Monday, February 21, 2011

Jim Flaherty and the Goldman Sachs Capers on Film

Telling the story in three minute or so segments. When done I'll put them all on a loop.


  1. A few more words on Ottawa’s decision to finish off the real estate market.

    As Jim Flaherty’s officials were announcing changes to restrict mortgage credit in Canada late last week, the US was hours away from its second-biggest bank failure. Indymac, a major southern California-based lender, went down on Friday, just a couple of days after suspending mortgage loans and laying off half its staff, almost 4,000 people.

    This is the fifth bank to fail recently, not counting the spectacular investment bank collapse of Bear Stearns. There are more to come. Indymac staggered and fell after loaning tens of billions in mortgages which have suffered massive defaults. This is due to a collapse in area real estate values of up to 40%.

    At the same time, of course, the two largest mortgage enterprises in America, Fannie Mae and Freddie Mac, together owning $5 trillion worth of home loans, are on the verge of nationalization by Washington. The shareholder-owned and publicly-traded companies have lost about 80% of their market value and the US Treasury Secretary was forced to make a rare Sunday afternoon pronouncement that Washington won’t let them fail. That was to prevent a total meltdown on the stock market come Monday.

    US real estate is clearly still descending, with a bottom not expected now until sometime next year. That will make this housing bust at least four years in length. It will also be the most significant one since the Great Depression.

    In Canada, well, this is all having an impact. Not the giant bank failures and stumbles, but the inevitable bursting of the housing bubble. In one of the most in-demand neighbourhoods in the 6-million-person GTA, Leaside, sales have declined this year by 77%. In Canada’s most expensive city, Vancouver, transactions are down 42% and listings up almost 20%. In the most coveted cottage area, Muskoka, deals have tumbled this summer by 50%.

    This was bound to happen since average Canadians can no longer afford average homes. The fact it’s accelerating, and being made worse by the energy crisis, should surprise nobody. People like me have been trying to get Flaherty’s attention on this file for more than a year.

    While I knew that real estate would have this fate befall it, taking the economy along for the ride, I did not anticipate $145 oil. But then, unlike Mr. Flaherty, I don’t have a tall white building full of economists on O’Connor in downtown Ottawa. I’m sure his experts are telling our finance minister there’s a honking big chance the housing fizzle and gas attack will impact consumer confidence here the way it has in the States. Why would it not? And since consumer spending is far, far larger than anything else in the economy (yeah, even Suncor, or God) this strongly suggests recession. Not that this matters in places like Windsor, Ontario, where there’s already an industrially-induced quasi-depression.

    So, what does our finance guy do?

    He bans those tools young couples have been using to keep the homebuilders and condo guys busy. In 100 days, 40-year mortgages and zero-down payments will be gone. In fact, they are drying up now by the moment. And while Mr. Flaherty should never, ever have allowed this stuff to come into existence in his 2006 budget, turning off the tap like this will not solve a thing. In fact, obviously, it will accelerate the real estate decline.

    For three years now we have been watching this disaster unfold in slow motion to the south of us. During that time, when it could have made a difference, the government did not prepare. Did you?

    If not, do so now. It gets worse.

  2. Every dirty thing you ever wanted to know about Jim Flaherty: