Yikes

Over my lifetime I have found the strongest emotion to be fear. This is why countries have armies, newspapers sensationalize and people avoid risk. Fear motivates whereas greed encourages and lust coaxes. It is the greatest compeller to action. As such, it gets the most attention. So  people who like attention use it.

Days ago one of those guys, who anonymously writes scary blog entries, had this headline: “Is the Next Domino to Fall…. Canada?” But the Zero Hedge piece was not about Canada, instead the Canadian banks. The thesis was simple: our banks are not the fortresses the feds have been telling us and popular mythology supports, but rather wispy Euro-style institutions which are but a few bond vigilantes away from keeling over, and taking your GICs with them.

The Zero Hedge anon dude came up with this by looking at the ‘tangible common equity ratios’ of the banks. The smaller the ratio, then the more easily a bank can be reduced to zero net worth if the value of their assets plops. That means a bank with, say, a ratio of 5 would be road kill if the value of its total equity was reduced by 5%.

Here’s the fear part: a third of all the global banks with the lowest TCE ratio (below 4) are Canadian. In fact all of our big six are on the list – which means if their assets (the money they have loaned out in all its various forms) lose just 4% of their value, then let’s hope you have a big can of money buried in the garage floor. And in the event one or more of our big banks keeled then (as I have proved here previously) it’s unlikely Canada Deposit Insurance would be able to refund everyone’s savings and chequing accounts or guaranteed investment certificates.

See what I mean? Your breathing just got faster.

Just for fun, here are the ratios: CIBC 2.8, National Bank 3.3, Scotia 3.3, Royal 3.4, TD 3.6, BMO 4.1.

How serious is this? Well, very, if you agree with the ZH guy’s hypothesis that every asset our banks own contains risk. Obviously the banks do not, and use a different formula which calculates equity as a ratio to assets which they consider more likely to fluctuate in value. That pushes their number up to a comfortable 10 or so and, the bankers claim, is a far more accurate way of assessing their exposure.

Meanwhile our banks (like all banks) are heavily leveraged, which means they lend out far more money than they actually have sitting in a vault beneath King & Bay. If on Tuesday everybody wanted the money back that they’d deposited in RBC, for example, then 97% of us would be SOL. That’s the way the system works. The banks are allowed to lend out what you give them – far more, actually.

More heavy breathing.

But here’s the difference between those dorky European banks and ours: They hold billions in sovereign bonds issued by deadbeat places like Greece and Italy (what, I ask you, have they ever done for world culture?). Chances are these banks are going to the cleaners. They may not fail, but it won’t be pretty.

In Canada, guess where our guys have the greatest exposure? You bet, real estate. And that has led some people (lots, actually) on this blog to speculate that a housing correction here will cause the banks to stumble and bleed.

But that is a bad bet. The ZH dude should know better.

This is because virtually every high-ratio, high-risk mortgage in Canada is federally-insured. These are the loans most likely to non-perform if house values take a dump, people skip and cease payments and action is taken to reclaim the properties. Through CMHC, the banks are protected against major losses because everyone with less than a 20% down payment (which is just about all buyers these days) is forced to purchase mortgage insurance. This does not insure the homeowner, of course, just the lender. In almost all provinces, anyone buying a house which plunges in value and who walks, is still responsible for the debt – unless bankruptcy is chosen. This dangling sword just about guarantees jingle mail (sending the lender your keys) will never come to Canada.

What are the odds of our banks having all their equity wiped out by a housing correction?

The blogger got part right: zero.

274 comments ↓

#1 shanks on 08.19.11 at 10:26 pm

hey i need help! send me money!!

#2 Dan on 08.19.11 at 10:27 pm

As long as no one wants their money from the bank, the ponzi scheme can continue. But, it people get hip to the jig, it’s up.

It was always that way. No news. — Garth

#3 View on 08.19.11 at 10:32 pm

Zero!

#4 realinvestor on 08.19.11 at 10:32 pm

Are you saying that the probability of this happening is zero?
I am sure the fed will come in and pump in liquidity as they did in 2008

I said what I said. And the Fed is the US central bank. — Garth

#5 Christine on 08.19.11 at 10:35 pm

Love it!

#6 TurnerNation on 08.19.11 at 10:37 pm

This Toronto realtor empirically tracks the massive overhead of listed resale condos. For seasoned blog dogs like T.O. Bubble boy this ‘hall’ of shame is of no surprise.

http://www.torontorealtyblog.com/2011/08/the-most-over-saturated-condos-in-toronto/

“So without further adieu, I give you the most over-saturated buildings in the City of Toronto!”

_____________________________________________

There’s a large downtown condo development named Maple Leaf Square Condos, yet the units are named after USA cities – most of which experienced real estate collapses!

“May I interest you in our Detroit suite – I hear homes sell for $5 over there”

http://www.mapleleafsquarecondos.com/Floorplans.htm

I bet they thought Canadian names do not carry the same cachet: “Now viewing, the Timmins suite, eh”.

#7 John on 08.19.11 at 10:37 pm

Probability – low, Impact – high.

In the end the taxpayers are on the hook for any misadventure of a financial institution or major corporation.

Did you F injected around $700m liquidity into the banks in the past week? The first since Dec 2010. We are in the woods, we do not want to believe it.

#8 mike on 08.19.11 at 10:40 pm

Keeping your money in a savings account in a bank is about as stupid as putting a bully offer on a crappy house in the beaches. Same level of dumb.

Garth did you notice the moronic article in the Star on the new weapon in bidding wars, ‘the bully offer’. Written by a 15 year old who has never bought or sold a house probably in their lives and this is the person giving advice and insight into home buying.

#9 Joe Robertson on 08.19.11 at 10:41 pm

A Garth old boy you forgot one very, very important issue ….that being… what are the Canadian Banks holding in regard to their “Off Balance Sheet Derivative Exposures” in Europe?

http://www.greatponzi.com/reports/cdn-credit/health-20110626.html

Follow the Yellow Brick Road, oh my!

The Great Ponzi? You serious? — Garth

#10 Drew on 08.19.11 at 10:41 pm

I agree with you that a housing correction is unlikely to take down Canadian banks due to the taxpayer funded CMHC backstop, but what about the bond vigilantes? What if they decide that our lack of reserve currency status makes us a higher credit risk than our AA+ neighbours to the south? What if the CMHC backstop isn’t as strong as everyone thinks it is?

#11 eva on 08.19.11 at 10:42 pm

Wow, I am first!
Garth, how do you feel about investing in Canadian large caps, with dividents. If our banks are safe, and gold has become speculative..where can I invest with some peace of mind?
thanks ,

#12 Darryl Martin on 08.19.11 at 10:44 pm

In troubled times, when investments are unsure,
for those of us who can’t afford gold or real estate, selling & working for a living becomes even more challenging under rising tax and the hidden inflation burdens.

Silver penny stocks & options come to mind, as lightning in a bottle. But I’ve found something better, which I aim to share with patriots.

One thing is sure; the inevitable march of invention. In all honesty, I say, I found the best innovation in the world.

DELETED

#13 Darryl Martin on 08.19.11 at 10:47 pm

What would be the signs that CMCH is in trouble?
I understand that Alberta’s mortgage arrears & cost:income ratio are comparable to the the worst of the US states at its peak. Bubbles have a way of going further than anyone expects.

What are the signs that its actually topped for good, in Canada?

#14 Off the river on 08.19.11 at 10:50 pm

And my heartbeat just returned to normal….

Nice work Garth.

#15 Buford Wilson on 08.19.11 at 10:51 pm

The mortgage market is safe as in church.

Sure. A few will get burned. But many more will walk away with bags full of money.

Provided the Harper Government maintains its careful husbandry of the economy.

#16 Duke on 08.19.11 at 10:54 pm

fafafafafafafafafirst I wish!

#17 Nostradamus Le Mad Vlad on 08.19.11 at 10:58 pm


“Pitbull with AIDS?” — Hmmm. There may be a conspiracy theory somewhere in there!

“See what I mean? More heavy breathing. Your breathing just got faster.” — If nothing else and despite whatever happens, the next few years are gonna be mighty interesting.

Plenty of cities / towns / munis. will take a bath, taxes of all kinds are going up (the top guns are having garage and bake sales to stimulate the economy) and there are now, and will be in the not-too distant future, food banks all over.

None of this incl. Europe, which is beginning to look like Disasterville (see link on UK’s possible civil war). One thing that cannot be accounted for, and subsequently written about, is human nature.

Not many of us have ever lived through, or experienced anything like this.
*
Chart Gold and silver at top, lumber at bottom; Capitalism IS the crisis; 10:15 clip Jim Cramer – what a dumbass, and 1:52 clip Commentator calls Cramer out for telling investors to buy Bear Stearns; MIT “So, those Federal Reserve notes might not be entirely worthless after all!” — wrh.com; Austerity and Sleepwalking.

The Plan which is doomed to fail due to GW giving birth to alien money traps. Also incl. the Build-A-Burgers (new, unidentified race); Chavez Bank holidays, gold and bank runs, stock market meltdowns — all in a day’s work; No Depression on Wall St., just Main St.; Party Time Only in America, you say? Pity! The Euro and Eurozone. Does anyone really care? The US Fed Now where have we heard that one before? (Gold); The Super Congress of 12 plus one Prez.

4:32 clip Civil War in UK? The US had theirs in the 1860s or thereabouts; BP This is last year’s spill, not yesterday’s; Self Defense Question for all North and Central Americans; Russia criticizes west; Strangers Helping “A granny and a child out in a tent. That’s not the America I know.” and Loonies running the asylum? It appears so.

#18 Juanita Violini on 08.19.11 at 10:59 pm

I wish your links opened in a new window.

And I’d like a pony. — Garth

#19 squidly77 on 08.19.11 at 11:05 pm

Keeping your money in a savings account in a bank is about as stupid as putting a bully offer on a crappy house in the beaches. Same level of dumb.

Dumb or not, thats where 70% of mine sits. Sure I have some in Nexen preferred stock, a little in Gold and my precious, precious play money in my trading account. Works good for me.

#20 R on 08.19.11 at 11:06 pm

I did see that posting at ZH, and knew it would be flung all over the walls here like so much flung dung. It occured to me that they had failed to mention the mortgages that are already pre-backed by the taxpayer. You must have gotten a few bags of email on it to devote a post to it!

The fact that the CMHC is holding the bag for the riskiest mortgages makes a stronger case for your advice on holding Canadian bank preferreds.

Oh, and for #18 Juanita Violini:

right click –> open in new window

#21 nonplused on 08.19.11 at 11:09 pm

So how much would the market have to drop to wipe out CMHC? Or is an unlimited backstop of CMHC by the government assumed?

CMHC has to be nearly as levered as the banks. They only charge 4% or something to insure a loan for the life of the loan. So assuming they still had all that money, which they don’t, wouldn’t a 4% loss do them in too? I think a 20% “market correction” could easily add up to a 4% loss on the total portfolio of insured loans for CMHC, but that’s a WAG as there are a lot of assumptions to be made about number of loans in default, size of loss per loan, recoveries, etc.

In my mind it doesn’t matter how many layers of insurance there are if none of the insurers can pay. It looks a lot like AIG to me.

And same with CDIC. Both of these institutions are confidence rackets (meant to instil confidence). Neither can meet their mandate when the SHTF.

Look at the US. FDIC, Freddie and Fannie add up to billions upon billions of guarantees and loans from the government and the Fed so far, or they would have gone bust.

#22 mikett on 08.19.11 at 11:10 pm

The data shown only exemplifies how much high risk mortgages have been doled out by the banks and backed by CMHC as thus the taxpayer.

Now let me pose a question, what happens if a mortgage holder decides to return to their previous emerging market region to live and leave the mortgage in Canada , what good is the aspect of a non recourse loan then ? Who’s going to chase them down?

Is this possible? If it is, then why would they not choose this option because why work in a country where the wages go to the bank with no personal equity growth. as opposed to working for less wages but experiencing positive equity growth.

Yeah, that’s our big problem. Homeowning immigrants. — Garth

#23 waterloo Resident on 08.19.11 at 11:15 pm

((” In almost all provinces, anyone buying a house which plunges in value and who walks, is still responsible for the debt – unless bankruptcy is chosen. ” ))

YES, EXACTLY, that is why I think that if houses ever do fall like you say, then MOST of these underwater home-owners are simply going to declare bankruptcy and walk away from their debt, its as simple as that.

#24 THE SHIFTING ROLE OF CMHC on 08.19.11 at 11:19 pm

Garth,

The role of CMHC has changed many times over the years, from helping WWII troops re-enter Canadian society, to building Regent Park.

Can’t this role potentially shift again?

Food for thought :)

#25 Buford Wilson on 08.19.11 at 11:34 pm

Garth if you had have been a team player, you might now be finance minister in the Harper Government.

Do you regret that you foolishly threw away that opportunity?

I will never regret standing for my beliefs. Nor should you. — Garth

#26 fred on 08.19.11 at 11:34 pm

Honest question, I am not well-versed in this stuff. What happens when the CMHC runs out of money trying to cover all those mortgages when the housing market collapses? Wouldn’t that affect the banks? I guess the fed has to bail out the CMHC?

#27 busman7 on 08.19.11 at 11:34 pm

If a small business doesn’t have assets worth at least 3x what they want to borrow forget Canadian banks, no wonder the country is in the dumpster! Plus with the taxpayer on the hook for mortgages, userous, cc interest rates + nickle & dimeing service charges, how to heck can the useless banks go broke?

#28 Dubble on 08.19.11 at 11:37 pm

#18 and Garth….

Right click, say open in new window. Welcome to the 21st century. :)

#29 squidly77 on 08.19.11 at 11:39 pm

The biggest return ANYONE can make on their money is to pay no interest to the banks. Be debt free It really does set you free.

I know its impossible while rearing a family but by your mid forties it is attainable.

#30 mankind on 08.19.11 at 11:40 pm

what in hell are you guys talking here? Nothing is going to happen. House prices are going to flat for the next 10 years at least.

#31 gladiator on 08.19.11 at 11:41 pm

wonderful catch, Garth!
I’ve read that post too and thought about the same thing: banks are leveraged, but the largest component of their loans are mortgages, the majority of which are CMHC-insured, so the situation is not as bad as presented.
I usually take zero hedge articles with a big grain of salt – it is a sensationalist web site, but a good one nevertheless…

#32 Dubble on 08.19.11 at 11:43 pm

Also, about the immigrant discussion from yesterday.

I recently started a part time job at a big box store while I attend school. I have met many immigrants and a lot of them are vastly overqualified for the positions. Some have MBA’s in business and are working as cashiers. They work 2 medial jobs and have better qualifications than the management team. All on work visas.

Out of curiosity, does the government require them to work medial jobs for a specific period of time before their education being recognized? Or, are there no good jobs available in Sask, contrary to popular belief?

#33 Brad on 08.19.11 at 11:46 pm

What are the odds of our banks having all their equity wiped out by a housing correction?

Zero. Thats right cause the taxpayer will gladly take the hit for them.

#34 a prairie dawg on 08.19.11 at 11:49 pm

#18 Juanita Violini

I wish your links opened in a new window.

– – –

Your wish is granted. Just ‘right’ click on the link, and select ‘open in new window’, or ‘open in new tab’.

#35 disciple on 08.19.11 at 11:49 pm

Default is always an option. How can you squeeze blood from a stone? The wealth never existed in the first place, it has to be created. Who will do this?

#36 Will on 08.19.11 at 11:57 pm

@ nonplused — the tax payers were ultimately bail them out. Same with the CDIC. However these days governments prefer to bail out the banks instead of the depositers so its rather unlikely the CDIC would ever be called upon.

As for recourse vs non-recourse, some states in the US are recourse and I don’t believe it helped keep home values up or people from leaving in the end. If you end up underwater on your mortage to the tune of 100K+ it doesn’t really matter if the loan is recourse or not, bankrupcy will be the best option if you cant just send back the keys.

#37 Onemorething on 08.19.11 at 11:59 pm

It’s that simple as Garth explains. Banks wont go broke but will loose value due to reduced business.

The Fed insures them through your future taxes. Everyone is screwed to some point. Canadians are screwed for decades and potentially a generation.

Note the next generation has no interest in the BS that they have witnessed during the last 30 years of money printing.

Common shares will be hit. RE owers (not owners) with less than 10% will loose their homes, destined to pay it back over their lifetimes.

Those in high end or having luxury RE needing good paying jobs will loose them next along with those into 15-20% equity once the RE prices continue dropping (this group is the 3 years out crowd).

Those with equity, cash, preferred stocks, PM’s or whatever that are liquid will be treated like royalty and the government will back them and give them all kinds of incentive via the banks.

Those of us in that position will be picking up anything we want and givaway prices.

Last big play the elites have to suck life completely out of the middle class. It wont be pretty but the end game is what it is!

#38 earlymidlifecrisis on 08.19.11 at 11:59 pm

See what I mean? Your breathing just got faster.

Actually it stopped.

#39 kc on 08.20.11 at 12:15 am

Oh, and for #18 Juanita Violini:

right click –> open in new window

L click & Shift together

#40 nonplused on 08.20.11 at 12:22 am

This is unrelated to housing, except in Vancouver where maybe it’s better to rent until the evacuation orders are given. It’s also a reminder that there are a few things going on right now bigger than housing in Canada:

http://enenews.com/report-nuclear-fuel-fragments-found-mile-away-ejected-reactor-cores-explosions-according-nrc-video

RT News isn’t exactly a verifiable source, or at least the US government would not say they are, so take it with a grain of scepticism.

The comments the guy makes about the fuel fragments found a mile away being ejected from the core and not the spent fuel are obviously addressed towards Arnie Gundersun at fairewinds.com who proposed some months ago that the fragments came from the explosion in the spent fuel pool at unit 4. This guy thinks they came from a core, which if true means I was right several months ago when I thought the explosion at unit 3 looked like a cannon shot, which would have had to come from inside of the containment blowing the lid off of it.

Let’s hope not.

And who cares about money?

#41 not 1st on 08.20.11 at 12:25 am

If there is a housing correction imminent, why do developers keep building and cities keep zoning new developments. They have to know they will be the first ones holding the bag when it bursts.

Maybe housing won’t burst because it just can’t, just like the U.S. can’t go bankrupt. Canada’s population is expected to hit 50 million in 30 years, so thats a lot of extra living spaces needed. On top of that, the city property tax taken from higher valued properties is substantial. Additionally, homes are about half raw and refined commodities like concrete and wood and the other half is wages. Both keep going up because commodities rise due to deflationary currency practices and wages have to keep pace with this inflation. Its the classic chicken egg scenario.

#42 Goldenfox on 08.20.11 at 12:34 am

DELETED

#43 Hoof-Hearted on 08.20.11 at 12:40 am

But here’s the difference between those dorky European banks and ours: They hold billions in sovereign bonds issued by deadbeat places like Greece and Italy (what, I ask you, have they ever done for world culture?)

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

I agree…

All I can think of is follicley UNchallenged women and Godfather movies.

#44 Bigboy on 08.20.11 at 12:41 am

#22 ****WTF! Good lord what a dumb comment. It is not only ignorant and shows a lack of knowledge of what our immigrants bring to this country but it also shows that the writer (#22) is, how should I say? AN IDIOT
Garth, how do you stay centered and sane and keep posting. Whatever you are eating, keep it up, is it only protien ?

#45 Get Real on 08.20.11 at 12:47 am

“Fear motivates whereas greed encourages and lust coaxes”
—————————————————————-
Truer words have not been spoken.

#46 Nostradamus Le Mad Vlad on 08.20.11 at 12:52 am


#175 Live Under Your Means on 08.19.11 at 10:42 pm and #177 Snowboid on 08.19.11 at 10:48 pm — Thanks! I’m old enough to have both feet covering several centuries, seeing how Dad’s (Nostradamus Jr.’s) prophecies are playing out. Lotsa things to happen yet!
*
3:34 clip America’s middle-class sleeping on streets; Venezuela “Venezuela is now demanding a return of its gold from the Rothschild owned and controlled Bank of England.”; Bonds Japan – US – EU slump-a-thon? Pensions in UK being wiped out; Death Cross on Wall St. ‘Owzaboud Sept. 25/11 for Spring Cleaning, to flush the system out completely (It’s an outhouse)? Albert Edwards Not part of Sgt. Pepper’s Lonely Hearts Club Band, he does have something to do with money.

10:20 clip BC doctor leaving BC because of Fukushima. Well, I’m going to finish here at some point, and move on. Radiation may be an annoyance, but I ain’t leaving, and 5:47 clip Cleaning up lots in Fukushima; Helping Hands Russia helps China with new stealth jet; Labeling Lies on foods; Vitamin C also curbs dementia; Shakes ‘n’ Quakes Caused by GW giving birth to ETs? More to the possible ‘quake and tsunami off California; heory only Fukushima, radiation and HAARP.

#47 SwornKeynsian on 08.20.11 at 12:53 am

The poster may be right on the predictions for the wrong reasons. Low interest rates are hurting bank revenues. Pump Bennie promised low interest rates for another two years in US – no wiggle room left for Carney.

#48 jess on 08.20.11 at 12:57 am

WASHINGTON (Reuters) – An ex-Moody’s Corp derivatives analyst said the credit-rating agency intimidated and pressured analysts to issue glowing ratings.
===
According to William Black a past investigator for the savings and loan frauds,
one hundred agents were needed to investigate Enron. How many investigators would look into the S&P problems?
=
Does the oil that backs the bonds exist?

SHELL GAMES: A Reuters Investigation

Special Report: The bonds that turned to dust
http://in.reuters.com/article/2011/08/15/us-phantom-bond-idINTRE77E1ST2011081

#49 Deliverator on 08.20.11 at 1:00 am

CMHC has to be nearly as levered as the banks. They only charge 4% or something to insure a loan for the life of the loan. So assuming they still had all that money, which they don’t, wouldn’t a 4% loss do them in too? I think a 20% “market correction” could easily add up to a 4% loss on the total portfolio of insured loans for CMHC, but that’s a WAG as there are a lot of assumptions to be made about number of loans in default, size of loss per loan, recoveries, etc.

They ARE as levered as the banks. The difference is, if they’re unable to meet their obligations, the obligations then fall on – you guessed it – the federal government. If the S truly hits the F, the CMHC’s obligations are sufficient to double our national debt in a heartbeat.

So there you go.

#50 Immigrants will leave Canada on 08.20.11 at 1:00 am

Mikett #21
I agree that immigrants will leave Canada in economic ruin. It

DELETED

#51 a prairie dawg on 08.20.11 at 1:05 am

Swap market says Canadian banks super safe

http://business.financialpost.com/2011/08/19/swap-market-says-canadian-banks-super-safe/

#52 Ryan on 08.20.11 at 1:07 am

Garth is right. CMHC will prevent the Canadian housing crash from bringing down the banks. That is probably the only good thing among huge list of bad things that are going to happen.

#53 Vishy on 08.20.11 at 1:22 am

You are right on all counts Garth, except CMHC is backstopped by Govt. So it will indirectly be Govt bailout of banks without shareholder dilution.

The impact to shareholders mightbe nothing, but impact to Govt spending, destruction of wealth and economy will be significant.

Also if Govt funds all these there will be hell to pay, and serious limitations and regulatory restrictions placed on banks due to public backlash.

#54 kitchener1 on 08.20.11 at 1:43 am

In defense of zerohedge, it is a bit of a flambuyont site, but the articles and info there is usually top notch. Very quick turnaround on finance news.

I dont beleive any big 5 will fail but they are in for some tough times.

Internal memos have already gone out in some banks about their new direction– stay lean but being profitable blah blah blah.

Dont worry about CMHC backstopping every loan– it aint gonna happen.

Its a nice song and dance but in the end, if RE turns bad, banks will be left holding some of the loss. That much is 100% certainty

the gov of Canada cannot backstop a huge foreclosure crisis, i would reckon that anything more then a 5-7% default rate and CMHC falls apart.

And as much as F and H love banks, they will not anhilate their own party or risk their political futures by bailing out banks.. Sorry boys but thats just how politics works.

#55 debtified on 08.20.11 at 1:45 am

Garth, correct me if I am wrong but I think a large portion of the banks’ revenues come from lending – be it mortgages, LoCs or CCs. I don’t think they make much money on their own investments such as bonds (also a form of lending, btw). Given that and the fact that the average Canuck has the highest debt ever recorded at this point, plus 70% homeownership and HELOC becoming riskier without the government backstopping them, what makes you so bullish about the banks’ ability to grow their business in the future?

I agree that the likelihood of Canadian banks crashing is remote at best but I fail to see the upside. The most likely scenario is stagnation and that is not a good thing either. Isn’t investing all about the potential upside?

#56 Prufrock on 08.20.11 at 1:56 am

The blogger’s pseudonym is Tyler Durden–hardly a reputable enough source to garner the attention the Globe gave it…

Anyway, you should always remember the first rule of economic fright club–don’t talk about fright club. Look to Flaherty and Carney as examples: “everything’s fine, nothing to see here folks.”

#57 tkid on 08.20.11 at 2:03 am

Juanita, two ways to open up a hyperlink in a new window:

Hover mouse icon over the hyperlink then:

1. Click the right hand mouse button, then click ‘open new window’ on the popup menu that appears.

2. If you have a two button mouse with a wheel, press the wheel (it doesn’t just turn, but 90% of them can be pressed).

Both options will get you your hyperlink opened in a new page, in a tab page if you use Firefox. Some Internet Explorers will use tabs, but the earlier versions won’t. Combine Firefox with the Noscript add-on, and you won’t have to worry about malicious scripts on websites.

Glad to read this missive regarding the Zero Hedge article, Garth. Zero Hedge can be a tad alarming at times.

#58 dd on 08.20.11 at 2:04 am

The ZH dude should know better.
””””””””””””””””””””””””””””””””””””””””””””’
They get people asking questions. This is a good thing. Period.

Most people don’t know what zero hedge does or is. You probably didn’t until it was blogged in the globe and mail.

Are you capable to writing anything that is not demeaning to others? Apparently not. — Garth

#59 LAST on 08.20.11 at 2:18 am

If anyone remembers it was the bond vigilanties whom forced a balanced budget on us last time. Sametime as the GST, don’t remember it, that’s cause it was a nonevent, the goverment was forced to shave spending o er several years, unlike what the Tea Party wants to do. It allowed us to recover. The main difference now is that consumers are heavily leveraged and it will be painful.

#60 Bogdan on 08.20.11 at 2:24 am

Garth, you managed to contradict yourself in just one article. Here is where:

it’s unlikely Canada Deposit Insurance would be able to refund everyone’s savings and chequing accounts or guaranteed investment certificates.

Canada Deposit Insurance Corporation (CDIC) is a Canadian federal Crown corporation.

This is because virtually every high-ratio, high-risk mortgage in Canada is federally-insured… Through CMHC, the banks are protected against major losses because everyone with less than a 20% down payment (which is just about all buyers these days) is forced to purchase mortgage insurance.

Canada Mortgage and Housing Corporation (CMHC) is a Canadian federal Crown corporation.

So in the first part you assume that CDIC (a federal Crown corporation) will/could fail to cover the deposits, while in the second part you assume that CMHC (federal Crown corporation) won’t/can’t fail and go bankrupt because it is backed-up by the government. Pick one. Either both gov corporations go under, or none of them.

As a note, 10 days ago I went to the one of the big 5 banks and asked to withdraw $19,000 in cash. After the rigorous looks, suggestions about investing them in GICs, questions about my intentions with the cash and getting the necessarily approvals from everyone in the branch, I was told to come back in 10 days, this ment today, August 19. This morning I got a call from the branch that they couldn’t secure the founds and that I should wait 1-2 more days… wtf?

No contradiction. Not enough mortgages would ever fail at once to overwhelm CHMC which would continue to function through a transfer of tax revenue. But the failure of one of our Big Five would trigger an immediate requirement for all its deposits to be covered – a massively larger amount and an impossibility. — Garth

#61 Mr. Lee on 08.20.11 at 2:36 am

One has to take news cites like Zero Hedge and Drudge with a grain of salt. Although they are full of good information it is information from a certain point of view and information that is presented to support a view point. Banks have worked on the basis of fractional reserve banking since banks were around, that is not new. More to the point, this is another reason why interest rates set by the B of C will be going up. The more banks loan, the more they make. The higher the interest rates, the more banks make. Welcome to the world of finance.

#62 Smell The Coffee on 08.20.11 at 2:39 am

From boom to dust.

Here are the Global Mega-bank collapsing stock values. They’re numbers are pretty bad, and our Canukistan Banks will follow soon.

We are not exempt in the Great White North, nor separate from the rest of the financial world.

‘In the past 5 years (dating back to August 25, 2006, a date taken from Google Finance) here are the loss numbers for financials, as taken at noon, August 19, 2011.[ Courtesy of Stoneleigh at Automatic Earth].)

Bank of America : — 86.68%
Citigroup: -94.33%
Morgan Stanley: -70.72%
Keycorp: -83.46%
Fifth Third Bancorp: -76.06%
Barclays: – 76.85%
RBS: -96.83%
Société Générale: -83.57%
BNP Paribas: 60.64%
Crédit Agricole: -81.39%
UBS: -75.27%
Credit Suisse: -52.92%
Deutsche Bank: -65.26%’

The giants of wealth manipulation have been decimated. We haven’t even entered a real ‘decession’ or ‘repression’ or whatever hybrid we will eventually name this slithering financial debacle. We are all being eaten alive by earnings degustication. We will all get economically digested in this progressive global deflating bust. Basically were lunch as the depression beast feasts.

Housing is only one of the crunches, with jobs, credit, and all faux-assets … one after the other fritter away. These asset categories will revert to the mean, dropping 90% or more.

Dividend that into your boomer golden years.

You had me at degustication. — Garth

#63 Onthesidelines on 08.20.11 at 2:39 am

So now, you’re dishing out pop psychology…LOL

” Fear motivates whereas greed encourages and lust coaxes. It is the greatest compeller to action.”

Or inaction.

#64 westopia on 08.20.11 at 2:56 am

Heres a good vid of Ron Paul calling the US housing collapse in 2003 while the Keynesians in charge said “there is no bubble,” “Nothing to worry about.” Now RP is prophetizing about the collapse of the dollar, while the Keynesians in charge pontificate economic “recovery” and “growth.” Who you going to believe this time?

http://www.youtube.com/watch?feature=player_embedded&v=9S3lXDOQ7ec

#65 a prairie dawg on 08.20.11 at 3:37 am

A zombie proof bunker:

http://ca.shine.yahoo.com/photos/a-zombie-safe-home-really–1310745805-slideshow/

#66 Jody on 08.20.11 at 4:12 am

What’s with all the rednecks coming on and bashing immigrants? We’re all immigrants, without immigrants, we as a country, are toast. I say open the borders, so long as someone is paying taxes let them live and work here, not that I agree with taxes. Plus, when the SHTF and everyone defaults and the average Canadian gets fed up with paying 99% of their income to stupid taxes, we’ll need more tax payers to bring the tax burden down. The Feds may have our banks back but I can assure you if income taxes go through the roof to pay those SOB bankers out of trouble then death and mayhem will insue, I assure you. People won’t go and torch their local shop, no, they’ll find a banker and have some fun. People aren’t stupid, they know who has screwed them and will not accept it any longer. What those lying and cheating bastards have gotten away with is beyond criminal. They make a bet on piss poor financials and when they cock it up they make the government bail them out with tax payer money, disgusting. I know what I want our boys in the military doing and it certainly doesn’t involve going overseas to find scum over there, we have plenty over here.

#67 TOC on 08.20.11 at 4:50 am

Here’s something you’ve been talking about….in the past

http://www.financialpost.com/personal-finance/family/Clutch+condos+threatens+pensioned+retirement/5257250/story.html

#68 Utopia on 08.20.11 at 6:28 am

Thank you for that post Garth.

So in short, the Federal Government, with its taxing authority and the backing of the people of Canada via the auspices of CMHC, are securing the riskiest mortgage debt of our big banks.

And unless we are about to believe that our Austerity minded government is itself about to go off the rails and default, then we can safely assume that our banks are still amongst the safest in the world.

Now that the smoke has stopped coming out of my ears after reading the Globes review of that Zero Hedge article, I think I know what happened here.

Some anonymous and famed writer with a penchant for getting at the hard truths sat and looked at a TCE Ratio list of the major global banks and said “OH My God, All Canada’s banks are in the banana republic category!”

He knows what that means to US and European banks.
He does not know anything about how our mortgage market works.

So he gets out his trusty little laptop and informs the world. When the credit markets seize or Canada’s housing bubble burst….the banks are going down in flames.

OMG!!!!!!

Responsible publications like Huffington Post and the Globe pick up on the story quickly and transmit it to millions of other readers. It goes global.

People start talking about shorting our banks. They even say it in serious conspiratorial tones. All hell breaks out in the brains of people like me.

Smoke follows the brain going on fire.

I guess I had just assumed that by now everyone knew how our mortgage markets worked and clearly understood that CMHC was backed by the power of taxation and the Government itself.

The very worst thing that could happen (only in your nightmares) is that a true housing crash might bring about a large number of defaults, thus causing the failure of CMHC, followed by intervention by the Government and Bank of Canada and eventually a downgrade of the countries credit rating as our printing presses got fired up in earnest to paper over the problem.

Not a very likely scenario. Rest easy kids. It is not serious.

#69 Utopia on 08.20.11 at 6:54 am

So it seems that a low rate environment and the stimulus that provides to the economy will live on.

The Bank of Canada is sending the ball back into the court of our Finance department to take action on the excess credit buildup in mortgage markets.

The expectation from them is that Federal intervention on increasing down payment requirements is preferred as a low rate environment could persist for an extended period of time.

Should CMHC requirements increase to just 10 percent down payments we might hope that the action is taken “effective immediately”, and with no advance warning.

The last thing we need is for a bunch more people trying to beat a deadline before taking on a big fat mortgage.

What we want to convey is simply that debt carries risk and obligation, that a more serious commitment should be made by borrowers at the outset.

#70 neo on 08.20.11 at 7:01 am

The data shown only exemplifies how much high risk mortgages have been doled out by the banks and backed by CMHC as thus the taxpayer.

Now let me pose a question, what happens if a mortgage holder decides to return to their previous emerging market region to live and leave the mortgage in Canada , what good is the aspect of a non recourse loan then ? Who’s going to chase them down?

Is this possible? If it is, then why would they not choose this option because why work in a country where the wages go to the bank with no personal equity growth. as opposed to working for less wages but experiencing positive equity growth.

Yeah, that’s our big problem. Homeowning immigrants. — Garth

********************************************

That’s the $64,000 question. GTA and Vancouver have largely been propped up by immigrants who don’t have an allegiance to Canada and will just leave at the first hint of trouble. A considerable amount of the money that was coming here was fleeing their homeland and being sheltered here in the first place. I guess that’s the pitfalls of a transient immigrant population versus one that in the 70’s and 80’s came here to build roots. I agree with Garth that ZH post was a bit alarmist and simplistic. However, what we have learned the past few years is that things can change on a dime and things thought to have solid foundation can quickly be sitting on quicksand.

#71 BrianT on 08.20.11 at 7:02 am

#9Joe-Yes-this is 2011, not 1991. At this point, even high school kids realize one cannot accurately value financial institutions because of the huge derivative exposures. As others have noted, the best thing the large Cdn banks have is the taxpayer as ultimate piggybank and fall guy, but this would only be after a massive hit to shareholders. IMO depositors are OK because of the taxpayer schmucks, but you never know.

#72 neo on 08.20.11 at 7:06 am

Garth,

One thing we learned from the U.S. situation was that intially the sub-prime homeowners were the first to fall. But the recession that ensued damaged the balance sheets of prime borrowers that created a negative feedback loop. Do you think something similiar could happen here? Sure CMHC shields banks from risky borrowers but what about the prime borrowers still sitting on their balance sheets. They are just as leveraged and vulnerable. Maybe even more so in some cases.

#73 Luc on 08.20.11 at 7:06 am

I was wondering how much of the equity that moves on the TSE is controlled by banks and mutual fund managers?

When they control billions of dollars in mutual funds and REITs, donèt they control the market?

#74 BrianT on 08.20.11 at 7:07 am

#21Non-IMHO the taxpayer schmuck guarantee of CMHC is basically unlimited-the entire economy of this country would be pulled under with it if necessary. As far as I know, there isn’t even one politician in Canada who would advocate otherwise (Rob Ford maybe?).

#75 JO on 08.20.11 at 7:25 am

When many of the CMHC mortgages go bust in the next 4-5 yrs, don’t worry – it will simply be officially recognized as Gov of Canada debt (AKA taxpayer liabilities). We own these bad mtgs now. What a scheme: use guarantees from taxpayers (majority of us are “middle” class) to allow banks to issue knowingly unaffordable mtgs to high risk borrowers, which increases house prices that hurts the middle class most, and allows the bankers and RE execs and gov’t sector to make out like bandits.

This system is at the heart of the massive inflation tax we have been paying to the bank and RE execs and gov’t sector. Like all debt bubbles, it’s time has come. Your friendly politicans who’ve made very generous promises to gov’t workers based on inflated debt levels will now leave you with the bill. But what can’t be paid, won’t be paid. A debt bubble is not real wealth – a fact most gov’t workers will come to realize here as is the case the world over. Kick and scream all you want folks – the money never really existed to pay these inflated promises.
JO

#76 Q on 08.20.11 at 7:52 am

Scrap CMHC…let the banks take all the risk on their heavily leveraged loans. Why should the taxpayer back what essentially ammounts to fraud (were it committed by anyone other than a bank)? Doesn’t really matter anyway, if the banks went sideways on real estate loans and the borrowers chose bankruptcy, CMHC couldn’t possibly cover the short and our fiat currency would be recognized as the useless vehicle it is….

Sounds like you’re rooting for it. — Garth

#77 shane on 08.20.11 at 8:01 am

Garth, i thought your blog today would be about mark carney and boys from yesterdays comments about the economy?

shane

They said nothing. — Garth

#78 Moneta on 08.20.11 at 8:04 am

I don’t know if the banks will go under but I do feel confident that there is not much upside left for a while and probably some volatility coming our way over the next few years.

Loans might be CMHC insured but banks have a duty to try and collect first. It could take up to 2 years for CMHC to pay the insurance money. A lot could happen to the banks’ books during that time but then if you believe our politicans would force CMHC to hurry up, then one sees no risk there.

Our banks do have some exposure to Europe… probably somewhere in their HUGE derivatives books which are a black box.

And if markets weaken, AUM revenues would suffer. If investors decide to pay off their mortgages, they might just decide to sell what is most liquid in their portfolios… banks.

And anyone who has charted Canada’s largest banks against the TSX and S&P over the last decade, will see how the stocks are in the stratosphere and wonder if they can really stay there. In my career, I”ve never seen it last for a large firm because at some point growth always reverts to the mean and the multiple adjusts to reflect this.

I guess time will tell.

#79 The InvestorsFriend (Shawn Allen) on 08.20.11 at 8:07 am

WHY IS THE 10-YEAR BOND YIELD AT 2%?

The 10-year U.S. treasury yield is at record lows of just over 2.0%. On Thursday it briefly dipped blow 2.0%, apparently the lowest ever. Check rates here:

http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

Think about how low this is. At 2%, you invest $1000 and get back a lousy $20 bucks a year for ten years, then get back your $1000. This is an abysmal return by any standard. 2.0% per year is a pathethic return considering you are taking the risk that infaltion will lower the value of your $1000 in ten years. Inflation could easily mean you lose money. Oh, and many investors are also taxable so it’s $20 bucks LESS income tax. PATHETIC.

The ostensible reason for this is simply huge demand for the bonds, flight to quality.

But the market sets prices and yields based on SUPPLY as well as DEMAND.

So okay, granted there is huge demand for the 10-year bond from pension funds, mutual funds and insurance companies.

But what about SUPPLY?

The U.S. owes some $14 trillion. Some is owed to other government agencies like the soical security fund. But there are certainly a half dozen or so trillion of these bonds in private hands and with China and other governments. (Is this the reserve currency argument, the goverments will hold even at 0% yield?)

The U.S. government just increased its debt limit and is projected to issue another trillion or two in bonds over the next couple of years.

So… SUPPLY of these government bonds is MASSIVE.

Why are not at least some of the pension funds and insurance companies selling massively to collect the big gains they made and re-deploy this money?

Even from rebalancing, bonds are up, stocks are down, these money managers would normally NEED to sell bands and buy stocks to keep the asset allocation on target.

So I don’t buy the simple explanation that the market deamnd has sent bonds soaring in price and shriveling to almost nothing in yield.

Not when no one stops to consider the MASSIVE supply.

It’s an investment Jim, but not as we know it. It’s most illogical Jim!

There is nothing illogical about the flight to safety. And nobody is buying bonds to collect interest. You still don’t understand. — Garth

#80 Moneta on 08.20.11 at 8:15 am

And I also forgot to mention the 5 year upfronting of profits that come from securitization that will surely end when real estate weakens and for which investors are currently paying 15X.

#81 BrianT on 08.20.11 at 8:28 am

#32Dub-Have you done an intensive audit of every educational facility on the planet? Right now you can buy an MBA off the net for a relatively modest amount of money.

#82 Moneta on 08.20.11 at 8:37 am

I’ve read that post too and thought about the same thing: banks are leveraged, but the largest component of their loans are mortgages, the majority of which are CMHC-insured, so the situation is not as bad as presented
————-
Banks are trading around 2X book. And this is a sector that is probably the closest to mark-to- market that you could get. Even if mortgages are safe, I certainly would not pay 2x for them.

That means you are buying growth. Now tell me where the growth will be over the next few years?

If the consumer is tapped out, that means they will have to turm to corporate Canada.

#83 BrianT on 08.20.11 at 8:37 am

#60bog-IMO the worst case scenario is the Big 5 becomes the Big 4 then maybe the Big 3. Just as BAC was forced to gobble up Countrywide’s crap. An actual burning of depositors of a large Cdn bank would literally mortally wound this country.

#84 BrianT on 08.20.11 at 8:42 am

#62Smell-Owners (shareholders) cannot control these banks-the grifter management circle would have destroyed all of these by now without the taxpayer coughing up the dough.

#85 Utopia on 08.20.11 at 8:42 am

#27 SwornKeynsian

“The poster may be right on the predictions for the wrong reasons. Low interest rates are hurting bank revenues”.
—————————————-

Wrong. It is all about spreads. Banks are really profitable now.

#86 Moneta on 08.20.11 at 8:45 am

CMHC is in very good condition. The issue is one of assumptions.

They are probably using historical numbers. However, if delinquencies rise to over 10% and prices drop by 30%, like in the US, then they are in a bind.

#87 ClaudiusEmperor on 08.20.11 at 8:59 am

#41 not first:
‘Canada’s population is expected to hit 50 million in 30 years’

Fix you math. You are looking at max 40 million canadians in 30 years. With the current levels of immigration (actulally declining lately of 250 000). We don’t have 3 kids per family as the americans. we have 1. or zero. the money to raise and support the other 2 goes to our mortgages and the fake lifestyle we live.

Canada can support easily 500 millions population without a shortage of land, maybe more.

#88 Love this Blog on 08.20.11 at 9:12 am

“Garth if you had have been a team player, you might now be finance minister in the Harper Government.

Do you regret that you foolishly threw away that opportunity?

I will never regret standing for my beliefs. Nor should you. — Garth”

And THAT is why I respect you Garth.

#89 Dark Man on 08.20.11 at 9:17 am

The manufacturing numbers for this quarter look bad because of the Japanese catastrophe. Right now automotive factories are working 6 days a week and all that spinoff will make next quarters numbers look stellar. I see it on the ground, don’t ask me who is buying all these vehicles, maybe the Americans are abandoning their houses and living out of cars now.

#90 DiGiciamo on 08.20.11 at 9:24 am

“In almost all provinces, anyone buying a house which plunges in value and who walks, is still responsible for the debt – unless bankruptcy is chosen. ”

In which provinces is this not the case ?

Think cowboys. — Garth

#91 blase on 08.20.11 at 9:38 am

Watched the Warren Buffett interview on Charlie Rose today. Buffett is bullish as ever on the USA; Berkshire A stock is down almost $30 G from it’s March high; Berkshire B is down $20; Meanwhile, Ron Paul has been forecasting the end of the U.S. for the last 30 years.

Although Paul has some things of value to add to the conversation-less militarism namely-I’ll put my money on Buffett for the long haul. The rich have gotten richer, nowhere more so than America, so I’d say they know exactly what they are doing. My guess is the Republicans know the economy is on it’s way back and want to get concessions from the Medicare/Medicade/Social Security while Americans feel negative on growth.

As usual, and as Garth always says, don’t bet against America-you’ll lose.

#92 Pull you money from Money Market Fund on 08.20.11 at 9:44 am

Money Market funds are alot more risky then the banks want you to know. Why else would they hassle you when you ask to take your money out and move it elsewhere? After a couple of guys at work were talking about how much arguing it took to get their money out of money market funds I tried to do the same thing and was meet with a half an hour of questions why. We are seeing a reply of 2008 but this time its countries and banks.

#93 Timing is Everything on 08.20.11 at 9:48 am

#35 disciple – “The wealth never existed in the first place, it has to be created.”

Wealth is the abundance of valuable resources or material possessions. – Wiki

Wealth is “the annual produce of the land and labour of the society.” – Adam Smith

#35 disciple asked “Who will do this?”

You and me. All of us.

#94 Dad was wrong on 08.20.11 at 10:01 am

#32 Dubble
“I recently started a part time job at a big box store while I attend school. I have met many immigrants and a lot of them are vastly overqualified for the positions. Some have MBA’s in business and are working as cashiers. They work 2 medial jobs and have better qualifications than the management team. All on work visas.”

And that (the MBA) is essentially one of the problems.

Over the last few years I’ve interviewed dozens (maybe hundreds – feels like anyway) of people for technical posts that they’re just not suited to anymore due to having spent the last 10 odd years in management before moving to Canada. Then there are the other immigrants I’ve met who almost invariably turn out to have a degree in “Business Management” and are now lugging boxes around a big box store. Countries like Canada need people who can actually do something not just manage others who do something.

#95 bigrider on 08.20.11 at 10:15 am

“Bully offers” for properties and the kissing of babies heads.

T.O has gone completely housing mad !!!

http://www.moneyville.ca/article/1042408–bully-bids-symptom-of-housing-market-gone-mad?bn=1

#96 Garth a man for the people of Canada on 08.20.11 at 10:19 am

Garth if you had have been a team player, you might now be finance minister in the Harper Government.

Do you regret that you foolishly threw away that opportunity?

I will never regret standing for my beliefs. Nor should you. — Garth
——————————————————————–

I remember watching Garth on C-pac being the only one pushing for a review of the 40 year zero down mortgage. He was the only one fighting for the good of Canadians. My wife was shocked since he was a conservative. I explained to her that Garth was a real conservative of the people and not a conservative of the corporate/banking elite. It’s to bad the people of Canada don’t know the difference.

#97 MasterBootLicker on 08.20.11 at 10:33 am

74 BrianT

Isn’t that how a Corporatist/Fascist government is suppose to work ? Privatize profits and socialize losses. 1920’s Soviet Russia would even be envious of this model. Why people continue to think we have a free and open democracy is beyond me . Do people really think Harper runs anything ? These interchangeable front men never even learn the names of all the government departments and the NGO’s (Non Governmental Organizations) that run them. How can they possibly decide anything? They are told what to do and if they dis-obey we all know what happened to JFK who didn’t want to instigate a war in Vietnam.

#98 Ralph Cramdown on 08.20.11 at 10:56 am

Garth’s right. Our banks aren’t very exposed to residential real estate because our government underwrites that risk.

But they do have a history of coming to grief when their large profits from the Canadian retail business look for a place to grow:
BMO’s $700MM loss in natural gas trading
CIBC, the bank “most likely to run into a sharp object”
RBC, “Should I stay [in US retail banking] or should I go now?” which also proudly advertises (in West Van, at least) “Now Open Mondays!”
TD, which just bought MBNA’s $8bn Canadian Mastercard portfolio, but is going to freeze the credit of $2bn of that, as the cardholders are too risky.
Scotiabank “¿Dónde está la crisis de crédito de América?”

#99 bigrider on 08.20.11 at 10:56 am

CMHC did its job in the sixties and seventies.

No need for it anymore and besides it has morphed into a hideous monster.

Time to dismantle it.

#100 Dan on 08.20.11 at 11:21 am

#18 – right click the link and say open in new tab.

@#2 – true it’s always been that way, but people might be starting to question the system, more so in the States.

If one, or two banks have a run on their cash there could be a real issue. Same with Gold, Venezuela is re-repatriating their gold – 10 million tonnes from JP Morgan and 99 Tonnes from the Bank of England. Only problem is that these two entities have 100x their gold holdings in paper contracts.

Gold has gone up 20% per year (on average) over the last 10 years, wait to see what it does in the coming year.

Dan.

#101 Conflicted Pumper on 08.20.11 at 11:40 am

After I finished reading this post, I couldn’t help but think that it really is different here…

Zero Hedge presented actual data, and today’s smackdown was completed without presenting one shred of verifiable data.

I have no idea which side of the debate is more correct, but you can’t present an “it’s different here” rebuttal and claim victory.

I think CMHC insurance is real enough. — Garth

#102 Young Old fart on 08.20.11 at 11:48 am

You want to know why the middle class will disappear and the rich get richer?

The middle class spends all their time moaning and griping, coming up with all these end of the world theories, and running in and out of the markets like stupid sheep giving us the golden opportunities to…. well…… get richer.

All I can say is…. keep up the good work!!

or………

You can stop listening to these doom and gloomers, smarten the *&#% up and start making money as well. It is up to you because bottom line, nobody gives a shit about you but you….

These last weeks have been awesome. Pretty easy to buy low and sell high when it is a daily occurence!!! Man, I love you stupid sheep. Market tanks 500 points, you sell, I BOUGHT. Next day it bounces back 400 points. Hmmmm, ya, profit, SELL. Oh oh, next day drops 400 points….. too &#@%ing easy……..

Finally, the banks… If the Canadian banks tank…we would ALL be &#@%ed.

Read my lips: IT WILL NOT HAPPEN!!

#103 City Slicker on 08.20.11 at 11:55 am

Garth I love the picture “Pitbull with aids” – too funny!
But I must say, if Canadian banks really are fine why have their stock prices been falling lately? Does the market know something we don’t?

#104 Timing is Everything on 08.20.11 at 11:57 am

Nosty. Just 4 U. ‘The Grid’ just got ‘smarter’.

Radio Frequency Radiation: The Invisible Hazards of “Smart” Meters

http://tinyurl.com/3lnar45

http://tinyurl.com/3f5zf32

http://www.youtube.com/watch?v=n5jbylkxd0s

#105 Nemesis on 08.20.11 at 12:00 pm

“…they lend out far more money than they actually have sitting in a vault beneath King & Bay.”…

There’s money in those vaults? Money!?…

And all this time, I thought it was a case of fractional reserve MapleSyrup warehousing, distribution and recirculation… You know, where the banks hoard the real CanadaGradeA stuff – but your local supermarket will only sell you corn-syrup based simulacra [ignoring, for the moment, those over-priced, YYZ gift shop, perfume bottle-sized souvenirs foisted upon unsuspecting visitors to Canada ].

Well, I know what I like/insist upon when it’s time for ‘cakes… and so too, for that matter, do a surprising variety of high profile neo-keynsian economists [I bet you didn’t know that Krugman’s Nobel was based on his early work on the velocity of syrup/international Maple flows].

#106 robert james on 08.20.11 at 12:07 pm

This is the Okanagan,,”a speical niche market”, where the prices only go up because all the boomers will be retiring here.. Any realtor will tell you that.. lol http://kelowna.kijiji.ca/c-real-estate-houses-for-sale-MUST-SELL-NOW-4-Bedroom-Home-For-Sale-Penticton-W0QQAdIdZ307147418

#107 $froma$ia-(C Tire Money makes great toilet paper) on 08.20.11 at 12:08 pm

I will never regret standing for my beliefs. Nor should you. — Garth
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
You have one thing in common with Tony Montana-

“All I have in this world is my Bahhs!”~Tony

Garth,

If 70% of Canadians have Real Estate. How many of that 70% have investment properties?

If they have an average of $400k mortgage and thats over 3 times their family income…Why don’t you feel inflation is the only way to help the majority of Canadians with their debt load?

They are the majority, right?

$$$

#108 gladiator on 08.20.11 at 12:22 pm

Ha! I came to Canada (TO) with an MBA from US, with a top GPA and 2 years experience in the US. Guess what I had to do (after several weeks of fruitless job search)? I applied for kitchen help at Toronto downtown restaurants! Not the I expected a job offer to be handed to me upon arrival, but I didn’t expect it to be THAT bad.
Fortunately, I had the necessary technical skills and investment knowledge that helped me get back on my feet, but when I read about immigrants with MBAs, PhDs, medical degrees from outside Canada and who work at low-level jobs – I really feel for them. It’s not like that in the US (at least, it wasn’t before 2009). Well, we made a choice to be here, so we have to put up with it. Good thing: the majority of immigrants I know either opened their businesses, have high-paying jobs, or get as many degrees/certifications as they can to get ahead.

#109 reality guy on 08.20.11 at 12:23 pm

good read

http://canadabubble.com/bubble-watch/2192-bank-of-canada-review-released-flaherty-now-under-pressure-to-adjust-down-payment-rules.html

#110 BrianT on 08.20.11 at 12:27 pm

Tyler Durden counterattacks-IMHO already the guy has way more credibility than a rag like the Globe and Mail http://www.zerohedge.com/news/who-john-paulson-and-why-should-globe-and-mail-care

#111 housing sales and prices falling on 08.20.11 at 12:28 pm

Big rider # 95

The star is nothing but a corporate propaganda tool to distort reality . The star who is paid off by the RE industry to print advertisement and pass it as news. Talk to any honest realtor and they will tell you of the worry from inside the RE industry. With the markets the way they are no one is buying.

#112 Darryl Martin on 08.20.11 at 1:10 pm

Thanks for the insight, Moneta .

#113 EdmontonJim on 08.20.11 at 1:18 pm

#178 Killer Chicken or Imploding Boomer? from yesterday.

I’m not sure you understand GDP. There are several ways to calculate it, but you didn’t get it right. Capital gains are counted when they are realised.

Take a house for example. If the total cost to buy a piece of empty land and build a house on it is $100,000 – then that is added to GDP. You could either count it from the purchase price, or the production cost + profit/loss, which should be equivalent.

But if 5 years later the owner sells the house for $200,000. He has realised a capital gain of $100,000 – which is added to GDP one way or another. There is no capital gain unless it is sold.

However depreciation is usually not counted (in some cases it is). If the house only sells for $50,000 then it is usually considered to have simply been consumed.

This isn’t wrong in and of itself, if I value something more now than I did before, wealth has in fact been created simply from my attitude change. This is the wealth added by marketing.

The problem arises when people gamble on the assumed capital gains of a fixed asset, because it is a bet on human attitudes more than anything, and it is the definition of greater fool investing. It is self-destructive to an economy.

Look at what we’ve done. Shelter is an essential product – everyone needs it. So a well intentioned government says “lets make housing more affordable”. Learning from failed actions like rent control or projects, they instead make it easier to borrow for a home. On paper it makes sense, houses are pretty static things that don’t depreciate to fast, so even loans to low income people with no savings is pretty safe.

At the start this was great. More people able to buy homes (or better homes) increased demand, which helped the construction industry. Production up, revenue up, quality of life up; Happy fun times for all.

But the law of unintended consequences holds sway. The increased demand naturally pushed up prices, and people got greedy. Investment poured into house construction to the exclusion of all else. Speculators bought up properties not based on what it was worth to them, but what they though it might be worth to a greater fool.

Arbitrage is all well and good, but the speculators were selling to other speculators, until the greatest fool was found. All this time capital gains were made and spent, adding to ‘production’ without actually creating anything new.

Plus the additional lending was made without adding financial literacy. People let salesmen tell them what they could afford without explaining the actual costs.

But even the speculators weren’t so much destroying wealth as stealing it. They came out ahead. No, the worst part was the wasted production.

The effect on the construction industry was insane. To keep up with the unnaturally sudden demand, the building industry had to tap more materials, train more people, buy more machinery, and divert more investment.

Alot of wealth was created, but alot of wealth was destroyed. Examples of wealth destruction caused by the construction boom:
– Shoddy construction from inexperience or haste
– Tools now idle due to demand being normalised
– Wasted training from unemployment
– Losses from housing glut
– Lower demand for other products
– Higher infrastructure costs

For that last one I can knowingly say that the housing boom cost the City of Edmonton hundreds of millions of dollars in wealth in 2007-2008 alone. Meanwhile the average housing price nearly doubled.

#114 greg on 08.20.11 at 1:21 pm

housing sales and prices falling #112

Don’t know anyone in the RE industry but do have friends in the banking sector. The mood in the banking sector is of worry of the current credit bubble which insiders are trying to slow down. Many debtors are now being turned down for more credit LOC , CC, HELOC etc. Bank insiders have been told of a rumour inside that F was changing the CHMC rules from 5 down to 10%. Don’t believe that would happen since the housing market in Canada would be in GRAVE trouble but to continue the madness would lead to a bigger crash. Everyone knows Canadians are maxed out and asking for even more credit but are now being turned down. Business owners small and mid-size have expressed that biz has dropped over the past few months and continues to do poorly. The double dip is getting closer to 100% possible. The credit bubble in Canada is going to pop.

#115 Bruce on 08.20.11 at 1:32 pm

So CDIC insurance wouldn’t work but CMHC insurance will? What’s the logic behind that?

Asked and answered. — Garth

#116 TurnerNation on 08.20.11 at 1:35 pm

Toronto is adding user fees for city services already paid for taxpayers! What a scam. A property taxes are set to rise. Yes the purpose of government is redistribution of wealth all right, to a select cadre of loyal statesmen and their enforcement arm.

My point: I saw a regular downtown paid construction-duty policeman again. He watches/surveils while utility repairman work on or under the road. For this task he is paid $65/hr plus benefits, for him and his family, OT, DB pension.

He is smart, he know he’s won the equivilant of a “Cash For Life” lottery at the taxpayers’ expense. In fact as I walked by I hear him talking about OT with someone! It’s a game and he and his union buddies, backed by their lawyers, play it well
His car, always parked nearby? Why it’s late model Lexus IS 350! Thanks, taxpayers

You heard UK’s leader speak: they’ll give the police whatever they want in the wake of the riots A blank cheque and a crackdown on our freedoms. It’s a game, a canned formula, reinforced by the media: Problem, Reaction, “Solution”. Works every time.

#117 SRV ES339 on 08.20.11 at 1:53 pm

Nice pic of the front gate of “The Bunker” Garth!

Boy, you and your friends at the G&M really got your shorts in a knot over this one, but…

. Nobody said the banks would fail, just that the myth of the great white banks is just that… a myth.

. So, Tyler got it wrong did he, and everything really is lollypops and rainbows… very comforting.

. What’s this, more of those dam facts bursting our ‘happy bubble’… well go figure, it seems Leaman’s Tier 1 Ratio was 11.0% (isn’t that just about where our big 5 are?) when they went under… but their TCE Ratio was 2.5%, which gave most economists (but apparently not those affiliated with the G&M or The Greater Fool) pause, and lead to more wide spread acceptance of the TCE Ratio.

. Is it possible that you know the level of Canadian bank exposure to the PIGs bonds through the black hole of the derivatives markets… if you do have access, I trust you’ll share it with us.

Yes, seems it really is “different up here” in the Great White world of Bay Street and denile.

#118 The Original Dave on 08.20.11 at 1:54 pm

Garth, Bob Hoye talks about credit spreads widening and he says that’s a big concern for the market. He says whats been happening the last few weeks is liquidity is leaving the market.

Do you pay attention to this stuff? Do you feel it’s relevant?

#119 Snowboid on 08.20.11 at 1:59 pm

Latest humour courtesy of our local Friday papers’ section “New Home Showcase” – brought to you by four local mortgage brokers:

“Tips on how to budget for that dream home you aspire to find”

The article provides some basics on how to budget, then offers the following:

“What else can you do to avoid debt and reach your future dreams?…using cash will prevent you from spending money you don’t have. Avoid buy now, pay later offers…

Save now, buy later.”

Not exactly an article one would expect to be sponsored by mortgage brokers!!!

But good advice, nonetheless.

#120 the_apocalyptic_one on 08.20.11 at 2:05 pm

If Bear Stearns and Lehman brothers could crash and burn, and Northern Rock, UBS, RBS, Goldman Sachs, Morgan Stanley, BoA, JP Morgan, and untold number of other banks including Canadian ones had to rely on the largesse of the (Un) Federal Reserve to survive, what makes anyone here to predict confidently that none of the big 5 Canadian banks can ever fail? If any lesson has been learnt these past 3 years, it is Never say Never!

#121 Stefan on 08.20.11 at 2:08 pm

Garth, I agree that its unlikely for Canadian banks to go insolvent, but their stocks can fall quite a bit as fees from capital markets and mortgage lending dry up.

#122 vyw on 08.20.11 at 2:08 pm

Our banking system is relatively safe compared to the US banks where they have still have toxic assets on/off their balance sheets. If the situation deteriorates – housing bubble bursts – the Bank of Canada can collect non-performing mortgages (debts). They control our own money supply. The Govt can also choose to “cancel” these debts if the situation was severe – deep recession, high unemployment, etc. This would mean devaluation of almost everything (starting with wages) but everything eventually resets and we start again.

At this time however, it appears that G7 countries are trying to restore the status quo with one camp Keynesian (Govt spending) and the other Monetarism (interest rates), but there are still many options in the hands of the Bank of Canada.

I understand that the US Federal Reserve did “cancel” some bad debt last year via a double entry – counting it as both an asset and liability on its balance sheet. I have to wonder if they may have inadvertently hastened the decline in GDP. Canceling debt is deflationary but there’s a debt overhang and people won’t spend or they’ve bought already (how many furniture sets/washers/dryers/TVs/cars does one really need), and states and local Govt need to balance their budgets.

#123 TurnerNation on 08.20.11 at 2:13 pm

You know I’ve said: the middle east gets bombed, but for us we are “bombed” economically back to the stone age. Technology is being taken away from us: nuke plants, plastic bags, cars (car-free zones, enormous taxes, carbon fees, and tolls), hydro (20-50% rate hikes planned), Smart Meters with built-in hydro rationing (there’s a war on, you know – V is for Victory – or Vendetta? The WW2 politicians and royals suffered not).
Welcome back to the 2nd World communist bloc era: you use hydro for 1 hour per day as it’s all you may affford. Only the rich and party faithful can afford to run cars.

Google for: tent cities in America.

Read more: http://www.heraldonline.com/2011/08/18/3302234/york-grandmother-and-7-year-old.html#ixzz1VarzU1oR

Dowd, unemployed, listed in the police report as “homeless,” then told the police what politicians never tell of in America. How someone ends up living in the woods – this time with a child.

Dowd said she has no job, is fighting for disability benefits from ailments, and lives off food stamps and $802 a month in federal benefits checks she gets for herself and her grandson.

Dowd said she has raised the boy, whom The Herald is not identifying because of his age, since he was six weeks old.

By July, she had fallen behind on the $600 rent and $900 in utilities at a small house near York Middle School, she told police.

Dowd and her grandson stayed with family for a while, then with a friend in York who lived in an apartment near the shopping center. But she could no longer stay with the friend – the same woman who reported to police that Dowd was living in the tent – because Dowd’s name was not on the lease.

Dowd told police she had paid the security deposit and first month’s rent for the Clover apartment, about 10 miles away, but didn’t have enough money to turn on utilities – so she could not move in.

#124 T.O. Bubble Boy on 08.20.11 at 2:29 pm

@ #115 & #112
The mood in the banking sector is of worry of the current credit bubble which insiders are trying to slow down. Many debtors are now being turned down for more credit LOC , CC, HELOC etc.

Much of this is due to the changes at CMHC, where they will not insure HELOCs anymore. Back in pre-March when the banks could flip 100% of the risk over to CMHC, all HELOCs were good HELOCs (just like mortgages still are today).

I found an interesting tidbit on how Texas fared better during the U.S. housing crash while reading about Rick Perry (aka “GW Bush on Steroids”):
http://www.slate.com/id/2302010/

“…Texas kept its housing-finance regulations tight. As Alyssa Katz noted last year in The Big Money, Texas has had a longtime commitment to ensuring that homeowners make significant down payments and do not use their houses like piggy banks. The rules bar Texans from taking out home-equity lines of credit worth more than 80 percent of their mortgage. They also ban “cash-out refinancings,” which add to homeowners’ debt.

As a result, Texas never had a housing bubble. Real estate prices appreciated much more steadily and slowly than in states like Nevada and Florida and never really turned down. That means relatively few foreclosures, healthier local banks, and a steadier construction sector. Moreover, it means that Texans never got as indebted as citizens in other states.”

Wow – who knew? You mean that when you require some form of down payment, and limit the amount of “home equity” people can binge on, your housing market doesn’t get into bubble territory as easily?

(CMHC, are you listening?)

#125 betamax on 08.20.11 at 2:31 pm

#32 Dubble: “does the government require them to work medial jobs for a specific period of time before their education being recognized?”

Degrees from ’emerging economy’ countries are generally not recognized in Canada. Legitimately so — many of the universities in those countries are essentially degree mills in which the scions of the wealthy are given degrees for doing jack all.

#126 Weevie on 08.20.11 at 2:34 pm

“So CDIC insurance wouldn’t work but CMHC insurance will? What’s the logic behind that?

Asked and answered. — Garth”

Really? Are we supposed to believe that until you have wriggled out of your bank preferreds? How did that work out in Iceland, where the people voted out the government that was planning to indemnify depositors in the Landsbanki(https://secure.wikimedia.org/wikipedia/en/wiki/Icelandic_loan_guarantees_referendum,_2011)? What are Landsbanki preferred shares (ultra safe, risk free high yields!) worth today?

UK Chief Secretary to the Treasury Danny Alexander described the [Icelandic referendum] decision as “obviously disappointing [and that] we tried to get a negotiated settlement. We have an obligation to get that money back and we will continue to pursue that until we do…We have a difficult financial position as a country and this money would help.”

Gee, that sounds great! If I was a burned UK Icesave depositor, I would have so much confidence in his ability to make me whole!

What do you think of the Irish people repudiating responsibility for and indemnfication of bondholders in their corrupt Ponzi financial system?

“… The plan was met with great protest as it included deeply unpopular elements, including drastic cuts in social welfare, the lowering of the minimum wage, and an increase in the value added tax … In recognition of the political disaster this would inflict on his government…”

https://secure.wikimedia.org/wikipedia/en/wiki/Brian_Cowen#EU_and_IMF_Rescue

How do the Greeks feel about not eating so that their bond creditors are sort of made whole? How many global banks’ solvency depends on Greece staying in the Euro zone, not exiting and not converting their Euro denominated debt into devalued Drachma denominated debt? How do the Germans feel about bailout after bailout, without end, if Greece stays in the Euro zone?

How do you think your average Joe Canadian is going to feel about being enslaved to make whole the folks who erroneously relied on preposterous CMHC guarantees? Debt that can’t be repaid, won’t be repaid. Can’t get blood from a stone…

Of course, the Government of Canada is the monopoly issuer of Canadian dollars, so there should never be a problem with printing enough to cover CMHC’s problems. The real issue is – what is that paper going to buy you?

Canada is not Iceland, Ireland or Greece. By the way, Iceland has a smaller population than Brampton. Compelling example. — Garth

#127 betamax on 08.20.11 at 2:38 pm

#41 not 1st: “If there is a housing correction imminent, why do developers keep building”

Developers only make money by developing, so self-interest & denial blinds them to market changes. As clearly demonstrated in the US, they’ll keep building till the money runs out and they go bankrupt.

What else are they going to do?

#128 Iconoclast on 08.20.11 at 2:41 pm

Should the shitstorm really erupt, CMHC will be doomed, but you can bet that they will be checking each and every bad loan for correct documentation.

We’ve all heard about the ‘cash-back’ zero-down schemes in use. The banks will be eating these ones…

At least I hope they will be.

It might not kill the banks, but it will not be pleasant for them.

#129 betamax on 08.20.11 at 2:55 pm

#44 Bigboy: “the writer (#22) is, how should I say? AN IDIOT”

I thought ad homs were verboten.

#130 bill on 08.20.11 at 3:06 pm

had to look it up:

http://www.thefreedictionary.com/Degustation

#131 TurnerNation on 08.20.11 at 3:16 pm

110 gladiator on 08.20.11 at 12:22 pm

Luckily, you left USA…unless you speak a Chinese dialect and wish to move?

– GE Moves 115-Year-Old X-Ray Unit’s Base to China to Tap Growth

July 25 (Bloomberg) — General Electric Co.’s health-care unit, the world’s biggest maker of medical-imaging machines, is moving the headquarters of its 115-year-old X-ray business to Beijing to tap growth in China.

“A handful” of top managers will move to the Chinese capital and there won’t be any job cuts, Anne LeGrand, vice president and general manager of X-ray for GE Healthcare, said in an interview. The headquarters will move from Waukesha, Wisconsin, amid a broader parent-company plan to invest about $2 billion across China, including opening six “customer innovation” and development centers

-Bank of America will lay off at least 3,500 employees in the next few months — and up to 10,000 in total — including an unknown number of financial advisors from the bank’s Merrill Lynch unit.

The cuts come as a result of lower trading volume and reduced deal flow throughout the country’s most recent economic downturn.

Company officials said they’ve already begun notifying some affected employees and that the layoffs will be spread throughout the 280,000-employee company. BofA said it already trimmed roughly 2,500 jobs in the first half of this year.

#132 Tony on 08.20.11 at 3:30 pm

Thanks for your rendition of the guy’s blog. Truth is very soon these Canadian banks will be hammered. I can’t believe it’s taken this long. As in America credit will dry up completely and the share prices of the big 5 will all drop around 90 percent along with an 80 percent basic drop in stocks.

Like I said, those who do not deserve attention use fear to get it. Well done. — Garth

#133 Tim on 08.20.11 at 3:48 pm

I was talking to an economist for one of the Big Five banks yesterday. He noted that a 1% rise in interest rates would hook his bank with fourteen thousand mortgage defaults.

Fourteen thousand. And that’s for one percent.

I don’t see how monetizing this looming default onto the backs of Canadian taxpayers is anything but horrific news for us.

#134 COPS, OT, AND FUNERALS on 08.20.11 at 3:54 pm

To TurnerNation:

Like everyone in the city, I see these cops standing around, watching other humans dig holes, while they made oodles of cash–doing essentially nothing.

It’s disgusting and fascist.

If private companies want police officers to stand around–let these companies pay for the services themselves.

Otherwise, this practice must stop; it is an affront to every taxpayer.

You know those big cop funerals you see in the news?

It’s sickening to hear, but I know that many officers actually get paid overtime to attend.

Food for thought :)

You are no longer welcome on this blog. — Garth

#135 Parry Sound—Muskoka on 08.20.11 at 4:00 pm

Thanks for the blog Garth.

Since we are speaking technically about banking, in this post you repeated (you’ve made similar statements before) a common misunderstanding about how banking works. You wrote:

“Meanwhile our banks (like all banks) are heavily leveraged, which means they lend out far more money than they actually have sitting in a vault beneath King & Bay.”

Banks and other financial institutions technically do not lend out their customers deposits. They are authorized to create new money (electronically) once a person has made a promise to pay to the institution in exchange for a set sum $CAD.

I know, this is pretty straight forward stuff, but, If/when that new money is deposited in an account at the same bank it is then an asset for the borrower and a liability to the bank, whereas the contract/promise-to-pay is a liability to the borrower and an asset to the bank.
—-
Of course deposits are an important part of the capital story, however, Canada is an environment of 0% statutory reserve requirements anyway, so the balance sheet mix is largely voluntary. Of course there is Basel.

Absent an exponential increase in the interest-bearing money supply (via the private sector), or a proportional increase in interest-free money (via the public sector: the BoC or the Treasury), things get ugly for debtors. That is to say that once growth even slows down the growth in money supply begins to shrink, which leads to more competition for $CAD to make interest payments and thus eventual foreclosures and bankruptcy.

Banks do not create money. Myth, fantasy, fallacy. — Garth

#136 domain on 08.20.11 at 4:32 pm

The Globe and Mail, along with others have responded to the post on Zerohedge. Here is the link to a fresh reply from Zerohedge titled, “Who Is John Paulson, And Why Should The Globe And Mail Care?” debating why they think this is important:

http://www.zerohedge.com/news/who-john-paulson-and-why-should-globe-and-mail-care

I need to re-read it, but basically the metrics that our, and most banks use to determine equity for a differenty type of ratio are questionable. It is these so-called assets of question that they include to make the similar ratio reach 10%. It’s a good read, and worth it if you are willing to be objective.

I think the fact that Zerohedge’s post sparked such quick responses from the likes of the Globe and Mail and others are worth reading. If the post was so lacking in merit, or so incorrect, it would not even be acknowledged by media-types here in Canada. You don’t see Globe and Mail debating some obscure bloggers belief in UFOs (sorry if I offend with this analogy).

To me, anything that ruffles the feathers of our bankers, government, or media-types here in Canada is worth looking into. Then again, that is an objective approach to thinking, which just doesn’t happen with Sheeple.

I have respect for Garth, and the time he commits to genuinely steer people in the right direction on Canadian Real Estate. I very much agree with this part of the above article:

“What are the odds of our banks having all their equity wiped out by a housing correction?

The blogger got part right: zero.”

However, with a major housing correction, you cannot dismiss the effect on the broader economy when the undertow will be massive. This will affect the Banks equity that is not tied to housing, and that is where it gets interesting.

That being said, I have faith that our government will come to the rescue to buy the poorest of assets from our Big5 to keep them alive at our expense. Faith in corruption may be the perspective that people want to use for their investment strategies in the near future. Maybe not.

#137 Killer Chicken or Imploding Boomer? on 08.20.11 at 4:45 pm

114 Jim – I am following you a little better. But it is not
even the realized cap gain that contributes to GDP. It is the goods and services produced by the purchaser that adds to the GDP. Likewise, it could be the $100K gained by the owner, who in turn spends it on a new product which adds that new product’s value to GDP. If the
$100k sits in the bank, no new GDP.

The concept of GDP is simple. Yes the calculation can be tricky as it can be very difficult to separate what has been counted already through the two general
approaches of total income or total spending. Remember, one persons spending is anothers income. We only count one.

#138 EdmontonJim on 08.20.11 at 4:49 pm

I have a revolutionary solution to all of the problems. Increase the power of adverse possession laws, and restrict punitive actions based on potential losses.

For those who are unfamiliar, adverse possession is the ‘well he wasn’t using it’ claim to property rights. The gist of this is that if a squatter openly occupies a house and the owner does nothing to stop it, the squatter has demonstrated a right to possession. Likewise, if you trow something away, you have abandoned your claim to it. If someone else picks it up – it’s theirs.

How is this revolutionary action the solution you say? All it does is prevent the price fixing of existing products, like housing.

My idea works like this: If I mortgage or rent an apartment, once a year I can renegotiate my rent or mortgage.

If we don’t make an agreement, I can occupy for free until one of the following conditions are met:

1. The bank or owner finds someone else willing to make an agreement exactly like the last one I rejected, who will occupy the property themselves. (Care would have to be taken to detect fraud)
2. The bank or owner has a new use approved for the property, intends to personally occupy, or intends to demolish or renovate.
3. A new agreement is reached

During this time the owner or landlord cannot do anything to restrict my access or enjoyment of the property, no harassment, changed locks, new fences, or anything like that. As long as my stuff is there, and neither of the first two conditions are met, I have exclusive rights, and my credit rating is unaffected.

If the first condition is met, I’m evicted and have 30 days to vacate. Any damages or losses come out of my damage deposit or equity. I can’t be held accountable for anything above that.

If the second condition is met, I am evicted, but all equity or deposits are returned to me in full, even if I trash the place.

Also, if a house or apartment has sat vacant for over a certain amount of time (a year for example). If a person were to break in and establish occupancy, they would be considered a legal tennant, with all the rights that go with it.

This would restore fair market values to housing, restore responsibility to the system, and make ownership more accessable. I bet you would even see real-estate agents that, for a fee, would help you find a vacant house and help you break in.

I am aware that this would hurt certain people, namely:

1. People who own their over-valued homes outright, but have borrowed heavily against them.
2. Slumlords who gouge their tenants
3. Irresponsible lenders who loaned people more money than the house is worth
4. Tenants who live in rent-controlled housing that is under-valued
5. Speculators. Unintended tennancy can kill a quick flip.

But I think these would be the minority. The people this could help:

1. All renters, as it would ensure a fair rent price
2. Anyone with a mortgage.
3. Honest landlords who would have value attatched to their services
4. The homeless or otherwise empoverished. Vacancy and homelessness should never co-exist (Exceptions for the mentally ill). It is evidence of price fixing.
5. Private security companies. I’d make the rule something like this: To establish occupancy, a would-be squatter would have to deactivate any audible security system, flush a toilet, turn on a light, phone a lawyer, and write a 200 word declaration of occupancy in permanent marker on any wall in the house, before the owner or a named representative can tag him. Any failed attempt could result in a charge of vandalism (if anything was broken), but not trespass or unlawful entry. No punative action could be taken and the police could not take any actions to stop such an attempt (It would be fun to watch though). There would be all sorts of private security and counter-security business from this.
6. Handymen. It would be a useful skill to be able to install a working toilet and a light fixture in 60 seconds.

There may be afew drawbacks. There would probably some bad behavior from both squatters and owners that could result in property damage or injury. Also there could be lower investment in new housing. But I think the benefits would outweigh the risks. Overall I think it would be great. Who’s with me?

#139 Parry Sound—Muskoka on 08.20.11 at 5:01 pm

“Banks do not create money. Myth, fantasy, fallacy.” — Garth

The actual process of money creation takes place
primarily in banks. — Federal Reserve Bank of Chicago
http://upload.wikimedia.org/wikipedia/commons/4/4a/Modern_Money_Mechanics.pdf

The Fed is not a chartered Canadian bank. No relevance. — Garth

#140 Dr.NickRiviera on 08.20.11 at 5:05 pm

Zero Hedge responds to the Globe and Mail (and Garth):

http://www.zerohedge.com/news/who-john-paulson-and-why-should-globe-and-mail-care

#141 Starving Artist on 08.20.11 at 5:08 pm

Not enough mortgages would ever fail at once to overwhelm CHMC which would continue to function through a transfer of tax revenue – Garth

Well, I guess you and I will have to agree to disagree. I think it’s entirely possible that enough mortgages could fail at the same time. We’ve seen plenty examples in the last 3 years. Or is it different here?

There is another angle. If the GOC is going to cover huge CMHC losses it may be necessary to demonstrate banker pain to give enough political cover for the bailout.

#142 EdmontonJim on 08.20.11 at 5:14 pm

In reference to my last post.

I just had an even better idea; Reality shows!

Squat This House
Renegotiate my Mortgage
Desperate Landlords
Love it or Default

#143 BrianT on 08.20.11 at 5:15 pm

#127Weev-It is amazing that in 2011, after all that has happened, some will still argue that government backstopping of all financial sector risk taking (no matter how absurdly foolhardy) makes economic sense. It isn’t just small countries-USA, Germany,France aren’t small at all.

#144 RonInDelta on 08.20.11 at 5:24 pm

Question (apologies if already known to all) – why does Alberta only have Nonrecourse mortgages? would it not make lenders more responsible in all provinces?

#145 Debtfree on 08.20.11 at 5:27 pm

Just got back from finally having a look at zh . All I can say is, don’t put all your nuts in the same basket . I guess that’s why some roll in here daily. So if I read them right why worry about debt anyway . We’re all going to be dead by 2030 anyway . My grand father used to say and I think he was right ” half of us will die from eating and drinking too much , the other half will die anyway”. I suspect some will die of fright by reading zerohedge . They certainly will not laugh themselves to death . I suspect that they (zh.com) own shares in pfizer for the antiworldwidedepression drugs and providing free viagra for the banks. If what they say is all true the banks gotta be on viagra , see alice and steroids.

#146 The InvestorsFriend (Shawn Allen) on 08.20.11 at 5:39 pm

WHY IS THE U.S 10- YEAR BOND YIELD AT 2%?

In reponse to my question at 79 about why the bond yield is so incredibly low, Garth said:

And nobody is buying bonds to collect interest. You still don’t understand. — Garth

Okay, well I agree some people and institutions buy long-term Treasury bonds as a way to speculate on interest rates. As interest rates have fallen these investors have made capital gains. This has happened almost evvery year in the last 30.

But certainly pension funds and insurance companies and mutual funds are mostly long term holders of bonds. They DO buy to hold until the end and just collect the interest.

But WHY would they continue to buy now? It was one thing to buy at 5% interest rate. But 2%?

If they buy for safety a short term treasury bond is the thing to buy.

A long-term bond has considerable risk of loss if interest rates rise.

It is illogical to accept 2% for ten years.

That’s why nobody does. — Garth

#147 Killer Chicken or Imploding Boomer? on 08.20.11 at 5:43 pm

114 Jim – Please see here

http://www.colorado.edu/Economics/courses/econ2020/section6/section6-main.html

“…that when we view GDP from the income approach all calculations of GDP exclude capital gains, which is the appreciation in the value of an asset such as a house or stock. Capital gains are not counted in GDP because they result from a market placing a higher value on an asset, not from the actual production of goods and services ….”

#148 Devore on 08.20.11 at 5:58 pm

#61 Mr. Lee

More to the point, this is another reason why interest rates set by the B of C will be going up. The more banks loan, the more they make. The higher the interest rates, the more banks make. Welcome to the world of finance.

This is incorrect. Banks make money on the interest rate spread: the difference between what it costs them to borrow money on the bond market, and what they charge you to borrow from them. The actual bank rate, or bond rates, are irrelevant. There are other factors which influence the size of the spread, primarily the demand for and supply of credit.

#149 TurnerNation on 08.20.11 at 6:01 pm

The article posted here, about the 100k Bully Bid for a Beaches-area house in Toronto, I recall the last time I read something like this – it was Summer 2007 and the story even made it onto BNN. Somone paid xxxk over asking for a Beaches houses. And then 2008 hit…

History, it repeats.

Number nine, number nine, number nine…

#150 Davey Boy on 08.20.11 at 6:02 pm

Young Old Fart, I feel very sorry for you and your view of life and fellow man. Personally I don’t feel we live in a world where “nobody gives a shit about you but you”. I don’t care how much wealth you accumulate in your lifetime, unless you question you views of others and develop some compassion you will evolve into a Miserable Old Fart.

#151 Devore on 08.20.11 at 6:05 pm

#67 TOC

Good example of “past performance does not guarantee future results”. The belief that tomorrow will look like today, because today was like yesterday has lead many investors (even if they do not think of themselves as investors) into financial ruin. There is no such thing as passive income, or hands off investing. You need to continue to work hard for your money, even after you shell out a million bucks for a shack., or a bunch of bank preferreds.

#152 Parry Sound—Muskoka on 08.20.11 at 6:29 pm

“The Fed is not a chartered Canadian bank. No relevance.” — Garth

Okay, fair enough. How’s this?

Bank of Canada: Canada’s Money Supply

“Commercial banks and other financial institutions provide most of the assets used as money through loans made to individuals and businesses. In that sense, financial institutions create, or can create money.

The Bank of Canada manages the rate of money growth indirectly through its influence on short-term interest rates, or through the reserves provided to large deposit-taking institutions.”

http://www.bankofcanada.ca/about/backgrounders/canadas-money-supply/

#153 crabby in mcmurray on 08.20.11 at 6:41 pm

Make that “freaked out in Calgary” where we are moving forthwith. Thanks to the last 2 weeks of stock market debacle and this blog I am afraid to buy a house in “madcowtown.” Or anywhere. Which is ridiculous. I mean really.

I had never bought a new car until the time I decided to drive across the country by myself. Of course it went down in value the minute I bought it but it never had a break down in the middle of nowhere and the price of that is the same as buying a house these days. Sort of.

I know you will scream at me but we are in our 60s. could pay cash by pulling money out of investments and before you talk about retirement, he who must be obeyed plans to retire when he is 150…or more. Tried that once …hated it.
My major problem with buying a house in Calgary is that I don’t want to get stuck with it when I decide to move to where I want to end up…Nanaimo.
So here’s the question…should I rent and buy in Nanaimo, buy in Calgary or
just drink wine and forget about it. Yes it would be 30% of our assets or less.
Try not to be too cryptic. I have read this blog every day for 3 or more years.

#154 Moneta on 08.20.11 at 6:44 pm

In Canada, money creation is not based on deposits anymore but on capital ratios which depend on risk weighted assets.

Basel II has rules on the weights to put on risk assets. Here are some details on mortgages:

“Under Basel I mortgages carried a 50% risk weight, against 100% for unsecured personal and corporate loans. Basel II takes a more granular approach by stipulating a 35% risk weight for loans with a loan-to-value ratio (LTV) of up to 80%. Loans to highly rated corporate borrowers (ie, relatively safe companies) have seen an even larger reduction in risk weighting but loans to many other corporates continue to be weighted 100%.

For banks using the retail IRB approach, the risk weight attached to mortgages depends on the lender’s historical loss experience, subject to downturn assumptions, which drives the internal risk model. This can give rise to risk weights on mortgages well below 35%.

http://www.cml.org.uk/cml/policy/issues/721

Of course Cdn banks are using the IRB approach:

“OSFI and the major Canadian banks have been acquiring significant resources and doing a lot of work to implement the Internal Ratings-Based (IRB) approach.”

http://www.casact.org/education/erm/2004/handouts/brender.ppt

Maybe that’s why they needed CMHC.

#155 Devore on 08.20.11 at 6:45 pm

#91 blase

My guess is the Republicans know the economy is on it’s way back

What kind of two bit conspiracy is this? “Republicans know the economy is on its way back”. Give me a break.

As for Buffet, watch what he does, and take everything he says with two fistfuls of salt.

#156 westopia on 08.20.11 at 6:46 pm

“Banks do not create money. Myth, fantasy, fallacy. — Garth”

Ragan Lipsey, Macroeconomics 3rd ed, Chapter 27.3 – “Money Creation by the Banking System”

#157 Devore on 08.20.11 at 6:49 pm

#96 Garth a man for the people of Canada

I remember watching Garth on C-pac being the only one pushing for a review of the 40 year zero down mortgage. He was the only one fighting for the good of Canadians

And where was the “loyal opposition” during all this?

#158 Killer Chicken or Imploding Boomer? on 08.20.11 at 7:05 pm

139 Jim – sorry not in BC anyways (BC Land Titles Act)

“Title by prescription abolished
24 All existing methods of acquiring a right in or over land by prescription are abolished and, without limiting that abolition, the common law doctrine of prescription and the doctrine of the lost modern grant are abolished”

Maybe in Edmonton!

#159 timo on 08.20.11 at 7:10 pm

update Greece: the canary in the coalmine.

http://lolgreece.blogspot.com/2011/08/more-musings-on-bailout-to-end-all.html

“According to the BIS data I cited above, UK banks have a $22.8bn exposure to Irish banks and the Irish sovereign; another $20bn to banks and sovereign debt in Italy; another $6.8bn in Portugal; and a whopping $30.7bn in Spain. And the $80bn this adds up to are just the obvious risks, the black sheep of the European financial family. Given that the European stress tests earlier this year estimated the Core Tier 1 capital of the major UK banks for 2011 at about $300bn even in an adverse scenario, a substantial impairment of assets in the most troubled Eurozone countries would cause significant problems for them although it wouldn’t wipe out their capital.”

they might get a handle on this but the debt will never be paid.

#160 Devore on 08.20.11 at 7:18 pm

#127 Weevie

Really? Are we supposed to believe that until you have wriggled out of your bank preferreds? How did that work out in Iceland, where the people voted out the government that was planning to indemnify depositors in the Landsbanki

As Garth points out, Canada is not Iceland, and it is not the US. The Iceland government refused to bail out their banks. This caused a tiff with the EU members because many put their money into Icelandic banks, particularly Brits, because they paid much better interest. As a result Iceland got put in the credit vise, for taking the fiscally prudent measure, and not solving a debt problem with more debt.

To your point, CMHC is different from CDIC, because CMHC losses will trickle in over a period of time, giving CMHC and government plenty of space. Despite the previously posted doom and gloom about CMHC’s books, they are in good shape; only an absolutely catastrophic RE collapse and mortgage default rate would stress them. If CDIC was ever to be called upon, it would be a massive hit far exceeding its available capital.

#161 Devore on 08.20.11 at 7:25 pm

#127 Weevie

As for bank stocks, I fully expect they will go down, as they are overpriced, as are most financials, assuming basically steady growth in their loan portfolios. Bank preferreds will continue to pay out and behave like fixed income assets, because they are. Any pullback in price not related to increasing yields I would look at as an opportunity to buy(*), such as the inexplicable 2-10% drop last week in many financial preferreds.

(*) With due diligence, I’m just talking in general terms.

#162 George on 08.20.11 at 7:31 pm

Clearly the best post of the day is JO (#75)

#163 OttawaMike on 08.20.11 at 7:36 pm

After reading the responce and comments on ZH to the Globe’s trashing of the “Next Domino” article, I have to say I feel more assured of Canada’s banking system stability.
ZH references back to the Olympia and York, Dome Petroleum flameouts of the early 80’s are being used to illustrate bank instability.CIBC has made plenty of bad bets over the years:
http://www.investorvoice.ca/PI/2125.htm
I Googled and read more.
Evidently on Dome the loss writedowns were extended to five years from one year by a special legislative change. TD had huge 3rd world debt exposures during the same era and the big 5 were all sitting on mark to market reductions of 50%. However, they all eventually earned their way out of trouble, proving resilience.

Some argument could even be made that the early 80’s was a worse economic environment than Canada is in now but that remains to be seen with housing, oil, USA double dip and China all being future agravating factors.

#164 TO GARTH... on 08.20.11 at 7:38 pm

DELETED

#165 Steven Rowlandson on 08.20.11 at 7:44 pm

Yes Canadians should beware of hubris and confidence in the governments, banks and the stability of markets and real estate prices. Complex systems and human nature are inherently unstable and subject to being chaotic with little or no warning.

#166 Guy_in_Regina on 08.20.11 at 7:46 pm

ya the risky mortgages are backstopped, but what about all the other loans outstanding? A RE correction will not happen in isolation – it will be accompanied by high unemployment, low consumer spending and general economic malaise. I’ve seen some very good analysis from another blog (which shall remain nameless) showing the fuel RE provides the overall economy. Losing under 4% of equity seems completely possible. Regardless, even if the banks only wobble it will lead to a crisis in confidence creating a feedback loop. Of course, all of this would be very bad for financial managers.

#167 Nostradamus Le Mad Vlad on 08.20.11 at 8:00 pm


Rod Serling’s Twilight Zone never ceases to amaze / freak me out, whether it has a bullet to the bone or not.

I’ve been to more planets, different universes (sans banxters, where their economies work just fine) and had more adventures than the worthless junk of this classroom of a planet.

But Don’t Touch My Junk! Lady Gaga’s exploding buttox will keep y’all busy!

“Canada is not Iceland, Ireland or Greece. By the way, Iceland has a smaller population than Brampton. Compelling example. — Garth”

Plus Iceland’s chief exports are herring and volcanic ash, of which Brampton has neither!

#105 Timing is Everything — G’day, TIE. Yes, them thar good ol’ Smart Meters will be the saviors of the world — make tea and toast for breakfast, give us our daily dose of radiation and tuck us into bed at night.

What a glorious life! The Jetsons are living here and now! I contemplated on setting up a new banking system here recently, as when after the system has gone supernova, it turns into an enormous black hole, better known as GS JPM and anything else you can think of. I get to suck all the investments out!

Re: Smart Meters. There are good things and bad things about them here, more recent. I prefer the old tried-and-true method of natural gas (flatulence). Works for me!
*
Banxters Caution: The painting of a naked lady may be too overwhelming for some. Watch The Weather Network instead. It’s easier on the heart; The Mandrake Mechanism and debt cancellation; Chavez “Interesting: the original source, bloomberg.com, pulled the article, and if you click on ‘read full article here’, you get a 404 error.” wrh.com; Zombie Banks “Two and a half years ago, financial markets rallied strongly on the propaganda that the worst of the slump was over…” wrh.com.

12:41 clip Syria is not Libya; 2:25 clip Operation Fast and Furious was a front to bring in gun control; Texas Secession Gaining speed; 1:39 clip BoA supports Rick Perry, but who supports BoA? Gaza New Yorkers have the right idea; Libya and the end of western illusions; Low Supplies Wot’s big pharma up to?

#168 Nemesis on 08.20.11 at 8:19 pm

An afterthought/oversight…

“And I’d like a pony.” — Hon. GT

Well then… Trade in your ‘Hog’ for an ‘Italian’.

Then again… on second thought – “A man should know his limitations.” Accordingly, as you already enjoy the company of a ‘thoroughbred’ – it might be best to hang on to that Wisconsin ‘PreciousMetal’. At least you had the good sense to throw the stock exhaust in the rubbish [having said that, and notwithstanding that V&H’s are ‘cool’… you should ‘see’/hear a Termignoni. ‘See’, because you could roast a goat on the ‘after-burner’].

OK, I would imagine that’s more than enough Bike-Rider ‘one-upsmanship’ for one afternoon. The Barbie beckons (not Mattel, Weber).

#169 Guru On The Sidelines on 08.20.11 at 8:53 pm

The bigger Carney inflates this bubble, the more reluctant wise people will be to dive in. When it pops, it will be all the more punishing to those who did.

#170 pulse on 08.20.11 at 9:11 pm

“Banks do not create money”

However, your pledge of debt servitude does pay for all the economic ‘growth’ that we all enjoy (HAHAHA.)

The signature on the mortgage/loan obligates you to forfeit your future earnings to the bank. Bank has ZERO risk (if they have done proper work on your qualifications) with a CMHC mortgage.

Zero risk, only reward is not capitalism.

http://www.youtube.com/watch?v=vVkFb26u9g8

http://www.moneyasdebt.net/

(this video speaks of “Fractional Reserve Banking” – I am informed Canada’s reserve requirements are ZERO, maybe Garth could confirm?)

pulse

I will confirm you need something constructive to do. — Garth

#171 Drew on 08.20.11 at 9:25 pm

139 and 159

I don’t know that our land title system is as clean as most think. Adverse possession is still possible as we are a common law jurisdiction. Note issues with fraudulent mortgages:

“Court of appeal Justice Mary Newbury explained in Gill v. Bucholtz that the appeals raised “some basic questions about the Torrens land registration system of this province that have not previously reached” the Court of Appeal.

And amendments made to the Land Title Act in 2005 “have added to the jigsaw puzzle of provisions and case authority without stating a unifying principle,” she said. “Certainly the conception of [B.C.’s]… system as one on which anyone dealing with any interest in land may safely rely, is not clearly reflected in the present legislation,” Justice Newbury wrote.

“The facts obviously raised for interpretation the central ‘indefeasibility section’ of the Act, s. 23, and the ‘fraud exception’ in s. 23(2)(i).” 

The appellate judge said in the first case that in her view, the conclusion in the court below that the Act “gives any registered owner — even a fraudster — an ‘indefeasible right to deal with the property’ rests on a misapprehension of s. 23(2)(i) and fails to give effect to the Act as it now reads. The chambers judge himself recognized that a registered charge does not obtain the same quality of indefeasibility as the registered fee simple, but he failed to apply this principle. On its plain meaning, the exception in s. 23(2)(i) to the indefeasibility of title applies and the phrase ‘void instrument’ in s. 25.1(1) includes a mortgage taken from a person who obtained her title by fraud or forgery, as occurred in this case… The mortgagees in this case did not acquire any estate or interest in [the property] on registration of their instruments because having been granted by a person who had no interest to give, those instruments were void, both at common law and under s. 25.1(1). With respect, I conclude that the chambers judge erred in law in his interpretation of the scope and nature of indefeasibility…”

http://www.lawyersweekly.ca/index.php?section=article&articleid=905

#172 Freedom 85 on 08.20.11 at 9:32 pm

Garth,

No offense but Zero Hedge makes several points and provides supporting evidence. Its follow up piece provides the support with strong back up from John Paulson’s comments in a 2009 interview about comparison’s of Tier 1 capital vs TCE.

Anyways Garth,

I realize your hot to trot on the banks and their dividend streams, but the value creation is beginning to fade and I think they will end up having big challenges ahead. As far as CMHC covering their high risk loans, remember this: the government can change the rules to benefit itself anytime it wants. The panacea of risk free mortgage lending (at high ratios) can become quite the quagmire for the big banks if the government decides to make it more difficult to get payment. It’s like dealing with any insurance agency. If all the banks are clamoring for insurance coverage at the same time, rules will be changed to protect the government.

Sorry for the long winded response but I think the touting of the banks that goes on at this website is overrated.

The last thing Ottawa would do is allow banks to suffer losses on insured mortgage assets. Sheesh, where do these nutjob what-if scenarios come from? — Garth

#173 pulse on 08.20.11 at 9:38 pm

Another recent opinion;

http://www.bnn.ca/News/2011/7/25/Is-the-CMHC-Canadas-Fannie-Mae-.aspx

Coming changes to Cdn bank preferred shares;

http://watch.bnn.ca/#clip519718

pulse

No consequences for the holders of Canadian bank equity, common or preferred. No bank will fail. — Garth

#174 Utopia on 08.20.11 at 9:45 pm

#154 crabby in mcmurray asked….

“So here’s the question…should I rent [or] buy in Nanaimo?”
—————————————

Rent. Don’t even consider buying. Prices are falling already and the market there is stalled. Price reductions are inevitable as recession takes hold.

That region has little to offer in the way of good employment, has solid income base other than real estate speculation, the malls are empty and if you have not noticed yet….British Columbia is set to the be epicenter of the Canadian housing correction.

As I know that area well, and know that it is badly overpriced and overly hyped as a retirement city, I can only suggest you use common sense and hold your fire.

Rent and wait out the storm. Buy when the deals come as they must once delusion in that town takes a back seat to reality.

My point here is that most people in Nanaimo cannot hang on if a real estate correction transpires. They ask the moon and dream of the stars now, but will beg for your low-ball offer later.

Being in the drivers seat wins. Buy now and you are a sucker.

#175 Utopia on 08.20.11 at 10:04 pm

Well, one thing I will note after reading all the posts on the two Zero hedge articles is that they do respect freedom of speech there.

That must explain why the site is over-run by poisonous commentary from so many posters, why it is rife with racism, misogyny, government-haters, lunatics and pretenders to the altar of investing. I suspect most of them don’t have two shillings to press together. All B.S. and talk of course.

And pure venom too. But they all love Gold.

Anyone else see the correlation? Only this small extremist group keeps demanding the so-called truth while gutting almost every single word they hear from other sources as conspiracy and lies. I am surprised they have time to post as they all run for the hills, ammo in tow.

Plenty of Canadians amongst them too.

It is why I keep saying that Gold-Huggers are narcissistic, anarchist, anti-establishment system-haters and outsiders.

And it is why they need to be monitored more closely.

#176 Best place on meth on 08.20.11 at 10:36 pm

Apparently the Greater Fool guy doesn’t think the Zero Hedge blogger deserves any respect because he writes under a pseudonym.

Respect, as in calling him by name even if it’s not his real name.

Very sad, that Greater Fool guy.

Yes, I am so anonymous. — Garth

#177 Best place on meth on 08.20.11 at 10:48 pm

Post #176 is hate speech.

#178 Moneta on 08.20.11 at 10:51 pm

So here’s the question…should I rent and buy in Nanaimo, buy in Calgary or
————
I’d start by visiting rentals.

#179 Killer Chicken or Imploding Boomer? on 08.20.11 at 10:51 pm

172 Drew – good research. Also noted here:

http://www.ltsa.ca/land-title/security-of-land-title

My comment had nothing to do with fraud however. Adverse possession is the exclusive form of prescription which allows for acquiring rights following the “open, hostile, actual and continuous ” use or occupation of land. Note the word “hostile” ie against the true owners
wishes. If the occupation/use is permitted or even tolerated by the owner than certain rights to parties may indeed be created by estoppel.

http://www.marymacgregor.ca/article07.htm

#180 Dr.NickRiviera on 08.20.11 at 10:56 pm

#176 Utopia

“It is why I keep saying that Gold-Huggers are narcissistic, anarchist, anti-establishment system-haters and outsiders.

And it is why they need to be monitored more closely.”

Seriously? “Monitored more closely”? Are you looking to apply for a job at CTU with Jack Bauer?

This kind of thinking I find way more scary than the (20% of) Zero Hedge readers who spend a Saturday night with their stash of gold coins in their parent’s basement.

#181 randman on 08.20.11 at 11:05 pm

No matter what Garth’s logic is…

Anyone who trusts the banks and government

To do the right thing or protect you in a calamity..

Is a fool!!!

Do not trust anything the bank or cmhc or the government …says…period

#182 pulse on 08.20.11 at 11:22 pm

Implementation of Monetary Policy in a Regime with Zero Reserve Requirements

http://www.bankofcanada.ca/wp-content/uploads/2010/05/wp97-8.pdf

Just tryin’ to be constructive!

#183 Elmer on 08.20.11 at 11:30 pm

This post prompted me to post this clip: http://www.youtube.com/watch?v=vQZRwvgMVCw

#184 Freedom 85 on 08.20.11 at 11:47 pm

Garth,

Canada’s next door neighbor is going through significant challenges. I think it’s almost time to begin betting against he U.S. The US Fed protected its banks and nationalized the insurers (Fannie Mae and Freddie Mac). I don’t see much of an improvement. The only thing that will improve the situation is time, lots of it and debt repudiation.

It’s no different in Canada…

Of course the Canadian government will protect the banks. That’s obvious. But then what happens…..? What is being experienced is a huge credit crunch in the Western developed nations. If I told you 4 years ago that the US would be downgraded by S&P, you would have thought I was a nut job, but lo and behold, it happened. We’ve only begun to experience it here in Canada due to assistance from a rising loonie and rising oil and commodities, but soon enough that ride ends, then what.

You diss F on a regular basis; what makes you think he and Mark Carnival clown really know what to do next. They don’t know because what’s occurring is unprecedented on the global scale.

It’s time to stop poo-pooing these very important issues and recognize our governments have been acting against their citizens best interests by encouraging debt accumulation to extremes. These extremes will be corrected and the expenses of those citizens. they are going to hurt for a very long time when the rubber band snaps.

And it will snap.

On one hand, you say that the housing market is going into a significant decline, but you can’t attach that to banks. You and I don’t really know the junk they’ve put on their books as they’ve expanded into multinational operations.

We’re heading into the poo-poo very soon!!!

#185 Nostradamus Le Mad Vlad on 08.20.11 at 11:51 pm


Fishing Bloopers!
*
US Feral Reserve A typo? Maybe not; Sirius Holy sheepshit! The system is ready to blow! Think our taxes are bad?

OPEC and Venezuela Could Chavez spare some gold? Maybe, but The Cartel “The first retaliatory shot has been fired in the great gold war.”; Bear Country More like Bear Continent.

Bovine Excrometer A Lurt! Two in three days — can’t keep up. Actually, Saudi Arabia is on the target list, but give Gadaafi credit — Libya has almost singlehandedly bought the west to a complete halt, and m$m Presstitutes Following on from previous; Iran “Every hiker carries a GPS, even if it is the one inside their cell phones. The ‘hikers’ were warned by the locals that the direction they were headed was the Iranian border. So these people were sent into Iran to provoke a confrontation, just as the Israelis walked into Lebanon to kick off that war, Also here; Russia, Turkey stand by Syria, mainly because the west’s invasion is illegal.

One min. clip Chinese airport shut down by UFO. Do they cause massive sandstorms over Arizona and China as well? USDA and Rockefellers Yep, rural farmland is going the way of the dodo bird; Two Nuke Plants shut down in US; Ron Paul Wins something; Blogfight For Two? Michael Collins Piper vs. Alex Jones; Unlawful Wars do not equate to lawful orders.

#186 Santa on 08.20.11 at 11:51 pm

you are all so tense… what’s the matter? we all go the same place no matter the market direction.

here’s one

you know there is no office sex among public servants?
that’s because they are all relatives.

#187 Freedom 85 on 08.20.11 at 11:53 pm

Garth,

you shortened my initial response #177 by deleting the follow up rebuttal by Zero Hedge that I referred to:

Here is the link:
http://www.zerohedge.com/news/who-john-paulson-and-why-should-globe-and-mail-care

Real estate is precious on this site. Use a link. Long excerpts will be struck. — Garth

#188 timo on 08.20.11 at 11:57 pm

http://www.youtube.com/watch?v=D47MbNquwF0&feature=related

great video on how the debt in Europe cannot be sustained.

#189 Santa on 08.21.11 at 12:01 am

okay, here’s anther one

englishmen are so good at stats, they can tell you how many will croak next year. that’s what lloyds i believe does… as opposed, the sicilians, they can name a few names.

#190 haha on 08.21.11 at 12:12 am

thanx mr. turner for clearing this up… i read this thingy this past friday, and i was wondering the what if situation…… no, this is just a thank you note, not a rant or sarcastic dig… there is enough of that here…

#191 kitchener1 on 08.21.11 at 12:17 am

The last thing Ottawa would do is allow banks to suffer losses on insured mortgage assets. Sheesh, where do these nutjob what-if scenarios come from? — Garth

Sorry Garth, i disagree.

Im not talking about taking the full loss on mortgages but they will have to take some losses.

Think about the worst case scenerio, The Cons are about to go all medievil on us and start up a new austerity plan to balance the budget. Then out of nowhere, RE starts to fall hard and CMHC has to start paying out some real $$.

Going to be hard to sell all the cuts and austerity to the banks while telling joe average that they will be cutting his ……………….taake your pick…………

F already screwed over a whole bunch of folks with his trust fund reversal years ago– he did what was best for the govt at the time, he will do it again.

CMHC will just go over every T to make sure its crossed and every i to make sure its dotted and do anything to not pay out. The govt loves to take in money, but giving it back, well thats a diff story.

#192 Republic_of_Western_Canada on 08.21.11 at 12:26 am

So WHAT is all this about the Dome Pete bailout triggering a re-write of Cdn sec. law?? (Not that there’s a whole lot of law to begin with, considering the securities industry is a :cough: ‘self governing’ industry…)

#193 pulse on 08.21.11 at 12:29 am

#176 Utopia

“And pure venom too. But they all love Gold. ”

I hate gold’s screaming yells that tell us the system is broken. Broken by deluded ‘something for nothing’ fools who imagine their limitless greed and complete disregard for their own legacies will have no personal consequence.

“And here’s the clincher: At $32,000 of debt per person in Ontario, we are right behind the Greeks (at $35,000 per person). Maybe it wasn’t such a good idea after all to DOUBLE our debt in eight years, eh McGuinty Liberals??”

http://fairpensionsforall.net/2011/07/12/european-debt-crisis-impending-catastrophe/

(ask Dalton how those yen denominated Ontario bonds are doing…. he’s probably covered them with an OTC derivative. No need to account for counter party risk, I suppose.)

Lots of bad manners going on outside of the ‘burbs.
Not everyone is always polite, ‘cept in Utopia I guess.

pulse

#194 Scott in Gibsons on 08.21.11 at 12:38 am

I’m willing to bet that, when a Canadian defaults on their mortgage, there is a cost to the bank, CMHC or no CMHC. The bank may be compensated for the insured value of the mortgage, but what about the cost of maintaining and selling the home?

Also, what percentage of banks’ real estate portfolios are commercial? What other investments do the banks hold that could potentially eat up their thin capital?

Sorry Garth but your response was a bit narrow and ignored many risks our banks face. Plus, its just plain dumb to brush off the work of ZeroHedge. These guys have been providing real journalism in a time when the MSM has been corrupted and restrained. I just wish I could understand half of what they write about!

Thanks for the blog, I read it every day and can’t wait for your expectations to materialize. Thank you.

#195 nonplused on 08.21.11 at 12:40 am

Totally off topic but all the hawks that live around my house, and most of the smaller birds, have already left. Nothing here but Magpies. I predict an early winter.

Wierd summer too, almost no yellow jackets even still, bees are just getting numerous, and the cats have been chowing down on plentiful mice, pocket gophers, and dragon flies.

#196 Sanddancer on 08.21.11 at 1:05 am

You should all read this :

http://uk.finance.yahoo.com/news/It-look-grim-years-1945-tele-363576857.html?x=0

#197 Mark on 08.21.11 at 1:10 am

What’s the problem with Canada’s banks? First, any CMHC mortgage that goes bad (and these make up most of their balance sheets that are at risk) is guaranteed to be repaid at 100 cents on the dollars. Second, in the event of any sort of bank run or difficulty of funding operations from the money markets, Canadian banks have the ability to increase the “Prime” rate to any level that they want, to extract a large amount of value and equity out of debtors.

As it stands right now, with all the variable rate debt out there, Canadian banks could increase prime to 20%+ and pretty much foreclose on a good chunk of the country. Quite unlike the US and global banks that have most of their loans tied up long-term fixed obligations.

Wrong. — Garth

#198 Mark on 08.21.11 at 1:16 am

“And I also forgot to mention the 5 year upfronting of profits that come from securitization that will surely end when real estate weakens and for which investors are currently paying 15X.”

Canadian banks didn’t really make any significant amount of money on securitization since most Canadian mortgages are only capturing, at best, 5 years of spread, not 30 years of spread as was the case in the United States with the 30-year mortgages.

Canadian banks are in an excellent position to increase lending spreads, knowing that any increase in default rates, on a systemic basis, will be covered by the CMHC with newly printed money.

Gold stocks may very well turn out to be a better buy, but the banks should still be good for 15-20%/annum for a considerable number of years going forward.

#199 Jody on 08.21.11 at 2:27 am

“#134Tim
I was talking to an economist for one of the Big Five banks yesterday. He noted that a 1% rise in interest rates would hook his bank with fourteen thousand mortgage defaults.

Fourteen thousand. And that’s for one percent.

I don’t see how monetizing this looming default onto the backs of Canadian taxpayers is anything but horrific news for us.”

Garth doesn’t seem to think it’s horrific, I would hope I’m wrong but he seems to be overjoyed that if the SHTF the taxpayer would be there to backstop all this BS. At no point in my life did I sign a “social contract,” to bail out stupid consumers who spend beyond their means or those pricks called bankers who screw up their greedy bets and then dump their failures upon the tax payer. I NEVER SIGNED ANY AGREEMENT LIKE THAT!!! Got it?!

How, how is it okay that the CMHC is backed by the tax payer? What? Is it for the children? Is it to help out others who aren’t as lucky as I am? Sorry, right now I am housing two friends for free, both have lost their jobs and are skint. I am willing to help them because we have a relationship and thats what people do, and to be honest if the *ucking government didn’t dick around with everyones lives the kind and generous nature 99% of people have would come shining through. Most people want the best for themselves, their families, their friends and society in general, they don’t need some desk jockey government employee to make up a program or regulations to protect us. Not that they do, did you hear about the riots in London? Yea, the police stood by and watched, how nice of them, wow, what an awesome government “service.” They don’t want CEO’s and CFO’s etc. who make millions every year to continue fleecing them. I feel that you think it’s okay for them to do that.

Look at Hurricane Katrina, who was down there first with water? FEMA? Hahahahaha! Wallmart, they gave it away free until the morons with FEMA made them turn around and go away, all while FEMA’s water trucks were driving up to Maine and other states. But that’s government, they break your leg, give you a crutch, and then say,

“See, without the government you wouldn’t be able to walk.”

I feel like Garth is defending the banks, defending their actions and defending the banks rights (which they don’t have), to be taken care of with our tax dollars. Really Garth? So a bank fails, I don’t give a flying flip. They made the stupid decisions and they should have to pay for it and if it causes a lot of pain so what? Welcome to reality. What do you think it’s like for the local bike shop owner, the lady who caters weddings, the man who delivers newspapers? When their businesses hit a tough spot or are in danger of going under do they get a corporate tax break? Do they get bailed out with tax dollars? Of course not. So why is it okay for the banks to be bailed out hmmm? What? We need them? Without them fire and brimstone would come out of the sky and smite us all? The Bank of Montreal and the jerks who run it are no more important than Yolanda the wedding planner or Jim Bob the heavy duty mechanic. This is a cycle that needs to stop.

You see my friends lost their jobs because the companies they work for layed people off because of the DEPRESSION. Their companies supplied government and other organizations with medical supplies and now corporate taxes get slashed (corporate taxes pay for more services than you think) so governments lose funding and have to cut programs. Normally I’d be okay with this because things would eventually come back and if you hadn’t guessed already, I hat government, especially the useless and interfering federal government. Things aren’t coming back though because the government keeps bailing out financial institutions (and every other corporation that donates to their political campaigns) with our tax dollars, those same institutions continue to rake in very high profits thanks to our tax dollars, they get a tax cut and then the services we get get worse or go away, and I already think the “services,” the government provides us with are utter garbage. We are being fleeced and I have quite frankly had enough and it saddens me to see Garth stick up for crap corporations are pulling. I hope I’m wrong.

If the banks go down, you go down. Stop whining. — Garth

#200 Bogdan on 08.21.11 at 2:31 am

No contradiction. Not enough mortgages would ever fail at once to overwhelm CMHC which would continue to function through a transfer of tax revenue. But the failure of one of our Big Five would trigger an immediate requirement for all its deposits to be covered – a massively larger amount and an impossibility. — Garth
Garth, while I remember some of your posts saying that CMHC will face problems, I prefer to let a more than clear article about CMHC’s balance sheet issues to bring the light here: http://www.mises.ca/posts/articles/a-second-look-at-the-cmhc/

Please note the key sentence: “Rising interest rates will quickly wipe out what little net income the CMHC is still making, further endangering the company.”

Also, please note your articles in which you say the interest rate will inevitably raise and advise people to stay out of debt…. to which I agree. For for God’s sake, Carney & F agree too. If you put the two together, interest rates rising and how CMHC’s income is generated, you’ll see where you contradict yourself and why CMHC will fail way before CDIC.

If you don’t have the time or don’t want to read the article (is not a long one), I can probably show you in some logic steps where the contradiction is, by discussing the group interest of three different entities, (1) the government, (2) the banks and (3) the taxpayers, where (1)&(2) will always backup each other to the expense of (3). This is why the housing boom keeps going and your predictions so far weren’t accurate. This is why the government can’t afford for the housing prices to go down, as it will affect both, CMHC and the banks.

You Austrians are always such fun. — Garth

#201 McLovin on 08.21.11 at 2:45 am

Hey DA, please comment on the Kelowna market. I look forward to hearing about how great it is. This would be contary to my what my friends who work in the industry say but I am sure you are different.

#202 Mike on 08.21.11 at 3:53 am

Given the misunderstanding about things like where money comes from, how the CMHC works and what “the fed” is, I’m beginning to think that Garth should write a book “Canadian Money 101”

#203 syd on 08.21.11 at 4:05 am

http://www.moneyville.ca/article/1042408–bully-bids-symptom-of-housing-market-gone-mad?bn=1

#204 betamax on 08.21.11 at 5:13 am

#175 Utopia: “As I know that area [Nanaimo] well, and know that it is badly overpriced and overly hyped as a retirement city”

Nanaimo prices doubled in the last decade based on nothing but proximity to the speculative bubble in Vancouver. In other words, the Nanaimo RE market is a bubble based on another bubble.

I lived there for a while, and it was far too long. It’s a mill town economy maintained by virtue of being the wide spot in the road where the ferry docks, currently goosed by construction that will disappear when the market turns.

Nanaimo, aptly referred to as ‘Surrey by the Sea’, is a dump with pretensions to mediocrity. Prices there are going to fall like a crowbar down a well.

#205 Moneta on 08.21.11 at 6:44 am

My mom always reminded me that it’s the quiet ones you have to watch out for…

ZeroHedge might be over the top but with eccentricity often comes genius.

Where there is smoke, there is fire.

#206 BigAl (Original) on 08.21.11 at 7:15 am

From many posts over the last couple of days regarding immigration, most responses are defenders of immigration, a few against. Most people on here seem to agree with the portrayal of “Canadians” (non-recent immigrants) as lazy, beer swilling, uneducated, hockey obsessed losers. One engineer from yesterday even went so far as to say he’s happy with the idea that 90% of his firm is recent immigrants, including bosses, and he’s happy about that because they work harder than him.

I’m a second generation visible minority immigrant, and my work is very closely tied to immigrant workers and their employers. I would say that most on here haven’t got a clue about the new type of immigration going on, and we’ve become a society brainwashed into bowing down to anything and anyone other than ourselves.

While I recognize that at one time it was tough for visible minorities and those with foreign credentials to find jobs, the pendulum has shifted to the detriment of homegrown talent. Today it is extremely easy for new immigrants to find work in their own fields.

The Ontario government and the Federal government both have widespread special internship programs in all their areas restricted ONLY for recent immigrants – not just degree’d professionals but in all job classes. What about the poor Canadian citizen student carrying that massive student debt?

And why is it that just because someone criticizes immigration policy that defenders feel they can just shut down the discussion by smearing them as racist? Racism is a serious charge, not to be taken lightly. As a visible minority it is insulting to have it tossed around so flippantly. Quit using it just because you don’t have an answer to a criticism.

#207 Utopia on 08.21.11 at 7:46 am

Jackson Hole? What is that and why should you care?

If you are a market watcher Jackson Hole is a big deal. That is the name of the once annual symposium held in the city of the same name and hosted by the Kansas City Fed.

The meeting is presided over by Fed Chairman Ben Bernanke and the event has garnered much attention as it has been the location of major formal announcements of Fed intentions. Like QE1 and QE2.

Mark August 26th on your calendar and get ready.

It was in fact at this event last year that QE2 was formally announced. Few are expecting a repeat of that news this year and as we are seeing, markets are already pricing in that belief.

Markets are more than just skittish now and some serious declines look to still be in store on worries over debt and Euro default risks. We note again that liquidity is flooding into the financial system in the US at this time and that the timing may not be coincidental.

Lets keep in mind that the massive run-up seen in virtually all commodities (including gold and silver) over the past year came about on the news of major Fed intervention.

Without a similar announcement on the 26th we can expect reversals on most exchanges as capital shifts from equities to bonds and to safety while good re-entry points are awaited by more savvy investors.

Mr Bernanke, of course, is not in the business of killing confidence in the stock markets but neither can he introduce fresh policy intervention until there is clear evidence that we have gone recessionary again. That the US is at risk of deflation.

I expect that the meeting will be muted and will only offer assurances that the Fed is ready, willing and able to intervene if necessary. No new action will be taken at this time though.

Nobody can foresee though how market participants might respond. Will there be fireworks on that date?

Perhaps. I tend to think though that much of the sentiment has already been taken into account already and only a confirmation remains to seal the conclusions many have already come too.

In the event that there is a surprise announcement though, hopefully you will have been forewarned and will be prepared.

Jackson Hole could be a big deal this year. Everyone is waiting for Mr Bernanke and the Fed to signal their intentions in support of the economy.

#208 Utopia on 08.21.11 at 8:22 am

#202 BigAl (Original)

“From many posts over the last couple of days regarding immigration, most responses are defenders of immigration, a few against”.
—————————————–

Good post BigAl. It got me thinking.

This country of ours is quite dependent on immigration to support our poor demographic outlook. We do not produce enough children here anymore and the population is aging.

Canada had one of the biggest baby boom “bulges” of all Western nations following the Second World War. Bigger than that in America too. We have a demographic picture that is more like what is seen in Japan than almost anyone else.

There are too many old people. Not enough youngsters.

For this reason, immigrants are being offered better opportunities and past regulations that effectively excluded highly skilled newcomers from entry into their chosen professions are now being relaxed.

That is a good thing.

We badly need fresh blood and younger people to keep our economy ticking along and to support the tax base of the future. The recent statistics on natural population growth, impending retirements of Boomer’s and expected strains on our health care system as fewer work were stark.

The dilemma is acute but we now face a big problem.

As our country heads into what looks certain to be a recession we can anticipate higher unemployment rates. Contrast that with the needs to replenish population growth as most of us age and you can easily understand the problems we now face.

How can we maintain high immigration levels at a time when employment opportunities might be drying up for natural born citizens? That is the question Ottawa will grapple with over the coming years. And it is no small issue.

It is also interesting to note that many young people in this country have decided against families due to debt considerations. I know of several couples in this situation and you likely do too.

A negative outcome of too much debt is too few newborns and so our fertility rates are now dropping as the push for economic revival has resulted in fewer live births.

Mortgages are partially the reason.

This low rate environment has enticed many young people into home ownership yet left them little incentive to start new families. Why?

Well, they simply cannot afford children now. Great to have a house and a good lifestyle but it has ruined the prospects of making families. This makes the need for ongoing immigration all the more essential as we consider our economic prospects in the future.

So there you have it. Banks killed the babies.

#209 Moneta on 08.21.11 at 8:30 am

Mark on 08.21.11 at 1:16 am

Canadian banks didn’t really make any significant amount of money on securitization since most Canadian mortgages are only capturing, at best, 5 years of spread, not 30 years of spread as was the case in the United States with the 30-year mortgages

—————-
Guys, could you please open an annual report before arguing?

Right in front of me, I have the 2010 edition of one of our banks and it clearly shows that securitization revenue was at least 10% of other income in 2010 and 15% in 2009.

Securitization was not very significant in 2000, I guess because mortgages were not too risky and offered good spreads so it made sense to keep on their books.

#210 t on 08.21.11 at 8:33 am

Garth,

Great article. However, you mention that terrible term bankruptcy in a way that suggest that bankruptcy will eliminate a borrowers responsibility for collateral loans. It doesn’t. The original borrower will, even after bankruptcy, still be responsible for the outstanding debt on collateral loans that could not be recouped through the sale of the asset that was offered as the collateral. That means that if you owe more than the house could be sold for, and your lender forcloses on you, you will still be responsible for the difference between what they get at sale, and what you owe.
Can’t get money from a stone? They will proceed with legal action to have any of your future earnings garnished including tax refunds, CPP, etc…
Unfortunately, no home owners that I know are familiar with these rules…shame, eh?

#211 T.O. Bubble Boy on 08.21.11 at 8:38 am

Canada is not Iceland, Ireland or Greece. By the way, Iceland has a smaller population than Brampton. Compelling example. — Garth

Let’s hope that we’re not Ireland…

http://uk.finance.yahoo.com/news/Ireland-mull-mortgage-reuters_molt-121866087.html

In Ireleand, 11% of the market is in arrears or restructured, and the Government is looking to write-off about $6B in mortgages. For a country with $200B in GDP, that’s 3%.

So, relatively speaking — for Canada (with GDP of $1.6T), that same write-off would be about $48B.

I wonder if that type of mortgage bailout would be branded as an “Economic Action Plan”?

#212 Utopia on 08.21.11 at 8:39 am

#205 Betamax said……

“Nanaimo, aptly referred to as ‘Surrey by the Sea’, is a dump with pretensions to mediocrity. Prices there are going to fall like a crowbar down a well”.
——————————-

I have to agree with you. Nanaimo has become far too dependent on fresh growth, construction activity and real estate speculation combined with retirements from Vancouver and elsewhere. It is a city at very high risk of of a major downturn should this country go recessionary and and the housing situation soften.

As you noted, it is a bubble built on another bubble and I believe it could get quite ugly there. Hell, I know it will get ugly there.

Buying now in that town is just stupid.

#213 BrianT on 08.21.11 at 8:57 am

Every couple wks this debt jumps dramatically-now it is at about 2.11 million dollars per USA taxpayer-don’t worry-it is just a crazy conspiracy theory http://www.npr.org/2011/08/06/139027615/a-national-debt-of-14-trillion-try-211-trillion?ft=1&f=1001

Sovereign debt size is irrelevant if it can be serviced. — Garth

#214 The InvestorsFriend (Shawn Allen) on 08.21.11 at 9:07 am

GREATER FOOL – DEFINITION OF:

One who buys a 10-year government bond that yields 2% but denies that he is “accepting” a 2% return.

He believes he will simply sell at no loss or a monir loss if interest rates start to rise which WILL cause a capital loss on the bond value.

He forgets that rates can rise quickly and then when they do start to rise he will probbaly be slow to accept it and may fail to sell and then will be stuck with that bond as it’s value falls.

Imagine a 2% return. On a million dollars you can get $20k annually. What a joke!

There are $trillions in these bonds outstanding. Demand to buy seems to exceed the supply of sellers. Both holders who fail to sell and buyers who buy will almost surely regret this.

Your last post just defended long-term bond purchases by citing pension funds and insurance companies as major buyers who hold to maturity. You sure do not understand bond strategies. — Garth

#215 Kaganovich on 08.21.11 at 9:29 am

176 Utopia

You wrote:
It is why I keep saying that Gold-Huggers are narcissistic, anarchist, anti-establishment system-haters and outsiders.

And it is why they need to be monitored more closely.

Huh?

First, what has anarchism got to do with goldbugs and narcissism? Christopher Lasch would think otherwise, since our consumer capitalist society fosters the latter much more than anarchism would IMO.

Here is a thoughtful, recent piece on anarchy and the London riots which provides some counterpoints to your statements:
http://www.independent.co.uk/news/uk/politics/boff-whalley-in-defence-of-anarchy-2336159.html

And here is a comical look at why many people are beginning to hate the established system we are in:
http://dailyshow.thecomedynetwork.ca/

#216 Utopia on 08.21.11 at 9:44 am

#200 Jody on 08.21.11 at 2:27 am

That was a pretty good rant Jody.

About a seven on the Richter scale. I can understand what you are saying to us though even if you came across as crazy in the wording.

Your words reflect the worry that many feel now and how we are seeing our entitlements slowly being eroded away as reality finally sets in.

The banks themselves are not at fault though. As I have said many times before; nobody put a gun to anyone’s head and forced them to sign on the dotted line.

Canadians have been greedy. They have taken deliberate risks and they have speculated heavily using the low rates offered to their advantage. There will be winners and losers. But most have no one to blame but themselves in the end. There were no tricks and no manipulation employed by anyone. Just easy money policy and the usual realtor come-ons. Nothing has changed in he world of marketing to fools, now has it?

Those people are all adults and they made their own speculative decisions to make gains through buying homes.

Please stop the blaming.

#217 Oasis on 08.21.11 at 9:51 am

If the banks go down, you go down. Stop whining. — Garth

________________________________________

so, one sector of the economy can bring everything down with it. and you don’t think there is anything wrong with that?

#218 TurnerNation on 08.21.11 at 9:57 am

A curious blast from the past, from 2008:

NY Times
“…Darrin West could not believe it. The president of the United States was standing in his living room.

It was June 17, 2002, a day Mr. West recalls as “the highlight of my life.” Mr. Bush, in Atlanta to unveil a plan to increase the number of minority homeowners by 5.5 million, was touring Park Place South, a development of starter homes in a neighborhood once marked by blight and crime.

Mr. West had patrolled there as a police officer, and now he was the proud owner of a $130,000 town house, bought with an adjustable-rate mortgage and a $20,000 government loan as his down payment — just the sort of creative public-private financing Mr. Bush was promoting.

“Part of economic security,” Mr. Bush declared that day, “is owning your own home.”

A lot has changed since then. Mr. West, beset by personal problems, left Atlanta. Unable to sell his home for what he owed, he said, he gave it back to the bank last year. Like other communities across America, Park Place South has been hit with a foreclosure crisis affecting at least 10 percent of its 232 homes, according to Masharn Wilson, a developer who led Mr. Bush’s tour…”

http://www.nytimes.com/2008/12/21/business/21admin.html?adxnnl=1&pagewanted=2&adxnnlx=1313897890-CYqzkpm6VeDsPy9XT/KFnQ

#219 Helicopter Ben on 08.21.11 at 10:32 am

Banks do not create money. Myth, fantasy, fallacy. — Garth…………………………………………………………………..Banks Expand the monetary supply, most of the money in existence was created through commercial banks loaning out fictional fiat paper money.. Central banks Borrow money out of thin air, commercial banks lend money out of thin air, its all a lie. nothing rare or special about paper backed by paper. average fiat currency last 40 years, do the math.

#220 timo on 08.21.11 at 10:33 am

http://howestreet.com/2011/08/bank-england-regulator-argues-banks-risks-underpin-economy-revisionist-roosevelt-history/

Private Consumption in Portugal Plunges 3.4%, Biggest Drop in 30 Years; Expect Rest of Europe to Follow

http://www.wealthson.com/1635/who-are-the-holders-of-greek-portugal-and-ireland-debts

haircuts are in the cards….

#221 Young Old fart on 08.21.11 at 11:09 am

151Davey Boy on 08.20.11 at 6:02 pm

Young Old Fart, I feel very sorry for you and your view of life and fellow man. Personally I don’t feel we live in a world where “nobody gives a shit about you but you”.
===================================

Don’t get me wrong, miserable? Far from it. I live a very happy and very comfortable life for me and my family built by my hard work.

But when it comes to business and money, my statement stands. You can hope for better but I learned it the hard way and if it hasn’t yet, one day reality will set in for you too…

#222 Keith in Calgary on 08.21.11 at 11:30 am

“the harsher your critics react to a statement you may make, the more likely you were to have been deadly accurate with the context of said statement”…….

Zero Hedge has totally freaked the frauds, criminals, and lying banksters and politicos in our country and their puppets in the MSM…….

Any jackass can kick down a barn. No jackass can build one. — Garth

#223 yt on 08.21.11 at 11:50 am

re. 186, Nostra

fishing bloopers- thank you I needed that, now I am ready to face a new day in this crazy world.

#224 BrianT on 08.21.11 at 11:52 am

181Dr-Good comment about Utop’s brownshirt appeal, but the gold coins in the parent’s basement might be a stretch-I simply find it hard to believe that this huge bull in gold and silver is being driven primarily by the poorest members of society-the math doesn’t make sense.

#225 Snowboid on 08.21.11 at 11:57 am

A summary of the ‘Yikes’ set of comments:

Doom, gloom, bust, riots, foreclosures, bankruptcies, SHTF, etc. etc.

But Santa has told us (187) “…we all go the same place…”.

Could sit here all day and debate the merits of being miserable, but have to get ready drown my sorrows in an afternoon of wining and dining in Naramata.

No negative ‘vibes’ today from Snowboid.

#226 Waiting for the sun on 08.21.11 at 12:03 pm

(Garth): But the failure of one of our Big Five would trigger an immediate requirement for all its deposits to be covered – a massively larger amount and an impossibility. 
—————————————
Nonsense. Total CDIC coverage is $600 billion (source Wikipedia).  One bank failure would be $120 billion (assuming all deposits were lost, unlikely). That amount is 8% of Canada GDP. Ireland just paid 33% of their GDP for their banks. Canada can print dollars, Ireland can’t print Euros. It would boost Canada’s debt to GDP from about 80 to 88%, this is hardly “impossible.” The idea that CDN govt would default on such an obligation is absurd. 

Actually, $600 billion is the size of the national debt. The government is current in $30 annual deficit. Printing hundreds of billions more would devalue the currency overnight and will never happen. Hey, maybe Wikipedia could loan us the extra $600 billion. — Garth

#227 dd on 08.21.11 at 12:24 pm

#176Utopia

‘And it is why they need to be monitored more closely’

Wow. you are the scary one buddy.

#228 Cookie Monster on 08.21.11 at 12:26 pm

How serious is this? Well, very, if you agree with the ZH guy’s hypothesis that every asset our banks own contains risk.
——–
I don’t know if in fact that was their hypothesis, but I would agree if it was since every loan has some risk attached to it, no loan is risk free and some are much more riskier than others, especially consumer loans and lines of credit. Most lines of credit are unsecured, so If the economy does turn and a lot of people hit the wall financially those lines of credit will go into default, people will go bankrupt not by choice but out of necessity.

Low capital ratios is high leverage and leverage is dangerous, especially when its being managed by brilliantly successful highly educated politically connected smart people who are certain they can do no wrong. Hubris goeth before a fall.

#229 timo on 08.21.11 at 12:32 pm

sorry if this was already posted but this is too funny. This is just pure desperation and a giant grab at future demand to keep the market up.

http://www.perthnow.com.au/business/low-deposit-loans-deals-to-boost-perth-property/story-e6frg2ru-1226116007112

Prospective first time buyers will be able to borrow up to 97 per cent of the value of the property, outstripping the usual 20 or 25 per cent deposit required for some first time home loan products.

Bankwest managing director, Jon Sutton said the $500 million purse would be enough for between 1300 – 1500 mortgages in WA.

“Our research showed it took about four to four-and-a-half years to save for a deposit under a traditional 80 per cent LVR (loan-to-value ratio),” he said.

“Under this product, at 97 per cent, that brings that down to about six months, so it does help West Australians get into their house a lot quicker.”

#230 Cookie Monster on 08.21.11 at 1:02 pm

In almost all provinces, anyone buying a house which plunges in value and who walks, is still responsible for the debt – unless bankruptcy is chosen. This dangling sword just about guarantees jingle mail (sending the lender your keys) will never come to Canada.
———
That’s the catch, once bankruptcy is the only way out it’s inevitable. If there are no jobs or other options to pay the bill then eating and surviving become priority numero uno.

The keys can be mailed in or left on the kitchen counter which is cheaper than paying for postage. The result is the same, the homeowner can not pay the bills and must leave the house since it’s not theirs and never was. It always did and still does belong to the bank.

#231 Oasis on 08.21.11 at 1:25 pm

http://www.cdic.ca/multimedia/Website/Documents/2010_Annual_Report/English/CDIC.AR2010ENG.pdf

$590 B is according to CDIC itself. and printing hundreds of billions is what the US FED has been doing… don’t be surprised if it happens here soon.

This blog is a swampy morass of conspiratorial fiction. I’m going for a ride. — Garth

#232 Mark on 08.21.11 at 1:26 pm

Wrong. — Garth

(concerning the fact that Banks can set Prime to anything they want it to be)

How so Garth? Are you denying that most Prime-linked Canadian mortgage/loan contracts contain wording/clauses that allow the bank to set whatever “Prime” rate they please?

Are you really suggesting that a bank, faced with a bank run or funding crisis, wouldn’t increase Prime to make up any funding shortfalls, and instead, hand the keys to the bank over to the bankruptcy trustees or the CDIC?

Ever wonder why all gas stations offer roughly the same price on fuel? Same reason the prime is consistent at all banks. So long as there is competition, your thesis is bunk. — Garth

#233 BrianT on 08.21.11 at 1:28 pm

#218Oasis-What is great about this whole debate is that it was only a few years ago that Basel, Sarbannes Oxley, etc. was actually taken seriously and companies like Enron were considered to be flawed business models. Now in 2011, the supporters of the status quo argue only that fraudsters should be bailed out by taxpayers (as we will all go down with the fraudsters), not that the government has a responsibility to prevent or punish financial fraud. If anyone thinks this is an exaggeration, show the math explaining how a large Cdn bank, which belongs to a psuedo monopoly of 5 banks, can actually go under or need a government bailout without massive accounting fraud.

What is the fraud? Would that be consumers borrowing money they cannot repay to buy assets they cannot afford? — Garth

#234 Mark on 08.21.11 at 1:39 pm

Ever wonder why all gas stations offer roughly the same price on fuel? Same reason the prime is consistent at all banks. So long as there is competition, your thesis is bunk. — Garth

a) All of the big-5 in Canada essentially have similar balance sheets, so if there is a systemic funding crisis, and they all raise Prime, its kind of like there being a gas shortage and all the gas stations raise prices in unison because they all buy from the same supplier, and they all do the same function — pump gas, with, roughly speaking, the same equipment, cost structure, etc.

b) Unlike gas where, with 5 stations within a few blocks of each other, changing stations is trivial — with mortgages, if an individual bank raises “Prime” to the exclusion of other banks, it could very well be non-trivial to leave that bank immediately. There are pre-payment penalties. In a negative equity situation, a new bank will probably be reluctant to take on an underwater loan. Etc. Quite a different situation indeed.

c) Bankers ordinarily would fear pushing their customers into insolvency, but they don’t have to worry in this instance because CMHC has their back — with practically all of the loans that are ‘at risk’ due to negative equity being insured. For this reason, and the others, I agree with your view that a Canadian bank failure is highly improbable, and, agree that the Zero Hedge article is full of bunk.

#235 Killer Chicken or Imploding Boomer? on 08.21.11 at 1:51 pm

“(Garth): But the failure of one of our Big Five would trigger an immediate requirement for all its deposits to be covered – a massively larger amount and an impossibility.”

Why the need to cover an amount equal to all the deposits? A bank fails when it becomes insolvent. This
occurs when its liabilities exceed its assets. If the
shortfall is made up by the insurance then we carry on business as we always have.

Similarly, CMHC effectively covers the shortfall between the sale price of the property and the balance on the mortgage. The net coverage is then this amount totalled
from all the covered mortgages which fail.

#236 Dorf on 08.21.11 at 1:55 pm

If hoardes of people lost their mansions with mansion-size mortgage payments that eat up every dollar of their after tax dollars, wouldn’t that reduce their living expenses to a level that should increase consumer spending and therefore stimulate the economy ? (as long as they get into cheaper digs and not shoot their other foot off)

In my mind, the best thing we can do for the economy is kick everybody out of their mansion, give them a bankruptcy discharge, and they will spend all that money on commodities instead of mortgage payments.

Is there any validity to my thoughts ?

#237 Timing is Everything on 08.21.11 at 2:06 pm

#196 nonplused

Looks like you should buy gold with those obvious signs. ;)

#238 Timing is Everything on 08.21.11 at 2:10 pm

#207 BigAl (Original)

I concur.

#239 45north on 08.21.11 at 2:10 pm

The ZH dude should know better.

the Zero Hedge dude is not Tyler Durden, in reality picture Utopia

Freedom 85: governments have been acting against their citizens best interests by encouraging debt accumulation to extremes.

they have been acting against their citizens best interests and as you say the snap back is coming

Jody: Look at Hurricane Katrina, who was down there first with water? FEMA? Walmart gave it away free

Jody I think you have touched on an important point. This is a rule-based society and the rules are written to correspond to a sense of right and wrong however as time goes on the rules diverge more and more from the original sense of right and wrong.

Bogdan: the government and the banks will always backup each other to the expense of taxpayers.

they have up to now

#240 Utopia on 08.21.11 at 2:26 pm

#181 Dr.NickRiviera to Utopia

“This kind of thinking I find way more scary than the (20% of) Zero Hedge readers who spend a Saturday night with their stash of gold coins in their parent’s basement”.
—————————————–

Saturday night in the basement is it? Maybe you don’t read much Riviera. I cannot be the only person who has noticed how some of the most extremist members of our society have collected under the Gold tent.

Just go out to some of the popular sites and fill your head up with the constant litany of garbage they spew.

These guys talk about torture, imprisonment, even prayers for death of bankers, politicians and anyone else they see as their targets. Is that your idea of a Saturday night at home?

We have had them here on this site too. They spew the same rhetoric day in and day out but they are not really investors. The subclass of people I refer to are social outsiders in almost every sense of the word.

Mostly young, feeling disenfranchised and very, very angry. They are blamers who’s bent seems to revolve around guns, gold and a few token leaders who despise anything establishment.

They are not hippies. They sure as hell are not trying to save the world with love and psychedelics and the way they talk and express themselves suggests they are dangerous.

They just seem so obsessed with gold and their hatred for bankers and the system that they almost come across as lunatics. I call them financial terrorists just for a laugh but if you have ever met one in person you will know how strong their views really are.

So no brown shirts here pal. I have nothing against gold ownership. Everyone should have some in their portfolio as insurance. It is an investment like any other.

What I have an issue with is extremist thinking because those folks never bring about good outcomes for anyone.

This small group meanwhile seems hell-bent on polluting the entire blogospere with their one-frame simple minded mantras and philosophy. That gets tiring. It is obsessive and irritating.

Then there are the others. The more hard core members who dream of an end to civil society, a gold standard to punish the excess of others, a financial collapse and an end to pensions and social benefits including medicare.

These guys blame others for the economic state we are in and they want to exact punishment on all those who have benefited before them. Guess that includes their grandmothers. They claim the system is being sucked dry by the use of fiat by irresponsible government and that it should end.

It only ever ends in chaos though. Now do you see what I was getting at when I made my comments? And besides, I like to bait the bears and the Gold-Huggers from time to time. Saturday nights all right for fighting.

Gives me a laugh.

#241 Devil's Advocate on 08.21.11 at 2:34 pm

Ever wonder why all gas stations offer roughly the same price on fuel? Same reason the prime is consistent at all banks. So long as there is competition, your thesis is bunk. — Garth

Golly Gee Willakers, just like MLS fees!!!

#242 Helicopter Ben on 08.21.11 at 2:35 pm

DELETED

#243 Watching the Liberal Party die is so good on 08.21.11 at 2:45 pm

How does having the taxpayers on the hook for trillions of shaky RE loans make the picture any brighter for Canada? Sure, the ZH guy is fishing in a big lake of fear regarding CDN banks. We have been shouting this to the roof tops as the reason why there is no actual value in RE in Canada, the money used to transact the purchase is worthless. Money, absent any free market risk component is socialist charity, hobgoblin economics only sound until the last tax dollar has been sucked up. Can anyone even spell ‘Ponzi’ in this country?

#244 Cookie Monster on 08.21.11 at 3:00 pm

DELETED

#245 Cookie Monster on 08.21.11 at 3:32 pm

DELETED

#246 Timing is Everything on 08.21.11 at 3:45 pm

#242 Devil’s Advocate

Friends of yours?

BTW, there is also an ‘Option #4’ not mentioned, and not surprisingly…Go it alone, fully without use of the MLS.

http://tinyurl.com/3o4kxbv

Ain’t this interweb thingy great.

#247 Utopia on 08.21.11 at 4:18 pm

#202 McLovin on 08.21.11 at 2:45 am

“Hey DA, please comment on the Kelowna market”.
———————————————–

Funny you should bring that up. Garth just did an interview yesterday on TalkDigitalNetwork, “This Week in Money” where Kelowna is mentioned.

The discussion begins with comments on the US Fed holding interest rates low and why this is not necessarily something we here in Canada can rely upon as the Bank of Canada is setting its own policy.

He notes the real risk in this country is that we are currently at the top of the real estate cycle and the bottom of the interest rate cycle. That real assets have peaked. A bad combination for us.

If you have never heard Garth speak before you will surely enjoy this piece. It is as good an interview discussing the prospects for our financial futures as you will hear anywhere. Candid and informative, it is a wake-up call.

Hopefully more people will tune in and listen. The interview runs for 16 mintues.

http://talkdigitalnetwork.com/2011/08/week-money-29/?utm_source=weeklyrecap&utm_medium=email&utm_campaign=Weekly%2BRecap

#248 Bill Gable on 08.21.11 at 4:21 pm

Regarding earlier comment about how, in a sane world, Mr. Turner should be our Finance Minister.
Standing on principles are easy to articulate, but when you have to carry through with convictions is where true leadership is forged.
Consider yourself lucky that Mr. Turner gives us a Free inside look at the world’s economic gearbox, from his perspective. He has had the levers on the engine, and he also spends a lot of his time trying to bail out strapped boomers.

Canada’s political loss, is our gain, dawgies.
My friends all over the world read this blog and love it.

Great work, and thank you.

#249 T.O. Bubble Boy on 08.21.11 at 4:23 pm

@ #210 Moneta

Securitization was not very significant in 2000, I guess because mortgages were not too risky and offered good spreads so it made sense to keep on their books.

Exactly… mortgages used to be BORING (but also very safe and profitable). Also, CMHC had things like maximum mortgage amounts back then (I believe that mortgage ceilings were eliminated in 2003).

#250 casanova on 08.21.11 at 4:27 pm

who is garth to take on ZH? Garth has been wrong about everything he has said so far, be it investment or real estate.
ZH is one of the best bloggers out there with huge following and excellent information.

Not this time. — Garth

#251 Oasis on 08.21.11 at 4:50 pm

What is the fraud? Would that be consumers borrowing money they cannot repay to buy assets they cannot afford? — Garth
——————————————————

the FRAUD exists NOT by the consumers that borrow what they can’t afford, but the banks that lend them money that doesn’t exist… THAT’S the FRAUD.

OK, non-existent money given to people so they can buy houses they can’t afford, and pay people with currency that suddenly exists when it changes hands. Thanks for welcoming me to your world. — Garth

#252 jess on 08.21.11 at 4:53 pm

IS THIS SKIMMING?

Markopolos says BNY Mellon and State Street we’re taking about “three tenths of a percent from every forex transaction for pension funds” by back-timing the trade to benefit banks at the detriment of their pension fund clients. “It’s almost the exact same scheme as the market timing scandals of 2003,” he claims.

In addition to Virginia and Florida, California and Tennessee are also suing BNY Mellon and State Street Corp. over the alleged fraud.

The man who uncovered the alleged scam, Harry Markopolos, expects all 50 states to eventually join the suit. If the name sounds familiar that’s because Markopolos was a whistleblower on the Madoff Ponzi scheme, only to have his claims ignored by the SEC for the better par of a decade. (See: Harry Markopolos Says Big Banks Worse Than Madoff)

#253 Helicopter Ben on 08.21.11 at 5:01 pm

Ok Garth i will modify post seeing i said the 4 letter word that you and all governments around the world hate. Peter Grandich mentioned on a podcast recently that the ECB in Europe said they are going to start buying Government Bonds last week. THIS IS QE1 FOR EUROPE.

#254 X on 08.21.11 at 5:03 pm

http://blogs.reuters.com/felix-salmon/2011/07/12/more-data-on-mortgage-delinquency-and-downpayments/

It is US info, but it does show how much risky homeownership can be with low money down.

#255 Cookie Monster on 08.21.11 at 5:04 pm

Any jackass can kick down a barn. No jackass can build one. — Garth
——-
Only government could build an elaborate fraudulent house of cards on a thin elastic monetary foundation.

What fraud? You sound like a lunatic, so an explanation would be in your own best interests. — Garth

#256 Uki1 on 08.21.11 at 5:10 pm

This is getting more interesting, “Hope for US homes as more rentals are made available” :

http://www.bbc.co.uk/news/14570846

#257 Cookie Monster on 08.21.11 at 5:18 pm

#256 Cookie Monster on 08.21.11 at 5:04 pm

Any jackass can kick down a barn. No jackass can build one. — Garth
——-
Only government could build an elaborate fraudulent house of cards on a thin elastic monetary foundation.

What fraud? You sound like a lunatic, so an explanation would be in your own best interests. — Garth
———
The passing off of fiat currency as money. If you understood economics I wouldn’t’ have to explain myself.

You are hopeless. — Garth

#258 Mark on 08.21.11 at 5:20 pm

#210, “Guys, could you please open an annual report before arguing?

Right in front of me, I have the 2010 edition of one of our banks and it clearly shows that securitization revenue was at least 10% of other income in 2010 and 15% in 2009.

And how large was ‘other income’? You should note that securitization in the context of a Canadian bank also includes things such as credit card receivables, corporate loans, etc. — not just house loans.

Looking at RBC’s annual report:

http://www.rbc.com/investorrelations/pdf/ar_2010_e.pdf — page 12

Other income (including securitization), in 2010, accounted for $833M of revenue out of the bank’s $28B in overall revenues, or less than 3%.

Hardly even worth talking about, IMHO. Fact is, securitization of residential mortgages is barely worth even talking about as a revenue source for RBC, and I would assume this applies to most other Canadian banks as well.

#259 jess on 08.21.11 at 5:24 pm

I guess they don’t like “tea” party
http://www.coffeepartyusa.com/

#260 Mark on 08.21.11 at 5:34 pm

“Banks are trading around 2X book. And this is a sector that is probably the closest to mark-to- market that you could get. Even if mortgages are safe, I certainly would not pay 2x for them.

You’re not paying 2X for the mortgages. You’re paying 2X book for the common equity of the bank, which includes many assets which have been long written down to $0 because the big-5 have existed in Canada for the past 100+ years.

Its much like buying real estate; sure, we’re a bunch of doomers, but even if RE crashes in Canada, there won’t be any $20k downtown Toronto houses for sale, even though, I’m sure there are some elderly people out there who bought ’em that cheap in the 1950s.

Also, a good chunk of the banks’ businesses and the loyalty Canadians have to them is not captured in an asset that can be placed on the balance sheet. For instance, RBC is quite well known to be one of the most expensive banks to do retail business with, yet RBC manages to maintain a large customer base in spite of this. The equity trading above book value also reflects this.

That means you are buying growth. Now tell me where the growth will be over the next few years?

An expansion of lending spreads to the residential RE sector, of course, in an environment where the BoC keeps rates low in an attempt to stimulate life back into the economy. There are two ways to grow revenue; either grow sales volume, or grow margins. Since residential RE loans are increasingly going to look like turds, there is plenty of room to raise spreads on residential/consumer loans, with the CMHC essentially refunding any loans that go into default as a result of the higher spreads.

#261 Cato on 08.21.11 at 6:01 pm

The public and private credit monetary systems are intertwined, its therefore the nation state ultimately backstopping the banks. Canadian banks will always draw on the resource base of the country, our financial system will always be sound.

This doesn’t mean our economy will be sound. It simply means the western financial system will never be allowed to collapse, it will continue to be backstopped by the state through co-ordinated intervention.

The extreme right aren’t seeing the bigger picture. Its not gov’t debt that is the problem, its the larger private sector debt that is threatening the entire monetary system. The scale of private debt dwarfs the public debt. Its extremely dangerous to attempt a new economic religion while this burden of debt overhangs the system – Keynesianism caused this crisis and only Keynesianism will be able to solve it. Once we are past the crisis the world can sit down and discuss a better economic model but not until the private debt crisis has been brought under control.

There is only one path the world can take and we’ve seen a glimpse of it. The long term repercussions of these actions will decimate many in the middle class. Retirement expectations for many will need to be altered drastically and the ability of the state to maintain its social infrastructure will be impaired. Its going to mean a much different world than we’ve been used to and the transition may last a generation but its far better than the alternative.

The alternative world the tea party leadership has been advocating is dangerous. Its unwise to deliberately deny the next generation any hope of economic opportunity just to maintain the status quo. This type of youthful despair about the future gave rise to Hitler. If savers need to sacrificed to ensure youth are given opportunity to reach their potential then so be it.

Those on the extreme left seem to think tax increases will solve all our problems. They think they can sit leading unproductive lives leaching off a system they claim to despise. Tax increases on productive members of society will probably be necessary but so is giving a swift kick in the ass to those not living up to their potential. No more coffee shop baristas with multiple tax payer funded liberal arts degrees. No more losers working in cash economies leaching off system paid for by the rest of us. Simply confiscating the wealth of others isn’t the answer, having all members of society pulling their economic weight is.

#262 TurnerNation on 08.21.11 at 6:02 pm

Yikes – I hope this often incredulous weblog does not become a National Inquirer-esque replica of Zerohedge site, with a morass of sound byte doomers :)

Trust me, real traders do not frequent Zerohedge or even Seeking Alpha.

#263 Moneta on 08.21.11 at 6:16 pm

Other income (including securitization), in 2010, accounted for $833M of revenue out of the bank’s $28B in overall revenues, or less than 3%.
———-
I don’t know what you are looking at but I am using the consolidated statements of income.

Banks split their revenues in 2:

– NII
– Non-NII (or other income)

For RBC:

2010 Securitization revenue = 764M
2009 = 1169M
2000 = 104M

2010 Non-NII = 17353M
2009 = 17565M
2000 = 6680M

If you think 1 billion is negligible, that’s your choice. For RBC, it might only represent between 4-6% of non-NII but it’s still revenue that will disappear when the real estate bubble will bursts… so why would I pay 15X eps on income that will disappear?

BTW, I did not use RBC to make my point because they did a few acquisistions which mess up the comparisons of 2000 vs 2010. Therefore, I chose one that has stayed “pure”. And for that bank securitization reached over 15% of non-NII in 2009 while in 2000 it was peanuts. If you know your stuff, you’ll know which one it is.

#264 Calgaryillusion on 08.21.11 at 6:31 pm

#263-real traders do not frequent ZH

….you would be wrong about that. ZH as well as Greaterfool are about the only source of non biased information out there anymore

#265 Moneta on 08.21.11 at 6:36 pm

For fun, let’s go through every non-NII revenue line and see how the real estate bubble has impacted bank eps:

Insurance: a whack of homeowners who have taken mortgage insurance

Trading revenue: a whack of trading when rates drop

Investment management/brokerage/Mfunds: boosted by those who mortgage their homes to invest

Service charge/fees: a whack of these generated with real estate and refi transactions

underwriting/advisory: all those ABS, MBS and corproate bonds and let’s not forget the treasury debt to finance the deficit that must get issued

card service: homeowners have never had so much debt

securitization: thanks to CMHC

As you can see, it’s not just securitization revenue that has gone up thanks to the real estate bubble.

Now let’s look at provisions for bad loans… for the “pure” bank, assets have doubled since 2000, yet provisions have gone from 200M in 2000 to 144M in 2010. Hmmm…

#266 Moneta on 08.21.11 at 7:00 pm

You’re not paying 2X for the mortgages. You’re paying 2X book for the common equity of the bank
———-
BV = assets – liabilities

2X BV = 2X (assets-liabilities)

2X BV = 2X assets – 2X liabilities

where mortgages are assets.

#267 Young Old fart on 08.21.11 at 7:09 pm

#251casanova on 08.21.11 at 4:27 pm
….Garth has been wrong about everything he has said so far, be it investment or real estate….

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

Really? A year ago Garth told people to get into bonds. So I bought into a premium bond fund that is now up 6% for the last year.

Real estate? Aside from a few final hold outs, the prices are dropping big time. Maybe did not happen as fast or as soon but it is happening.

Check your facts…..

#268 Jody on 08.21.11 at 7:10 pm

“If the banks go down, you go down. Stop whining. — Garth”

I like whining, thank you for posting my whine. I think we need to seriously look at eventually letting the banks fail, but first I think we need to take a few years to get rid of redtape that kills the small business person, give people a chance to establish other income streams and allow for competing currencies. Get rid of business liscenses, let farmers sell what they grow to whomever they want for whatever price, take away export rules so Canadian companies don’t have to bend over for some office jockey (example: if you export wine the feds dictate the size and type of font you can have on the labels, for stuff that’s leaving the country, stupid), let people grow whatever they want and those who want the 2 cm high lawn and white picket fence can go live in a deed restricted neighbourhood. These are just examples of the trillions of stupid government dictates we need to dump so people can actually make a living. There needs to be multiple systems in place and then slowly take corporations which are helped by governments off the IV. We can’t be held hostage by one sector of the economy, that’s how economic disasters occur and the longer we let this relationship continue the worse the break-up will be.

#269 Oasis on 08.21.11 at 8:25 pm

OK, non-existent money given to people so they can buy houses they can’t afford, and pay people with currency that suddenly exists when it changes hands. Thanks for welcoming me to your world. — Garth
_______________________________________

and pray tell, where does the money come from when they buy houses? from non-existant bank deposits?

#270 a prairie dawg on 08.21.11 at 8:43 pm

#242 Devil’s Advocate

Ever wonder why all gas stations offer roughly the same price on fuel? Same reason the prime is consistent at all banks. So long as there is competition, your thesis is bunk. — Garth

Golly Gee Willakers, just like MLS fees!!!

– – –

Not quite. For them to be the same as banks and gas stations you’d have to have some slimy independent salesperson trying to steer you toward certain banks or gas stations. And if you listened to them, then they would take a percentage on whatever deal you made with that bank or gas station. ‘That’ would be just like MLS fees…

#271 NorthOf49 on 08.21.11 at 9:15 pm

Hey Garth, how was your ride? Hope you didn’t get caught in the rain, or was in the Goderich area. I’m sure you needed the break anyway. Certainly are more than a few nutbars and hardasses on the blog lately.

Anyway, back to real estate. Since we rent, the wife wanted to spend some time at open houses today, seeing what we could get if we bought right now. We checked out a few SFHs across Ancaster, Hamilton mountain, Grimesby. To sum it up, things are starting to look desperate out there. Went to three open houses on one street in Ancaster. One was clearly a marriage split and was eager to sell, one house needed tons of work and were obviously bailing at the top of the market rather than fix up the place and take a price cut by waiting. The third was an owner relocating due to a job move. There were lots of potential buyers looking and for the first time that I’ve seen, voicing their opinions openly about how overpriced these houses were. Equally, I could sense how tense and frustrated a couple of the RE agents were. We checked out another house in Ancaster in the $550K range. The owner was there pointing out that even though she is represented by an agent, we could cut a private deal with her for a LOT less since she also has the house listed with the Comfree guys. Apparently, she was told by the listing agent to list her home higher than she wanted or the agent wouldn’t take her as a client. For this reason, she listed it through an agent as well as privately. First time I’ve ever seen that. As we looked through the house, she consistently asked if we were interested in making an offer, kinda like buying a used car. When we left, as we were about to get in our car, didn’t the neighbour across the street come out and tell us all about the street and the great neighbours and the street parties, and the boys “executive committee meetings with refreshments”. We were told we would “fit in” great in the neighbourhood. Meaning what exactly? Wow, what a sales pitch! And Grimesby?? Forgetaboudit, way overpriced for what they’re offering.

And the $519K flip down the street that went on the market about 4 weeks ago? Two $10K price drops in 2 weeks. Flipper is obviously desperate to move this sucker before he has to start making mortgage payments. Hope the weather stays hot, cause there might be somebody losing their shirt over this one.

#272 REmillionaire on 08.21.11 at 9:20 pm

If there is indeed, finally, a housing correction, will prices drop relative to last month’s price, or relative to prices of several years ago when Garth started trying to tell everyone that homes were overpriced? The adherents who missed out on becoming Vancouver property millionaires are going to be able to buy properties at 75% discounts or 15%? Inquiring minds want to know!

#273 Nostradamus Le Mad Vlad on 08.21.11 at 9:26 pm


#196 nonplused — “I predict an early winter.” — Maybe right, nonplused.

Our youngest son (who had benign cancer) is on a contract until the end of the year in the NW Territories, a couple of hundred miles north of the Alberta border. Said the temp. there is -10C (high), kinda cool at night.

Revelstoke, about four hours north of Kelowna, ranges between zero and five morning. The geese have been flying south for quite a while now. The temp. here has been at or below average so far.

#224 yt — Anytime! Great link.
*
14:10 clip Fraudclosure (big $); Interesting use of funds; Choice “You move an economy the way you move a building. You have to pick it up by the foundation. If you try to move the building by the roof, the building will shatter, just as the economy has done with this attempt to pick it up by Wall Street.” wrh.com; War to replace debt / deficit crisis? Wot about my mid-life crisis? US SS How is Canada’s doing? We’re all getting older.

Libya Scroll down a little to read the article, but it’s under the heading of Finance for some reason; McCain and McCain’s abuse? As McCain wants to fight the whole world, why not sign him and his entire family for front-line duty? That would rid the world of a few whack-jobs; Police State The US (and Canada’s) way of life; Obama Will he appease the voters and pull out of Libya? Fukushima China syndrome all over again; Ron Paul One Texan with little or no chance, and Rick Perry The other Texan. Investment in porn? People will fight, but for what?

CC “The difference is that Louisiana was destroyed by a hurricane and Iowa/North Dakota were destroyed by a government that neglected flood control infrastructure because they said global warming would produce mild winters, little snow, and no problems with spring floods. The media is not allowed to mention that US Government greed for a carbon tax did more damage to the country than the wrath of God himself!” wrh.com; GM Papayas They are really good when natural; NATO “Here we see the difference between a genuine popular revolt against a dictator, and a coup d’etat trying to pretend to be a popular revolt. Egypt: 18 days to bring down a tyrant and no outside support. Libya: 6 months of NATO bombing and Qaddafi is more popular than ever.” wrh.com. Something may be in the works for 25 Sept.; DSK Remember him? Looks like the charges might be dropped; Expectations “This is a propaganda piece to justify US military incursions (interference) into Iran.” wrh.com. Then China and Russia kick into overdrive; 5:16 clip General says 9-11 was a fraud (we know); Dictatorship Drones tasering people from above will cut the workload.

#274 James is back on 08.21.11 at 9:46 pm

To Bogdan
Re getting cash from a bank.
Banks rarely carry large sums of cash and unless it is a big branch will rarely give more than $3,000 at a time unless you order ahead. I have been dealing in large cash deposits and withdraws for some time now, And I always get the same answer you have to order ahead of time.

Oh yes never take out more $9,000 at a time any amounts over $10,000 have to be reported to the federal watchdog FinTrac.

My only worry in a financial crisis is the government will put in cash controls in other words the amount you can withdraw at a time. But then again it did not happen last time, but then again we did not have a run on the banks.
Ask Garth how much cash he keeps for emergency or better still buy his book.
Cheers