Without a Bill Clinton the Bursting of the Canadian Housing Bubble will be less Painful than in the US

Posted by PITHOCRATES - November 10th, 2012

Week in Review

The subprime mortgage crisis caused the Great Recession.  And bad government policy caused the subprime mortgage policy.  First with artificially low interest rates to encourage everyone to borrow money and take on enormous amounts of debt.  Then the Clinton administration took it up a notch.  By charging lenders with discrimination in their lending practices.  And if they didn’t find a away to qualify the unqualified for mortgages they would soon find themselves out of the mortgage business.  So they came up with subprime lending.  Adjustable rate mortgages (ARM).  No documentation mortgages.  Anything to get the government off of their backs.  And the government was so pleased with what they saw they started to buy (and/or guarantee) those toxic mortgages with their Government Sponsored Enterprises Fannie Mae and Freddie Mac.  Clearing those toxic mortgages from the lenders balance sheet by unloading them onto unsuspecting investors.  Clearing the way for even more toxic subprime lending.  The government was pleased.  And the bankers were making money with bad lending practices.  Something they normally would have avoided because it is very risky.  But when the government was transferring that risk to the taxpayer what did they have to lose?

Governments like a hot real estate market.  Because housing sales drives so much economic activity.  Because people put a lot of stuff into those houses.  Which is why governments are always quick to use their monetary authority to lower interest rates.  Which is what they did in the US.  Cheap money to borrow.  Lax lending practices thanks to the Clinton administration.  Creating a housing boom.  And a housing bubble.  It was a perfect storm brewing.  The only thing that it needed was a raise in the interest rates.  Which came.  Causing the subprime mortgage crisis as those ARMS reset at higher interest rates.  Leading to a wave of subprime mortgage defaults.  And the Great Recession.  Which raced around the world thanks to those toxic mortgages Fannie Mae and Freddie Mac unloaded on unsuspecting investors.

Canada did not suffer as much from the Great Recession.  Because they did not pressure their lenders to qualify the unqualified like Bill Clinton did in the US.  But they still used their monetary authority to keep interest rates artificially low.  So while they escaped the great damage the Americans suffered in their subprime mortgage they still have a housing bubble.  And it looks like it may be time for it to burst (see Analysis: Canada braces as housing slowdown takes hold by Andrea Hopkins posted 11/10/2012 on Reuters).

Long convinced the country’s housing boom would never end in a crash, Canadians have watched this autumn as a sharp slowdown in real estate spreads across the country, leaving would-be home buyers hopeful and sellers scared…

Signs are everywhere that Canada’s long run-up in house prices is over, hit by a combination of tighter mortgage lending rules and growing consumer reluctance to take on more debt. Sales of existing homes are down steeply, with condo sales hit especially hard, and some long-booming prices have started to fall…

Canadian households hold more debt than American families did before the U.S. housing bubble burst, which has led the government to tighten mortgage lending rules four times in four years…

Tal believes slower sales activity will be followed by falling prices in many cities. But he says Canadian lending standards have been higher, and borrowers more cautious, than in the United States before its crash, which will prevent large-scale mortgage defaults and plunging prices.

Mindful of what happened in the United States, the Canadian government has tightened mortgage rules to prevent home buyers from taking on too much debt. While interest rates are low and expected to stay low into 2013, the fear is that eventual rate hikes will drive borrowers out of their homes or into bankruptcy…

The last round of mortgage rule changes took effect in July, forcing home buyers to cut back on their budget and pushing many prospective first-time buyers out of the market entirely.

The Canadians may escape the damage the US suffered as Bill Clinton was an American and not a Canadian.  So they only have to suffer the effects of bad monetary policy.  Not the effects of government enforced bad lending practices.  So housing prices will fall in Canada.  And there will probably be a recession to correct those inflated real estate prices.  But housing prices probably will not fall as far as they did in the US.  For the Canadians were more responsible with their irresponsible monetary policy than the Americans were.

The lesson here is that when markets determine interest rates housing bubbles are smaller and recessions are less painful.  If you don’t believe that just ask an American with an underwater mortgage.

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Green Energy Insiders pocketed most of the Stimulus Money

Posted by PITHOCRATES - November 4th, 2012

Week in Review

According to the Left it’s the Republicans who enrich their friends in corporate America.  But it wasn’t the Republicans that passed a near $1 trillion stimulus bill to enrich their friends in corporate America.  No.  That was the Democrats.  And they really enriched their friends.  Their friends in green energy.  Those corporations that were supposed to create the jobs of the future.  That created no jobs (see Examiner Editorial: Insiders get rich on Obama’s green energy stimulus posted 10/31/2012 on The Examiner).

According to a Washington Examiner analysis of publicly available data, corporate insiders at the 15 publicly traded green energy companies that received federal stimulus subsidies pocketed tens of millions by selling their stock after the government’s money poured in and before their companies’ values plummeted.

The Obama administration gave more than $700 million in grants and guaranteed an additional $500 million in loans to publicly traded green energy companies through its 2009 stimulus package. If Obama had invested all that money in a Standard & Poors index fund of the top 500 publicly traded companies, his investment would have seen a 73 percent return since he took office. In contrast, the Obama “green energy” stimulus portfolio has fallen by 78 percent — performing about five points worse than green energy companies that didn’t get subsidies.

The insider trades by officers and directors of these companies tell us still more. They cashed out a net $63.9 million in stock gains before their companies’ stock prices collapsed…

This analysis does not include some of the best-known Obama energy failures. Solyndra, for example, blew through more than $500 million in taxpayer-guaranteed loans before it could even go public. Another high-profile failure, First Solar, is not included because it sold off much of its $3 billion in federal loan guarantees to third parties before it laid off 30 percent of its workforce and its stock price declined by more than 90 percent from its 2011 high. The company’s head, Michael Ahearn, has extracted more than $329 million in stock sales since 2009 all by himself.

The problem with green energy is that it’s not economically viable.  Few investors put their money in these ventures because investors are smart and know how to invest money wisely.  Which is why the government is pouring money into these companies.  Because no one else will.  For these are not wise investments.

So where’s the outrage?  The stimulus bill was greater than the money spent under TARP.  The program to bail out all those troubled assets.  Those toxic mortgages.  That infuriated the masses so much they showed up outside some bankers’ homes with pitchforks and torches.  Spawning the Occupy Wall Street movement.  And the whole 99% against the 1%.  But these green energy scandals?  You can almost hear the crickets chirping as you read about them in the few papers that write about them.  Why?

That’s a rhetorical question.  We all know why.  Except for a very few exceptions the media is liberal.  And will actively support Democrats.  And attack Republicans.  That’s why a larger financial scandal gets less coverage than a smaller one.  And the smaller one only got that coverage because in that coverage they failed to tell the whole story.  It wasn’t the bankers that forced these borrowers into subprime mortgages.  It was the government who forced the bankers to approve the unqualified for mortgages or else.  Basically saying their lending practices were discriminatory and that if they didn’t change they would find themselves out of the mortgage business.  So how do you qualify the unqualified for mortgages?  With subprime lending.  Which they did.  And kept doing after Fannie Mae and Freddie Mac bought those toxic mortgages from them and unloaded them on unsuspecting investors.  Which is the part they don’t tell the people with the pitchforks and torches.  That it wasn’t the bankers who were responsible for the subprime mortgage crisis.  It was the government.

And this is why the media doesn’t care about the green energy scandals.  They can’t revise the facts to blame them on the Republicans.  So they just ignore them.

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The Official Unemployment Rate falls to 7.8% but the U6 Unemployment Rate Holds Steady at 14.7%

Posted by PITHOCRATES - October 6th, 2012

Week in Review

The jobs report is out.  And the Left is trumpeting the great fall in the unemployment rate from 8.1% in August to 7.8% in September (see Table A-15. Alternative measures of labor underutilization posted 10/5/2012 on Bureau of Labor Statistics).  This is the official U3 unemployment rate.  That only counts people looking for full-time employment.  It doesn’t include those working part-time because they can’t find full-time work.  And it doesn’t include the people who just gave up looking for full-time work because there just isn’t any out there.  Which throws a little cold water on this 7.8% number.  For it doesn’t reflect a gain in new jobs.  It just reflects that they are counting fewer unemployed people.

A more accurate picture of the current employment climate is the U6 unemployment rate.  This number counts everyone who can’t find a full-time job for whatever reason.  Some have given up their search.  Some have retired early.  Some are living off of government benefits.  Some are working part-time jobs.  Some are working a couple of part-time jobs to make ends meet.  Interestingly, although the U3 rate fell 3 points the U6 rate held steady at 14.7%.  Which is puzzling.  For everyone included in the U3 rate is included in the U6 rate.  So if U3 fell U6 should have fallen, too.  For U3 and U6 generally rise and fall with each other.  As they have done in the past.  Such as in the years from 2006 to 2012 (pulled from the same Bureau of Labor Statistics website).

During the 2006 mid-term elections the Democrats were saying the economy was just terrible.  They hammered the economic numbers saying it was one of the worst economies ever.  Of course, the numbers say otherwise.  Whether you’re looking at the U3 rate or the U6 rate.  The economic numbers were very strong right until that sustained Keynesian monetary expansion forcing interest rates below market values and the government pressure on mortgage lenders to lend to people who could not afford a conventional mortgage blew up in their faces.  Beginning with President Clinton’s Policy Statement on Discrimination in Lending.  Which is why these lenders turned to the subprime mortgage.  Approving so many people for mortgages that housing prices soared.  Creating a huge housing bubble just waiting to be pricked by a rise in interest rates.  Which had to come.  As expansionary monetary policy eventually creates inflation.  And the only way to stop that is by raising interest rates.  Which was the time bomb ticking buried deep within those adjustable rate subprime mortgages.

Facilitated by the federal government and their GSEs Fannie Mae and Freddie Mac (who guaranteed and bought these toxic mortgages from the lenders they were pressuring to approve more toxic loans), subprime lending expanded.  As the GSEs sold these toxic mortgages to unsuspecting investors.  Which all blew up in the final months of 2008.  Creating the subprime mortgage crisis.  And the Great Recession.  The U3 rate rose as high as 10% in the fallout from this bad Keynesian expansionary monetary policy.  While the U6 rate soared as high as 17%.  Great Depression unemployment levels.  And neither has fallen much since these highs.  As the current numbers are closer to their highs than their previous lows.

Worse, the spread between U3 and U6 is far greater under President Obama then it was under George W. Bush.  Which tells us how poorly the U3 rate describes the current employment picture.  The greater the spread the more meaningless U3 is.  As it is simply not counting all the unemployed people in the economy.  The Left trumpets the 3 point fall in September but that only brings the U3 rate down to what the U6 rate was under Bush.  And the Left was calling the even lower U3 numbers under Bush some of the worst job numbers of all time.  So by their own standards President Obama is a far greater disaster to the economy than George W. Bush was.  For if it was horrible under Bush anything worse than Bush’s numbers must be more horrible.

When they passed the stimulus bill they promised they would have 5% unemployment by 2012.  Even the president said he would be a one-term president if this didn’t happen.  Despite all of their spending these numbers haven’t fallen much.  Despite their Summer Recovery pronouncements of 2010.  Their economic policies have all failed.  And there is a simple explanation for that.  Their policies were Keynesian policies.  And Keynesian policies have never worked.  Nor will they ever work.

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After Enabling the Subprime Mortgage Crisis, Fannie and Freddie are still Losing Money and want Another Bailout

Posted by PITHOCRATES - November 13th, 2011

Week in Review

Fannie Mae and Freddie Mac are still losing money.  And are now asking for another taxpayer bailout.  Imagine that (see Falling home prices leads to bigger Fannie Mae loss; asks taxpayers for $7.8 billion more by the Associated Press posted 11/8/2011 on The Washington Post).

Mortgage giant Fannie Mae is asking the federal government for $7.8 billion in aid to cover its losses in the July-September quarter…

Michael Williams, Fannie’s president and CEO, said Fannie’s losses are increasing for two reasons: Some homeowners are paying less interest after refinancing at historically low mortgage rates; others are defaulting on their mortgages.

When property values drop, homeowners default, either because they are unable to afford the payments or because they owe more than the property is worth. Because of the guarantees, Fannie and Freddie must pay for the losses.

The problem now isn’t low mortgage rates and defaults.  That was the problem when government policy used Fannie and Freddie to create a housing bubble.  This is what gave us the subprime mortgage crisis.  Putting people into houses they couldn’t afford.  By forcing banks to qualify the unqualified.  And then having Fannie and Freddie buy these toxic mortgages from the banks.  So the banks could qualify more of the unqualified.  And continue the cycle.  All the while putting more and more risk onto the American taxpayer.  Because, as we have seen, it is the American taxpayer that bailed out Fannie and Freddie.  And now they’re asking for more money.

Government created the subprime mortgage crisis.  With their enablers of bad credit Fannie and Freddie.

Washington-based Fannie and McLean, Va.-based Freddie own or guarantee about half of all mortgages in the U.S., or nearly 31 million home loans. Along with other federal agencies, they backed nearly 90 percent of new mortgages over the past year.

Fannie and Freddie buy home loans from banks and other lenders, package them with bonds with a guarantee against default and sell them to investors around the world. The companies nearly folded three years ago because of big losses on risky mortgages they purchased.

This wasn’t the banks on Wall Street causing this mess.  The deed was already done by the time they sold those toxic mortgages.  For had it not been for Fannie and Freddie they would have been no toxic mortgages for Wall Street to sell.  And no subprime mortgage crisis.

And there would have been no Fannie and Freddie mess without their overseers.  The federal government.  And their policy to put as many people into houses.  Whether they could afford it or not.

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