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Central bank moves to calm markets

JOHN PARTRIDGE

Globe and Mail Update

Latest comment posted at 1:00 PM EDT 09/08/07

Bank of Canada is ‘closely monitoring developments' after French bank signals it has been burned by the meltdown of the U.S. sub-prime mortgage market, triggering stock market selloff ...Read the full article

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  1. gord winters from Canada writes: the 'correction' needed will look very much like total collapse...
  2. Dr Demento from Canada writes: Yesterday's news:

    'The U.S. economy is 'thriving,' Bush says. 'We've got a record that proves taxes can be cut, economies grow, deficits reduced and wars fought,'

    'I would say that the underpinnings of our economy are strong ... strong employment numbers, low inflation, real wages are on the rise,' he said. 'There's a strong global economy, which means it's more likely somebody will buy our goods.''

    What a moron!
  3. David Rouleau from Canada writes: ...and so it begins (sigh). It's at times like this that I am happy not to have procreated and left my progeny to suffer the idiocy of the human race.
  4. Andrew Salmons from Milton, Canada writes: I think this is a signal of the markets starting to collapse. Inflation has been really high for the past few years in the housing market. House prices are rising by 10% per year, with only 3% average annual inflation in the economy. The economy cannot keep up with the inflation of houses. The Bank of Canada tries to cool the enconomy by raising interest rates, but it burns the economy by making homes unaffordable causing foreclosures and high risk mortgages to fall through. The CMHC should be ready for some big payouts. The Bank of Canada and CMHC are going to cause our collapse here, if not the banks that lend money to other instuitions in the US, ie. Scotiabank.
  5. Jeremy F from Alberta, Canada writes: 'The U.S. economy is 'thriving,' Bush says. 'We've got a record that proves taxes can be cut, economies grow, deficits reduced and wars fought,'

    'I would say that the underpinnings of our economy are strong ... strong employment numbers, low inflation, real wages are on the rise,' he said. 'There's a strong global economy, which means it's more likely somebody will buy our goods.'

    The economy part is right, the war part is still controversial and the deficit part is incorrect. I wouldn't call him a moron on the economy part, he has done a pretty good job on that level....despite all the pestimists who ever since 9/11 thought the economy was in the tank, it always seemed to prove them wrong. Yet people like Demento have a short memory.
  6. Michael Sharp from Victoria BC, Canada writes:

    That 28 million dollar home in Victoria?

    It's yours for 25 million.
  7. Ranald Walton from Canada writes: I'm keeping my powder dry. Inflation is officially understated. We have too much debt in North America, and it's time to liquidate some of that junk. If the Fed steps in and lowers the overnight rate we'll just see a run on the US dollar and an uptick in inflation (even the bogus official numbers).

    Cheap money has led to bad lending practices, high inflation and an unhealthy affinity for risk.

    The best thing that can happen is a continued orderly reduction in the US dollar. I fear North America is in for a bit of a wake up call. The financial imbalances in the World are not sustainable. The bubbles in the housing and equity markets are also not sustainable.

    I'm no Wall street guru, but in the words of President Johnson, I know the difference between chicken sh!t and chicken salad. The financial 'experts' are not serving up salad.
  8. Trent S from Canada writes: RE; Andrew Salmons The Bank of Canada tries to cool the economy by raising interest rates, but it burns the economy by making homes unaffordable causing foreclosures and high risk mortgages to fall through'
    I disagree Andrew, BOC is not raising interest rates to unheard of levels, they are still well below average for the history of Canada, the idea of massive foreclosures is silly especially if these homes have appreciated in values such as you say. It would be better to sell the house and earn your profit then to allow it to foreclose.
  9. Shawn Bull from Canada writes: The markets are not about to collapse. This is a regular occurance that keeps the markets balanced.

    Dr. Dimento, your post is wrong on all accounts.
  10. G. Veneta from Canada writes: This is just the beginning of the domino collapsing and everyone in the financial community I am sure knows this and is slowly liquidating while stating publicly to their clients that all is well. Then throw in the dozens of trillion dollar hedge funds manipulating the market and who knows what a big mess we will be into.

    Eventually the 'debt economy' of the US fundamentals will catch up with the market which has defied logic when you look at the real fundamentals of the US economy....that fueled by exporting war and tools of war...their number one export.

    Americans need to start paying for their own country through taxes and stop borrowing from countries they don't wish to be beholden to. Allowing China to finance it's debt is just plain stupidity. How hard is it to understand that eventually you must pay your own way or your economy will collapse. The hubris and deep ignorance of those in charge of the US is deeply disturbing. American citizens deserve much better.

    Hang on as the back draft is going to get ugly. To deny is just folly.
  11. $200 Oil $5,000 Gold from Chicken House on the Prairie, Canada writes: Does anyone smell smoke?
  12. Dr Demento from Canada writes: Jeremy F from Alberta, Canada writes 'The economy part is right'

    You seem to be mistaken Jeremy.

    In what way could the 'economy' part be 'right'? The US currency is dropping like a stone, US trade deficits are at an all time high, the public is in debt up to its eyeballs, the housing market has gone down the toilet and mortgage foreclosures are going through the roof.
  13. Dr Demento from Canada writes: Shawn Bull from Canada writes 'Dr. Dimento, your post is wrong on all accounts.'

    I know - they were direct quotes from George W. Bush.

    Or do you mean the part about him being a moron?
  14. Ranald Walton from Canada writes: I, unfortunately, largely agree with Dr Demento and G Veneta on this thread but unlike them I do not look forward to the event nor do I share their anti-American bigotry. It boils down to there is simply too much debt in our system and the non-performing junk needs to be liquidated. All is not lost, and a lowering of North American living standards is part of the solution. It's time to start actually building things and excise the malignant growth in the investment banking and financial industries. If things get ugly, it will be far worse in China with millions of unemployed workers who will want their political leaders' necks.
  15. Proud Canadian from United States writes: European Central Bank lent about $130-billion (U.S.) to banks at low rates

    Hey how come no one is lending me $130 billion? Baby needs a new pair of shoes. : )
  16. Jake ---- from Canada writes: I read a similar article in the NYTimes, BNP lended 130 Billion to the US, they have freezed all funds relating to the sub prime morgage market. The Fed Reserve printed another 12 billion. This is a bad sign and worse stuff has yet happen.

    The problem here is there is to much paper floating around the USA right now, inflation will continue to rise and there dollar will continue plummit. The USA can't correct the situation by lowering interest rates because all that will due is drive up inflation. I don't think there is a clear answer in solving this problem, recession here we come. Good thing I work in Fort Macmurray, there's always work up here.
  17. Ken DeLuca from Canada writes: Re Bush as moron: In six years he took the US from a 150 billion dollar surplus to 319 billion dollar deficit ( third hightest deficit in US history ) Bush did much of it with tax cuts for the very richest including EXXon which acted as guru on both environmental and war policies.

    Destroy the world and make a buck capitalism. Moronic? Evil!
  18. Rodger Harding from Canada writes: We are a society that deals with 'what works' - The unknown is to be avoided at all cost....So here with financial market uncertainty looming, we see the lemming effect...thousands will run off the cliff until realization finally hits... Blind unthinking investment, following popular trends has always lead to collapse...!

    Business Intelligence, in people terms, refers to innate human capacity to THINK creatively when faced with the unknown or unproven. The greater the capacity of an individual/organization to work with confidence in the dimension of potentials, possibilities and maybes, the greater the ability to predict accurate and safe future business investment/outcomes ...
  19. Shawn Bull from Canada writes: Dr Demento: Your moron quote signified that you felt that what the president said was incorrect...in that manner you were wrong. The US economy is healthy and they are the largest economy in the world

    People, the US economy is not about to collapse. The US economy is massive and well within balanced boundaries. The dot-com bubble burst of 2001 was so much more significant than this.

    If what you said is true and the US economy was about to collapse than I can gaurantee that the world economy would collapse and absolute chaos would ensue. I think you would be hearing a tad more from other global economists if this were the case.

    The markets will balance themselves and all will be fine.
  20. Jim Summers from Waterloo, Canada writes: So far, I would say lenders have done a very good job of designing financial instruments to spread risk. The mortgage problems may have started in the U.S., but it appears that the pain is spreading everywhere. In fact, it would seem that American markets are no more affected by mortgage and debt issues than markets in any other country, which is a rather impressive achievement. It's interesting that the Bank of Canada has to reassure investors; you'd think the U.S. Fed would need to do that too.
  21. A R from Canada writes: You think it's bad now....wait till China fully floats it's currency and looks to dump the 1 Trillion plus in US Greenbacks it has. The future does not seem that bright for anyone.
  22. Albin Forone from Canada writes: I'm a bit surprised by the preemptive BoC statement. We don't know the exposure of Cdn financial institutions and pension plans to some of the troubled asset classes and hedge funds. Cash is earning over 4% risk-free, and wise investors have some now.
  23. gord winters from Canada writes: Shawn Bull from Canada writes: all will be fine.

    thank you for that comforting message.

    thank goodness you don't handle any of my money.
  24. Buckwheat Bubba from Moosebog Swamp, Canada writes: Can someone explain what a 'subprime' mortgage is and why it is causing so much trouble?
  25. Bryce Richards from Calgary, Canada writes: Guess What! As the debt liquidity dries up on world markets the large debts incurred by countries, corporations and individuals will come home to roost. Remember that $500k inflated home in Calgary. Take away all that free liquid money of the last few years and you get the true actual cost of real estate. Most people who purchased debt in the last 3 years will have little or no equity when the bills finally come due. Things can happen very fast even in a economy that thinks they are immune to catching a cold. All Booms evenually are paid for by those who borrowed much, saved little and partied as if there was no tomorrow. Time to cash in all your chips.
  26. W F from Canada writes: Ranald Walton from Canada writes:' I, unfortunately, largely agree with Dr Demento and G Veneta on this thread but unlike them I do not look forward to the event nor do I share their anti-American bigotry'

    You know what Ranald. When the largest economy in the world is being abused to the extent it is, then people everywhere have a right to comment and be concerned. That is not bigotry; it is proper concern.
  27. Ron - Halifax from Halifax, Canada writes: When the Central Banks step in to calm the markets and inject liquidity into the system; this is major stuff.

    It probably would be appropriate that a good number of your Wall Street types get burned in the meltdown; serves them right for dressing up what they must have known as junk paper as top quality bonds. Smells like an Enron scenario doesn't it? The senior executives were saying nothing was wrong and recommending that you keep buying their stock while those same excutives were dumping theirs as quickly as possible.

    Let us just hope this doesn't take the whole economy down with them.

    Over the last number of years it has become apparent that the US economy has become addicted to debt, particularly foreign debt. There economy has to change, becoming more export oriented and the average US citizen is going to see a hit to their standard of living.

    Let us hope those same Wall Street types who are saying 'everything is fine', 'come buy my bonds' find new jobs in the real economy where they can actually do something productive.
  28. gordon mcpherson from ottawa, Canada writes: Rodger, I couldn't have said it better myself...its likely 'the lemming theorem' which states market corrections are mostly caused by lemmings jumping off a cliff... Yes, subprime mortgages are a cause for concern but does not mean that Canadian bank earnings, commodity earnings, and other companies w/positive earnings are the cause and therefore those shares must be sold off along with all the other lemmings' shares... Some U.S. lenders and European lenders will pay the price for lending to borderline borrowers and some U.S. housing builders will lose out but there is not enough to cause a massive selloff such as we have had. Once the dust of the stampeding lemmings settles, markets will get back to business, which is where the lemmings and the investor part company. Inflation is still between the 2-3% allowable Bank of Canada band, interest rates are low and holding, the dollar is in the .90-.95 range reflecting a good economy, if the U.S. dollar drops-gold will rise... Hey, in 1988 my income was half of what it is now and my mortgage interest rate was twice what it is now...go figure. As the sub-prime mortage defaulters give up their homes, the next batch of home buyers will likely buy them up at bargains. Get over it...
  29. gordon mcpherson from ottawa, Canada writes: A R, why would China consider floating 1 trillion in U.S. paper? If they laid seige on the U.S. economy, the U.S. would end its business contracts i.e. manufacturing contracts with China as would Canada and Europe and China would then suffer extremely high unemployment and their booming modernizing economy would come to a grinding halt ...think about what you just stated.
  30. Adele Sommerfeld from Mississauga, Canada writes: I agree that the correction in the US economy will be nothing short of freefall from this point onward. President Bush's decisions have definitely been fundamental to the amplitude and intensity of the collapse, however, the US economy was already teetering at the top a few years before his arrival and 9/11.
  31. The Middle Finger ..I.. from Canada writes: Michael Sharp from Victoria BC, Canada writes:

    That 28 million dollar home in Victoria? It's yours for 25 million.
    ______________________________________________________
    Is that the one with the 26 million mortgage?

    In Alberta the Dollar Dealers will be back soon.
  32. Ozzy Rules The World! from Canada writes: This is what happens in a Fiat monetary system. We will continuously lose the value of our money as the government spends more (war's) and the banks print more to cover the shortfall that the government is not willing to tax us to get. The principle Money is printed for the government at interest and the money to cover the interest is not printed so people are bound to go bankrupt. Cheap credit causes the bubble at the central banks request and then the bubble bursts at the banks request (raising rates).

    We are being played like a fiddle by the banks and being robbed of our wealth. But of course people do not want to understand that, they like to make it complicated and spout off a bunch of economic nonsense mumbo jumbo when its real SIMPLE!

    The Bank of Canada was suppose to be a public bank so the government didn't have to pay interest on the money they created so it would save the tax payer billions in interest. Someday I hope we wake up and get a government that runs the bank of Canada like it was suppose to be run and then we could pay of the debt quickly and we could all get a huge income tax break.

    The Market is about to have a HUGE collapse if the monetary policy doesn't change quickly, this will make the great depression look like a mild recession. GET OUT OF DEBT NOW. Even if you have to sell things. In the US they have debtors prison (You do NOT want to go there) laws in place because they know what is going to happen and if the SPP goes through we will be bound by Bushes laws. Buy silver and gold (Whatever you can afford) and not the stocks either..the METAL. IF we have to leave the country to get a job or avoid fascism the would rise from the chaos gold and silver is accepted in most other countries for their currency.

    This may sound alarmist but it could easily happen WHEN things get worst.
  33. W F from Canada writes: To Shawn Bull - who thinks everything is just honkey dorey I can only re-iterate the posting from the Middle Finger:

    Tic Tic Tic ..... Boom.
  34. Doug from BC from Cranbrook, Canada writes: Seems to me that the comments from the BOC and the lending of the ECB means that there are a lot more of theses announcements coming. Also, Gord Mcpherson, if you actually believe that inflation is at 2-3%, Stats Can has definitely got you hoodwinked. Also Oil $200 Gold $5000 I think you may be off, but only by a couple of dollars.
  35. Jeff Hunt from Toronto, Canada writes: Earth to investors: reality check.
  36. Old blue from Canada writes: Buckwheat Bubba from Moosebog Swamp, Canada writes: 'Can someone explain what a 'subprime' mortgage is and why it is causing so much trouble? '

    Subprime mortgages are loans to higher risk clients at a higher rate. Although you hear very little about it there are also sub prime credit cards which are also at a higher rate versus 'normal' credit cards. Although unreported (for some reason) by the media this is also a big problem.

    Approx 21% of mortgages issued over the last few years have been sub prime.

    The problem occurs when companies who have issued the mortgages are stuck with many many defaults which can and has resulted in company bankruptcy. Some of these companies have borrowed major dollars at lower interest rates to loan to the borrowers, ergo, the banks and other major lenders suffer as it turns into a major loss for them.

    Alone, this is a speed bump in the total scheme of things although whatever happens to the U.S. economy will definitely have spillover into the Canadian economy.
  37. Ozzy Rules The World! from Canada writes: Oh and by the way we as a country should start demanding Euro's for our oil or we could be in a lot of trouble. If the US dollar crashes our precious balanced budgets and surpluses would be no more.
  38. The Middle Finger ..I.. from Canada writes: Anyone see a similar story out of Australia a few days ago. The government was assessing the banks exposures and issuing statements about vulnerability.

    There is only one truly safe haven in a crisis. Remember grandma's mattress?
  39. Adele Sommerfeld from Mississauga, Canada writes: Do we want to buy gold and canned /dried food, is the real question? Which will be the most valued will depend on the kaboom...is it the economies of the world or the environment enveloping it?
  40. Nuclear Man from Canada writes: Well sounds like another page in the carpet baggers bag of tricks. Seems very similar to the S&L crisis a few years back.
    When are the financial authorities going to approach these kinds of high flying vehicles with the proper regulations and extremely severe penalties for abuse? Only an idiot would borrow funds hoping that price inflation will make their 'investment' a good thing, seems like there are a lot of idiots out there and a lot of them are financial advisors.
  41. Carmin Di Fiore from Canada writes: Buckwheat- the 'subprime mortgage market ' is a sexy name for financial compost. Pools of bad credit are packaged and sold off to various groups.

    Various investors will buy the repackaged stuff and earn different returns depending on expected losses. The guys selling the repackaged stuff take big fees and move on to their idea.

    The theroy is its supposed to take garbage and turn in to something useful and everyone makes money and prospers along the way.

    If all works out with compost, you typically only need a small broom to clean up. However if things don't work out you likely need a large shovel.

    Right now there are a lot of people eyeing a shovel and how best to move this stuff.
  42. Le Malbadon from Canada writes: To add onto what Old Blue answered to Buckwheat. Of those 21% (I believe closer to 25% now) of mortgages, most fall into the 'interest only' category. ie. They aren't paying even a penny towards the house itself, they are merely paying off the interest charge each month. Even worse, some lenders offered teaser rates, say 2% interest for 3 years, which would then scale up to 8% after that. These mortgages were then given to people who could barely afford to make these interest only payments. Interest rates in the states started to rise and suddenly these people who were making interest only payments can't afford even that payment anymore. The teaser rate people are now hitting those 3 year rate changes. Combine all that together and you get people who are just going to declare bankrupcy and walk away from their home. What do they care, they were only making interest payments on it. Lenders are left with all these houses, but housing prices are falling, houses aren't selling, all bad. This was all 'supposed' to be working out because housing prices were supposed to endlessly keep appreciating at astronomical rates, so these people who were making interest only payments were gaining 'equity' based on the inflatation of their house price versus when they bought it. However, most of them end up taking 2nd/3rd mortgages out on that appreciated value instead to spend it on lifestyle things. Hey its good for the economy right? I mean, they have 30 grand in burning a hole in their pocket now! If you watch any of the US networks that don't overlay canadian commercial over the US ones, what do you see every second commercial? 2nd mortgage ads. :)
  43. Shawn Bull from Canada writes: W F from Canada: Then you should take your money out of the bank right now and put it under your pillow....or do you think the Canadian banks will be secure when the US economy collapses...apparently the US economy is going to collapse next Tuesday.
  44. The Middle Finger ..I.. from Canada writes: I have a question for all those financial geniuses out there who I see on the board everyday.

    From the perspective of a retired non investor with cash only no debt ( ie. I am past the stage in life where I want to risk my nest egg by speculating in the stock market or the housing market by taking on debt ), why should I tolerate the BoC bailing out greedy speculators who have over extended themselves?

    The ones I feel sorry for are the young people trying to buy a home because it is a necessity of life not for speculation. They will likely get hammered when the collapse comes.
  45. Adele Sommerfeld from Mississauga, Canada writes: Unfortunately, the investment banking and public market sector operates in a such a way that it allows for a creation of self fulling prophecies and significant unlying fluff or nominal inflation.
  46. Kothar Rumbleg from Canada writes: So what other banks or lenders out there have money tied up in this fiasco? Why is it that these institutions put money in high risk, objectionable things? Look at CIBC when they had money tied up in Enron and helped them cook their books, look at all the money lost. Why would you lend money to people that can't pay it back? I went and got my mortgage last year, I had to provide my income and all investments to the lender. They looked at my debt to income service ratio and also my credit score. If it was greater than 40%, no mortgage for me. Fortunately I didn't fall into that category and so I was able to get my mortgage and buy a house well below what I was allowed. It all looks like greed to me from these lenders, who lost the fundamentals to not loan to people that couldn't pay and now everyone is getting burned.
  47. An Observer from Canada writes: Buckwheat:

    'Sub-Prime' mortgages, are loans secured by real estate, where the borrower has one, or a combination of, the following attriubutes:
    No credit, poor credit, low or no equity, questionable ability to service the debt.

    The sub-prime meltdown in the U.S. was well under way as at mid March of this year.... so much of what we are seeing is just further wrapping up of it.

    The good news... for the large financial institutions like banks, and insurance companies.... is that almost all of that paper was bought up by hedge funds, mutual funds, and pension funds. Financial Institutions have very little direct risk in this area..... very small numbers.

    The good news also... for Canadians... is that the Sub-Prime lending in the mortgage market has been a small fraction, as a percentage of the mortgage market, compared to that in the US.
  48. Ranald Walton from Canada writes: Calm down Ozzy. 'If we have to leave the country'?? Where are we going to go? Canada and the US are overly indebted to foreign interests, but if the political fabric breaksdown here, there is going to be no place left on earth to hide. Canada and the US will be the last refuge if the big one hits.

    I'm not suggesting the end of days here. It's normal for markets to go up and markets to go down. I just think the trade imbalance between North America and the Far East is not sustainable. Our consumption of world product must decrease. China will fare far worse than the US if things go bad, just as the US was more negatively impacted in the '30's when the heavily indebted UK had to depreciate its currency. History repeats itself and the current imbalances are not without historical precedence. I don't know whether that adjustment is beginning now or whether it will happen in a decade... but it will happen. Debt is real and the non-performing junk needs to be blown off. Personally, I would do everything to control debt so as not to be wiped out in the credit crunch.
  49. imagine there's from Canada writes: 'Oh and by the way we as a country should start demanding Euro's for our oil or we could be in a lot of trouble. If the US dollar crashes our precious balanced budgets and surpluses would be no more.'

    Switch to the Euro? Might be a good idea. Might evenb e a very good idea but wouldnt we risk being invaded by the US? Isn't that what happeneded to Saddam afterall.
  50. Shawn Bull from Canada writes: The Middle Finger: Then you were around in 1980 when NA suffered the worst real estate collapse in histroy. Interest rates hit 22% and people were walking away from their houses.

    Why didn't the economy collpase? Same with the Dot.com bubble, the Japanese threat in the 70's. Eachtime the US economy adapted and came out even stronger.

    That's what large, successful, free enterprise economies do.

    I also wander how much of this talk is anti-US because it isn't based on financial fact or reality.
  51. W F from Canada writes: An excerpt from the Bloomberg article on the ECB loaning 130 B to the banks who have been caught in the US credit squeeze.

    ' Both banks said their overnight borrowing costs rose 65 basis points to 6 percent. Royal Bank of Canada and Barclays Plc also said they're paying 6 percent.

    ``This is an old-fashioned credit crunch,'' Chris Low, the chief economist at FTN Financial in New York, said in a report today. ``This is not a small thing. A credit crunch, when the short-term credit markets seize up, is extraordinarily serious, almost always the precursor of a significant recession.''

    The full article can be read at:

    http://www.bloomberg.com/apps/news?pid=20601087&sid=apKhWv7EHTR0&refer=home
  52. Ranald Walton from Canada writes: Ozzy Rules The World! from Canada writes:'Oh and by the way we as a country should start demanding Euro's for our oil or we could be in a lot of trouble. If the US dollar crashes our precious balanced budgets and surpluses would be no more'

    Euro's are bigger crap than US dollars. At least the US dollar is backed up by a military that can secure access to oil, militarily. Let's see what a bunch of navel gazing European eunichs would do to secure the world's oil supply.
  53. Wade Tompkins from Canada writes: Shawn Bull,

    It is your exact attitude that has stopped the collapse of the american currency and economy, prolonging it to a more destructive disaster later on.

    The only reason the USD has not completly fallen apart is because too many investors view it as an invincible currency. They see the USD backed by the American economy, which is also considered invincible. No one believes that the US economy could fall and so that has not been reflected in the markets, yet.

    We have to be very careful right now. There are laws currently in place that could allow the persidency to become a dictatorship in case of extreme circumstances of national emergnecy. I spoke with a professor of Political Science who said that all the criteria for a facist state are set up in the states, but it won't ever happen because there would have to be a trigger of great National disaster. One example he listed was a financial or economic crisis. This was over a year ago.

    I do not suggest that this what will happen, this is only a very possible outcome that we cannot overlook.
  54. W F from Canada writes: Ranald Walton from Canada writes: 'Euro's are bigger crap than US dollars. At least the US dollar is backed up by a military that can secure access to oil, militarily. Let's see what a bunch of navel gazing European eunichs would do to secure the world's oil supply.' Err, sorry again Ranald but the US only has a 90 day supply of strategic oil. Very little their military could do with that. I guess they could invade Canada, but in the end they would be no better of than the Germans were in the battle of the bulge - lots of hardware and no gas.
  55. W F from Canada writes: So I'm wondering where our 'merican friend Andy Garrett from Palm Beach is - covering his shorts no doubt. HAHAHAHAHAHA
  56. Ranald Walton from Canada writes: W F : Why would the US want to invade Canada since they largely own us anyways?
  57. Shawn Bull from Canada writes: I have to go for about an hour. Can someone please give me a call if the US economy collapses during this time or are they OK until at least the weekend.
  58. Festina Lente from United States writes: To Buckwheat Bubba: Please pay close attention to W/F, G Veneta and Dr Demented posts if you want to know about subprime lending or if you want to know anything about anything...they have all the answers and remedies! They are quick to call people morons but when their moronic tendencies are pointed out they curl their tails, and behave as if they can't be insulted for bad behavior. It is a distinct pleasure for me to mow them down even though I would like to see them pursue a friendly and reasonable exchange of ideas, but alas they are a deplorable bunch in need of help.

    As to the economy, no one knows what the markets will do and no one can reliably predict its movement. There is money to be won by intelligent investing and there is alot of money to be lost by such examples these hillbillies mentioned above present. These clowns need a little attitude adjustment. This is what I think.

    I wish you well.

    Malcome McCallum in Florida.
  59. W F from Canada writes: I dunno Ranald, to secure their oil supplies? Like in Iraq!
  60. W F from Canada writes: Festina Lente - Bloomberg as you well know is a US publication owned by the Mayor of New York city. troll.
  61. W F from Canada writes: Festina Lente - what is it with all you Floridians posting on Canadian newspapers. I know the CIA has actively recruited in U of Miami for years, but really, don't you have other hot spots to take care of?

    You are doing a real disservice to people by suggesting that the current mess in your country is managable when you know it isn't without creating further huge amounts of liquidity and lowering interest rates again.

    Your house of cards is coming apart amigo.
  62. The Middle Finger ..I.. from Canada writes: To Kothar Rumbleg from Canada who wrote: So what other banks or lenders out there have money tied up in this fiasco? Why is it that these institutions put money in high risk, objectionable things? Look at CIBC when they had money tied up in Enron and helped them cook their books, look at all the money lost. _____________________________________________________ The urge to make profits. ___________________________________________________ Why would you lend money to people that can't pay it back? I went and got my mortgage last year, I had to provide my income and all investments to the lender. They looked at my debt to income service ratio and also my credit score. If it was greater than 40%, no mortgage for me. Fortunately I didn't fall into that category and so I was able to get my mortgage and buy a house well below what I was allowed. It all looks like greed to me from these lenders, who lost the fundamentals to not loan to people that couldn't pay and now everyone is getting burned. _____________________________________________________ So you think you are safe? Things have really slacked off so as to qualify you for a mortgage. When I bought homes in the 70s, 80s and 90, I had to qualify when: a) The limit for PIT and utilities used to be 30% of income not 40%. b) Interest rates averaged 10 -12% for mortgages and peaked at 22% in the early 80s. Car loans averaged 12 - 13% except for the early 80s. The reason you were asked about your investments is that when your net income declines due to: a) Loss of job; or b) If married, your second income due to children; or c) If married, you get divorced; or d) Interest rates rise; or e) Any number of future calamities / burdens that happen in life. The bank will know exactly where to look for your assets to seize. ___________________________________________________ Ask yourself the question ' What is the only financial asset I have that is exempt from siezure ' ? There is only one correct answer.
  63. martin ess from Edmonton, Canada writes: I wish the central banks would stand back and let this imbalance sort itself out. The Federal Reserve/Alan Greenspan are partly to blame for this (interest rates went too low after 9-11), so the last thing we need is more action from them.

    The smartest move would be to let the people exposed to these credit derivatives feel the full consequences of their mistakes. Otherwise, they'll just do it again, because they know the moron central banks will bail them out with liquidity.

    All of this finacial engineering crap needs to go away. America become economically strong by producing real goods, not paper.

    Amazingly, credit derivatives are worth $34 trillion. That's more than 3x US GDP.
  64. W F from Canada writes: martin ess - I'd say that their system (which reminds me of a wild west show, complete with rednecks and shoot em outs) is rotten to the core.

    Just because Greenspan had to cut interest rates to 1% didn't mean that the credit derivatives market should have been allowed to create a 34 Trillion dollar mess.

    If there was any kind of government operating south of the 49'th this would never have happened. But as we all know, but has the IQ of a pencil.
  65. Festina Lente from United States writes: To WF: I am not your amigo and I have been reading the
    international G&M for longer than you have been on this earth and have probably lived in Canada much longer than you! You write insulting tripe and the only defense is a good offense here. I don't need your permission to read Canadian newspapers and I certainly don't need your permission to visit Canada as I do a lot each year for business and pleasure. I pay Canadain taxes and I do not tolerate insults from someone obviously uneducated who communicates sand box insults. Adieu, you peasant! Ha. Malcolm McCallum in Florida.
  66. W F from Canada writes: correction to my last post: the final line should have read 'But as we all know Bush has the IQ of a pencil'.
  67. Shawn Bull from Canada writes: W F from Canada writes: martin ess - I'd say that their system (which reminds me of a wild west show, complete with rednecks and shoot em outs) is rotten to the core.

    ...and that is the real story here. This has everything to do with anti-Americanism then it does about fiscal reality. I have read some ludicrous comments on this particular post and they are more wishfull thoughts from the US haters than anything else.

    Sell me your US dollars then my fellow posters. I'll buy them at 50 cents on the dollar. That is an awsome deal for saying what you think is about to happen to the US economy. Sell me your US funds.
  68. Hugh Campbell from Canada writes: Ranald Walton from Canada writes:

    'At least the US dollar is backed up by a military that can secure access to oil, militarily. Let's see what a bunch of navel gazing European eunichs would do to secure the world's oil supply.'

    According to EIA, the Persian Gulf (Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and United Arab Emirates) represents 1.3% of US imports. The US military can't even 'secure access' to Iraq oil.
  69. i. ignatius from Mount Pleasant, Canada writes: so what is it about these financial crises ... didn't the US have one just about 20 years ago or so ...

    back in the late 80s it was the 'Savings and Loan' crisis that helped bring in the recession of the early 90s ... now we have the sub prime crisis that threatens to do the same thing ...

    should we start counting on cyclical 'crises' every 20 years that fortell recessions caused by some sort of failure in the american banking industry??

    it's unfortunate that the rest of us keep getting caught up in crap that is not of our doing :-(
  70. Larry Robinson from White Rock, Canada writes: Buckwheat and Old Blue - I believe An Observer is correct in that the American portion of new mortgages that were sub prime was in the 25% category whereas in Canada it was less than 12%.

    This type of mortgage, where the equity was in the property and very little or no equity with the purchaser, was attractive for lenders in escalating real estate markets. You give somebody a $350,000 mortgage on a $375,000 house purchase and the market was going up at 2% per month - no risk. In fact, I know of one sub-prime lender burdened with a new pension fund that threw in a $50,000 home improvement loan with the subprime mortgage.

    Now there are problems if the real estate market slows down, never mind decreases. Fruthermore, the purchaser better keep the flow of income going just to meet payments. It becomes a pure cash flow situation hoping one day to cash in on a inflated property. Interest only 35-40 year amortized mortgages were the hot thing.

    There were real estate market blips in Colorado, Florida, Texas and Detroit - instant foreclosures.

    We are not as vulnerable in Canada except in B.C. there is a significant sub-prime market but real estate continues to chug ahead. However, with the global spread of risk there will be some fall-out everywhere and the much forcasted decline of the USD will continue.

    And on the other side of the table sits China, fanning the over 1 trillion USD in treasury bills.
  71. The Middle Finger ..I.. from Canada writes: To martin ess from Edmonton, Canada who wrote: I wish the central banks would stand back and let this imbalance sort itself out. The Federal Reserve/Alan Greenspan are partly to blame for this (interest rates went too low after 9-11), so the last thing we need is more action from them.

    Maybe Osama is truly a brilliant but misguided intellect. Maybe he knew his enemy better than Bush. The fallout of his actions, his true motive, was to undermine the world economy and societal trusts such as security issues whereby Bush would self - inflict wounds as he sits in a cave in Pakistan.
  72. Sivaram Velauthapillai from Toronto, Canada writes: WADE TOMPKINS: '''The only reason the USD has not completly fallen apart is because too many investors view it as an invincible currency. They see the USD backed by the American economy, which is also considered invincible. No one believes that the US economy could fall and so that has not been reflected in the markets, yet.'''

    What's your definition of 'fall apart'? Economies go up and down all the time. If you mean a recession when you say fall apart, I may agree. I personally hope not (I'm going to lose my job for sure--sucky job anyway) but it may be possible.

    But if you mean some other type of 'fall apart' I'm not so sure. I mean, I might be the biggest anti-American around but USA has the best political system in the world (not counting small countries like Switzerland) and one of the best economic systems too.

    People bashing George Bush (I'm not a fan of conservatives like him either) need to realize that the US political system limits the power of the President and his administration. Someone above says a dictatorship is possible but I highly doubt it. Furthermore, USA has the most open, one of the lowest taxes, and best economic market.

    USA is the still the engine of the world. Wall Street investors and the rest of the masses are going to get a shock when the rest of teh world comes tumbling down along with the US during the next recession...
  73. Buckwheat Bubba from Moosebog Swamp, Canada writes: Ok Thanks to everyone for explaining the situation to me. Now I have another stupid question, Why would these institutions/companies lend money to people with bad or no credit rating? I guess they can always get their capital back by selling (power of sale) the underlying asset (the house/home) and in an appreciating market this may be OK but what if the market is in a downturn? It is just greed or what?
  74. Super Farmer from Canada writes: Shawn Bull - you're wasting your breath with most of these non-investing, leftist, anti-American moutbreathers. How do you respond to people predicting the collapse of the US economy?

    We have just witnessed a huge bull market in real estate and equity in the last few years - check where the TSX 300 (or the Dow for that matter)was early 2003 and what it's at now - we're in for a correction which, in my world, is a time to make more money.
  75. W F from Canada writes: Sorry Shawn, but all my assets are in Canadian dollars. Maybe you can get a loan from Bear Stearns. LMAO.

    And you know what - it isn't necessarily about 'anti-mericanism'. Obviously if the US goes down, the world will go with it. Hardly a scenario I would look forward to.

    But I think, given the nature of global interdependencies that have been created in the last 20 years, everyone has a right to comment on something that has a good chance of changing their lives.
  76. How Absurd from Kingston, Canada writes: his true motive, was to undermine the world economy and societal trusts such as security issues whereby Bush would self - inflict wounds as he sits in a cave in Pakistan..........Osama wants the west out of the Arabian peninsula and eventually out of all Muslim countries. And he eluded to driving the west into a depression by attacking the US which he did.

    However what's driving the present situation is the huge amount of individuals defaulting on mortgage payments and most of these folks were good citizens who lost their jobs due to the Free Trade Deals- One initiated by Mulrooney and the other by Chretian. And on this note, John Edwards has taken square aim at the negotiators of these deals, by saying the deals were done to serve high level special interest groups and not done for the benefit of ordinary Americans.
  77. Sivaram Velauthapillai from Toronto, Canada writes: I IGNATIUS: '''should we start counting on cyclical 'crises' every 20 years that fortell recessions caused by some sort of failure in the american banking industry??'''

    Good point... Cycles are part of a free market... basically you'll have a boom&bust cycle. I personally think it is due to human psychology. Just look at how people were loading up on junk bonds, real estate bonds, and so forth, and now realizing how risky they were (or for Canadians, those loading up on income trusts without realizing how bogus those things were)...

    Well, for someone above blaming this on a fiat currency system, how is gold doing today--or for the last few weeks? Gold has been selling off as much as the broad market. I don't see a safe haven in gold... if this sell-off continues, the only safe places IMO are US treasuries and Japanese Yen...
  78. Gnarly kanuck from Canada writes: Unchecked capitalism at it's best...All the Chaos is a result of the extreme fragmentation of the U.S. Banking system...The Highly competitive First National Bank's of Anytown USA figured out that they can write mortgages to anyone on earth and pass the paper off to Wallstreet syndicates who float them to other large investment funds and insurance companies who failed to check just how sensitive these mortgages are to interest rate increases.

    Perhaps to kickstart the housing market again, the institutions should raze the foreclosed properties so as to ensure that supply is taken out of the housing market and prices remain firm for the segment that is not so highly leveraged.
  79. Howard Beale from Canada writes: My god, what did you girls do in 1987 when the market was down 25% in a day? How about the early 70's when it was down 40%. Then there was 2002 to 2003, it was down what 30%. What about the collapse of the brainiacs at Long Term Capital, the S&L bankruptcies, or the Asian economic crisie just 10 years ago. It's not even down 5% from it's alltime high. Get a grip or get out. Boo!
  80. W F from Canada writes: Sivaram Velauthapillai - if you want to put your money in US Treasuries in the current situation all I can say is good luck to you.
  81. W F from Canada writes: Howard Beale - Did the EU have to step in to loan their financial institutions hundreds of billions of dollars before. Assets in the US are starting to freeze faster than portage and main on a january day.

    I don't think you quite grasp how fragile the whole economic system has become.
  82. Steve White from Canada writes: The people who seem to enjoy the thought of the US sinking seem to forget that if they did sink, they would suck Canada right down with them.

    All the doomsayers really have it wrong. The US is not headed to a collapse. No serious economist believes that. It may be headed for a correction (ie. recession) but that is just a normal part of the business cycle.

    The real issue is when will the correction happen? Will it happen soon? Next year? Two years from now? Three?

    I personally thought it was going to happen last year, beginning with a significant drop in the stock market, but I was wrong.
  83. W F from Canada writes: Anyhow Howard, go ahead and leave your money in the market in US dollars. Some one has to pay for all this folly. Might as well be you.
  84. Larry Robinson from White Rock, Canada writes: Buckwheat - Good question because I have always wondered who is the ultimate banker and how do they secure their risk?

    Howard B. - I am standing pat and look upon this episode as some badly needed flushing.
  85. Gnarly kanuck from Canada writes: Buckwheat Bubba from Moosebog Swamp, Canada writes: Ok Thanks to everyone for explaining the situation to me. Now I have another stupid question, Why would these institutions/companies lend money to people with bad or no credit rating?
    -----

    Buckwheat... there is a mechanism in the market for an originator of mortgages say a bank, trust company or someone with deep pockets, to write mortgages to individuals at x% interest then sell it off to a third party. The originator gets their money back plus a % cut of the interest generated... they then repeat the process.

    There has been very little due diligence in the process mainly fueled by the belief that these properties would appreciate in value and thus maintain adequate risk coverage.... As the market cools and people realize that $2million for a modest two bedroom bungalo was just a little out of whack... the $hite hit the fan and people have begun to walk away.
  86. The Middle Finger ..I.. from Canada writes: To Gnarly kanuck from Canada who wrote: Perhaps to kickstart the housing market again, the institutions should raze the foreclosed properties so as to ensure that supply is taken out of the housing market and prices remain firm for the segment that is not so highly leveraged.

    Might be a good idea. In Canada we have paid farmers not to plant crops and to pour milk down the drain rather than ship it to market. Maybe we should pay the farmer to give his cows a mastectomy to save him from having to expend the effort to pour.
  87. Steve White from Canada writes: Reading WF comments it would be my guess that he/she normally practices the 'Buy High, Sell Low' strategy of investing.
  88. W F from Canada writes: US current account deficit = 65B / month = 780B / year. Current debt authorization level in the US 8 Trillion. US dollar debt held by China, Japan, India and the rest of the world > 4 Trillion.

    That adds up to a debt to GDP ratio of about 112% - if any south american country had that kind of debt they would have been bankrupt a long time ago.
  89. W F from Canada writes: Steve White from Canada writes: Reading WF comments it would be my guess that he/she normally practices the 'Buy High, Sell Low' strategy of investing.

    Not at all Steve, I have been in cash for over a year.