratorium on home foreclosures to mandatory investment in green community redevelopment — are limitless. Because here is what George Bush and Henry Paulson are hoping we won’t figure out: When a society no longer has enough money to pay for its most pressing needs, there are worse things than discovering you own the banks.

#12 Stephen from Toronto on 11.16.08 at 6:04 am

Is the US Treasury Department $850 billion (Oh sorry $2 Trillion dollar) bailout a Fraud: Part 2

The following article below is courtesy of the Automatic Earth.com

Vindication: Treasury Admits TARP Critics Were Right!

When the Treasury Department first unveiled its plan to buy troubled assets from banks in September, the move was heralded by self-styled experts as a potential savior for fast-sinking banks and financial firms. Critics were characterized as ideological indignants who didn’t understand the urgency of ridding bank balance sheets of toxic assets. Now the Treasury has admitted the critics were right all along.

Congressional oppoenents of the the bailout were more or less mocked for proposing alternate plans. More than once supporters of the Troubled Assets Relief Program emphasized that banks weren’t lending to each other because of the toxic assets on their balance sheet. Critics argued that there was no good way to price the assets, that the Treasury would probably overpay in an effort to secretly recapitalize banks and that it would be better to openly recapitalize them if that’s what was necessary. And now the Treasury is admitting it was wrong, the critics were right and the TARP won’t be used.

“Treasury has no current plans to purchase assets, people familiar with the matter said, and is instead focused on investing directly in firms that provide financing to the broader economy,” the Wall Street Journal reports this morning. That news will come as a relief to critics, including Clusterstock, who argued all along that the plan to buy troubled assets was badly flawed.

But it also comes as a warning about trusting the so-called experts and the dangers of the fear and loathing tactics they employed. Critics were lambasted as irresponsible, and the experts in the government and media warned that a depression was on the way unless they the goverment bought toxic assets. But that doctrinaire approach was dead wrong, and had no basis either in economic theory or history.

The criticism of the TARP, far from being irresponsible, was exactly right and may have even convinced the government to abandon it. That’s a market for ideas in action. Don’t waste too much time waiting for an apology to the dissenters. The TARP supporters have already forgotten how wrong they were. The critics will just have to be satisified with the knowledge that they were right.

The Automatic Earth.com

Debt Rattle. Saturday November 15, 2008. One Dollar One Vote

Treasury attacked over $700 billion bail-out

A senior US Treasury official came under attack on Friday as critics of the $700bn bail-out from the left and the right questioned whether the Bush administration had deceived members of Congress over how the funds would be used. Congressional leaders, including Chuck Schumer, a Democratic senator, and Spencer Bachus, a Republican congressman, applauded a Treasury move this week to scrap plans to purchase troubled securities in favour of direct capital injections into financial institutions.

But at a hearing on Friday, Dennis Kucinich, a liberal Democrat, and Darrell Issa, a conservative Republican, lashed out at Neel Kashkari, the Treasury official in charge of the bail-out, for ignoring “congressional intent”. The criticism pointed to deeper unease about the Treasury’s handling of the rescue among rank-and-file legislators, which could make it more difficult for the administration to secure approval from Congress for the final $350bn of funds that it is expected to seek.

“I want to know whether Congress was lied to or whether there was a team all along that had an alternate idea of how the money was spent,” Mr Issa said, before demanding to know the “time and date” Hank Paulson, Treasury secretary, had decided to abandon his initial plan. Mr Kashkari said the legislation authorising the $700bn bail-out had been designed to give the Treasury broad flexibility to adapt its strategies. At the same time, he said, as the bail-out was being negotiated in Congress, “credit markets were deteriorating much more quickly than we had expected”.

He also defended the Treasury against claims that it was not doing enough to immediately help homeowners at risk of foreclosure, arguing that “every American” would benefit from stability in the financial system. Separately, the Federal Deposit Insurance Corporation on Friday released the details of a new plan to refinance mortgage loans for 1.6m US households, costing the government an estimated $24.4bn. The FDIC had been discussing this proposal with the Treasury for several weeks, but the talks broke down since Bush administration officials were reluctant to fund it through the $700bn financial rescue package.

The Treasury announced its own plan this week for a more systematic modification of loans held by Fannie Mae and Freddie Mac. The Federal Housing Finance Agency, which regulates the two mortgage giants, participated in the rollout of the plan, but the FDIC did not, exposing its rift with the Treasury over this aspect of US housing policy. Some lawmakers have expressed concern that, because Treasury will not be buying mortgage securities as planned, it will have less power to modify home loans on a large scale.

The Automatic Earth.com

Debt Rattle. Thursday November 13, 2008. They Just Dont Know it Yet

Treasury Redefines Its Rescue Program

Treasury Secretary Henry M. Paulson Jr. announced a series of moves yesterday that redefine the federal government’s $700 billion rescue plan for the financial industry in order to tackle what he called a dire situation in the consumer credit markets. In recasting the program, the Treasury no longer plans to buy troubled assets from financial firms, the idea initially presented to the country, but instead will offer aid to banks and other firms that issue student, auto and credit card loans in part by jump-starting the market that provides financing for these companies.

“This market . . . has for all practical purposes ground to a halt,” Paulson said at a news briefing. “Today, the illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards. This is creating a heavy burden on the American people and reducing the number of jobs in our economy.” In recent years, sales of securities provided the funding for 40 percent of consumer loans, Paulson said. Lenders issued $42.5 billion worth of such securities last October. This October, they issued less than 2 percent of that amount.

The volume of car loans, for example, declined 6 percent in the third quarter compared with the corresponding period last year, according to the Federal Reserve. Average interest rates on car loans almost doubled from July to September — the most recent month for which data are available — and borrowers were required to make much larger down payments, an average of $2,000 more down on a $20,000 car. And without the ability to borrow money, lenders that provide private student loans have been raising rates or have stopped issuing them altogether. Of the 60 major lenders in the business, 37 have dropped out.

Paulson said the Treasury’s bailout effort, called the Troubled Asset Relief Program, should not be spent helping ailing Detroit automakers or homeowners facing foreclosure because that would violate the intent of the initiative but that they deserved help in other forms. “I don’t think TARP should be a place people look to whenever there’s an economic issue,” Paulson said in an interview yesterday evening. “We ought to keep our eyes on what the purpose of the TARP is, which is the stability of the financial system.”

The steps unveiled yesterday are Paulson’s latest effort at using the bailout to support lending by making capital investments in an ever-widening array of firms in return for ownership stakes. So far, the government has allocated $250 billion of the Treasury package for banks and $40 billion more for insurance giant American International Group. If the Treasury’s new initiative succeeds in increasing the availability of consumer credit, it would probably give a huge boost to the nation’s automakers by ensuring that car buyers could find loans. But Paulson added that automakers won’t be helped at all in the absence of a plan to make the industry viable.

Congressional leaders immediately expressed their disappointment with his announcement. But citing their goal of getting money to homeowners and automakers, these lawmakers said his decisions could be overturned once President-elect Barack Obama takes office. “I am concerned that we may have to wait until the next administration before we have the real change in economic policy that our nation needs,” Sen. Christopher J. Dodd (D-Conn.) said. Paulson responded in the interview that such changes, including the use of bailout money to reduce foreclosures, were “not what the American people were expecting, and it’s not what many in Congress are expecting.”

But Paulson cannot ignore Congress. Once the first $350 billion has been drawn down, Paulson must go back to Congress to obtain access to the rest of the money. When Paulson first presented the rescue plan to Congress, he pitched it as a program to buy up “toxic securities” — complicated investments backed by failing mortgages and consumer loans — that were sapping the confidence of investors. “We moved away from it because we have a great responsibility to always evaluate the facts in front of us and say how do we take a finite amount of resources and how do we get the most powerful results?” he explained.

He added that the program for making capital purchases in financial firms was “quicker, more efficient and more powerful.” Paulson added that he shied away from other measures to broaden the Treasury program because he wanted to ensure that there would enough money left to shore up the financial system, especially in the event of another shock, such as the implosion of a major bank. “The longer we looked at it, the clearer it became that we should be saving more of the TARP,” he said.

The details of the Treasury’s program for loosening consumer credit are still to be worked out, officials said. Among the options they are considering is investing in financial firms outside the traditional banking sector. But the Treasury would insist there be matching investments from private companies, officials said. That would give the department some confidence that the investment of public money would be safe. The firms that would be eligible for this new round of capital purchases would include insurers, such as Prudential and MetLife, and specialty lenders for small businesses, such as GE Capital and CIT Group, officials said. But Paulson said the program would not begin until Treasury officials had evaluated whether the initial round of investments in banks was successful.

The Treasury Department is also considering giving tens of billions of dollars to the Federal Reserve to back the purchase of highly rated securities that are made up of large pools of student, auto and credit card loans. The market for these securities has shut down despite their high credit rating because investors no longer trust the ratings agencies after they failed to accurately evaluate securities based on mortgages. Treasury officials said they hoped this would jump-start trading and get the credit markets working again.

Despite mounting concerns over the health of consumer credit markets, banks have not reduced the volume of credit card lending. The balance of outstanding loans has risen slightly this year. But banks increasingly are reducing credit limits and declining to issue new cards, suggesting to regulators that a lending crunch is imminent. “What’s happened is that financial institutions have basically done what they always do under these circumstances — they overreact when crises hit,” said Joel L. Naroff of Naroff Economic Advisors, a consulting firm in Pennsylvania. “They went from giving anyone any amount of credit they wanted to giving very few people credit.”

The market that provides private student loans is in particularly bad shape. Since late last year, no lender has been able to raise money for loans by selling them to investors. Instead, these lenders have relied on traditional sources of finance, such as banks. But in the past few months, those wells dried up, too. Mark Kantrowitz, publisher of FinAid, which provides financial advice to students, said those attending for-profit colleges may see the most immediate impact because they generally have poorer credit ratings. But eventually, all students that rely on private student loans to supplement their federally guaranteed loans will feel the pain, he said.

With Obama pressing the need for a new economic stimulus package, Paulson said that bolstering the credit market would provide its own bump to the economy. “I cannot imagine anything else will have a bigger stimulus impact than getting credit going again, getting lending going again,” Paulson said. To encourage more active lending, the four federal agencies that regulate banks issued a joint statement yesterday reminding the banks of their responsibility to make loans to creditworthy customers. The statement said that banks should prioritize lending over dividend payments and other uses of money. It also warned banks against compensating executives in ways that encourage risk-taking — for example, awarding bonuses for making a large number of loans without weighing whether they would be repaid.

One of the most politically fraught questions facing Paulson is how to help homeowners. The legislation creating the $700 billion program states that one of its purposes is to preserve homeownership. But Treasury officials are struggling with how to get more companies to modify the terms of troubled mortgages. “I just can’t tell you how many proposals I’ve looked at to modify mortgages and keep people in their homes,” Paulson said at the briefing. “This is a very complicated area. There are no easy answers.”

While citing what he called the success of Hope Now, a private-sector effort put together by the Treasury, Paulson said officials were still exploring ideas. These include one proposed by Federal Deposit Insurance Corp. Chairman Sheila C. Bair, which would potentially lower monthly payments so that struggling homeowners could afford them. But he drew a sharp distinction between those types of mortgage-modification programs and the other uses of the TARP money. He views the bank programs as investments in the financial system, not outright grants. The mortgage programs, he said, involve outright grants.

#13 Stephen from Toronto on 11.16.08 at 6:18 am

Is the US Treasury Department $850 billion (Oh sorry $2 Trillion dollar) bailout a Fraud: Part 3

Courtesy of the Automatic Earth .com

Debt Rattle. Friday November 14, 2008.Look Beyond Your Dreams

The Two Trillion Dollar Black Hole

Purge your mind for a moment about everything you’ve heard and read in the last decade about investing on Wall Street and think about the following business model: You take your hard earned retirement savings to a Wall Street firm and they tell you that as long as you “stay invested for the long haul” you can expect double digit annual returns. You never really know what your money is invested in because it’s pooled with other investors and comes with incomprehensible but legal looking prospectuses.

The heads of these Wall Street firms have been taking massive payouts for themselves, ranging from $160 million to $1 billion per CEO over a number of years. As long as new money keeps flooding in from newfangled accounts called 401(k)s, Roth IRAs, 529 plans for education savings, and hedge funds (each carrying ever greater restrictions for withdrawing your money and ever greater opacity) everything appears fine on the surface.

And then, suddenly, you learn that many of these Wall Street firms don’t have any assets that anybody wants to buy. Because these firms are both managing your money as well as having their own shares constitute a large percentage of your pooled investments, your funds begin to plummet as confidence drains from the scheme. Now consider how Wikipedia describes a Ponzi scheme:

“A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns (‘profits’) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi…One reason that the scheme initially works so well is that early investors – those who actually got paid the large returns – quite commonly reinvest (keep) their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much (net) – they simply have to send statements to investors that show how much the investors have earned by keeping the money in what looks like a great place to get a high return. They also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time…The catch is that at some point one of three things will happen:

(1) the promoters will vanish, taking all the investment money (less payouts) with them;
(2) the scheme will collapse of its own weight, as investment slows and the promoters start having problems paying out the promised returns (and when they start having problems, the word spreads and more people start asking for their money, similar to a bank run);
(3) the scheme is exposed, because when legal authorities begin examining accounting records of the so-called enterprise they find that many of the ‘assets’ that should exist do not.”

Looking at outcomes 1, 2, and 3 above, here’s where we are today. The promoters have clearly not vanished as in outcome 1. In fact, they are behaving as if they know they have nothing to fear. As over $2 trillion of taxpayer money is rapidly infused through Federal Reserve loans and over $125 Billion in U.S. Treasury equity purchases to keep these firms from collapsing, the promoters are standing at the elbow of the President-Elect in press conferences (Citigroup promoter, Robert Rubin); they are served up as business gurus on the business channel CNBC (former AIG CEO and promoter, Maurice “Hank” Greenberg); they are put in charge of nationalized zombie firms like Fannie Mae (Herbert Allison, former President of Merrill Lynch); they are paying $26 million and $42 million, respectively, for new digs at 15 Central Park West in Manhattan, where their chauffeurs have their own waiting room (Lloyd Blankfein, CEO of Goldman Sachs; Sanford “Sandy” Weill, former CEO of Citigroup, who put his penthouse in the name of his wife’s trust, perhaps smelling a few pesky questions ahead over the $1 billion he sucked out of Citigroup before the Fed had to implant a feeding tube).

We are definitely seeing all the signs of outcome 2: the scheme is collapsing under its own weight; there are panic runs around the globe wherever Wall Street has left its footprint. But outcome 3 is the most fascinating area of departure from the classic Ponzi scheme. Legal authorities have, indeed, examined the books of these firms, except for one area we’ll discuss later. They found worthless assets along with debts hidden off the balance sheet instead of real depositor funds. Instead of arresting the perpetrators and shutting down the schemes, Federal authorities have developed their own new schemes and pumped over $2 trillion of taxpayer money into propping up the firms while leaving the schemers in place.

Equally astonishing, Congress has not held any meaningful investigations. This has left many Wall Street veterans wondering if the problem isn’t that the firms are “too big to fail” but rather “too Ponzi-like to prosecute.” Imagine the worldwide reaction to learning that all the claptrap coming from U.S. think-tanks and ivy-league academics over the last decade about efficient market theory and deregulation and trickle down was merely a ruse for a Ponzi scheme now being propped up by a U.S. Treasury Department bailout and loans from our central bank, the Federal Reserve.

Fortunately for American taxpayers, Bloomberg News has some inquiring minds, even if our Congress and prosecutors don’t. On May 20, 2008, Bloomberg News reporter, Mark Pittman, filed a Freedom of Information Act request (FOIA) with the Federal Reserve asking for detailed information relevant to whom the central bank was giving these massive loans and precisely what securities these firms were posting as collateral. Bloomberg also wanted details on “contracts with outside entities that show the employees or entities being used to price the Relevant Securities and to conduct the process of lending.” Heretofore, our opaque central bank had been mum on all points.

By law, the Federal Reserve had until June 18, 2008 to answer the FOIA request. Here’s what happened instead, according to the Bloomberg lawsuit: On June 19, 2008, the Fed invoked its right to extend the response time to July 3, 2008. On July 8, 2008, the Fed called Bloomberg News to say it was processing the request. The Fed rang up Bloomberg again on August 15, 2008, wherein Alison Thro, Senior Counsel and another employee, Pam Wilson, informed the business wire service that their request was going to be denied by the end of September 2008. No further response of any kind was received, including the denial. On November 7, 2008, Bloomberg News slapped a federal lawsuit on the Board of Governors of the Federal Reserve, asserting the following:

“The government documents that Bloomberg seeks are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression. The effect of that crisis on the American public has been and will continue to be devastating. Hundreds of corporations are announcing layoffs in response to the crisis, and the economy was the top issue for many Americans in the recent elections. In response to the crisis, the Fed has vastly expanded its lending programs to private financial institutions. To obtain access to this public money and to safeguard the taxpayers’ interests, borrowers are required to post collateral.

Despite the manifest public interest in such matters, however, none of the programs themselves make reference to any public disclosure of the posted collateral or of the Fed’s methods in valuing it. Thus, while the taxpayers are the ultimate counterparty for the collateral, they have not been given any information regarding the kind of collateral received, how it was valued, or by whom.” As evidence that Bloomberg News is not engaging in hyperbole when it uses the word “cataclysmic” in a Federal court filing, consider the following price movements of some of these giant financial institutions. (All current prices are intraday on November 12, 2008):

• American International Group (AIG): Currently $2.16; in May 2007, $72.00
• Bear Stearns: Absorbed into JPMorganChase to avoid bankruptcy filing; share price in April 2007, $159
• Fannie Mae: Currently 65 cents; in June 2007 $69.00
• Freddie Mac: Currently 79 cents; in May 2007 $67.00
• Lehman Brothers: Currently 6 cents; in February 2007, $85.00

What all of the companies in this article have in common is that they were writing secret contracts called Credit Default Swaps (CDS) on each other and/or between each other. These are not the credit default swaps recently disclosed by the Depository Trust and Clearing Corporation (DTCC). These are the contracts that still live in darkness and are at the root of why the Wall Street banks won’t lend to each other and why their share prices are melting faster than a snow cone in July.

A Credit Default Swap can be used by a bank to hedge against default on loans it has made by buying a type of insurance from another party. The buyer pays a premium upfront and annually and the seller pays the face amount of the insurance in the event of default. In the last few years, however, the contracts have been increasingly used to speculate on defaults when the buyer of the CDS has no exposure to the firm or underlying debt instruments. The CDS contracts outstanding now total somewhere between $34 Trillion and $54 Trillion, depending on whose data you want to use, and it remains an unregulated market of darkness.

It is also quite likely that none of the firms that agreed to pay the hundreds of billions in insurance, such as AIG, have the money to do so. It is also quite likely that were these hedges shown to be uncollectible hedges, massive amounts of new capital would be needed by the big Wall Street firms and some would be deemed insolvent. Until Congress holds serious investigations and hearings, the U.S. taxpayer may be funding little more than Ponzi schemes while companies that provide real products and services, legitimate jobs and contributions to the economy are left to fail.

#14 pbrasseur on 11.16.08 at 8:55 am

@Stephen from Toronto

I believe we are capable of visiting that site on our own…

#15 Downsized and Delighted on 11.16.08 at 9:52 am

OK, so Minute Before Midnight bought 2 condos, 1 cottage, and 1 “hobby” farm over the past twelve years. Now she has some “cash” ($1.98?) and some “metals” (old aluminum doors?) to show for it.

She sold the cottage for $600,000, for a profit of zero (paid $200,000 and after renovations of $200,000 plus 10 years of her husband’s free labour, and property taxes, plus mortgage payments and NO rental income – she netted zero.

Did she live in the condos one at a time and fix them up? She implies that, but gives no details other than she sold the last one in October (last month? year ago?). So did she make money on that?

An the “hobby farm”! Don’t get me started on that! What happened to it. Was it ever anything other than a big cash drain?

I hope the poster did well on her real estate transactions. All I read is that she is renting a cute house with her dog and cat, and that she has no debt. Isn’t this where most people start out?

#16 lgre on 11.16.08 at 10:21 am

Stephen from Toronto – why not post the link, instead you decided to flood the blog with already written articles..think my friend.

Thank you. I hote being the blog cop, even when this is my real estate. Use your noodle, Sephen. Even being from Toronto is no valid excuse. — Garth

#17 CalgaryRocks on 11.16.08 at 10:58 am

Downsized, it is your green envy that leads you to dismiss out of hand other people’s accomplishments. Perhaps you’re not so delighted after all of being downsized?

In any case, if every one was using their own skills, like midnight did, instead of waiting for others to fall, we would all better off.

#18 Kestral on 11.16.08 at 11:05 am

Thanks Dorothy and Garth for a great article. I think there are a number of takeaways from this article:

1. Don’t become married to your investments – whether it’s stocks or real estate, becoming emotionally attached to your investments clouds your judgment. Dorthy kept a level head and was able to let go of her investment and take profits when it was time.

2. Be willing to reject herd thinking – while all her friends were doing the “expected”, she and her husband came up with their own plan and worked it.

3. Know your strengths and weaknesses – Dorthy and her husband knew their strengths was in real estate and not stocks, so instead of trying to do both, they focused on their strengths.

Once again, thanks for sharing your story and I wish you and your family all the best!

#19 Brian on 11.16.08 at 11:42 am

Downsized And Delighted is right: despite the smugness, the numbers don’t *necessarily* add up.

The only certainty is that Garth has saved her bacon, but there’s nothing in that letter that shows that she made more than it cost her to do what she’s done.

A couple of my close friends think they’re real estate barons because they bought in Vancouver in 2006 and sold in 2008 for fifty grand more than they paid.

What they’re not able to understand is that it *cost* them at least fifty grand to do that, and they had to live in a tiny shoebox of a studio. Oh yeah and they had no hot water for most of that time, since most of the condos built during the boom are garbage.

Garth saved my friends’ bacon, too: I read his book this spring and started urging them to list and emailing them graphs. Thanks to Garth, they netted approximately zero on the transaction despite substantial risk.

Had they waited until 2010 as originally planned? Yikes.

#20 dd on 11.16.08 at 11:58 am

#15 Downsized and Delighted,

Don’t you think that people could have made money in real estate? Garth has.

#21 Downsized and Delighted on 11.16.08 at 12:00 pm

OMG – PLEASE don’t misunderstand the post

I DO hope that the poster made money, but the post itself is so vague that we really don’t know if she did, do we?

Since people reading this site appear to take everything at face value (including Garth’s ridiculous post about eating squirrels), I just thought I would point out that the poster did not necessarily make alot of money. If she did, good for her. But for those of you looking to learn how to make money in real estate, I wouldn’t recommend buying a hobby farm. I would applaud anyone in Vancouver who bought an older condo and renovated it. Is that what she did? She did not say. Any, as another poster pointed out, did she avoid capital gains tax on these transactions by organizing them properly?

Honestly, I am happy for anyone’s success. I’d like to hear more success stories.

#22 dd on 11.16.08 at 12:03 pm

#12 Stephen from Toronto,

Did you say something?

#23 Ilargi on 11.16.08 at 12:09 pm

Thank you. I hote being the blog cop, even when this is my real estate. Use your noodle, Sephen. Even being from Toronto is no valid excuse. — Garth

I was going to say the same. Comment sections are for short posts, long ones make them unreadable. This kind of copy and paste reflects poorly on both Garth’s blog and mine. Do be that cop, Garth.

#24 Bailing in B.C. on 11.16.08 at 12:24 pm

#7 Another Albertan

I know that if I was going to sell my house the first thing I would need to do to prepare it for sale would be to replace the carpets. Perhaps this is the reason for the unexplained spike in carpet sales to homeowners.

#25 Downsized and Delighted on 11.16.08 at 12:46 pm

“The only certainty is that Garth has saved her bacon, but there’s nothing in that letter that shows that she made more than it cost her to do what she’s done.”

19 Brian – Thank you. I meant to mention this point.

20 DD: I do believe you can make money in real estate.
I’ve made a fair bit myself. One example is an office building I bought in the 80’s. It was full of tenant’s who thought they were making me rich (even the ones who didn’t pay the rent). I did make money on it, but it took a heck of alot of time and work, not to mention luck. I could have lost my shirt on that property, but I didn’t.
Why? Timing. So cudos to Garth for helping Midnight know it was time to sell. He undoubtedly saved her alot of money.

#26 squidly77 on 11.16.08 at 12:49 pm

hope she was joking about the seeds

please people..no pasting of articles..it totally ruins the flow of the comments
after all is that not why we read here..to here the words of the average joe and judy

#27 The Tallyman on 11.16.08 at 12:54 pm

Kootenay Lake!

Hard to believe that this area in the Rocky Mountains has one the best growing climates in Canada.

Great letter.

#28 The Tallyman on 11.16.08 at 1:19 pm

There is nothing wrong with investing and making $$$
Dorothy’s letter is not lording that over the reader.
It is simply a reminder to check the weather yourself and act accordingly.

When realtors are telling you it’s sun, sun, sun you best walk over to a window and check for yourself.
Too much sun means drought.

And if you discover an overcast sky,
Have the sense to come in out of the rain.

The problem is that the system has the majority of population under hypnosis to the point where they stop believing their own eyes and ears.

Dorothy put on her rain gear and will plant again when that old sun comes round again.

Plain common sense.
Good for you Dorothy!

#29 Dean on 11.16.08 at 3:59 pm

I hope its still before midnight! I have stuff to sell too, and a commune to start! (Armagedians) hehe

#30 islander on 11.16.08 at 5:01 pm

You take first prize, Jazz, The poster boy for Canadian envy and latent socialism:

“…hope the tax department doesn’t seek more tax revenue by looking into your affairs by broadcasting it over the internet.”

We work our entire lives to provide for our families. The government allows us to keep half of it if we’re lucky. And all you can think about is whether those thieves at Revenue Canada will figure out a way to tax this woman some more?

“Please let us know what you intend to do with your pot of gold for society’s greater good rather than buying seeds (and ammo so you can also shoot the desperate improvished sheeple who weren’t as smart, nor smug, as you).”

This may come as a surprise, Jazz, but it isn’t this woman’s job to shelter and feed you or anybody else other than her own family. Her gains are not the “collective’s,” they’re hers.

It’s notions such that Jazz holds that I’m 100% certain that governments, in a bid to buy votes, will print and print and print money until they have “rescued” banks, automakers, airlines, farmers, etc., and let workers, entrepreneurs, employers and savers such as the woman who wrote Garth the letter pay for it in the form of severely devalued dollars.

You, Jazz, should think about what you are doing to provide for yourself. Instead of waiting for Garth’s correspondent to hand it to you.

#31 crashing yuppy on 11.16.08 at 6:16 pm

Lets talk rents.

I am currently trying to rent a condo in Toronto. 1 bedrooms in the downtown core start at $1400 and anything decent is $1800 . There are 1000’s of them. New buildings coming on stream with dozens of listings.

Why the high asking prices? Is it not better to get something than have the unit stay empty.
As I am a newbie at this, should I offer $1200 for a $1400 rental and name my own terms?

Any help would be appreciated.

They can ask anything they want. Offer what you want. — Garth

#32 Stephen from Toronto on 11.16.08 at 7:59 pm

Dear Garth and Ilargi:

With regard to post number #8, 11 and 12,I was trying to lay out the context through your post Ilargi of why Treasury Secretary Hank Paulson Jr was pushing the bailout.

The legislation that he wanted consisted of two pages and it would have resulted in a fourth branch of the US government because any decision he made about which insolvent or illiquid financial institution to be saved or destroyed would not be subject to judicial review.

Fortunately the US Congress modified the plan and put additional legislative requirements such as an oversight committee, reporting requirements and limited judicial review. Although the original bill was voted down by republicans in the House of representatives many (as well as some conservative democrats) were offered a carrot as an unrelated bill with $150 million in taxbreaks and incentives was merged to the bailout plan. As a result of the earmarks the bill passed.

Many observers (like myself ) saw the bill as flawed because there were no provisions for hedge funds and banks to disclose their level 3 assets, moving derivatives to a impartial third party organization to determine counter-party risk. Force the SEC to reduce leveraging to 12 to 1 for financial institutions and requiring higher reserve requirements. Right now over 2 million CDS contracts written by Lehman Brothers are before US courts and could take years to determine who owes what to whom?

What has happened now is that you cannot trust the capital structure of any financial firm right now. No one knows what it is really worth and if it does not give out dividends then there is a suspicion that its either mismanaged or losing money. If a firm is suspected as having too much debt then the common and preferred stockholders are wiped out if the hedge funds feel it cannot pay back its debts. They create panic, the bond rating agencies downgrade the stock and the value of the company drops. The names of Bear Sterns, Lehman Brothers, Wachovia and Wahmu are history. AIG is still in trouble after being given close to $200 billion in loans from the Treasury Department and Federal Reserve Board. Citycorp and Bank of America have billions of bad mortgages on their books and the takeover of Fannie May and Freddie Mack made the situation even worse because 1/2 of all mortgages valued at $5 trillion that are declining in value (now worth $150 billion) have been pushed onto the US national debt which stands at $10.6 trillion as of Friday.

Even worse approximately $530 Trillion of US mortgage derivatives have been written into CDO’s SIV not to mention the $62 trillion of credit default swaps have or are causing bank failures around the planet. The Federal Reserve Board’s short term reserves of almost $900 billion are gone and now they have redeemed their long term 30 year notes to help the central bank around the world shore up banks here and abroad. From early September till now over $7 trillion of funds have been pumped into the global financial system to prevent or hold off a collapse.

Last month The Treasury Secretary gave 9 banks $125 billion dollars to lend out to individuals and business with good credit. Do you know what they did nothing!
All they did with the money was to consolidate and buy up solvent banks. They will not lend money to individuals wanting mortgages or developers in the process of completing commercial real estate projects.

Most of the funds in TARP went to pubically traded companies. So the other $125 billion went into buying direct stakes into the banks (based on what the British Government did ) but with no oversight.

Now TARP is changing their tune because they want to provide some relief to main street by providing some forgiveness to credit card debt and mortgage debt subject to qualification conditions.

Congress is getting upset because Poulson has a plan for the next $350 billion and there is little to show for the first $350 billion that is nearly used up.

Now non financial companies in certain sectors of the US economy are in Dire straights. GM, Ford and Chrysler want a $100 billion bailout package from TARP. Insurance companies hedged bets on commercial real estate and lost billions and cant cover their annuities and they may need a bailout.

If they get their money courtesy of the taxpayers it could cause the loss of the US Government’s AAA rating.

All that I was trying to point out Ilargi, that through your research a number of groups such as financial officers, institutions and law firms have profited not to mention the foreign banks and hedge funds from the TARP program and ordinary Americans are still losing their jobs their homes and pension funds.

This is a clear example of how not to develop a financial rescue plan that bailout the people who started this mess while letting main street go down the tube. I hope the Canadian Government is watching this situation.

There are a few words l would like to say to the both of you.

First and foremost that this blog and the Automatic Earth are doing Canadian’s a great service in alerting them to an impending real estate and financial crisis.

I will concede the point that my post are long and in a lot of the cases long winded. I see the global financial crisis like an episode of CSI ( the Las Vegas , Nevada one) in which the causes are complex and hard to see. The devil is ALWAYS in the DETAILS. Even if the bad guy’s try to cover their tracks, the physical evidence will be discovered and will convict them. I believe that in this blog we must always try to present our interpretation of this financial and real estate crisis as accurately as possible given its complexity. If I present someone post in part to explain or highlight an idea or situation it is due to the fact that they have a better grasp of the topic than I do. It is not an attempt to avoid presenting a position in my own words. It is to ensure intellectual honesty, to help educate and inform visitors to this blog and stir up alot of debate on the issue at hand.

I am not a financial expert. I have studied economics as part of my BA degree in university. Since the stock market crash of October 19, 1987 I have read a number of books on this issue. In some of my earlier post I have been trying to point out that this crisis did not start in 2008, 2001, 1998 or 1987. It started with the 300 year ponzi financial scheme and the fractional reserve system that began with the Bank of England.

From now on if i have to reference a quote or article from a web site I will only put a reference and will keep my comments brief.

#33 nonplused on 11.16.08 at 8:56 pm

The Kootenay is a desert area in the summer. You can’t even grow hay without irrigating.

The Okanagan is where all the grapes & peaches grow.

#34 Kestral on 11.16.08 at 8:59 pm

As far as the seeds thing goes, at least for me I’m serious. I’ve been doing a lot of research on nutrition lately and have decided to try a raw food diet for 30 days to see what it’s like, and one of the things I’ve been doing is sprouting my own seeds and beans. It amazes me how inexpensive it is to eat raw organic. I know it’s not for everyone (and after the trial it may not even be for me), but I know that if push comes to shove, I *can* live on sprouted seeds if I have to.

#35 jazz on 11.16.08 at 9:31 pm

In response to #30 Islander:

Hi Islander, I could have written that I have also been reading about the issue for several years and that I had an early warning too. With that being said, I could have mentioned that I also sold a home in Victoria in late 2008 for double what I had paid for it less than four years earlier and that I still have a home on Vancouver Island. I could have also mentioned that my family is well cared for, that I have virtually no debts & several vehicles that are paid for, a five figure RESP for my kid’s future, a mortgage that is currently 3.5% etc. etc. etc.

What would these comments have added to your, as well as mine, interest in what the heck is going on all around us and how are we, as a society, in the global village so to speak, going to survive this together… (oops, sorry, I meant to say survive this on my own).

I respect your comments as equally as I hope you do mine and it wasn’t motivated from “…envy nor latent socialism” though it may seem so from my comments.

The possible debates from all the posts would keep us all very busy indeed and I was full well expecting just such a response (I understand it works both ways and I also appreciate your point of view and your comments).

As for the tax department, the comment came to mind
since, for example, a newspaper article several years back highlighted a lottery winner’s good fortune and lo and behold, a Canada Revenue Agency employee read the article and said hey, that person owes back taxes.

So don’t worry, I am thinking about providing for myself and Garth’s correspondent should be concerned about handing it over to the tax department by drawing this type of attention to herself (especially with comments such as “…our crown jewel in our real estate holdings.”)

When times are tough and you are doing alright, keep a low profile…

#36 jazz on 11.16.08 at 9:50 pm

In response to #21 Downsized and Delighted:

I was equally incredulous regarding Garth’s squirrel post but check out this web article posted recently –


and if you enjoyed the movie O Brother Where Art Thou, you probably would have remembered roasted gopher!


#37 Derrin on 11.16.08 at 9:53 pm

Just my opinion but I think we could do without long explainations.
Stephen please get a copy of E.B. White’s “Elements of Style”.
Thanks to the man in Calgary. The carpet story is useful.
We can all spend hours explaining economics. We don’t need to understand economics when it comes to carpet.

#38 Signal Loss on 11.17.08 at 11:17 am

So to sum up, Minute before Midnight took assets that had utility (roof over head), and will have utility again in the future (because, you know, people will still need to live in houses in ten years), and turned them into cash during in which her cash is being aggressively devalued (due to multi-billion dollar bailouts, etc). No agenda here, just trying to understand. So now she has no debt (great), no house (um…), and lots of cash which isn’t just going to sit around – she’ll want to put it in….um…. and in the meantime the value of her cash is declining. right? or am i missing something.

#39 Darryl on 11.17.08 at 7:41 pm

Although I know that home owners will take a hit, and a large one over the next couple of years. I can’t help but think that if I were to sell my house and put the money in the bank, What if the bank closed it’s doors? We all need a place to live. And these days money in the bank may not be safe.

#40 Bottoms_Up on 11.17.08 at 11:31 pm

I think many people here have misinterpreted the message from ‘Minute to Midnight’. She was simply thanking Garth for diseminating his knowledge–which has helped her and her family not lose exorbitant amounts of money in real estate. It was NOT a message of ‘look at me, I’m so rich, I sold out and made tons of money…suckers’. Judging from some of the responses here, I’d assume many of these posters are under water….

Regarding Stephen, just a suggestion, copy one or two salient points from the articles you provide links to, but not the whole article. If the point(s) you provide is enticing, people will visit your link and read the whole article. Not many people have hours to spend reading your posts.