Canada’s sub-prime mortgage crisis
I am always intrigued by the lengths politicians are willing to go to avoid answering a question.
The other morning, I watched Finance Minister Jim Flaherty being asked what he thought about the Bank of Canada’s declaration that we could expect a lot more mortgage foreclosures in Canada in the future. Here’s how he answered that one:
- First, he said it’s important to encourage Canadians to save, and that is why his government launched the $5,000 tax-free savings account that goes into effect January 1st.
- Second, that Canada has no sub-prime mortgage crisis because his government wisely increased down payments to five percent and reduced the amortization period from 40 to 35 years.
And that was it. Not a word to either recognize — or challenge — the Bank’s forecast. Not a word of sympathy to those who are struggling to hang on to their homes.
Why? Because that would undercut Mr. Harper’s position that all’s well under Tory economic policies. Why worry? Be happy continues to be the message.
Now word comes that Canada DOES HAVE A SUB-PRIME MORTGAGE CRISIS . The reason is the Harper government in 2007 caved into U.S. lobbyists and brought in lax mortgage policies that permitted American companies to provide high-risk mortgages to Canadian home buyers.
The Globe and Mail has an extensive expose in its Saturday (Dec. 13) issue explaining how these American companies, including the now devastated AIG, were “all hungry for a piece of what is regarded as one of the most lucrative and the second-largest mortgage insurance market in the world.”
In came 40-year and no-down payment mortgages, taken up by the very people that the Bank of Canada now says are at risk of losing their homes.
True, the 40-year mortgages were eliminated in June of this year, but by then the handwriting was on the wall.
Only one Conservative MP, Garth Turner, who later switched to the Liberals and was defeated in October’s general election, resisted the changes although he too finally voted in favor.
Turner has since written The Greater Fool, warning that Canadians ”have been seduced by a cabal made up of real estate marketers, builders, lenders and bankers, along with a pliant media, to buy, buy, buy. Canada has its own, hidden debt crisis just as dire as the subprime mortgage fiasco.”
Of course, the Minister of Finance assumes no responsibility for this. But Turner’s right — we have a debt crisis, not a credit crisis — and efforts to get people to spend themselves even more into debt aren’t going to go anywhere.
We won’t won’t start spending again until we’ve paid down our debts. So get ready for a 2 or 3-year recession.
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