Canada & The Crisis

[Cops]

Like other people have said our housing market is pretty solid, I think subprime mortages only account for a few percent in Canada. The Conservative government in power would like to cut funding to art programs in Canada. The arts in Ontario is a 20-Billion Dollar industry, the thing is that a lot of artists require subsidized funding to actually produce movies, documentaries, as well as other forms of art. Prime Minister Harper has said some unflattering things about artists, however the truth is the average artist makes around $20,000 a year.

So how do I feel? I feel like a minority government called an election at a time when Canada's place in world markets is uncertain, and doing so wasted 300-Million Dollars. By the way it's widely predicted that Tuesdays election will result in Prime Minister Harper having exactly what he has now, a minority government.

I'm not too worried, I think Canada's housing market is as solid as it can get and Alberta won't suffer any time soon. America's number one import for oil is Canada, next to Saudi Arabia. Ontario has been the piggy bank for Canada for some time, and with America's and Ontario's industries so linked it's tough to call how much this will impact my province. I do know that every person can prepare for this by a) not panicking b) having a plan. My plan is to pay off my student loans next year and move back home, it doesn't make sense to be paying rent next year to someone else to help keep their lights on when I'm worried about if my mother can afford to keep her house. Interest rates have been in the single digits for awhile now, but if they went up a lot of people would seriously have to cut back on how much they spend. For families with dual incomes they will have a lot easier time weathering this storm compared to a single parent. For a single mother or father who makes under $40,000 a year having their interest rate double or even triple would put them in a tough situation. The best thing people can do in these situations is stick together, living under one roof cuts costs dramatically.

edit:

It's going to be a great time to buy property in the next two to three years, so from an investment standpoint I look to gain depending on how much money I can come up with. I don't think prices will go down dramatically but prices are going to come down.

[Jerome Scuggs]

I caught something in the news about Canada planning a $25-billion liquidity boost to their banks. It's not a bailout, more like a booster shot - not really saving any particular bank as much as strengthening them in light of coming economic troubles.

I think that's a bad idea - an attempt to get more credit and loans and money out there to boost the economy. People should be saving, not spending - in the long-run, that will help individuals emerge from a recession on way better footing.

A problem, though, is that saving is counter-productive from the view of governments, who derive their revenue from consumer spending and income. Saving lowers government revenue. Taxes in of themselves discourage saving - because, after taxes are done, there is less money to save, especially when you have to spend most of it.

From what it looks like, though, you guys don't have a problem with saving - fuckin' lucky. As long as Canadians are wary of going into debt, even a liquidity increase won't be a problem, as long as the credit is extended to solvent individuals - which apparently is the only type of individual the government allows to take on a loan. But given the fair amount of economic uncertainty... making loans is risky for everyone these days.

Cops: the central banks have more or less formed a cartel a la OPEC, and they're coordinating their actions on a global scale. At the moment they're holding rates as low as they can - but the problem is, the rates were already pretty low as a result of trying to pull out of the 'recession' of 2001. They don't have much wiggle room and it will be interesting to see where it goes from here. An interesting thing, though - adjusted for inflation, interest rates are so low that your money actually de-values if you put it in a savings account - the interest you collect doesn't cover the loss of value from inflation.

It's an interesting position for the world's banks to be in, where could they go from there?

[Cops]

About a year ago when I had several thousand dollars I planned on investing all of my money into American dollars, about $4000. The American Dollar and Canadian Dollar were on par, which I knew was not going to last. The price of oil really affects the price of our dollar, so this unstable market was bound to go up and go down.

I was criticized at the time for being foolish, Canadians told me investing in the American economy right now isn't safe. And the truth is it's not, but I knew the price of our dollars were going to fluctuate between 10 cents.

Right now with our dollar worth .85 cents to 1.00 American dollar I would have made a decent chunk of change. Like you said it's a great time to save your money, my countries housing market is going to dry up in the coming years. Which is most likely going to come out of fear of interest rates and job loses. But in all reality if Canada can make sure job loses are relatively low then we'll be fine. Right now isn't a time to be buying Mutual Funds or Property, wait till the market is really bleeding before you put any sort of money into those things. I'm only worried about December, I'm going down to the states so as soon as our money is on par again I'll be running to the bank getting my cash ready. There's no friggin way I'm losing $15 on every $100 I'm bringing with me.

[Kolar]

I think we use credit cards too often and lines of credit, if we're going to run into a problem it will be there and not in the housing sector. Just recently they made some changes which allows Canadians to hold up to 5,000 dollars in a savings account tax free so I think they do a lot to encourage saving and for people to look into RRSPs. The Conservatives have made cuts to the GST which doesn't really do much of anything. A 1 or 2 percent cut will only be an issue if you're buying big ticket items and even then it doesn't help a lot. But it was a campaign promise from 2006 and easily implemented. What they should have done is cut the income tax which isn't easy for a lot of Canadians to deal with.

[Jerome Scuggs]

Right now isn't a time to be buying Mutual Funds or Property, wait till the market is really bleeding before you put any sort of money into those things. I'm only worried about December, I'm going down to the states so as soon as our money is on par again I'll be running to the bank getting my cash ready. There's no friggin way I'm losing $15 on every $100 I'm bringing with me.

Man, that would have been a kickass investment - I might go do the same against Canadian Dollars :P

Buying up stocks and property at cheap rates is, honestly, a great idea - but you have to play it smart. At this point, you're right - noone sees a bottoming out of the market. But investing in property is your safest bet, because property is always going to have value and it won't ever disappear (as opposed to, say, investing in a company).

This is why I don't think recessions are necessarily bad - crashing prices make re-organizing resources possible. If an individual or business mismanages the resources he owns, he'll go out of business and his assets/property will be freed up for others to invest in. Buy some land, build a house, plant trees, or even sell it to a company who wants the land - but only if you like what they want to do with it! Regardless, it's that sort of investing that will slowly invigorate the economy - or more precisely, give rise to a new, re-organized economy. I'm already predicting that SUV's/trucks will never return to their former glory, when this recession ends we'll see a different automotive industry.

How are Canada's retirement plans handled? Like, Social Security/401k's/etc. Apparently alot of people here had their plans tied up in the stock market. How does the majority of Canadians invest in their future?

My dad told me tonight that he pulled his retirement funds out of the stock market over six months ago - I am fortunate to have a father who is pretty adamant about not going into debt. No matter what happens, my parents have their house paid off and their investments are safe - and if any of you have any sort of investments in the stock market, it wouldn't be a bad idea to pull them out, if only for a few months, if you haven't already.

I think we use credit cards too often and lines of credit, if we're going to run into a problem it will be there and not in the housing sector. Just recently they made some changes which allows Canadians to hold up to 5,000 dollars in a savings account tax free so I think they do a lot to encourage saving and for people to look into RRSPs. The Conservatives have made cuts to the GST which doesn't really do much of anything. A 1 or 2 percent cut will only be an issue if you're buying big ticket items and even then it doesn't help a lot. But it was a campaign promise from 2006 and easily implemented. What they should have done is cut the income tax which isn't easy for a lot of Canadians to deal with.

From what I can gather, Canada's income taxes generate three times as much revenue as corporate taxes. I think that's an interesting disparity - though I'm not sure how taxes could be shifted with no net loss in revenue.

[Epinephrine]

Canadians primarily have two ways to get money when they retire:

1) Canada Pension Plan - everyone contributes to this, you can think of it as the same as social security. Although I've never heard of any politician saying that our system was going to fall apart. It could either be because American politicians are being misleading (by some estimates Social Security is 'solvent' until at least 2040 and that's not taking into account a lot of variables like economic growth and so on), or because we don't want to admit our system is in trouble.

2) RRSPs - registered retirement saving plan
I dunno how 401ks work exactly, but I think they are similar. RRSPs are basically a tax-free investment shelter. You can take up to I believe 18% of your yearly income up to a maximum (it's like $21,000 and indexed to inflation from now on), mark that as income tax free, and then invest it any way you want. You can do anything you want with that money. Then when you retire, you are obligated to sell a percentage of your RRSP assets every year and you will get taxed on that amount via income taxes.


As for corporate taxes, apparently Canada has some of the corporate taxes in the world thanks to consistent cuts in this, but income tax rates have generally held steady. IMO this is a good idea, because we should make business-friendly environments as it encourages business in the country. As for personal taxes, people live and stay in this country because of the various safety nets (i.e. universal healthcare) that their taxes pay for, so I think it's a fair trade. They can leave if they don't like it. While in the 90s there were persistent fears of a 'brain drain' because of our high income taxes forcing out the smartest and hardest working to move elsewhere, but in reality studies have shown that is not true, so I think it's fine.

[Stompa]

Yo Jerome:

http://economix.blogs.nytimes.com/20...onomics-nobel/

[Jerome Scuggs]

Yo Jerome:

http://economix.blogs.nytimes.com/20...onomics-nobel/

The Economics award is handed out by the Swedish central bank - yeah, they'd pick a guy like Krugman I think it's ironic to the spirit of the Nobel Prize - he advocates that wars are economically beneficial. But hey, if I were a government, I could get behind that message.

[Cops]

Canadians primarily have two ways to get money when they retire:

1) Canada Pension Plan - everyone contributes to this, you can think of it as the same as social security. Although I've never heard of any politician saying that our system was going to fall apart. It could either be because American politicians are being misleading (by some estimates Social Security is 'solvent' until at least 2040 and that's not taking into account a lot of variables like economic growth and so on), or because we don't want to admit our system is in trouble.

2) RRSPs - registered retirement saving plan
I dunno how 401ks work exactly, but I think they are similar. RRSPs are basically a tax-free investment shelter. You can take up to I believe 18% of your yearly income up to a maximum (it's like $21,000 and indexed to inflation from now on), mark that as income tax free, and then invest it any way you want. You can do anything you want with that money. Then when you retire, you are obligated to sell a percentage of your RRSP assets every year and you will get taxed on that amount via income taxes.

I don't think our Pension Plan is in trouble, however I wouldn't advise anyone to put all their eggs in one basket. People need to be investing regular amounts of money into their RRSPs.

This is why I don't think recessions are necessarily bad - crashing prices make re-organizing resources possible. If an individual or business mismanages the resources he owns, he'll go out of business and his assets/property will be freed up for others to invest in. Buy some land, build a house, plant trees, or even sell it to a company who wants the land - but only if you like what they want to do with it! Regardless, it's that sort of investing that will slowly invigorate the economy - or more precisely, give rise to a new, re-organized economy. I'm already predicting that SUV's/trucks will never return to their former glory, when this recession ends we'll see a different automotive industry.

During the 80's when Canada was going through serious economic trouble we had to reevaluate who we gave money to and why. Lots of people lost their houses when interest rates went above 15%. My family nearly lost their house, luckily they were able to sell it. We relocated to a house they could afford. Naturally the thought of anyone losing their house is sad but people were buying things they couldn't afford, so instead of living in a fully detached brick home we moved into a smaller attached townhouse down the street. This wasn't a huge difference to me or my brothers, actually our most cherished childhood moments took place in that small townhouse. I think it hurt my parents pride to have to relocate, but sometimes it's better to swallow your ego and live within your means. After many years of living in that house we moved back into a similar house we had before, but this was done by years of saving and not spreading yourself too thin.

This situation is sad, and these are real people losing their homes but giving people who can't carry a mortgage a mortgage is criminal in my opinion. The government needs to continuously support job creation and support to those who lost their job, and to be quite honest it's not the Conservative party that's going to do that.

[Epinephrine]

Jerome here's an interesting article from the Globe and Mail (Canada's national newspaper) from a few weeks ago. It's a bit old, but underscores some differences between Canada and the USA.


Globe and Mail Update

September 25, 2008 at 6:50 PM EDT

While the “best days” for Canada's real estate markets may be over, comparing the Canadian outlook to the U.S. housing meltdown is off base, two Bank of Nova Scotia economists say in a new report.

Earlier this week, Merrill Lynch Canada economists warned Canada's housing market could be vulnerable to a U.S.-style crash, drawing a response from Prime Minister Stephen Harper rejecting that.

Derek Holt, vice-president of Scotiabank's economics department, and his colleague Karen Cordes, cite several reasons why the Canadian mortgage market is healthier than that of the United States.

They do not mention the Merrill study.


“We do believe that the best days for Canadian housing markets are behind us, and that lower volumes of new home construction and resales lie ahead alongside further fairly modest erosion of house prices,” they write. “Calgary and Edmonton are the most exposed in this regard. But, arguing that consequences to the overall Canadian economy and to debt markets particularly in terms of mortgage-backed securities are as severe as they are in the U.S. is way off base.”

Here are the findings of Scotiabank's Mr. Holt and Ms. Cordes, as printed in their report:

Debt growth over the full cycle

Much is being made of the fact that Canadian debt growth relative to incomes over recent years has been on par with the U.S. experience.

Ergo, one is led to conclude, Canada must face similar stresses to its own housing and mortgage markets.

Nonsense. One must look at the full cycle and use the right measures. Recent Canadian debt growth reflects the unleashing of pent-up demand from the 1990s. Canada's recession in the early 1990s was more severe, and the effects were longer lasting by way of how long it took housing markets and the consumer sector to get back on their feet. The U.S. recession of the early 1990s was comparatively mild, and the economy rebounded faster such that U.S. debt growth over the long-haul has exceeded debt growth in Canada.

Leverage — night and day comparisons

Canada's ratio of household debt-to-income is much lower than the U.S. Despite its popularity, however, this is the worst way to look at leverage since it compares total debt amortized over decades to a single year's after-tax income, which is a stock-to-flow comparison that most economists avoid. One doesn't take out a mortgage on Jan. 1 with the expectation of having to pay it all back out of the current year's income by Dec. 31, so why make the comparison?

The best way to judge the full cycle's influences upon debt growth in Canada versus the U.S. is to look at where the two countries stand today on leverage on the household balance sheet (i.e., debt as a share of assets). This must be done by making adjustments to ensure comparability of Canadian and U.S. household sector balance sheet data. In Canada, total debt as a percentage of total assets sat at 20 per cent as at the end of 2007. The U.S. ratio is about 26 per cent. By corollary, Americans have used nearly 30 per cent more debt to purchase assets than Canadians. Clearly, Americans and Canadians have different debt tolerances.

Canadian mortgage markets are fundamentally healthier than the U.S.

• Canada's subprime market is small (5-6 per cent of outstanding mortgages) whereas the U.S. share peaked at about three times that. As a share of originations, 20-25 per cent of new mortgages in the U.S. were subprime over the 2004-06 period. So Canada isn't anywhere near as exposed to the products that caused most of the damage in U.S. housing markets.

• Not only is Canada's subprime market much smaller, but it isn't even really subprime per se. Canada's subprime market is more like the U.S. near-prime market, whereas the U.S. subprime market often lent to borrowers with extremely impaired quality.

• Adjustable rate mortgage (ARMs) resets also caused many of the problems stateside, but those resets occur much more suddenly in the U.S. By contrast, the closest Canadian product parallel is the variable rate mortgage, but they get constantly repriced so that people aren't caught offguard years later. Furthermore, in Canada, some variable rate products adjust the principal, not the payment. On balance, the shock effect from payment resets in Canada is nowhere close to what has caused much of the problem in the U.S.

• Canada's mortgage equity withdrawal market isn't like the U.S. We've seen secured home equity lines of credit (Helocs) grow in Canada as a way of withdrawing equity, but nothing like the U.S. withdrawals picture. U.S. homeowners' equity has been in free-fall with mortgage debt growth outpacing housing assets since the early 1990s. Canada, by contrast, retains much higher homeowner equity, and while it may have reached a plateau, the figure has risen in recent years while the U.S. position has deteriorated.

• Mortgage interest is deductible against taxes in the U.S. It generally is not in Canada. That creates vastly different incentives to leverage oneself in the two markets.

• The nature of the products has been very different in Canada versus the U.S. Examples of Canadian innovation like long amortization mortgage products are absolutely nothing like “Ninja” mortgages. Mortgage innovation was needed in Canada, but has been relatively more conservative.

• Further to this latter point, long-amortization mortgage products actually extend the Canadian credit quality cycle. Long amortization periods of over 25 years have been dominant as a share of new mortgage originations since the 40-year mortgage was introduced almost two years ago. However, there is still an overwhelming majority of Canadians who face the option of extending from the previously standard 25-year product into longer amortization products in a manner that lowers their payments in the face of shocks. Even though insured 40-year mortgages are now banned in principle, 35-year mortgages still provide this flexibility.

• Investor mortgages were among the first products to default in the U.S. ,where they account for about 9 per cent of all outstanding mortgages, similar to the U.K. (9.5 per cent) and Australia (10 per cent). In Canada, however, they are about 2-3 per cent of all outstanding mortgages. There are problems in the investor segment the world over, but the magnitude of the exposure in Canada is far less significant.

• If there is an imminent problem brewing, then it's not showing up in terms of industry-wide mortgage delinquency patterns. Mortgages 90+ days in arrears in Canada remain at 27 basis points, which is the range around which they've been floating since mid-2004. By contrast, even when the country had double digit variable mortgage rates and double digit unemployment rates in the early 1990s, the peak rate of delinquency was about 65 basis points. We're of the opinion that delinquencies will deteriorate going forward, but will be nowhere close to the U.S. experience.

• The extent of runaway house price inflation was much more muted in Canada than in many other countries. Canada's priciest market is Vancouver, and prices have gone up by about 80 per cent since the mid-1990s start of the global housing cycle. London, England, by contrast, went up by about 270 per cent over this time period. Canada's house price appreciation was, on average, significantly below the U.S. experience since then, and much below the experience of many European countries.

[Epinephrine]

Canadian mortgages are funded, underwritten, and enforced in a totally different manner

• Canada's funding model is completely different from the U.S. The majority of mortgages are held on balance sheet in Canada, with only 24 per cent having been securitized. Thus, much more of Canada's mortgage book is funded by on-book retail deposits than is the case in the U.S. That also makes the banks more conservative about the products they are originating since they are mostly stuck on balance sheet.

• Further, the majority of the securitized totals have been done through the CMHC — a Crown corporation with explicit government backing — thus avoiding the problems in the U.S. caused by the ambiguity of GSE liabilities. Other insured securitizations have been done through private insurers that also receive explicit government backing for the underlying assets through the Canada Mortgage Bond program.

• Furthermore, Canadian financial institutions are not as reliant upon short-term lines extended by other financial institutions. The degree of reliance upon such funding in the U.S. is what caused excessive exposure to short-term swings in market sentiments, not to mention adverse incentive effects.

• Mortgage-Backed Securities (MBSs) were not placed in off-balance-sheet SIV and CDO structures as in the U.S. So, Canada MBS investors do not face the same heavily leveraged investor risks. This is perhaps the most important point, since origination mistakes in the U.S. were bad enough, but what really caused the problems were dollops of leveraging that occurred after the mortgages were originated.

• Unlike many U.S. banks, Canadian banks continue to apply prudent underwriting standards. In other words, they have always checked, and continue to check, incomes, verify job status, ask for sales contracts, etc., such that all those questions your banker asks in Canada have a purpose that somehow got lost on many American bankers. The no-income-no-job-no-asset (“Ninja”) style, here-are-the-keys-to-your-brand-new-home lending just didn't take hold in Canada.

• Appraisal standards are generally higher in Canada, where appraisals are more likely to low-ball estimates of property value before making the final decision on how much to lend.

• Finally, enforcement of Canadian mortgages is not as tilted in the borrowers' favour as it is in the United States. In the U.S., lenders have little recourse — they can take the keys and settle relatively quickly, or sue and go through great expense for a potentially lengthy period. Alberta is similar to the U.S. treatment in this regard. But the rest of Canada provides greater recourse to lenders than in the U.S.

[DankNuggets]

usually i'm not the one to just come in and tl;dr that's not based on shit talking

but







Too Much TEXT


not enough flashy PICTURES
and what's with colors called sandybrown and deepskyblue? i'm pretty sure crayola has a box 500 crayons, all with better names than that.