Monday, September 13, 2010

Too late..

Front page article in the Globe and mail which is worth reading. In fact, IMVHO, the Globe is the only national paper worth reading- the other one is very good for putting under your muddy boots after a good hike.

OK, so the article tells us that debt levels are reaching such high levels that the government may need to intervene to keep 'marginal buyers' OUT of the housing market.

It also says that people are so deep in debt from getting into housing, that hundreds of thousands they are:

1) In a precarious debt position and any rise in rates would put them in peril

2) they are cutting back on other spending.

Isn't this what us bears have been saying for two years!! Where has the OECD and other great economist been when these policy decisions were being made?

Ok folks there is so much here, I don't know where to begin!

Lets go back to 2007, the US housing market implodes and through 2007 and 2008, banks collapse and all the casinos on Wall Street like Lehman and Bear Stern, Merrill followed.

The world hit the wall and capitalism (at least this ponzi form of it perfected in Wall Street) was about to end. We were fairly ok, because we had tighter lending standards and 'marginal buyers' were kept out.

So how did we deal with the problem?

Drop rates to zero, double the CMHC lending capacity - bring in the marginal buyers and become like the US!!

WTF! Of course it worked for a short time. It pushed up housing prices, and instead of punishing speculation, it rewarded it and taught people in a Pavlovian way that they were stupid to be cautious and careful and should have jumped on that little blip down in housing.

Our house prices went through the roof (sorry) everywhere- from SK to Ont to BC, and everyone felt rich again (at least the 60%+ of families that owned) and many borrowed on this new wealth.

Those that bought in the last year, have often mortgaged their molars to get into this market.

Housing is not a very productive way to stimulate the economy-it is quick and lazy and requires little planning - unlike good technological investments, or good infrastructure projects (not just the make-work stuff that we see happening too often). You cant export too much housing- some of it you can via off-shore buyers- but it does not generate long-term wealth if it is not anchored in rising rents and incomes.

The US experience should have made that blindingly obvious.

What about pulling in the marginal buyer now? Well like the horse that is running free outside of it's stable, the debt has already been piled on to the rafters. Any drop in housing will send the 'marginal buyers' into default.

Too late. Too late.