Mainecoons (03-08-2014)
True and exactly why the Canadians didn't crash too. They avoided the mortgage bubble/fraud and the banking/market frauds.
Amazing isn't it, how a country with so damn much government can't seem to do the basics that government should be doing, like stopping this crap?
“Any man who thinks he can be happy and prosperous by letting the government take care of him had better take a closer look at the American Indian.”. Henry Ford
Peter1469 (03-08-2014)
There was a triggering effect by the US, since the subprime mortgages were bundled into mortgage-backed securities (MBS) along with collateralized debt obligations (CDO) along with a type of securitization and a form of credit insurance called credit default swaps(CDS) and sold to investors and further derivatives were traded based on these instruments.
These were sold and traded on the global market, so when the bottom fell out of the US housing market, financial institutions around the world were found holding greater and lesser amounts of essentially worthless paper precipitating a banking crisis in Europe. This generally progressed from a banking system crisis to a sovereign debt crisis, as many countries elected to bailout their banking systems using taxpayer money. It was somewhat like pulling out a single card in a house of cards that revealed the unsustainable concealed large public debt in places like Greece and where the public-debt-to-GDP ratio was already well over 100%. The resultant adverse economic effects in the worst hit countries has produced significant unemployment.
In quoting my post, you affirm and agree that you have not been goaded, provoked, emotionally manipulated or otherwise coerced into responding.
"The difference between what we do and what we are capable of doing would suffice to solve most of the world’s problems.”
Mahatma Gandhi
"New types of "exotic" mortgages became popular in the U.S in the years leading up to the economic downturn. These mortgages often featured "teaser rates" that kept initial monthly payments artificially low, only to have them increase significantly later in the mortgage. Features such as this were never adopted by major Canadian mortgage lenders. The sub-prime market did not take hold in Canada to the extent that it did in the U.S., where the vast majority of mortgages were originated by third parties and then packaged and sold to investors who often did not understand the associated risk. Most mortgages in Canada, on the other hand, are originated and retained by institutions whose goal is to maintain a long-term relationship with the borrower. CMHC does not insure sub-prime mortgages.
Canadian banks, trust companies and credit unions tend to have a broader relationship with their customers than just a mortgage, also offering credit cards, car loans and investments. They have a financial interest in ensuring that borrowers do not take on unmanageable debt, which reinforces their motivation to prudently underwrite mortgages.
The Canadian banking system is dominated by five or six large banks that together hold the majority of domestic banking assets. The large banks are in turn diversified geographically and across product lines, while the non-traditional, or shadow, banking system is relatively limited in scope compared with that of the U.S. Oversight is facilitated by a single authority (the Office of the Superintendent of Financial Institutions, or OSFI), which has responsibility for the prudential oversight of these federally incorporated institutions. Communication with the banking community is thus reasonably straightforward. There is a strong focus on the quality of the banks’ risk-management practices. While this is often attributed to a traditionally conservative business culture in Canada, an important factor here is the difficult lessons learned from previous banking problems. An example is the economic difficulties in the early 1990s, which included a significant housing downturn. Canadian banks therefore entered the recent period of financial stress with better risk-management practices, focused on limiting credit losses, than in previous episodes. This helped to limit their exposure to some potentially riskier sectors and products. For example, subprime mortgages, as they occurred in the U.S. market, remained a relatively limited phenomenon in Canada". http://en.wikipedia.org/wiki/Subprime_lending
Effectively the problem in the US was precipitated by the notion that people who, for whatever reason, cannot afford to buy a house, should be allowed to none the less. That is simply poor risk management on the part of the lenders and social engineering on the part of the government. People are entitled to shelter, whether provided by there own means or by government if they are destitute. No one is entitled to home ownership unless they are capable of paying for it. People who are too young, don't make enough money or have a history of credit mismanagement are poor financial risks. One upon a time that sort of borrower required a guarantor. It should be so again.
The upside is that it has resulted in significant financial sector regulatory reforms around the world.
In quoting my post, you affirm and agree that you have not been goaded, provoked, emotionally manipulated or otherwise coerced into responding.
"The difference between what we do and what we are capable of doing would suffice to solve most of the world’s problems.”
Mahatma Gandhi
Mainecoons (03-09-2014),Peter1469 (03-08-2014)
I believe I read somewhere that the subprime mortgage debacle resulted in $4 trillion dollars worth of useless paper (debt instruments) being held by banks everywhere. Nothing to sneeze at, but it did reveal the structural problems in a number of EU members. Kind of like a family deeply in debt and then suddenly faced by a large financial burden like a major illness. There is nothing to fall back on, so a financial crisis ensues.
In quoting my post, you affirm and agree that you have not been goaded, provoked, emotionally manipulated or otherwise coerced into responding.
"The difference between what we do and what we are capable of doing would suffice to solve most of the world’s problems.”
Mahatma Gandhi
Peter1469 (03-08-2014)
On the outside, trickling down on the Insiders
We won't live free until the Democrats, and their voters, live in fear.
note the the two words though.....mortgage/collateralized.....now aside from things like standard and pools overrating the bonds....they did that's another thread.....in essence there's really nothing different about bundling the mortgages and selling them, or not....if the mortgage went bad, it was going to go bad -- unbundled or not.
reason I'm critical of the subprime as 'cause' is because the debts are collateralized, they still had the land to look to....and ultimately the people not paying the mortgage were already under financial duress....I tend to view it as a penultimate or exacerbating factor.
but still, we have an underlying cause, a regime of cheap money, interest rates at or near Zero and we know how interest rates and asset prices are inversely proportional.
the problem of course is that these decisions skew prices and result in really bad allocations.
the same thing is happening in the stock market, right now, today.
the public policy elixirs turn into heroin, turn into poison.
Now, i'm not going to say this isn't the general view, it obviously is, but I have my own personal view and my feeling is recession was caused by the spike in oil to 147 per barrel in July 08. The result of that is oil prices suck money right out, add in the de-multiplier effect and to me that's where the problem was.