Bankers

Budget? What budget? Let’s talk over stuff we actually care about. Like screwees and screwers in the housing business. And we have some saucy ones for you today. So, break out the Timmies and the latex. We’re going in.

First the screwer. It’s with awe, reverance and admiration that we salute the guy with 20-pound gonads who owned and sold 4541 Belmont Avenue in nutty Vancouver. This glorified one-bedroom garden shed has everything. Walls. Floors. Doors. Roof. All the features that pack those Airbus flights from Beijing, as BC-horny Chinese lust after an unmistakeable West Coast je-ne-sais-quoi.

When this beauty was listed last month near Locarno Beach this unworthy blog marvelled that someone would be courageous enough to ask $2,199,000.

But guts, heroics and marketing savvy did not end there. When an offer didn’t materialize, our epic screwer raised the asking to $2.4 million. Suddenly it was high enough to attract the interest of those little Mainland buggers, and this week it sold – for $2,305,000.

Remember this. It’s a Nortel moment.

Now, to the screwee segment of our show.

As you might remember, last year’s federal budget was feted in this space for actually doing something about the oft-staggering cost of breaking a mortgage. F and his truncated elves at Finance promised to ‘bring forward regulations’ governing how much our hard-ass banks can charge people who need (or want) to get out of a home loan. Months later the feds promised to have draft regulations for public discussion by the end of 2010. * Crickets. *

But we did get a working title: Standardization of Prepayment Penalties.

Why is this an issue? Simple. The rules buried in most mortgage contracts stipulate that if you end the relationship early, the bank gets to ream you in one of two ways – by extracting a penalty equal to three monthly payments, or by charging you an amount equal to the difference between your mortgage rate and current rates on the amount owing over the period left in your loan.

This is how a major bank which shall remain nameless (the Royal) defends the charge: “In order to lend you the money at this ‘fixed rate’ for a set period of time, RBC Royal Bank borrows the funds needed in the market and enters into fixed term contracts. When you break your mortgage term (or contract), RBC Royal Bank is in turn charged a ‘breakage cost’ as its contract will not be fulfilled. The mortgage pre-payment charges are collected from you to partially offset the costs that the bank is charged because you are no longer paying that agreed upon amount back to us on a monthly basis.”

Because the l-a-s-t thing this country needs is a bank (which gives you 1% on your savings account and loans the money out as a mortgage at 4%) suffering a ‘breakage cost’, Ottawa and the provinces have pretty much turned a blind eye to consumer pain. The result has been a slew of staggering IRD penalties as fixed-rate closed mortgages declined along with bond yields. This was behind a CBC investigation this week which unearthed a screwee who bought a condo he couldn’t afford with a $400,000 mortgage at 5.19% he couldn’t pay. When he sold his unit (at a loss), Scotiabank slapped him with a $25,000 charge – because current rates had plunged more than 2%.

And so this is what you need to remember about these penalties: when interest rates fall, you will be nailed with an IRD; while when rates rise, the banks will levy the three-month penalty. In virtually no instance will you get away with no blood. Even if you call the TV guys.

Worse, you might actually end up paying a bigger penalty the shorter the time you have left on your mortgage. That’s because short-term interest rates are usually lower than longer ones, so the IRD could  be beefier between your existing five-year mortgage rate and the current two-year cost than that being charged for a 3-year term. (Most people mistakenly believe the rate differential charged will be between their old 5-year rate and the current one of the same length.)

Right now, with a federal erection looming over us (ask me to tell you about Diefenbaker one day…) the chances of getting better rules in 2011 for this prepayment penalty thingy are nil. In fact, it may be a totally dead issue, unless people choose to bring it up during a campaign. Interestingly enough, many US states have passed consumer protection laws in which lenders are forbidden to demand any penalty whatsoever for breaking the first mortgage on a primary residence.

That sounds like a fine solution but, of course, the banks would argue such largess would simply increase their costs, cripple their businesses and lead to tighter lending rules. You know, like not giving mortgages to people without money. Oh. The. Horror.

So, if the feds would rather work on new fighter jets than consumer protection, do people breaking mortgages have no recourse?

Not entirely. Get a nasty lawyer. Like this one. Litigation does wonders to curb banker appetite for human flesh.

188 comments ↓

#1 ontheshoreline on 03.22.11 at 9:26 pm

Very happy to be debt free and in cash right now.
An Aussie poster remarked they are getting 6.5% in gic’s now.
Whats to stop me from depositing some cash in an Aussie bank and cashing in?
There must be a catch?

#2 randman on 03.22.11 at 9:28 pm

“In order to lend you the money at this ‘fixed rate’ for a set period of time, RBC Royal Bank borrows the funds needed in the market and enters into fixed term contracts.”

Borrows??
BS….See and google” fractional reserve banking”

See how banks can “create” money out of nothing

#3 Pauline on 03.22.11 at 9:34 pm

Reading stories like this, one song comes to my head:

http://www.youtube.com/watch?v=2_2lGkEU4Xs

Malvina Reinolds “Little boxes”. It sums up everything.

#4 John Reid on 03.22.11 at 9:36 pm

When I was a university student in the 1970s, this area was the down and dirty student rental area. Most students picked better digs.

Now we are being forced out of these areas by those who somehow have millions and billions to zip away. Hum. I wonder about the source of money. Is it from hard work or from smoke and mirrors (MJ smoke and cocaine mirrors)? Do they run slave camps?

#5 dmc on 03.22.11 at 9:38 pm

Here’s a great indication of real estate logic, this idiot agent says shares are risky and buyers want a safe place to invest – like bricks and mortar. But the idiot, in his selling point, goes on to say the houses he sells have already fallen 40 grand! Clearly no risk!!

http://tasmanianrealestatetrouble.blogspot.com/2011/03/good-value_22.html

#6 Cellar Dwellar on 03.22.11 at 9:40 pm

Wow! Once again Mr. Turner an excellent,eye opening lesson. Keep it up.

#7 Mr. Reality on 03.22.11 at 9:50 pm

5th 5th 5th 5th !

I’m so cool. I posted my post number! yay

If you think this isn’t a sign of a bubble what is?

Mr. R.

#8 The InvestorsFriend (Shawn Allen) on 03.22.11 at 9:51 pm

Mortgage Penalty Experience

Well I have one sort of good news story…

In September 2009 a goofd friend, a single Mom was facing about $12,000 as a penalty. Her Mortgage was $162,000 but was over 8% (from one of the higher cost mortgage lenders due to her finacial situation). It had 3 years left.

I called and got through to a Vice President and talked a sob story and he agreed to cut the penalty down to $7000. Interest rates kept falling and by the time she sold the house a few months later she was told the penatlty would have been $15,000. So I saved her $8000 with a phone call.

In this situation write a letter to the bank president or talk to someone at a very high level. Don’t take no for an answer from the Call Center. The Call center is not authorized to waive big penalties. Go to the highest possible official in the bank. Phoning may be best.

I as well thought the penalty was based on the latest 5 year rate if that was what you were getting out of.

One trick is that they will will use posted rates versus the actualk rates they offer to calculate the spread wider than it should really be.

Here was a sick trick this bank had used on my friend. Her mortage came up for renewal and she planned to Sell and could not afford the payments. She was behind. No other bank would give her a mortgage at that point.

She needed a floating rate because she was trying to sell. But they offered a floating rate that was higher than the fixed rate (believe it or not a true story). She was virtually forced to lock into a three year rate to get a lower payment, even though she planned to sell. She was told they would waive the fee if she bough another house with them. Well that was unlikely, she could not afford the payments.

#9 TS on 03.22.11 at 9:52 pm

That sounds like a fine solution but, of course, the banks would argue such largess would simply increase their costs, cripple their businesses and lead to tighter lending rules. You know, like not giving mortgages to people without money. Oh. The. Horror.

Actually with the lack of competition they would just agree to pass the costs on to the rest of the customers. Nice quiet bank cartel with their best friend the Federal Government.

#10 bsallergy on 03.22.11 at 9:55 pm

Garth, Garth, Garth, banks are our friends . . . parasites suck the life blood out of people. Used to be fathers would forbid their daughters to marry one, now the opposite is true. Any imperial clone can run a bank and they do, backstopped by a parasite who used to work for them who is now head of our central bank. The imperial clones were held in check for a while by the previous government, but were given free reign by the current bunch of siths in power. We need ewoks.

#11 S.B. on 03.22.11 at 9:58 pm

Haunting Images Of Detroit’s Decline (PHOTOS)

(looks like Iraq after the Americans were done with it…you don’t say..
Bush said No Child Left Behind??? The US military regime is making other crackpot regimes look downright sane. The people suffer while their leaders parade around in jackboots, showing off the latest military hardware. These photos could be from North Korea…).

http://www.huffingtonpost.com/2011/01/26/detroit-decline_n_813696.html#218521

#12 Dodged-A-Bullit-in Alberta on 03.22.11 at 9:58 pm

Greetings: Garth ,will I be expected to keep my comments focused on banks and mortages; or can I vent my spleen about my three non-mortage issues with my favorite bank??

#13 SallyT on 03.22.11 at 9:58 pm

“In order to lend you the money at this ‘fixed rate’ for a set period of time, RBC Royal Bank borrows the funds needed in the market and enters into fixed term contracts. When you break your mortgage term (or contract), RBC Royal Bank is in turn charged a ‘breakage cost’ as its contract will not be fulfilled. The mortgage pre-payment charges are collected from you to partially offset the costs that the bank is charged because you are no longer paying that agreed upon amount back to us on a monthly basis.”

But I thought the commercial banks only had to meet their reserve ratios and created the rest of the credit out of the home buyers promissory note. So RBC is saying that they are going out into the market place and borrowing the full cost of the mortgage? So for every mortgage that’s taken out there’s a corresponding bond that the bank had to post to get the actual funds to lend to the house buyer? I’d like to see the paper trail on that one!

#14 fesnaris on 03.22.11 at 10:02 pm

I read the info on the lawyer and this does not look like litigation. It looks like they just show you how to prepay the 10 – 25% prepayment before they order the discharge which reduces your penalty by the same amount. Any mortgage Specialist worth their weight in salt could do that for you for free.

#15 Billy Bob on 03.22.11 at 10:06 pm

#4 \”Now we are being forced out of these areas by those who somehow have millions and billions to zip away. \”

It\’s just a shame that the buyers are \”visible minorities\”. If they were instead Germans, Americans, or similar suddenly colonizing Canadian cities en masse, supplanting Canadian culture and language, and pricing us out of our birthplaces, it wouldn\’t be politically incorrect to oppose the takeover.

Plus we would likely end up with tax-free status, free education and health care, and legitimate land claims like the First Nations people.

#16 The InvestorsFriend (Shawn Allen) on 03.22.11 at 10:07 pm

MORTAGE PENALTIES OK IN THEORY

I can see the theory for a minimum 3 month interest penalty or at least some penalty. A bank incurrs considerable cost to set up a new mortgage and if it’s a five year they do go match that up with 5 year deposit money.

(And no Virginia, they don’t create the money in the basement out of the bank from thin air, they need deposits to lend out. Virginia you really need to understand how fractional reserve banking actually works. There is nothing nefarious about it. Nothing.).

So it’s definitley fair that there be some kind of penalty if you arrange a 5 year loan and then you soon want out of it.

And I can see the logic for an interest rate differential if rates have dropped a lot. As long as it is calculated fairly.

But given these things are in the fine print I can see a need to standardise these rules.

#17 Mickey Mouse on 03.22.11 at 10:13 pm

I am deeply ashamed at the budget, the level of taxation, the drunk spending, and excessive waste in Ottawa. Why can’t F take a page from Rob Ford? These boutique tax credits are a joke and amount to nil in savings. The reason this country has no money for Seniors, hospitals, and CPP is simple, they waste billions upon billions of dollars to lawyers, and accountants trying to enforce one of the stupidest tax codes on the planet. One professor was recently quoted as saying you could spend your life studying the tax code and still not understand the whole thing. Isn’t it time they took a page from Rob Ford and gave us a simple tax plan and kicked cut back on the size of government. We live in a nanny state where 1/4 people work of the government. Between the size of the government, the income trust fiasco, the cost of the Olympics, the G20 cost, and the fighter jets waste, these conservatives are making my blue blood boil with frustration. I sincerly hope Rob Ford cleans Ottawa up after he has cleaned the waste in Toronto.

#18 Cowboy_aka_My_View on 03.22.11 at 10:13 pm

Mr. Turner,

Best post ever!

#19 The InvestorsFriend (Shawn Allen) on 03.22.11 at 10:15 pm

U.S. 30 YEAR RATES ARE LOWER than our 5 year – AND they get to refinance for a minimum penalty???

One thing I don’t understand and no one ever seems to ask:

How is it possible that U.S. banks can offer 30-year mortgages at a lower rate than the 5 year mortgages in Canada??? AND in the U.S. if you have an insured Mortgage (Fannie/ Freddie) you are allowed to refinance to a lower rate if interest rates drops for just a small fee like 3 months interest. The full interest rate differential does not apply (otherwise there would be no benefit to the refinance).

Now how do the U.S. banks manage that? One possibility is the bank buys some kind of derivatives that allow it to insure against its customers refinancing at lower rates.

A more liklely reason is that Fannie and Freddy compensate the banks when their cutomers refinance.

The thing is that the option that American home owners have to refinance at lower rates has been hugely valuable to those homeowners over the last 30 years as rates have plummeted.

Yet they don’t seem to be paying for that option in their low 30-year interest rates. So who did pay for the option? (Was it you uncle sam?)

I have never even seen this question asked before, let alone answered.

In 2007 or so, before all the sub-prime I called some big shot at Standard and Poors and said, if homeowners are making huge gains on refinancing, who is on the losing side of that? They could not seem to understand the question.

It could be simply the investor in mortgage securities lost with the refinance. His investment matured early and he gots his money back rather than the coveted interest.

So MAYBE the lower interest in the U.S. is just due to a bigger pool of fools buying those securitised mortgages. But I can’t see the how that allows a U.S. 30 year fixed mortage with option to refinance if rates fall to be cheaper than our Canadian 5 year rate?

It’s like a magic trick….

#20 The InvestorsFriend (Shawn Allen) on 03.22.11 at 10:17 pm

AND ANOTHER THING (last one I promise)

If you think banks charge fees that are too high…

BUY BANK SHARES…

THE NAME IS SHARES… COMMON SHARES…

#21 Network Admin on 03.22.11 at 10:20 pm

…Right now, with a federal eRection about to take place… Is this intentional or a typo?

What do you think? — Garth

#22 Siddelly on 03.22.11 at 10:22 pm

I had my Nortel moment on Sunday night while taking the family to dinner at our local Thai food joint which is run by James who used to be our next door neighbour until we sold our house 2 years ago. James was once a doctor in China and returns to Shanghai every so often and he keeps up with whats going on over there, and he told us that the Chinese govt. recently raised the amount that a citizen could take out of the country for investment purposes from approximately 50,000 to 200,000 dollars. James claims that this is having a big effect on our local bidding war scenarios. A former delivery driver of his has 30 percent down on two homes and has put 5 % on three of the new Metrotown tower condos you recently wrote about that used ” stand in ” buyers. I guess he is planning to flip them before they are built. Welcome to the West Coast.
11th and Camosun was just listed at 2.1 million and is fairly close to Locarno beach, so if everything goes as planned, my step mom will have the Remax helicopters hovering over her home shortly.

#23 Anon on 03.22.11 at 10:25 pm

With respect to IRD penalties, does anyone know if they can be negotiated up front when one is deciding where they will get their mortgage?

Suppose one were to demand up front that any (potential) IRD penalty could not exceed say $5000.

Is this sort of thing negotiable at all?

#24 Peter Pan on 03.22.11 at 10:26 pm

That’s what open mortgages were created for…

The dude in Vancouver didn’t bother knowing what was in the mortgage he was obtaining.

Borrower beware…

#25 Big Al (New) on 03.22.11 at 10:30 pm

We sold our house last year with two years left on a mortgage with an not to be named bank ( Scotia). Because of the early termination of the mortgage and in addition we weren’t being another house I was told I would be looking at 3 months or roughly 10k in penalties. I called the bank manager and told him, charge me a penalty and the substantial proceeds will be finding their way somewhere else, so he dismissed the charges. One month later the funds were withdrawn and the accounts closed. Screw the banks their parasites just like lawyers and RE agents.

#26 BPOE on 03.22.11 at 10:36 pm

Another post proving what a golden treasure Vancouver is. Locarno number 1 location in the World getting $100,000 over ask!!!!in 1 month!!!! Beautiful just Beautiful. All the naysayers like Lala Land, The American aka Shiller, Brad in Van etcetcetc can put that in their pipes and smoke it. Facts don’t lie. The house sold in Locarno in 1 month for a fairly good price. Obviously the sophisticated buyer realizes this propery is going much much higher near term. Gives me great satisfaction day after day Vancouver Real Estate going sky high. Another one for the longs! GO VANCOUVER GO!!!!!!!!!!Election coming look for interest rates to continue to go down.

#27 Mike Rotch on 03.22.11 at 10:39 pm

@ontheshoreline, RE: post No. 1:

http://www.commbank.com.au/personal/financial-planning/investment-products/term-deposits/rates-fees/

It would appear that as long as you have 5,000 that you can lock up for a while, they are paying 5.6% and up.

No idea if Aussie law permits foreigners to use these instruments.

Now, if a Canadian could invest here, I’m doubting it’s RRSP or TFSA eligible (if it is, doesn’t it look at least a little bit attractive as part of your 40% fixed income alotment?)

If it’s not eligible for a registered account, I’m guessing that our own CRA bastards would view the interest as plain old income and tax it accordingly, so sucky net return.

#28 BPOE on 03.22.11 at 10:40 pm

Listing any property in the Locarno area for under 2.4 million is an insult to all the sophisticated people living there. Worst house in the area bar none but the buyer got a good deal. You need to take the area in context. There is a house down the street for 17.5 million. So 2.4 million is chump change.

#29 Timing is Everything on 03.22.11 at 10:40 pm

#16 The InvestorsFriend (Shawn Allen)

I used a mortgage broker referred to me by a trusted colleague. It was the best money I never spent.

#30 vomitingdog on 03.22.11 at 10:41 pm

Typo alert:

… time you have let on your mortgage

5th paragraph from the bottom. Should read: time you have left

I won’t touch your federal “erection” though.

#31 TaxHaven on 03.22.11 at 10:56 pm

Sorry, I’m with the banks on this one. The L-A-S-T thing we need is yet MORE interfering government regulation designed only to protect the public from their own financial naivete…

Anyone who finds himself or herself in such desperate need of money that they have no recourse but to borrow must pay whatever the market can charge.

I’ll say it again: CHEAP CREDIT IS NO A HUMAN RIGHT.

BTW, didn’t something happen to Diefenbaker in World War I…?

#32 Soylent Green is People on 03.22.11 at 11:03 pm

Canadians are that kid in red and Harper and his merry band of neocons and unelected backroom goons are that polar bear. The barrier is the next Federal election, is it going to be this May 2011?

…………………………………..

No Canadian government has ever been cited for contempt before.

The Washington Post
By Associated Press, Monday, March 21, 5:46 PM

http://www.washingtonpost.com/world/contempt_of_parliament_ruling_budget_set_up_clash_that_could_trigger_election_in_canada/2011/03/21/ABbhAZ8_story.html?wprss=rss_world

.
.
.
.

#33 SallyT on 03.22.11 at 11:11 pm

@The InvestorsFriend (Shawn Allen)

(And no Virginia, they don’t create the money in the basement out of the bank from thin air, they need deposits to lend out. Virginia you really need to understand how fractional reserve banking actually works. There is nothing nefarious about it. Nothing.).

They need only meet their reserve ratio of loans to deposits, traditionally 9 to 1. Nothing nefarious about lending out money you don’t have?

#34 Matthew on 03.22.11 at 11:29 pm

With every paycheque, I buy more of the companies I hate (Bank Stocks, Oil Companies, Hard Liquor, Cigarettes). The game they play is unfair and if my taxes subsidize it, hopefully, from the pittance that remains, I can at least profit from it and retire before I am in diapers.

Seeing this story just gives me more conviction to buy.

#35 Hoof-Hearted on 03.22.11 at 11:35 pm

Let the Secrecy (2010 Owe_lympic games ) Games continue

http://blogs.canoe.ca/vancouver2010/general/let-the-secrecy-games-continue/

What everyone should do is tie one’s RE holdings to Olympics…then avoid any/all disclosure…Voila’

#36 Tim on 03.22.11 at 11:36 pm

Let’s just hope Canadians aren’t stupid enough to vote this Neocon, control freak, Harper in again. He’s racked up the biggest deficit in history. The only reason Canada’s performance is better than most G7 countries is the price of commodities. He’s prorouged parliament, twice-unbelievable, just to save his own skin. Other than waste taxpayers money on fighter jets, building prisons, and cutting funding for the arts and diminishing our reputation abroad, what has he done for this country?

#37 nonplused on 03.22.11 at 11:39 pm

Yes, those terrible banksters and their evil ways.

Meanwhile, I read some speculation today that the explosion in reactor 3 at Fukushima was consistent with the top blowing off the containment structure. How else do you explain the apparently large amount of material flying straight up in the air? New photos seem to show that at least part of the operations floor is missing as well. Of course, it’s hard to tell exactly what you are looking at in those photos, and it could have been dust, but still. The explosion in unit 1 produced a much more even cloud of dust and nothing was jettisoned nearly that high. It would have still been a hydrogen explosion but inside the containment rather than in the building at the operation floor level.

This is all very speculative of course; the Japanese government and TEPCO are not saying anything like this. They are still taking about pumping water into unit 3, which implies they think its still there and not in orbit or lying in the parking lot.

If anything like this did happen, or were to happen, the consequences would be very dire indeed. Just the spent fuel rods that were in the tanks themselves contain many times more of the nasty stuff than Chernobyl released. If they are scattered around the site or laying at the bottom of the harbour it is very, very bad news. If a portion of the core got ejected, it’s even worse.

I think that’s about it for the Mark-1 design. Time to shut them all down. Nice work GE! Turns out washing machines are not the only thing you can’t build to last.

The economic implications of that would be significant, and for Japan horrific as 35% of their electricity comes from nuclear power. The US has a bunch of those reactor designs too. I think I read 18.

The EROEI (energy return on energy invested) on those things isn’t much better than liquefied natural gas anyway, so maybe that’s a better route. I understand if an LNG tanker ever sank, the LNG would turn to regular natural gas with explosive force (but not necessarily with an air – gas explosion, although that’s possible too) once in contact with the water. But at least after the explosion the site is safe. Or what’s left of it anyway.

On the practice of co-locating multiple units at one site, this now seems a little stupid now too. If a unit was to loose containment, it would be unsafe for workers to operate any of the other reactors even if they were functioning normally. No workers means no circulation eventually and now we know what that means is an eventuality for any abandoned Mark-1 reactor. Incidentally, one little known fact is the fire-fighting efforts at Chernobyl came dangerously close to putting the other 3 units there in a critical loss of cooling scenario too.

And, in retrospect, maybe it’s not such a good idea to locate reactors where they could be subject to flooding.

It’s time to start finally moving the spent fuel to Yucatan Mountain and shut down any reactors that do not fail safe. We have to do it, despite that we really can’t afford to.

#38 Crash Callaway on 03.22.11 at 11:48 pm

And once again we will be saved by the erection like all the erections preceding it.
Hey if they can palm off a 2.4 mil outhouse in Van there’s hope that a cure for Electile Dysfuntion is within reach and we can all buy bigger houses.

#39 Jsan on 03.22.11 at 11:50 pm

Global TV , “News” at it’s finest. News? I swear, Global TV really is nothing more than an infomercial disguised as news. Why is it that anytime there is a new condo project being built anywhere in Canada, Global TV mysteriously shows up and tries to spin it into a news story? Just another glaring example of how real estate has infiltrated the mainstream media. I wonder if Global gets paid for their “News” stories when they cover one of the many new condo projects around the country? Here is another one to send to the CRTC as a complaint, I just did. I’m guessing that it is illegal to be trying to pass off advertising as a news story. They seem to do it in every city on a non stop basis.

http://www.windermerewaters.com/video.php

.

#40 Basil Fawlty on 03.22.11 at 11:51 pm

The house at Locarno is a tear down and will cost about $10,000 to remove. This means the purchaser paid $2,315,000 for the dirt. No one would pay that kind of money and attach any value to that piece o’ crap box.

#41 bridgepigeon on 03.23.11 at 12:00 am

I think the west has given Libya reason enough to retaliate.
Hope it doesn’t happen, it could be real bad, and not just for the economy.
Anyone know who these rebels are we’re backing to take over?

#42 EJ on 03.23.11 at 12:01 am

No housing bubble here, folks! No sir. Move along, move along. It’s different. Yes, yes, “sound” lending. World class. If you stop to think about it for more than a second, you might realize how screwed we are, so just move along. Oh, look, something shiny to make you forget!

#43 randman on 03.23.11 at 12:05 am

“(And no Virginia, they don’t create the money in the basement out of the bank from thin air, they need deposits to lend out. Virginia you really need to understand how fractional reserve banking actually works. There is nothing nefarious about it. Nothing.).”

Really Shawn?….really?

Here is just one of thousands of google explanations
of Fractional Reserve Banking

READ the last line very carefully

Fractional Reserve Banking refers to a banking system which requires the commercial banks to keep only portion of the money deposited with them as reserves. The bank pays interest on all deposits made by its customers and uses the deposited money to make new loans. In order to understand how fractional reserve banking works, let’s look at the following example.

Somebody deposits $1,000 with Bank A. Bank A is obligated by law to keep 10% of the deposited money as a reserve, that’s why the bank keeps $100 and lends out $900. Somewhere down the road the $900 loan is deposited in another chequing account (it might or might not be with the same bank). This second bank also wants to make money by giving out loans, that’s why it keeps the required $90 and lends $810. Fast forward to a deposit with a fourth bank and you’ll get the following:

Bank Deposit Reserve Loan
Bank #1 $1,000 $100 $900
Bank #2 $900 $90 $810
Bank #3 $810 $81 $729
Bank #4 $729 $729 $0
Total $3,439 $1,000 $2,439

As you can see from the table above, the banks created $2,439 based on the first $1,000 deposited. Talking about license to print money. The fractional reserve banking works for now, because the total amount of withdrawals is offset by deposits made at the same time. While the depositors are confident at the fractional-reserve banking system, a very small part of all deposits is withdrawn at the same time allowing the banks to handle the withdrawals through their minuscule reserves. However when people’s confidence in the banks is shaken, bank runs are possible, and the entire banking and financial system can collapse.

#44 pablo on 03.23.11 at 12:06 am

Please don’t single out just RBC and Scotia, ALL BANKS, ALL LENDERS: Trust Co’s, Caisse Populares, Credit Unions ALL have the same hymn book and sing the same song. Nothing a lender likes more than the customer prepaying their mortgage in excess of contracted terms. The get to collect a fat penalty for nothing and can lend the same money right back out to some other fool at current rates, and that penalty is pure profit.
To address the previous comment that if people didn’t like the high cost of borrowing and breaking their contract they should buy shares in the banks. I beg to differ; take a good hard look at the senior management and executive pay and reward packages doled out at the top echelons of any bank, that’s where the majority of the spoils goes, and not to the shareholders. The people at the top of the pyramid are paid like professional athletes.
Garth; a really good column, I think I’m seeing a real trend in your sentiments lately. Good.

#45 randman on 03.23.11 at 12:07 am

And another more revealing summary

How Banks Create Interest-Bearing Money Out of Thin Air

(and cost the average taxpayer, home owner & small business-person
thousands of dollars annually)

Assuming a reserve ratio of 1:10 the table below shows how $100 of interest-free government created money (GCM), i.e. cash, is used by the banking system to create $900 of interest-bearing bank-created money (BCM) in the form of loans. The reserve ratio is the ratio of cash reserves (GCM) to deposits (mostly BCM). In our example the banking system consists of 50 banks, but the money creation process would be essentially the same for any number of banks from one to infinity. (Note that if the system contained only one bank that bank could create $900 in loans immediately.)

Modern accounting uses double entry book keeping where liabilities and assets are kept exactly equal. A bank’s liabilities are its deposits. Its assets are its loans (including bonds which are loans to government) and its cash reserves. Here is how the banking system creates money. In column 1 $100 of cash is deposited in Bank 1. Bank 1 creates a $90 loan in the form of a deposit as shown in column 2. This deposit is pure BCM and, because it must be paid back with interest, is an asset. With a reserve ratio of 1:10 the bank puts aside $10 in cash (column 3) to meet cash demands from the person who deposited the $100. The remaining $90 in cash covers the $90 loan. The borrower proceeds to write cheques on his $90 deposit and these cheques get deposited in Bank 2. For these cheques Bank 2 demands and gets cash from Bank 1 until eventually all $90 ends up in Bank 2. (Naturally in real life more than two banks are involved. Thus the transactions are not so simple and orderly as they must be here for explanatory purposes, but everything comes out in the wash to give exactly the same result.) However the original $100 deposit still stands to the credit of the depositor (a liability for Bank 1) even though $90 of it has moved on to Bank 2. And the $90 loan Bank 1 created when it first received the original $100 deposit also stands (an asset for Bank 1). Banks 2, 3, 4, etc. then repeat this process eventually creating $900 of BCM in the form of loans (as shown in column 2) and dispersing the original $100 as cash reserves throughout the banking system (as shown in column 3).

Note that $900 of the $1000 of deposits in column 1 is BCM, i.e. credit created by the banks in the form of loans. (Banks make loans by “depositing money” in your account which you must pay back with interest. Thus they are loan/deposits.) Only the original $100 cash deposit is GCM. One other point. As a loan/deposit gets spent, a deposit in some other bank grows in inverse proportion. Thus the banks have increased the money supply by $900 and not by $1800. That would be double counting. The important points, however, are as follows: this ingenious system is called fractional reserve banking; it creates debt for the sole purpose of enriching the banking class; it is a subtle form of theft; historically it was condemned as a form of usury.

#46 tmg on 03.23.11 at 12:10 am

Garth, please review again (husband pressuring me to buy) why the Chinese will not continue to force prices up in Vancouver…details would help!

#47 nonplused on 03.23.11 at 12:14 am

Oh ya, and I forgot one more thing. Put your tin foil hat on.

Why does the US get 20% (or something like that) of its’ electricity from nuclear? Why not 100%? Load balancing? You could just circulate straight to the cooling towers and skip the turbines part of the day. That won’t work? OK, why not 50% with gas cogens on standby? How come France can manage 70% but the US only 20%?

The fact is power was never the objective. Making sure the Soviet Union understood that the US had plenty of plutonium was. We’re a little long plutonium now, so they don’t built nuclear reactors anymore.

And if thorium reactors ever live up to the hype, well, we should build those instead. In theory, they would fail safe and don’t make plutonium. But I have no idea if they are really feasible.

Selling the reactors to Japan accomplished 3 goals: to make nuclear power seem safe and trendy, the plutonium was expected to come back to the US if needed, and to help underwrite the cost. (On the last point it’s a bit like selling F-35’s to Canada, we don’t need them and the US doesn’t really need us to have them, but selling a few more units at a profit can help reduce the overall unit cost. The F-18’s we already have are more than sufficient to fly around Libya not striking targets, and if they are worn out brand new ones are still available cheap by comparison.)

#48 Blobby on 03.23.11 at 12:15 am

Im probably being stupid here.. but i have to ask to clarify it in my own head (I dont own property, and have no intention to own – im here because im interested in what this mess will do to the economy and to plan my investments around it)..

So my question – do these fees apply if someone pays down their mortgage early too?

#49 VF on 03.23.11 at 12:15 am

#28 – sophisticated people????? This is laughable! Since when being wealthy equals to being sophisticated? it’s not because people buy in an expensive RE area that they are sophisticated. Not sure what you are smoking…

#50 Jody on 03.23.11 at 12:16 am

What we need to be able to do is sue MP’s and other government wankers. Those scum bags are the main problem, this soverign immunity bullshit needs to stop. Now Mr. Creepy is going to try and pass some stupid budget and the other dipshits won’t let him so we’ll need to spend $300 million on an election. Here’s an idea, get rid of the federal government, what the fuck do they do to make my life better anyways? Bomb Libyis? Create the CMHC? Kiss the ass of every banker? No thanks. I’d like to think we are evolved enough not to need at least one level of parasites. Oh, and creating a budget where every voting bloc gets some stupid little tax write off, no thanks. Bring in a tax cut, or better yet, a flat tax for everyone and get rid of the overly complicated form of doom our tax form is. It’s like out here in Alberta, teachers and nurses are about to be laid off but yet former premeir Don Getty’s company gets $2 billion for a useless carbon capture project, oh the corruption makes me want to hang someone.

#51 Jon B on 03.23.11 at 12:36 am

It’s fair to say that most Canadian mobile phone subscribers hate their wireless provider. Plenty of customers vent their anger directly and publicly. But I bet just as many people hate their bank – but the anger is kept private and under wraps. When the Royal is bankrolling your living-beyond-your-means lifestyle, few will opt to bite the hand that feeds them. Once rates and personal bankruptcies go way up, public anger towards the banks will erupt.

#52 Cellar Dwellar on 03.23.11 at 12:39 am

@ #10 bsallergy
Oh my god I almost snorted beer out my nose !

#53 Cellar Dwellar on 03.23.11 at 12:43 am

BPOE ? Is that an anacronym for Barely Plausible Optomistic Environment?

#54 Cellar Dwellar on 03.23.11 at 12:44 am

dont forget BPOE.
the Gods make you proud before they bring you down.

#55 Burnt Norton on 03.23.11 at 12:46 am

One strategy to reduce your IRD penalty:

Say you have 3 years left on 5 year fixed term mortgage at a discounted rate.

Renew a fixed 4 year at the posted (ie higher) rate.

Your penalty should now be much lower & possibly only 3 mos interest.

Works best in a rising rate environment.

You would run the risk of paying more interest for a longer term if you end up being unable to sell the property (if that’s why you want to pay off the mortgage prematurely).

#56 pablo on 03.23.11 at 12:47 am

TRACY SHERLOCK,
VANCOUVER SUN
March 22, 2011

Small amounts of radiation from the reactor incident in Japan have been picked up by radiation monitors in B.C., the BC Centre for Disease Control reported Monday.

#57 BigAl (Original) on 03.23.11 at 12:54 am

Does anyone know what ever happened with that case filed a few years ago in New Westminster court, where a guy who was near bankruptcy sued the banks and Bank of Canada claiming “unjust enrichment” based on fractional reserve.

He had claimed that the chartered banks and BoC never actually lost anything by his defaults, because they created the money they lent him out of thin air, and thus shouldn’t be allowed to seize any of his money or real assets.

#58 Profit Taker on 03.23.11 at 12:58 am

ANOTHER SIGN OF REAL ESTATE IN TROUBLE

Received an e-mail from a local developer today. Zero down, 0 payment for 6 months, cashback on closing and if you buy a house from their existing inventory you get a 2011 Ford Focus. I’m sure their is some fine print somewhere in the contract but this is unbelievable. No long lineups outside of this sales center.

Stop helping someone else pay off their mortgage
with your rent payments!

Zancor Homes is proud to offer you the easiest way to
home ownership with:

• $0 Down‡
• $0 Payments for 6 months ‡
• Cashback on Closing and more ‡

Now you can enjoy the freedom and joy that comes from owning your
own home. With monthly carrying costs of as little as $645 it can be even
cheaper than renting!

Start building a home for your family and some equity for the future with a
little help from Zancor Homes. Visit us today!

http://eblast.homebuyers.com/zancor-mar22/index.html

#59 BigAl (Original) on 03.23.11 at 1:02 am

#31 TaxHaven on 03.22.11 at 10:56 pm
Sorry, I’m with the banks on this one. The L-A-S-T thing we need is yet MORE interfering government regulation designed only to protect the public from their own financial naivete…

Anyone who finds himself or herself in such desperate need of money that they have no recourse but to borrow must pay whatever the market can charge.

I’ll say it again: CHEAP CREDIT IS NO A HUMAN RIGHT!
==================================

Agreed.

So why not get rid of a WHOLE LOT of regulation and get rid of the chartered banking system.

Lets also get rid of the ability of bank presidents to pull up with their black chauffeured cars to the office of the Superintendent of Financial Institutions where they have carte blanche to stroll in anytime they like to talk to the director there, ‘suggesting’ what the next rule or policy might look like.

BS with your ‘too much regulation’ crap. I’m sooooo tired of this incessant mantra that we’ve heard since the Reagan era and look where its gotten the world. More regulation I say…the more the better.

#60 Nostradamus Le Mad Vlad on 03.23.11 at 1:09 am


“Oh. The. Horror [of a] federal erection. It’s a Nortel moment. So, break out the Timmies and the latex. We’re going in. Like Bankers, screwees and screwers in the housing business.” (!ORGY!)

OK OK, enuff already of the vanity-filled hip, urban suburban yuppies mortgaged to the hilt. This — Lady Gaga’s Exploding Fuzzballs is far more scientifically interesting than anything F could muster.

Good post, ‘tho. It is well to remember that not only are we living in a den of vipers, we are also surrounded by countless piranhas. Consequently, it’s heads we get eaten alive and tails, we’re eaten raw with a knife and fork.
*
#143 Timing is Everything on 03.22.11 at 8:39 pm — Good link. BP has painted the GoM black — add in a new leak, 10 miles wide by 100 miles long — so they are probably going to pull the same stunt in the Mediterranean off Libya.
*
Inflation UK first, then North America (wars, high oil – food costs, etc.).

Desperate times call for desperate measures. May allude to the contraction of money (deflation), while pushing food / oil / energy costs higher (inflation — see previous link), and we’re flattened by a steamroller that doesn’t exist.

Economy Is it a myth or does it really exist?

1:55 clip (in link) Grumbling sounds from around the world. Chances are good that the planet is mighty fed up with us parasites on top, but it may coincide with this.

‘Quake in Japan — Natural or man-made? It accomplished two things — depopulation, and because the Stuxnet virus prevented the reactors from automatically shutting down, it released radiation.

Libya The real reason(s), obviously not touched by the m$m.

Vote Independent Better than the bunch of numbskulled pansies in Ottawa, and almost as effective as None Of The Above.

5:25 clip Gold vs. RE — Know the cycle, and Playing The US$ Time to cash in the chips? 4:25 clip.

#61 CP on 03.23.11 at 1:18 am

So which party is likely to fix this housing mess and economy?

#62 Marc on 03.23.11 at 1:41 am

When getting Euros for CDN $ at TD, I asked if they still charged a $5 currency conversion fee. The teller kind of laughed, and said the buy/sell rate is the conversion fee, but 2 years previous TD did in fact charge me $5 for converting my money. Banks are blood sucking leaches, who will likely eventually start to charge for parking to cover their costs of providing parking spaces to customers.

#63 Groundhogday on 03.23.11 at 2:05 am

As predicted before, short rates will not rise. Real estate continues to power upwards (example given in this blog citing a sold of $2.3M). All catalysts for an alleged real estate downturn have materialized with no impact.

Just a bunch of angry renters. Nothing to see here.

Respond if you agree.

#64 Your local martingale on 03.23.11 at 2:13 am

Hello Garth,

I read your blog from time to time – it’s amusing and I do enjoy the random pictures. I also think that it is helpful that you point out that too many people have too much of their net worth wrapped up in one illiquid asset.

As a quant, I have to take issue a little bit with your most recent post on mortgage prepayment penalties. I am sure that you are well aware that when you borrow money from the bank you are not borrowing the bank’s capital, you are borrowing from investors somewhere in the market. The bank is just a financial intermediary, charging spreads and fees for service and mortgages are no different in this respect. Investors who invest in mortgages must be paid for holding prepayment risk. If there are no fees for the prepayment privilege, then the investors will simply demand a higher yield from the start. Effectively, if the borrower can put back the debt at will, which is an implicit derivative (think of callable and puttable bonds), then the borrower must pay a premium for that privilege one way or another.

One can take issue with the level of the fee, the spread, or the size of the effective premium charged by the bank (which given the rent seeking behaviour of the big Canadian banks is probably warranted), but the existence of a prepayment fee just simply reflects the old adage from Heinlein and later Friedman, “There’s no such thing as a free lunch.”

Cheers,
YLM

#65 The Original Dave on 03.23.11 at 2:29 am

I agree with #31 Tax Haven. People have to think before they borrow. The banks can charge that if they want.

#66 BOB on 03.23.11 at 2:38 am

Maybe the land is worth that much there, never mind the shack. Is approx 6000 sq ft of land by the water worth that much over there? Obviously someone – the buyer thought it was worth that much. Suuply & demand. Good for the seller. Obviously realtors can be good.
Stop whining and get a job: sickening the number of envious renters on here with too much time on their hands…

#67 BrianT on 03.23.11 at 2:46 am

Finally people are starting to see through the Grifter of Omaha’s B/S act http://www.zerohedge.com/article/buffett-talks-down-japanese-devastation-his-munich-re-announces-massive-loss-forecast-miss-d

#68 edmontonhere on 03.23.11 at 4:15 am

Why the Government would not have the decentcy to offer some basic protection for the middle class family is shameful. Our current government created this housing bubble, hurting and crippling the middle class as it is in my opinion.
It’s a pretty sad day when the USA has better consumer protection, standard federal social services and Unemployemnt & WCB.
It does the economy no good in the long run to purge wealth from the middle class unneedlessly, unless they have some sort of hidden agenda-I just don’t get it!

#69 JMD on 03.23.11 at 6:10 am

Wow, $2.3 million for that!?

I doff my hat to Canada. As a fellow colonial let me say you sure know how to blow some wild bubbles.

#70 Neuter Your Nameplates on 03.23.11 at 6:18 am

benevolent and protective order of elks

please take your disharmonious, bullish disharmony out of our harmonious bearish harmony.

the airport is over there..

#71 Durbo on 03.23.11 at 6:46 am

#31 -TaxHaven

I would agree with you except for one thing – the government has already interfered by creating a cartel of banks. If there were a free (or at least freer) market in banking, chances are there would be no penalty.

So one of two things have to happen – free up banking or regulate them more.

#72 kw on 03.23.11 at 7:48 am

Just read this in the globe. Columnist Tim Cesnick
Eight Tax Changes you should know about

7. RRSPs. A new set of rules has been introduced in this budget to prevent taxpayers from entering tax schemes designed to enable investors to access the funds inside their Registered Retirement Savings plans without paying tax on withdrawals. These “RRSP-strip” schemes have evolved over time and the new rules are broad enough to stop virtually all of them. Further, it used to be the case that you could potentially hold a sizeable investment in private company shares in an RRSP. The rules have been tightened to limit that investment to less than 10 per cent of a private company (this is a complex area of the tax law – so speak to a tax pro for more).

This is exactly how quickly the game can change. So how does one plan their affairs?
Of course it looks like the budget will not pass but the concept is out there for the next corrupt gov.

#73 ris ames on 03.23.11 at 9:19 am

what about the Chief?

Former MP and Catholic priest Sean O’Sullivan (he died of leukemia in 1989) always paid homage to his mentor, John Diefenbaker, remembering to send him a telegram every year on important occasions. In Dief’s waning days there was a typo in one message, infuriating the old warrior. “Congratulations,” it read, “on the anniversary of your first erection! — Sean.” — Garth

#74 Sean on 03.23.11 at 9:26 am

Randman.. SallyT… and others.. bang on!

I am sure you are aware of this quote…

“If the American people knew tonight, exactly how the monetary and banking system worked, there would be a revolution before tomorrow morning.”
– Abraham Lincoln

I honestly wonder how ignorant most people are (even many blog dogs) as to the Ponzi scheme that is our monetary system. To have Royal blatantly try to shove that sh*& down our throats is particularly obnoxious.

#75 Bill in Nobleton on 03.23.11 at 9:28 am

** GARTH**

Would you contact the seller and interview them for this blog?

#76 Stevo on 03.23.11 at 9:36 am

http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/time-to-step-up-the-oversight-of-cmhc-operations/article1950704/

#77 MikeT on 03.23.11 at 9:41 am

the president of a totalitarian country was asked:
“Do you have elections?”.
He answered:
“Yes, evely molning.”

#78 Scare Crow on 03.23.11 at 9:42 am

Funny that you wrote about discharging your mortgage early – I enquired with (Royal) about ending our 5 yr fixed as I wanted to lock in at the 3.8% going rate – and I felt violated with the charge to end early (just over 1 year remaining) – almost $5K .. yeah, Thanks!

So, I woke this morning – poured a fresh cup of coffee, reading about the Japanese situation, the Fiscal nightmare in Europe, the QE2…and many more from the States, China’s pending implosion with their own realestate bubble, a new turmoil in Africa, 40 Million Americans on food stamps – but the stock and housing market are on a tear…

What gives – everything is defying logic – the markets should be nearing 1000 pts – housing should be in shambles … it almost makes you believe that things will continue to go on for some time – we live in strange times my friend..very strange.

Sucks that as a prudent home owner – who calculated the risks and accepted what I was getting into – those who throw caution out the window will sink us all – and not to mention when CHMC gets hammered – Joe Taxpayer is going to take it royally you know where in covering these massive write-offs while the banks write mortgages that they wouldn’t touch if their own necks were on the line – damn them all!! Wish I had such a business – gather all the rewards but none of the risks -(that’s passed on to the other guy) –

#79 Another Albertan on 03.23.11 at 9:43 am

#58/nonplused (from Monday) –

Unfortunately, a significant portion of your electrical engineering background is outright wrong. It’s misguided, at best. My original training was in electrical engineering.

You don’t know there isn’t/wasn’t a grid at Fukushima. The media is misrepresenting what happened, because nobody has any real idea of what did and was is occurring. The information flow from TEPCO and the government is highly ambiguous. You do not know how many transmission lines are running in and out of the plant. You do not know if there wasn’t a separate distribution line from the upstream substation. You do not have any Single Line Diagrams for the internal and external connections in the plant. NONE OF THIS INFORMATION IS PUBLIC KNOWLEDGE. Just about everything is being held back or is lost in translation (literally). Even if you have one single phase conductor that is barely enough to power the ancillary services of a building, you have grid. You may not have enough power to do anything useful, but you have a power source and you have a clock source.

A $40 drill is not the exact same thing as a motor+VFD combination that might be $75k. And there are likely dozens and dozens of these custom-specified combos.

Capacitors don’t convert AC to DC. Capacitors are part of switch-mode power supplies which take a wide range of voltage and frequency inputs and rectify it to DC.

Generators do not synchronize automatically. Generators need synchronizers to synchronize. Things go BANG if not synchronized. If not synched using a feedback loop, generators will run at whatever rate their mechanical drive source gives them.

The grid stays in synch because, by strict definition, it IS a clock. It is one very large, distributed synchronous machine.

I appreciate that you’re really passionate about the issues at Fukushima, but you need to realize that you are jumping to major conclusions using incomplete situational data and no actual engineering plans that are being evaluated by major misunderstandings of how various aspects of electrical engineering works.

Everyone else’s mileage may vary.

#80 lonely limey on 03.23.11 at 9:44 am

Meanwhile, in the UK budget this afternoon the Chancellor has just announced interest free government loans for first time buyers for a 20% deposit.

Home ownership is a right.

#81 avenirv on 03.23.11 at 10:00 am

if this guy bought this “house” 20 years ago for 300K can we say he made 100K for each year he owned the house ?
isn’t this a very good investment ?
really, isn’t this an extremely good investment ?

#82 mab on 03.23.11 at 10:25 am

February New-Home Sales Way Down
3/23/2011 10:02 AM EDT
Sales of new single-family houses in February 2011 were at a seasonally adjusted annual rate of 250,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 16.9% (±19.1%) below the revised January rate of 301,000, and is 28.0% (±14.8%) below the February 2010 estimate of 347,000.

Analysts were expecting a reading of 290,000.

#83 Live Within Your Means on 03.23.11 at 10:32 am

#48 Blobby on 03.23.11 at 12:15 am
Im probably being stupid here.. but i have to ask to clarify it in my own head (I dont own property, and have no intention to own – im here because im interested in what this mess will do to the economy and to plan my investments around it)..

So my question – do these fees apply if someone pays down their mortgage early too?

…………

Not sure. It’s been so long since since we paid it off and rules may have changed. Do know that we had a mtg. which allowed us to double up our mo. payments (pre bi-weekly payments) and we could pay a %age of our ORIGINAL mtg. annually on the anniversary date. We did both. Believe at the end we just paid the remaining amount, which was less than our normal mo. payment.

#84 SK on 03.23.11 at 10:39 am

Garth check this out,

THE ADVICE: JUMP BACK IN

With wife unemployed, sounds like a great idea to buy a house, lol.

http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/cash-clash-should-they-get-back-in-the-housing-market/article1952605/

Oh by the way Kelley Keehn is hot!!!

She’d better be, with advice like that. — Garth

#85 Ottawa S on 03.23.11 at 10:47 am

Don’t enter into a five year fixed term if you’re not planning on staying there five years. I fully agree with there being some financial penalty. Otherwise, banks will just charge those of us that think before entering agreements more to make up for the lost penalties. They won’t get rid of penalties and keep rates as they are, since they would then lose money.

Don’t enter a contract if you don’t plan on sticking to it, otherwise contracts as a concept will just be diluted.

#86 AG Sage on 03.23.11 at 10:53 am

>#81 avenirv on 03.23.11 at 10:00 am
>#75 Bill in Nobleton on 03.23.11 at 9:28 am

He inherited the house. But you could make that calculation for the estate, presumably.

Full details and interview here at the Vancouver Sun story

The house also served as a great pickup line for dates.

“I’d be at a party at one of my friend’s and I’d say, ‘I have a little shack on Belmont, and they’d think, ‘Oh, yeah?’ And then when they got there, they’d say, ‘Oh, it really is a little shack, isn’t it?’ with a look of disappointment.

#87 TaxHaven on 03.23.11 at 11:04 am

@#59 Big Al

Yes, too much regulation already!

We now have central banking. CMHC. Minimum wages. Government protection of labour unions. Fractional reserve banking. A massive public sector. Mandatory CPP. Unemployment insurance. CDIC. Fiat currency. FINTRAC.

Those are REALLY BIG examples of government interference in the free market….

Why not deregulate lending altogether? What are you afraid of? That some financial illiterate will get cheated? That someone, somewhere – God forbid! – will be allowed to FAIL? That some poor sod WON’T get to borrow hundreds of thousands of dollars with next-to-nothing down? That people will have to start SAVING to buy things again?

#88 NorthernPoV on 03.23.11 at 11:06 am

Support a grassroots campaign to defeat the Harper gang: http://catch22campaign.ca/

#89 Live Within Your Means on 03.23.11 at 11:07 am

I have, what might seem a naive question, but I recall about 29+ yrs. ago sis & I assumed the seller’s mtg. w/CMHC at 14+ interest and was due for renewal in 4+ months. Everything I read was that rates would go down. Yeah right. We had to renew at 18+% for min 6 mos IIRC. It was a 3 level condo TH. We paid $60+K overlooking the NW Arm. Not the greatest area, but had reasonable transportation and close to Dtown. I wanted to buy in Bedford, but sis didn’t drive then and transportation was not good.

#90 Nemesis on 03.23.11 at 11:19 am

…” break out the Timmies and the latex. We’re going in. …with awe, reverance and admiration [that] we salute the guy with 20-pound gonads… Right now, with a federal erection looming over us (ask me to tell you about Diefenbaker one day)… ” – Hon. GT

It’s imagery like that that keeps bringing me back. You’d have made a great squad leader, GT.. ;)

But never mind Dief the Chief’s misadventures, Lyndon Johnson’s exhibitionist penchant (never a ‘missile gap’ for LBJ) is even more entertaining…

e.g. – from his biography of Lyndon Johnson, Flawed Giant, Robert Dallek writes, “During a private conversation with some reporters who pressed him to explain why we were in Vietnam, Johnson lost his patience. According to Arthur Goldberg, LBJ unzipped his fly, drew out his substantial organ and declared, ‘This is why!’”

Among other landmark precedents in LBJ’s ‘expansion of Presidential Powers’…

…”Once, he even relieved himself on a Secret Serviceman who was shielding him from public view. When the man looked horrified, Johnson simply said, “That’s all right, son. It’s my prerogative.” …

[from Jenny Drapkin’s, ‘The President Who Marked His Territory’ appearing @ MentalFlossMagazine]

#91 Dodged-A-Bullit-in Alberta on 03.23.11 at 11:23 am

Greetings: Here is a tale of two dealings with a major bank which shall remain nameless [CIBC].

Number of years ago, I had a 5K loan, making monthly payments, never missed one. Loan was half paid off. Went into bank and asked to have loan brought back up to original amount. Informed I had to re-apply, did all paperwork, bank refused to issue new loan, said I didn”t qualify, snot nosed kid had audicity to say I could have wife co-sign. I informed him that in a short time, the house would be sold and loan would be paid off in full. No deal!! I folded a CIBC rrsp to access funds and paid tax on the withdrawal. Informed bank that proceeds of home sale would NOT be deposited with CIBC. I then pulled all investments out of bank, just left chq acct open.

Jump ahead to 5 years ago, wife and I bought home , no mortage, go into local CIBC to set up a 5K LOC, After processing paper work, bank turns me down. About 8 months later I get a call from CIBC telephone banking in Toronto saying they had pre-approved me for a 15k LOC. No paper work required, in 3 banking days I could access same using ATM, which I did. Mindboggling!!!! LOC presently at 0 balance and likely to stay that way, kudos to “Money Road”.

#92 Live Within Your Means on 03.23.11 at 11:27 am

The other day I mentioned that neighbours purchased a home for his son & partner ($180K) and took out a 10 yr mtg. at 4.75% He said at the time if his son and partner can’t manage the mtg., they’ll just sell. I wonder how much they’ll be on the hook if that happens.

#93 somejerk on 03.23.11 at 11:28 am

NorthernPoV –
Your resoning?
Looking for more hand outs?
Borrowing from my children to keep you in the lap of luxury?
don’t want to pay for your last binge, and looking for another?

how about this one…
Support a grassroots campaign to defeat the Harper gang: http://www.libertarian.ca/

:) (sorry Garth had to do it..)

#94 Tim Rikerad on 03.23.11 at 11:29 am

New home sales fell 16.9% in February, to the lowest level since the government began keeping records in 1963, as the reeling housing market failed to generate any momentum.

http://money.cnn.com/2011/03/23/real_estate/new_home_sales/index.htm

Why are we so special?

#95 somejerk on 03.23.11 at 11:30 am

NorthernPoV – ps you should check all the links on your page before publishing… kinda mickey mouse if things don’t work…

#96 debtified on 03.23.11 at 11:38 am

Rent vs Own [Fort McMurray Edition]

http://www.cp24.com/servlet/an/local/CTVNews/20110316/edm_condo_110316/20110316/?hub=EdmontonHome

Don’t miss the video on the right hand side; powerful images. My sympathy to all – especially to the owners who actually reside on their units (renters, at least, can rent somewhere else without too much financial burden).

#97 Oasis on 03.23.11 at 11:48 am

well, isn’t that sweet, gold hits a new all time high at $1440 today. is it surprising? certainly not, when all the bankrupt nations keep printing money like it’s going out of style. and yet another reason to shoot all the banksters and reinstate a 100% gold backed monetary system.

Will never happen. — Garth

#98 Still waiting on 03.23.11 at 11:54 am

The same “unnamed bank” screwed my wife and I six years ago. We conveniently never received our full mortgage contract from the bank but didn’t worry about since it was a large institution, they wouldn’t do any funny business. Well, they did. In the contract was something call a “claw back” which meant they recover money they claim they used to bring us over to them. They paid our transfer fees from the other bank but in return we understood we’d end up having to pay a higher interest rate which we agreed to. Instead, we got screwed for both when they required we pay them back, in addition to the other fees, this claw back…cost us an extra $1400. Lesson learned…we pulled everything out of the bank after this lesson and will never again apply for a mortgage.

#99 dave99 on 03.23.11 at 11:55 am

#25 Big Al (new)

You wrote

“I called the bank manager and told him, charge me a penalty and the substantial proceeds will be finding their way somewhere else, so he dismissed the charges. One month later the funds were withdrawn and the accounts closed. Screw the banks their parasites just like lawyers and RE agents.”

Wow. Well aren’t you quite the paragon of ethics and virtue.

So you demand relief from the contractually stipulated terms of your mortgage (to which you agreed) on threat of taking your business elsewhere. The bank grants your request, and assumes the costs of canceling your fixed rate mortgage and the effects that cancellation has upon their cashflow obligations.

And you then take your business elsewhere anyway.

You sound like a real peach.

#100 Licking my IRD wounds on 03.23.11 at 11:55 am

Married my wife in June of last year after wooing her back from Calgary. We now live in Regina; in 2007 she had purchased a townhouse (yes, at the peak) for 259 and had a 5 year closed mortgage @ 5.2 or so. 5% down so CMHC fees added.

With 2 years left in her term, the IRD was 12000 or so. She could not sell for what she paid… Feb of this year she sold for 240. We pulled 45K off lines of credit to do a pre-payment to reduce the IRD.. but it was still significant.

Tack on some realtor fees… some months sitting empty and the loss was in the 50K range. Ouch.

We`ll bounce back but that HURT.

Certainly something to consider – a variable rate mortgage usually has no IRD – strictly 3 months. If you expect rates to drop & are uncertain whether you will stay in the same location for the full term… Of course.. rates won`t be dropping any time soon.

I`d like to see the banks pay the mortgagee an IRD when the rates go up – after all, you`re allowing them to break that contract and re-lend at a higher rate! Two-way street b*tches!

I`d also like to see prorated CMHC fees refunded should a house be sold prior to term end. How many home buyers who use CMHC stay for the full 25 – 35 year amortization. 1 in 100 maybe.

I`m a dreamer…

#101 Devore on 03.23.11 at 12:02 pm

#71 Durbo

So one of two things have to happen – free up banking or regulate them more.

I’m gonna go with the latter. Time to assign blame where it really belongs. Sick of people blaming businesses for doing exactly what government encourages them to do through regulation and policy.

If you’re gonna step forward and say you’re gonna assume 100% responsibility to regulate and police something for the benefit of all Canadians, then stop whining and do it.

#102 Devore on 03.23.11 at 12:14 pm

#87 TaxHaven

Why not deregulate lending altogether? What are you afraid of? That some financial illiterate will get cheated? That someone, somewhere – God forbid! – will be allowed to FAIL? That some poor sod WON’T get to borrow hundreds of thousands of dollars with next-to-nothing down? That people will have to start SAVING to buy things again?

There is now no way back. Our economy, as we know it, as we measure it, can only grow if debt grows. Everything is based on debt. Our money is debt. When debt growth slows down, so does growth. DEBT = GROWTH. It’s as simple as that.

#103 AG Sage on 03.23.11 at 12:17 pm

>#87 TaxHaven on 03.23.11 at 11:04 am

You want to see what banking looks like under your glorious ideal that’s really easy, read up on banking crisis 18xx to the GD. In fact, I dare you to. It’s chaotic as sin and hellish for business development.

You want to repeat Great Depression style chaos every decade your plan is a stunning one. That’s where the U.S. is right now, so I can’t for the life of me figure out why that looks like a good thing. What feature of U.S. Banking right now is working well, pray tell? Wall Street bonuses? Sucking up 40% of GDP and choking the rest of the economy? Yeah, that’s working well, I guess.

Figure 1, shows what just the Glass Steagall Act of 1933 did for banking sanity. And note, banks booked profits after 1933, it didn’t turn into a charity operation or anything end of the world, unacceptably horrific like that.

This is where we are now without Glass-Steagall.

The Bush administration gave 5 commercial banks an exception on the 15:1 leverage limit. They immediately maxed out to the new limit of 30:1. Guess what happened to them? They are incapable of self control. Their entire business plan can be summed up with: it’s my bonus this year, nothing else matters. 150 years of history can be on the line. No one in charge at the bank gives a rip.

#104 Painted Toenails on 03.23.11 at 12:25 pm

***PRICED BELOW ASSESSMENT***

When was the last time you saw 10 listings bleating out this ‘selling feature’? This on Craigslist alone…doesn’t even count mls.

S.L.O.W. here in Victoria.

Friend of mine bought in a gated community in Washington State a year ago. They paid mid 3’s for an absolute mansion. Still haven’t unloaded their Vic home but to them $ isn’t really an issue….still….it has gotta hurt. He said it was better to pay cash in the U.S. Yup. I think he’s right.

He told me yesterday about the house behind them, it overlooks the lake. Not quite as nice as theirs but pretty gosh darned nice nevertheless….Repo now selling for 195. Nobody can believe it.

I’ve driven down my old Street in Vic several times over the last week. 3 houses for sale on it. 2 of them re-lists. Nuthin’ sold, the 2 re-lists are both now lower than before.

Sign of the Times baby, sign of the times.

#105 bee foot on 03.23.11 at 12:40 pm

@randman about reserve ratio and the example you gave:

Bank Deposit Reserve Loan
Bank #1 $1,000 $100 $900
Bank #2 $900 $90 $810
Bank #3 $810 $81 $729
Bank #4 $729 $729 $0
Total $3,439 $1,000 $2,439

The total deposits is $3439 and the total loans is 2439. The commercial bank is still required to pay interest on $3439. Take a look at the balance sheet of any banks, you will understand what I mean.

Your example is true for the banking/finance system as a whole. But it is not free lunch either. Banks would have to pay interest (GIC,savings) to the total deposits.

#106 Dodged-A-Bullit-in Alberta on 03.23.11 at 12:56 pm

Greetings: #96 [debtified]

I suggest you need to do more re-search on Ft. Mac, looks like you never really read the article, tough place to find a rental, and prices out of this world, a real shithole. When foundations shift in buildings it indicates a severe lack of oversight by those who are paid to do their jobs protecting Canadians. Oh! I forgot ,a previous poster declares we have way too much regulation, my bad!! “the free market would prevent those things”. I would love to know which bank[s] hold the debt on those buildings. I can’t imagine CMHC, or any insurance company, paying up on a building flawed at construction.

#107 Joe on 03.23.11 at 12:59 pm

While searching for answers regarding what happens to people refinancing 40- and 35-year mortgages in the near future I came across this article from January 2008. It extols the many virtues of 40-year mortgages and AIG’s 3% down mortgage insurance product for cash-strapped Canadians. It makes me feel really, really sick. http://www.thestar.com/Business/article/292254

The only thing that bugs me about us all sitting around pointing and going, “That’s a bubble if I ever saw one,” is that bubbles are usually not apparent until they’ve burst. This is so nonsensical. I’m reading all the books I can get my hands on to make sense of this mess. Every person I am acquainted with in their 20s and 30s has bought their first or second home in the last five years. I’m really, really concerned what will happen, especially to one couple in particular who told me they got a 40-year, “I couldn’t have afforded the house otherwise.” I desperately wish I had a crystal ball. I have given up trying to tell people that the market is at its peak and that prices can only fall from here. “So what?” they say, “I’m planning on living there for a long time,” as though paying 10 to 25% more for a house is no big deal. I feel immoral for doing it, but when friends tell me they’ve bought a house I act happy and interested. What else can I say? They don’t want to hear that I think they’ve made a bad decision. To them I’m just jealous because we can’t afford to buy and continue to rent. There are days I really wonder if we’re the ones that are wrong. Like someone on here said before, everyone else has gone on and bought houses, got on with their lives while I sit here reading this blog and getting more and more depressed about the future. Some days I feel foolish and tell myself I’ll stop reading this blog, but I just can’t tear myself away. Am I a bubble addict?

#108 OttawaMike on 03.23.11 at 1:02 pm

#79 Another Albertan on 03.23.11 at 9:43 am

And let’s not forget SCADA systems, switchgear, bus ducts, high voltage underground cables, local control panels and MCC’s which were all likely flooded out or otherwise damaged.

Somehow I don’t think it was as easy as dragging a skid mount gen set in and temporarily wiring it in.Or running a new transmission cable and splicing to it.

The Japanese are good at many things but electrical and electronics really are their particular forte.

#109 BPOE Buster on 03.23.11 at 1:23 pm

BPOE #28 Locarno area for under 2.4 million insulting? I know you have flipped your lid but this is for everyone else that reads this that may be experiencing some anxiety over the situation in Vancouver. Whoever is buying these tear downs for outrageous amounts… could be drug money, could be speculators, builders, whomever…they are not doing their due diligence. There are way better deals to be had. $2.4M for a tear down, with no view, two blocks from a busy beach. I owned a house in that area and that is without a doubt a bad investment. Whoever bought that is going to kick themselves hard even if nothing changes. Oh, I know places in that area down the road for $17.5M. They are compounds overlooking the beach with a mansion, etc. You could fit 5 of these lots in that one. Give yer head a shake.

#110 BrianT on 03.23.11 at 1:27 pm

#84SK-Since you said Kelly was hot, I checked out her site-her book labels the airhead “Canada’s leading financial expert”-LOL-good for her.

#111 The Original Dave on 03.23.11 at 1:30 pm

what is the sales and listing volume for Toronto like lately? Someone with info., please respond.

#112 BrianT on 03.23.11 at 1:32 pm

#107Joe-You having lived long enough to understand that most what you will read on finances and the economy is self serving B/S. The big guys are not stupid but they consistently pretend to be stupid when everything blows up-“no one can see a bubble”. Not only is RE in a bubble, but when she blows it will be very difficult to re-inflate no matter what is done-the bubble will blow up in a different realm.

#113 Mr. Plow on 03.23.11 at 1:33 pm

#25 Big Al (New)

A man of your word. An admirable trait.

#114 Screwed in BC on 03.23.11 at 1:37 pm

Hey Garth,

“with a federal erection looming over us “……was that a typo?
Typo or not that was funny!

Typos are impossible. I am flawless. — Garth

#115 Mr. Plow on 03.23.11 at 1:37 pm

#40 Basil Fawlty

BPOE said that their are houses on that block for 17 million. Not saying the prices aren’t inflated, but 2.3 million for land seems reasonable to me if houses in that block sell for 17 million. It wouldn’t cost 15 million to build a house on that land.

Again, not saying the market isn’t out of hand, but 2.3 million for the land may be what the market calls for on that block.

#116 Mr. Plow on 03.23.11 at 1:40 pm

#48 Blobby

Yes. unless it is within the pre-payment privileges the bank allows.

#117 Lisa on 03.23.11 at 1:43 pm

Hi Garth,

Could you tell me about Diefenbaker sometime, please. Thanks.

:o)

Done already. See my earlier reply to a comment. — Garth

#118 Mr. Plow on 03.23.11 at 1:47 pm

#50 Jody

Yeah if you could sue gov’t good luck finding anyone wanting to run. Then would you still have democracy?

Also, some of you might need to prepare yourselves for the fact that Harper wants an election. You all better hope he doesn’t win a majority.

#119 jess on 03.23.11 at 1:50 pm

11 S.B.

…but, the treasurer said the porridge was just right not too hot and not too cold !”

#120 dd on 03.23.11 at 2:02 pm

#98 Oasis

…banksters and reinstate a 100% gold backed monetary system….

Will never happen. — Garth

True. It will never be back by 100% however there is though about using gold as a “reference point.” Even by the world bank and IMF.

Give it up. That won’t happen, either. — Garth

#121 Mr. Plow on 03.23.11 at 2:03 pm

I have a simple concept, if you don’t want to pay penalties then don’t enter into a mortgage contract that has them.

There are open mortgages you can get that don’t have penalties.

People read and sign contracts, and expect the issuer of the contract to be accountable to it, then if they break the contract they don’t want to be held accountable for their end. Strange.

What kind of outcry would their be if on closing date a bank simply pulled the financing because they wanted to lend the money to someone else because rates went up? People want to move their mortgage for a lower rate and do it for free?

#122 jess on 03.23.11 at 2:04 pm

who is on the title for the shack …maybe the elite are buying less opulent places as to not draw attention to themselves. maybe they will go back to driving beaters because of this … better sell your stocks in luxury items.

p.s.
dear plebs in the slums ,
beware you may be living next door to a wealthy dictator!

=====================
Son of Equatorial Guinea’s dictator plans one of world’s most expensive yachts Global Witness has learned that Teodorin Obiang, the notorious son of Equatorial Guinea’s long-ruling dictator, commissioned plans to build a superyacht worth $380 million – almost three times more than his energy-rich country spends annually on health and education programs combined.

#123 Jim on 03.23.11 at 2:09 pm

I can’t believe the Tories can’t produce a balanced budget. I am not waiting till 2015. What is that over 10 years of no balanced budget under Harper!! When was the last Conservative to produce a balanced budget?

#124 Mr. Plow on 03.23.11 at 2:14 pm

#101 Licking my IRD wounds

If you agree to a variable rate you agree to potentially paying a higher rate so why would a bank pay an IRD?

If the bank raised a fixed rate mortgage then I would agree with you cause they are breaking their end of the contract.

Also, just so you don’t screw yourself out of $50K again, don’t mistake a variable rate mortgage with an open mortgage. Open mortgages rarely have penalties, but are set at higher rates (prime plus 2-3 maybe) variable rate mortgages still have terms and you would still pay a penalty if you broke that mortgage term. Their rates are currently set at prime to prime minus 0.9 or so. But you are still locked in like you would be on a fixed rate mortgage, your payments will just fluctuate with prime.

#125 BAD on 03.23.11 at 2:17 pm


The minimum capital requirement is 8% according to the latest guideline by the “Office of the Superintendent of Financial Institutions Canada”:

The minimum capital requirements, which must
be maintained on a continuous basis, are a tier 1 capital ratio of 4% and a total capital ratio of
8%.

A-1 Capital Adequacy Requirements (CAR) 2011

Thus for each $1.00 the banks have (or rise) in capital they can lend out $12.50 effectively creating $11.50 out of “thin (banking) air”.

Bear in mind that the securitization of debt allows the banks to lend even more.

#126 debtified on 03.23.11 at 2:21 pm

#106 Dodged-A-Bullit-in Alberta on 03.23.11 at 12:56 pm
***********************************************

Easy there, D-A-B-I-A. I think you may have misread my post. My post was simply to:

1. Pass on the news, and…
2. Show how homeowners found themselves in a very difficult situation when problems like this happen while renters, still in a difficult situation but to a lesser extent, can simply move on.

I can assure you I read the article. In fact, I am one of the renters in that place.

Also, I have done plenty of research on Ft.Mc.. I live here and I have been watching the real estate market very closely for almost three years now (since I backed out of a $500K condo purchase).

You are right about the house prices being out of this world. You are wrong about the rental places, though.

The real estate prices have come down from their latest high but not that much and not across the board. Condo sales and prices, in particular, have been in decline – the one I almost purchased is down 8% so far and still hasn’t sold (30+ months and counting). There are hundreds of condos that have never sold since they were built (I have posted about this here before).

For rental conditions, just go to Kijiji and you will get a pretty good feel of the situation. Just note that most commercial apartments (not rented by private individuals) do not post on Kijiji. There are so many units available. The prices are still high relative to the rest of the country but they are down significantly. For example, a two-bedroom condo that used to be rented for $3,200+ two years ago are now being offered for $2,200 or less – with a special of up to two months free if you sign a one year lease. Private homeowners who used to rent-out a bedroom for up to $1,600 to supplement their mortgage payments are now lucky if they get $1,000.

Don’t forget, I am talking about Fort McMurray. It’s supposed to be really different here.

#127 Soylent Green is People on 03.23.11 at 2:25 pm

Blast out emails to your personal MP and all party leaders at once:
http://action.davidsuzuki.org/C-311
(after you click link, scroll down to see form letter fields; ignore the website’s suggestion and put in your own subject line and your own letter)

Send 2 free long distance faxes per day – you need valid email
http://faxzero.com

…………………………..

Re: Standardization of Mortgage Prepayment Penalties

Many US states have passed consumer protection laws in which lenders are forbidden to demand any penalty whatsoever for breaking the first mortgage on a primary residence.

Canada should follow this as we need better rules in 2011.

Last year’s 2010 federal budget promised to ‘bring forward regulations’ governing how much our banks can charge people who need (or want) to get out of a home loan. Months later, the Feds promised to have draft regulations for public discussion by the end of 2010.
Where are these draft regulations?
This is an important issue because the rules buried in most mortgage contracts stipulate if you end the relationship early, the bank gets to gouge you in one of two ways – by extracting a penalty equal to three monthly payments, or by charging you an amount equal to the difference between your mortgage rate and current rates on the amount owing over the period left in your loan.

Where are these draft regulations the Harper’s Government promised over a year ago?

Notes: Bankers
http://www.greaterfool.ca/2011/03/22/bankers/comment-page-1/#comment-91226

.
.

.
..

#128 BAD on 03.23.11 at 2:39 pm


Compared to the banks 8% capital requirement the CMHC is a totally different story:

Using the CMHC’s 2010 forecasts, it insures $519.1 billion in mortgages against $9.9 billion in equity, which works out to around 1.9 per cent (although the CMHC says it has another $6.7 billion in “unearned” premiums that could be used toward future claims).

The CMHC: Canada’s mortgage monster

But then again CMHC is not a bank…

#129 YDS on 03.23.11 at 2:49 pm

America’s emptiest cities: More than 7,000 homes unoccupied in Las Vegas while a fifth of Orlando rentals are vacant

Read more: http://www.dailymail.co.uk/news/article-1367758/Americas-emptiest-cities-More-7-000-homes-unoccupied-Las-Vegas-fifth-Orlando-rentals-vacant.html#ixzz1HRu0oMDX

http://www.dailymail.co.uk/news/article-1367758/Americas-emptiest-cities-More-7-000-homes-unoccupied-Las-Vegas-fifth-Orlando-rentals-vacant.html#ixzz1HFKeacrh

#130 Live Within Your Means on 03.23.11 at 2:59 pm

#100 dave99 on 03.23.11 at 11:55 am

Not the same situation, but I had been with TD (and all its former names for the last 30 yrs.) Had never paid any fees. Suddenly we rec’d a notice to say that based on our # of transactions they were going to charge us X $$ per mo. Reviewed our previous 2 or 3 year’s statements and they were out to lunch. My husband spoke to the Branch Mgr and said we’d pull all our accts. Also told him that many of our friends would do the same. Branch Mgr signed his bus card to say we would never be charged for fees and handed my husband several bus cards to give to his friends. We have never paid any fees – they make enough money on what we have in our daily accts. with them.

#131 Jason on 03.23.11 at 3:01 pm

House was sold (conditionaly) last night…

It took about 2 weeks. We had 2 offers (well, should probably say just 1 since the other offer was a total joke, a few grands lower then our purchased price a year ago, guess they were either confused that this year was not 2011 or they were right and calling the bottom here already….)

The house is sold for 6% above our Purchased price or 98.6% of asking. After all the expenses (4.52% comm. incl HST, mortgage penalty, legal, moving, etc) we are probably about breakeven or +/- a few grands, but we should be able to get the majority of the 20% equity back.

No worries about the interest rate hikes and never mind for the market crash, we can breath better for now and possiblely get back in the game later in the future.

#132 Joe on 03.23.11 at 3:14 pm

#112 BrianT “You having lived long enough to understand that most what you will read on finances and the economy is self serving B/S.”

I agree, it is B/S for the most part. Coincidentally threw out all my Kiyosaki books last night actually, thanks to whoever it was on this blog that posted the link to the CBC expose on the Rich Dad RE seminars.

#133 Naive or Stupid on 03.23.11 at 3:20 pm

Helooooo
Did something happen which I am not aware of ???
I just went to a bank and its totally different…. Right from the moment I entered the door, bank employees are greeting me repeatedly…Asking me about mortgages, bank cards, GIC’s … Also asked about investments. Also mentioned scheme to transfer a mortgage for a bonus amount etc etc… I said I don’t have mortage or anything with you or anyone…..I just want to withdraw some money….. It was like a retail store people working on a commission….
They all looked desperate.
Anyway, felt good to say NO.

#134 Fiendish Thingy on 03.23.11 at 3:26 pm

@#58 Profit Taker-

ANOTHER SIGN OF REAL ESTATE IN TROUBLE

Received an e-mail from a local developer today. Zero down, 0 payment for 6 months, cashback on closing and if you buy a house from their existing inventory you get a 2011 Ford Focus. I’m sure their is some fine print somewhere in the contract but this is unbelievable. No long lineups outside of this sales center.

Something similar happened on the central coast of California around 2006, IIRC. Sales had slowed, listings started to pile up, and prices had not yet dropped much (so large commissions could still be had).

Realtorsdevelopers started to offer free Hawaiian/Mexican vacations for 2 (airfare and 5 days in a resort). Not quite a new car, but then prices in our area were only about 7-8 times median income, not the 13 x seen in Vancouver.

#135 Timing is Everything on 03.23.11 at 3:28 pm

Bankers don’t bite. We all get ponies…Shiny Happy People…

http://tinyurl.com/48hdcbr

http://tinyurl.com/ccozg8

#136 randman on 03.23.11 at 3:38 pm

#57 Big Al

I remember reading about that case but it seems to have
fallen between the cracks….no idea what happened

I’ll try to google it

#137 GregW, Oakville on 03.23.11 at 3:46 pm

Hi Garth, Are you watching cpac now? Something going on with the GG and the House!

#138 Roial1 on 03.23.11 at 3:50 pm

#16 The InvestorsFriend (Shawn Allen) on 03.22.11 at

A bank incurrs considerable cost to set up a new mortgage and if it’s a five year they do go match that up with 5 year deposit money.

What total CRAP!
These costs are folded into the charges that WE pay to set up the loan.

#139 Devore on 03.23.11 at 3:57 pm

#128 BAD

In what scenario is CMHC liable for $519.1 billion? This is only possible if all real estate CMHC insures went to zero (banks could not recover anything through a foreclosure sale) and all mortgages were defaulted on. Build a realistic worst case scenario, and apply the $9.9 billion again.

#140 Alpha Bravo on 03.23.11 at 4:11 pm

House hunters are too scared to buy despite low prices.

http://money.cnn.com/2010/12/02/real_estate/home_buying_angst/index.htm?iid=EAL

#141 Hoof-Hearted on 03.23.11 at 4:38 pm

#21 Network Admin on 03.22.11 at 10:20 pm…Right now, with a federal eRection about to take place… Is this intentional or a typo?

What do you think? — Garth
=========

Hmm…methinks too many offshore investors…broody herr $$$

#142 Mr. Plow on 03.23.11 at 4:39 pm

#132 Joe

Rich Dad/Poor Dad might have ended up being a scumbag, thief of a brand. But if I remember right the message was sound. I think he said make your money work for you and don’t work for your money? Something along those lines. Sound advice. No different than what you see here.

But what also applies to those books and what applies here, is you don’t need to apply/listen/believe every little thing verbatim. But the overall messages might be worth grasping and applying to your own situation.

#143 SCalgary on 03.23.11 at 4:42 pm

How about nationalizing all major banks? That should resolve everything…

#144 BrianT on 03.23.11 at 4:43 pm

Sign of the times: we are fighting Al Quadea (however they spell it) in Afghanistan and now we are paying Cdn taxpayer dollars to fight on behalf of the same gang in Libya. Stranger than fiction.

#145 Mr. Plow on 03.23.11 at 4:46 pm

#128 BAD

You assume:

-All mortgages that they insure will default.
-They will be able to recoup zero dollars from the foreclosed properties to pay those mortgages.

Those are some pretty big assumptions to reach your conclusion. Unless I am missing something, even the biggest fear mongerer could not possibly believe that could happen.

#146 The InvestorsFriend on 03.23.11 at 4:47 pm

FRACTIONAL RESERVE BANKING
Numer 105 bee foot responded about fractional reserve banking and got it exactly right. Number 43 randman you copied in the mechannics properly but you misunderstand and overstate the risks

Randman, yes banks lend out money and if it is redosited, which it will be, they lend it out again. So the banks TOGETHER WITH THEIR CUSTOMERS do create money. As bee foot says they pay (usually) interest on all the deposits and the deposits exceed the loans so it’s not free money to the banks. Deposits also cost money to store and track (example – someone has to pay for the bank machines)

Nothing nefarious. Yes randman if we all asked to get our deposits out at once, the system would be in trouble. But we won’t. And it won’t.

33 Sally T you are mixed up. The 9 to 1 ratio is not loans to deposits. It’s loans to cash on hand. Yes the bank loans out (most of) your deposit, what a shocker!

125 Bad – you are moixed up as well. The capital ratio is how much equity the bank has compared to assets (loans) That is different from the reserve ratio.

Banks do operate with very high leverage. Most of the money they lend out is deposit money not the bank’s shareholder money.

So yes the banking system ALONG WITH ITS CUSTOMERS does create money from thin air but the bank itself cannot create money for its own account. The created money belongs to depositors, ya see.

It’s just the way banks work. If a bank was not allowed to lend out your deposit, they would charge you big time for storing your money and for the ability to write cheques and use a debit card. That all costs money. They can do much of that for free, or at a small charge, or even pay you interst because they get to take your deposit and lend it out.

… CLASS DISMISSED…

P.S.

You’re welcome.

#147 Hoof-Hearted on 03.23.11 at 5:03 pm

#127 Soylent Green is People

oh..puhleeze…..

Don’t lobby for Mr Suzuki…

He and his zealots would literally recycle people into soylent green .

Its him and his Uni focus types that squeeze the ass zit of gov’t to convert things like food into bio-fuels and create commodity price rises. This impacts people all over the world, especially those that don’t have cars to add GHG…

Mr Suzuki is ” Old growth” 1960’s hippy leftovers….he should realize that sometimes an old tree and its ideas be put out to pasture, if not its misery, not hog the stage will false and conflicting ideology.

PS Please send a copy of ” Soylent Green” to Doc Suzuki

#148 Abitibidoug on 03.23.11 at 5:32 pm

In response to posting #140 about house hunters too scared to buy: that’s quite an interesting paradox, isn’t it? The buyers in over priced markets like Toronto or vancouver should be too scared to buy, while in some American markets where houses are cheap there should be a frenzy of buyers trying to get in because it’s so dirt cheap!

#149 HouseBuster on 03.23.11 at 5:33 pm

It’s crashing. Look at those prices starting to come down. Wait until everyone rushes for the exits.

P.S. Bankers are scum.

#150 TS on 03.23.11 at 5:35 pm

#25 Big Al (new)

Gee that post of yours just confirms to me that you have a problem with honesty and integrity. You actually make banks look good.

#151 March of the Pigs on 03.23.11 at 6:43 pm

Balls of steel, doesn’t matter that you need a Hummer to protect them. Get the gun turrets on the roof

#152 Nostradamus Le Mad Vlad on 03.23.11 at 6:46 pm


#50 Jody — “What we need to be able to do is sue MP’s and other government wankers. Those scum bags are the main problem, this soverign immunity bullshit needs to stop.”

Correct. If individuals can be prosecuted for crimes, no matter whether those crimes are large or small, the same also applies to president’s, prime ministers, MPs and others of their ilk. Treason and life imprisonment spring to mind. Good post.

#77 MikeT — Nice play on words!

#88 NorthernPoV — Thanks for the link. Main thing is — no matter what party holds a minority or majority — I would really like to see those lying, cheating two-faced SOBs in the CPC gone ASAP.

Iggy has about as much personality as a traffic light, Layton lives with BPOE in some Shangri-La, so Independent or None of the Above may two of the better choices.

#143 SCalgary — Interesting point. The biz and banking people would scream blue murder, as they would see a lot of their profits skimmed off the top.

#153 March of the Pigs on 03.23.11 at 6:46 pm

good light show they started in Libya a month later to divert eyes from the real problem. Must be a lot of money in Nuclear…

#154 BAD on 03.23.11 at 6:52 pm


#146 The InvestorsFriend on 03.23.11 at 4:47 pm wrote:

125 Bad – you are moixed up as well. The capital ratio is how much equity the bank has compared to assets (loans) That is different from the reserve ratio.

There’s no mixing up. I’ve never said that capital ratio is the same as reserve ratio.
In Canada there’s no requirement on the reserve ratio. Thus the only requirement is the capital ratio guideline by the “Office of the Superintendent of Financial Institutions Canada” as I posted before and specified in the following document:

A-1 Capital Adequacy Requirements (CAR) 2011

#155 Dubble on 03.23.11 at 6:57 pm

Garth and all,

More than 500 people were laid off by Shaw Communications today. Many of them my fellow employees. A number of departments in Saskatoon were closed, and much of the management team is gone. I can’t go into a lot of details, but it appears I am keeping my job as a business sales rep.

I blogged a while ago about swiching careers, and I am returning to school to become a nurse. How can I get laid off too? I could go back to school without paying, and I have been working full time for 15 years and have never used EI. As it stands, I plan on leaving Shaw in August. What to do?

Also, many of these people have recently purchased houses at the top of this bubbly market in Saskatoon. I feel for everyone and I think this is a sign of things to come. Shaw was supposedly making record profits the past few years. We get some competition in Telus, and poof, 500 get laid off. Tomorrow should be an interesting day at work, that’s for sure….

#156 Steve on 03.23.11 at 6:59 pm

Here is a nice article out today: http://www.npr.org/2011/03/23/134790000/new-home-sales-plunge-16-9-percent

#157 BAD on 03.23.11 at 7:00 pm


#139 Devore on 03.23.11 at 3:57 pm

and

#145 Mr. Plow on 03.23.11 at 4:46 pm

Read the article I have linked. The quote is from that article and compares the current CMHC situation to the US Fannie Mae and Freddie Mac.

Garth may I borrow the crayons?

#158 Dodged-A-Bullit-in Alberta on 03.23.11 at 7:08 pm

Greetings: #126 [debtified]

Thanks for the update on Ft. Mac, posts that give info on local communities are what add value to this blog. Much appreciated!! If these buidings are scrap, I would love to know who holds the paper.

#159 (low density) Sam on 03.23.11 at 7:10 pm

#1 ontheshoreline on 03.22.11 at 9:26 pm
Whats to stop me from depositing some cash in an Aussie bank and cashing in?
_____________________–
even if nothing stops you, are you sure you want to do it?

People were saying the same thing about similar Icelandic financial instruments a month before … you know.

#160 The InvestorsFriend on 03.23.11 at 7:26 pm

Number 125 Bad and 154 Bad

said

Thus for each $1.00 the banks have (or rise) in capital they can lend out $12.50 effectively creating $11.50 out of “thin (banking) air”.

Yeah, okay, but they have to have deposits to lend ou. True they can lend out the original dollar and if it gets redeposited then it can be loaned out again. Money is as I stated in 146 above created by banks but only if customers cooperate by having he loans re-deposited.

And the thing is the money that is created out of thin air by the banks and their customers belongs to you and I the customers not the banks.

One needs to differentiate between wealth and money. Money is a claim on wealth. Wealth i believe vastly exceeds the money supply. That is an argument for another day.

If I get a loan and deposit it in a bank, my wealth has not changed at all, the wealth of the world has not changed at all, but the money supply is increased.

Nothing nefarious at all in fractioanl reserve banking as long as practiced prudently.

Banking allows idle wealth to be loaned to others. In the total we get a more efficient use of the wealth of the world.

Banking is important and despite the occasional mis-deeds it is hugely positive to our standard of living.

Do not throw the banking baby out because it occasionally poops in the bathwater!

#161 john m on 03.23.11 at 7:31 pm

#40 Basil Fawlty on 03.22.11 at 11:51 pm

The house at Locarno is a tear down and will cost about $10,000 to remove. This means the purchaser paid $2,315,000 for the dirt. No one would pay that kind of money and attach any value to that piece o’ crap box………….We all did thanks to CMHC :-) the purchaser and seller could be very well a couple of lottery winners as they hop on the plane back to Asia.

#162 S.B. on 03.23.11 at 7:44 pm

Here we go, as planned they are closing nuke plants. Hyrdo will soon be for the rich. Are we to believe, in 60 years of nuke power no-one has ever considered an earthquake? So now we must go back to the stone ages?
Does not make sense.

You’d almost think this endless stream of
necessarily-global “crises” was planned…

Just stay tuned to your tee-vee for the next crisis, and how our lives will change for the worse. Remember, 20 alleged hijackers took down 3 buildings in free-fall, turned to dust, using 2 planes. And then 7 billion peoples’ lives changed…overnight. And then we invaded a bunch of countries.

BERLIN (AP) — Germany is determined to show the world how abandoning nuclear energy can be done.

The world’s fourth-largest economy stands alone among leading industrialized nations in its decision to stop using nuclear energy because of its inherent risks. It is betting billions on expanding the use of renewable energy to meet power demands instead.

The transition was supposed to happen slowly over the next 25 years, but is now being accelerated in the wake of Japan’s Fukushima Dai-ichi nuclear plant disaster, which Chancellor Angela Merkel has called a “catastrophe of apocalyptic dimensions.” [German Green party nazis]

Berlin’s decision to take seven of its 17 reactors offline for three months for new safety checks has provided a glimpse into how Germany might wean itself from getting nearly a quarter of its power from atomic energy to none.

#163 dd on 03.23.11 at 8:06 pm

.#143 SCalgary on 03.23.11 at 4:42 pm
How about nationalizing all major banks? That should resolve everything…

The US banks are almost in that state, private profits with socialied losses. Nothing would change.

#164 dd on 03.23.11 at 8:11 pm

.#120 dd on 03.23.11 at 2:02 pm
#98 Oasis

…banksters and reinstate a 100% gold backed monetary system….

Give it up. That won’t happen, either. — Garth

Garth you have missed things coming out of left field. And you will again. That is until it smacks you in the head when it is on the the front page of the G&M.

The gold standard is dead. Move on. — Garth

#165 ballingsford on 03.23.11 at 8:12 pm

Let the carnage begin, there’s going to be a lot of shit hitting the fan soon. If there is an election, which is likely, it’s unlikely it’ll be a majority win. If it’s the blue door, it’ll also be not a majority. If it’s the red door, it also won’t be a majority.

So, we spend all this time and money on an election where we’ll be back to where we are now.

Kind of like a stalemate that costs millions of dollars that doesn’t help anything.

Ignatieff better step up his presence and credability if he has any chance of forming the next government. I’d rather not pay for fighter jets, prisons, and corporate tax cuts.

And no, I am not a liberal supporter, but maybe I could be, if the right message comes out and the actions are taken to support it.

Time for a change for sure!!! I have never seen such secrecy, bondoogling, RCMP investigations, etc., in a political party in all of my 50 years.

#166 DaBull on 03.23.11 at 8:20 pm

The fractional banking system does not create money out of thin air, it creates an obligation to pay a debt. That debt obligation is used to purchase things. No new money is created, only an obligation to pay back a debt is.

#167 Utopia on 03.23.11 at 8:23 pm

Great article. I just love todays picture of a bear trying to take a chunk out of a toddler…seems especially fitting when discussing bankers these days as they attempt to maul the last of the free innocents to fatten the bottom line before the bottom falls out of the market.

I would add more but I have been sick for days. Maybe next week when I get my energy back….

#168 Tim on 03.23.11 at 8:27 pm

155th!!

#169 GenXer on 03.23.11 at 8:30 pm

The IRD is an evil scam – no doubt about it.

If you want a laugh, next time you are talking to your banker ask them to calculate out the IRD without a computer – I guarantee 90% of the time they will have no idea how to do it.

I don’t mind paying a penalty for breaking a contract, but screwing the public by making them pay the difference between the original POSTED rate vs. current posted rate minus the original discount received is criminal. Shouldn’t the bank only get paid for the ACTUAL rate offered vs the current ACTUAL rate?

Back in 1999, the banks were only able to charge 3 months interest as a maximum. Somehow along this way, this rule quietly fell aside to allow for the IRD.

Good luck negotiating the IRD down. If you are planning to sell and have a fixed mortgage, get a line of credit from the bank. Use the line of credit to pay down the mortgage before they catch wind of you selling. Then use the proceeds from the house to pay off the line of credit. It could save you 10k+ depending on the size of your mortgage / term remaining.

#170 van bear on 03.23.11 at 8:34 pm

Kudos to Macleans for publishing this.

http://www2.macleans.ca/2011/03/23/a-mortgage-monster/2/

#171 jess on 03.23.11 at 8:37 pm

Basel 3

The Meaning of Basel 3
http://www.nuovabasilea2.com/basilea-2/the-meaning-of-basel-3/

mortgage servicing rights -MRS
Financial instruments and institutions: accounting and disclosure rules By Stephen G. Ryan
page 178
http://tinyurl.com/4v7x7ay

===========

“The RMA’s main concerns surrounds new leverage ratio requirements set forth by the BIS, as well as the shifting status of mortgage servicing rights on the balance sheet.

The proposal to adopt a 1,250% risk weight for certain positions that previously have been deducted 50/50 from Tier 1 and Tier 2 capital, results in effective capital allocations that are all out of proportion to risk, said the RMA in a letter in its role as advisor to the BIS…”
http://www.housingwire.com/2010/04/20/risk-managers-warn-on-proposed-leverage-ratio-mortgage-servicing-requirements

#172 Marcus Aurelius Vero on 03.23.11 at 8:40 pm

Ballingsford #165

Then you must have been asleep for the 30 years of Liberal rule, culminating with the use of tax money to directly pay off Liberal party faithful. The radioactive half-life of Liberal criminality and arrogance is about 40 years. We’re not there yet. But I agree – we need a US carpetbagger like Ignatieff to shred the last idea that Canada is a country for Canadians (maybe the welfare tourists from everywhere who got a Passport can all get together and put the American into the PM’s chair).

Whatever happened to the ‘real Canadian’ – mostly in the graveyards now, unfortunately. Quintile Vare, legiones redde! indeed

#173 Tiffa on 03.23.11 at 8:41 pm

#147 Hoof-Hearted on 03.23.11 at 5:03 pm

“he should realize that sometimes an old tree and its ideas be put out to pasture, if not its misery, not hog the stage will false and conflicting ideology”

Thank you for the tutoring fodder. Most entertaining mixed metaphor I’ve seen in ages. :)

#174 Nostradamus Le Mad Vlad on 03.23.11 at 8:43 pm


#153 March of the Pigs — Divert sheeple’s attention away from the real problems. Indeed, you are spot on.
*
Chris Rea “This 1989 song by Cris Rhea called “Working on it. Look at the boss does he look like David Rockefeller? Look and see how he manipulates his puppets getting them to turn on each other.While demanding more. Very relevant song to this day and age. I wish Mike use this as bumbler music for his show. It is a good song.”

Portugal — No austerity measures, like Iceland; Gold and Libya Hypothetical only, and US$ Collapse. Of note — no one has ever accurately predicted the following year’s weather. These are just predictions, but Hide Your Gold!

Japan “According to a caller from Tokyo into today’s radio show, Tokyo water has now been declared unsafe even for adults.” wrh.com, and Chernobyl Survivor Get outta there.

Nice Charts RE is beyond collapsed, but 4Closure Goof, and 1:46 clip Don’t buy a home, esp. from BoA.

Sears Struggling Retail not doing well.

Chavez “Cesar Chavez is many things, but he is nobody’s fool. He understands full well that elements in the US government would very much like to orchestrate a “regime change” in Venezuela, particularly because of its vast oil reserves.

“As reported on 16 January, 2011, at: http://www.cnbc.com/id/41101601/Venezuela_Says_Oil_Reserves_Surpass_Saudi_Arabia_s

“Venezuela has overtaken Saudi Arabia as the world leader in oil reserves with certified deposits leaping to 297 billion barrels at the end of 2010, President Hugo Chavez’s government said Saturday.” wrh.com.

Banxters And War They love the smell of napalm and profits, and Libya “Treasury will continue monitoring the National Oil Corporation’s operations in Libya. Should National Oil Corporation subsidiaries or facilities come under different ownership and control, Treasury may consider authorizing dealings with such entities.” ‘Different Ownership and Control’? So the oil is for the US, and water for . . . Stuxnet and WW3 WW3 began when Libya was invaded.

Germany “Was the helicopter incident a warning?”, and NATO — Germany out.

Energy War What is one of the better forms of energy? Plus Pink Handgun WTF??.

#175 Julia Zelnina on 03.23.11 at 8:55 pm

Don’t be afraid of the sharing your home ownership and mortgage obligations. Just make sure you do it in the proper way.

Sure you’re in the right place? — Garth

#176 Ex-Cowtown on 03.23.11 at 9:32 pm

Good chuckle out of Calgary Herald today predicting a rise of 5-7% in house prices this year.

Present stats are average price down 4% from last year and median down 7.5%. And the 35 year mortgage just expired.

And what will allegedly power these prices higher? Not oil prices, as they’ve been high for months and house prices are still dropping. Natural gas prices? Still in the tank and not coming up for the foreseeable future.

I think BPOE must be a guest columnist at the Herald. No facts, no matter.

#177 BrianT on 03.23.11 at 9:47 pm

#163SB-Have to correct you on that one-according to the official report from the prestigious committee, the alleged hijackers took down TWO buildings, not THREE. The third building which collapsed was NEVER MENTIONED. If a tree falls in the forest, and the MSM pretends it never fell, did it really fall? Not to the sheep-even if it lands right on their head.

#178 Herb on 03.23.11 at 9:59 pm

The election campaign has began: the trolls are slinging mud openly!

(And it’s Quintili Vare, #173.

#179 SallyT on 03.23.11 at 10:12 pm

#160 The InvestorsFriend

“And the thing is the money that is created out of thin air by the banks and their customers belongs to you and I the customers not the banks.”

The “monies” are created when the “borrower” signs the debt pledge. This promissory note is actually the money and if the house seller was comfortable enough he could accept the promissory note himself and take a lien out against the house in case the purchaser defaults on the debt obligation. The banker is only “monetizing” this debt pledge. That is to say the promissory note is the asset on one side of the ledger and the liability, on the other side, are the created “monies” that were brought into existence when the “borrower” signed the debt pledge. These “monies” did not exist before. The banker is not giving you anything tangible that he has, like depositors money. There is no “consideration” in the transaction on the part of the banker. You, the borrower however will be obligated to pay off the principle as well as compounded interest to the banker. Listen to the following audio file to hear it explained by Andy Gause.

http://tinyurl.com/6advfwh

Some light reading.

http://tinyurl.com/6coqn9o

#180 Devore on 03.23.11 at 10:48 pm

#167 DaBull

The fractional banking system does not create money out of thin air, it creates an obligation to pay a debt. That debt obligation is used to purchase things. No new money is created, only an obligation to pay back a debt is.

Credit = money.

#181 (low density) Sam on 03.23.11 at 11:01 pm

Germany abandons nuclear – cool, more and cheaper Plutonium & Uranium for India, China, Japan, US and the cheese eating surrender monkeys just a stone’s throw from Germany.

Do they really think they won’t get killed by radiation? Phhhhht. Think again Teutons. I think you’ll have to invade France again to teach them a lesson.

#182 bridgepigeon on 03.23.11 at 11:25 pm

163SB To pull the plan off, they were also able to shut down NORAD from their base, hidden deep in a sophisticated underground bunker system in Afghanistan…

#183 The 1970s on 03.24.11 at 12:10 am

When I was a university student in the 1970s, this area was the down and dirty student rental area. Most students picked better digs.

Now we are being forced out of these areas by those who somehow have millions and billions to zip away. Hum. I wonder about the source of money.

================

The source of money is probably from people who went to school in the 70s

;)

#184 Adventures in Sea-Tac with Moneta on 03.24.11 at 1:43 am

180 SallyT – you’re getting hung-up on difintions, then
only seeing half the picture.

Dont think of money, think of a whole system of credits
and debits. If you produce a good or service of value,
and someone gives you a cheque for it, you have a credit
in your account, right? I bet you feel it is “real” as you
worked for it. You can then spend that credit on on “real”
things – food, shelter, dental work etc. You can even pay
taxes with it. I’ve never had the feds or my employees
refuse a cheque. To them it’s “real”.

Once you see it from this viewpoint, you will realize that
this “money” in the bank is actually a store of labour. If
you produce excess labour (ie dont spend all
your “money”) you build a larger store which you can
use later. If you dont need to use if for a while, the bank
will take your stored labour and lend it to another,
Then that person must replenish your stored labour by
apportioning part of his labour to it.

#185 SallyT on 03.24.11 at 8:22 am

#185 Adventures in Sea-Tac with Moneta

“Don’t think of money, think of a whole system of credits…”

But the point is who actually creates these “credits”? We all believe that we are being “loaned” something of substance by the bankers when in fact we are not. We create the credit when we sign the promissory note for a loan. The bank is essentially “loaning” us our own money! They are the conduit through which our credit is materialized but they themselves contribute nothing of substance to the transaction. Through an accounting trick they monetize the liability created when the asset, (the promissory note) is signed over to them and appears in the asset column of their ledger.

#186 Adventures in Sea-Tac with Moneta on 03.24.11 at 10:19 am

186 SallyT – good morning. The bank is really loaning you “labour” which somebody else has created already and has stored in the bank. Their deposit in the banking system is simply the mechanism. So our labour creates the credit. It’s pretty abstract, but I find it the clearest
way for me to understand what my bank balance actually
is. It’s a claim on labour.

#187 Young Old Fart on 03.24.11 at 2:07 pm

Gee…. do you think you would make 8% average with this in your portfolio?:

% returns 12 mo 3yr

iShares MSCI Brazil Index Fund (EWZ) 77.15 57.05

#188 Future Expatriate on 03.24.11 at 6:56 pm

What, pray tell, happens to Vancouver, indeed, the entire lower mainland, when a 9.1 hits in the trench just south of Vancouver island?

Hint: Only a couple of these shacks will survive as houseboats.