Quote:
Originally Posted by photon
This is totally different than the US's situation. In the US the government bought tons of toxic mortgages that have no hope of ever being repaid, it's lost money.
In Canada that money was spent on the top mortgages, the government bought the cream of the crop, in order to unfreeze intrabank credit. Unless the default rate exceeds the interest paid on the rest of them, the government will MAKE money on those mortgages.
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Our situation is not that much different then what is happening in the states, only delayed slightly... In the US, everything was "fine" as long as people had money to spend (Credit/home equity to leverage) and jobs to meet inflated debt service ratios. The problem was as soon as people started hitting the Credit wall, as in no more home equity to spend, people started losing jobs and it was the job losses that triggered the fall. 4 months after the significant job losses stated in the states this "Financial Crisis" came up. Once the banks assets ( which however they wanted to hold them were backed by mortgages) started to go negative, they could no longer borrow nor had money to leverage out to others, the same as you or I couldn't... Thier "HELOC" dried up and went negative as well... There was still money to lend but not to people who were going negative and everyone including the banks were and are going negative.
The Canadian government did buy good mortgages.. but don't kid yourself they were not the "CREAM of the crop"... they were mortages that were NOT in default and WERE backed by CHMC (cdn gov) insurance.. So that means they were high ratio mortages that were already insured by the government. That means MAXIMUM of 20% downpayment to the mortgage and in all likelyhood 5% down. We all agree that country wide home values have dropped 5% or more in the last couple years and that means that of the 75 billion in mortgages they took the VAST majority are already negative. As long as the people keep maintain employment thoes mortgages will be good value yet high risk for the canadian government but as jobless numbers go up thoes mortgages are the first to crumble... Cept now, the CDN gov holds them so they don't forclose if they don';t want to.. but how long do they let people go without paying to keep the economy propped up???
The reason the intrabank credit was frozen is because the assets the bank had were NEGATIVE not positive on thier books.. The banks got 75 billion cash for 50 -60 billion in high risk assets... thats a HUGE swing on the books when looking at loaning out or borrowing money... Do you think there was any way at all, the banks got rid of an asset that was GOOD on thier books, if the banks thought there was ANY way possible to make money or Sell the "Cream of the Crop" mortages they would still be listed as assets and not liabilities...They would have been sold to someone else and not the GOV..
The "Credit Crunch" is spin... a stupid term and only serves to hide the real problem, be it for banks, companies or individuals. The real problem is the MAJORITY of normal people have no money to spend and can no longer leverage thier now negative position on thier home.. No more money to buy cars... car manufactures go bankrupt... no more money for houses... no more money for home renos, no more money for gas and it all adds up to less demand and job losses feeding the cycle.
Bottom line... the last 10 -12 years of driving the economy on credit has bankrupt people and all the "FAKE" wealth created is crumbling away... All this stimulus junk is just trying to put 20 billion into peoples pockets so they can buy have a job and qualify for a loan again, maybe keep making their mortgage payments and hopefully someone new will have to deal with it 2 or 3 years from now....
This thing is FAR from over.. and just starting in Canada.. The huge jobless numbers in November december puts the "Crisis" in canada in or around april, if we follow suit with the americans as we have been doing so far. April is brewing up to be a "Perfect storm" of events, and I think it's going to be a gigantic wake up call to the average joe when he finally starts to see what his real balance sheet looks like.
That being said, i have no real qualifications other then working IT in the finance industry and have seen a few of the "Email" threads bouncing around between people who do have qualifications and a VERY substantial intrest in whats going on
... I've sold my house for a loss on the actual house but took what equity I already had and set myself up to ride out whatever comes along... I'm a bystander now to this whole crisis....