Entries from March 2009 ↓




Call me a traditionalist, but when the president of the United States can dictate who heads the biggest industrial company, there ain’t much left to Yankee capitalism. In fact, with Washington owning most of the mortgage business, busy nationalizing Citibank, poised to take over BoA and AIG, and now with presidential fingers all over the car business, there should be few doubts this is a new game. And a dangerous one.

Rick Wagoner’s ousting probably marks another milepost in the destruction of America – at least the one we knew. Barack Obama is now telling GM it has 60 days to live or die, and at the same time telling Chrysler it’s got a month to get into bed with Fiat.

This comes a few days after Washington announced a $1 trillion bailout (another one) of the banking business, along with plans for sweeping new federal powers which would allow the seizure of financial institutions. And one week before that was another $1 trillion plan that saw the US central bank create new digital money to buy back its own securities. Before that was a $800 billion plan to halt foreclosures by breaking private contracts. And the list goes on.

While the new prez is all smiles, media opportunities and charisma, in just two months he’s become the most interventionist leader in US history. Maybe the times demand it. But holy socialism, Batman, this is heady stuff.

It should show us all how out of control America is at the moment. These dramatic, unexpected, unprecedented moves are confidence-busters. They tell us that the Obama guys think they are smarter than those who have spent their lives building banks, building cars or running the real estate market. And while we’d all agree each of those sectors have screwed up royally, we now have a one-man system where once we had a myriad of checks and balances.

For us, the implications?

Well, you’d better hope young Barack pulls this off. Pray his $9.9 trillion rescue package does not toss the US into permanent recession, trashing trade with Canada. Pray the car strategy works, because if it doesn’t, we are headed for depression-type jobless numbers. Pray this back-of-the-envelope government doesn’t accelerate a deflationary spiral, with withering effects on everyone.

Because, we are one step closer today.

Yeah, Wagoner deserved to be cut loose after flying in his corporate jet to ask for bailout money. He ran a company that lost $30 billion last year. GM was old and fat and on Depends.

But America just rolled the dice.

The destroyers


A buddy is an electrician. “There are,” he told me. “more than one thousand guys in the union, in Toronto alone, who are sitting home.”

The main reason, of course, is the collapse of the homebuilding industry. It was crunched first by the abrupt demise of those insane 0/40 mortgages. That ended the steady stream of the young and the stupid willing to sign anything to get a house. Then came this annoying global financial collapse, and the end of cheap credit. Then, runaway unemployment which put a damper on buyer enthusiasm. Finally, deflation, as falling resale values made it clear buying a new house is not the ticket to equity, but maybe the road to ruin.

So, no new wires to string or panel boxes to mount. The trades have been nuked by all of this. And now it gets worse.

Hard to believe, but the same political leaders who tell us they’re pouring on the gas to get to recovery are actually standing on the brake. Here are three examples of how government is nicely screwing homeowners:

* Soon nobody in Ontario will be able to sell a house without first paying for a Green Audit. That will cost $300 to hire a guy in a yellow hardhat and cheap plastic safety glasses to walk through your house with a clipboard. He will write down what you already know, and what a decent home inspector would tell a buyer. Leaky windows, inefficient furnace, wasted hot water, whatever. An unfavourable report, naturally, will devalue your home and make it harder to sell. It will also tax you three bills.

* Soon the same evil province will take action which force all other holdouts to follow it, and merge its sales tax with the GST. As I have already detailed, this is the mother of all new taxes for the real estate industry. Suddenly there will be an extra 8% to pay on real estate commission, legal fees, moving costs, appraisal fees and every duct cleaning guy or lawn-cutter you ever hire.

Worse, the blended sales tax will apply to new homes priced at over $400,000. Buyers of houses up to a half million will get a partial rebate, but above $500,000, there will be a 13% levy slapped right on the purchase price. BTW, five large does not buy that much in Oakville or North Toronto or Ottawa. The result will be about $40,000 added to the cost of homes over $525,000 – and, you can bet, a lot fewer of them built.

* And then there is the idiot land transfer tax which was imposed on real estate transactions – all of them – in Toronto a year ago. All properties changing hands for $400,000 or less pay an extra 1% (on top of the provincial LTT), and the charge doubles for places over that threshold. On that same $525,000 house, this means tax of $13,200. Mix in the harmonized sales tax, and the price rises by more than $50,000 – or a full 10% of the property value.

Add the above to the reasons I detailed yesterday that real estate is entering into a multi-year recession.

This difficult event will destroy billions of dollars in personal wealth, idle many more Canadians, guarantee a long dark period and show what happens when we elect lawyers, not electricians.