Wednesday, June 27, 2012


Meet Randal Denley. Currently he writes for the Ottawa Citizen.

Last week he penned the most bizarre column that took issue with the recent actions of Federal Finance Minister Jim Flaherty.

As you know by now, the federal Conservatives have taken action to shorten the amortization period for mortgages and reduced the percentage of your income it will allow you to spend on housing.

Denley disagreed with the moves and articulated his concerns in a column titled "Buying a house is our risk".

But right from the headline, you're left scratching your head.

If "buying a house is our risk", why are you arguing against the government withdrawing from what they will cover with CMHC insurance?

Denley says,

"Low interest rates play a big part in making more expensive houses affordable. The Bank of Canada, which supports low interest rates by keeping its prime rate low, doesn’t want us to take advantage of them. It could solve the problem by raising rates, but that would be bad for the economy. Instead, the government is using regulation to depress people’s ability to buy a house.

The government believes it needs to save us from ourselves. Left to our own devices, we will bury ourselves in debt that will take generations to pay off. If only we could be as financially responsible and debt-free as government itself."

Umm... if Canadians want to plunge themselves into insane mortgage debt, we should let them.  Freedom to make your own decisions and all. 


But Denley goes on to argue...
"Why do we need government to intervene in the housing market?"
Err... we don't. That's the problem.

Any Canadian can walk into any bank and request a longer amortization under the new regulations.

You can apply for a 30, 35 or 40 year amortization. It might require a higher down payment, a higher interest rate on the loan, a more rigorous financial check, and a hell of a lot more capital backing your request... but if you qualify the bank will provide you with the the loan at the longer amortization.

Of course the average Canadian won't qualify for this. They NEED government interference to provide government guarantees to get that loan at all.

As we noted the other day, the cap on CMHC mortgage insurance funding in 2006 was $100 Billion.

In 2012 it sits at $600 Billion and CMHC is about to breach that ceiling.

In that one statistic lies the foundation which provided the crack cocaine of cheap money that fuelled our massive housing bubble.

It was massive government intervention that brought us to this point and facilitated Canadians to be able to assume all this debt.

By themselves, a huge number of Canadians never would have qualified for all those mortgages to begin with.

Denley argues that we don't need the government playing nanny for us and protecting us from our spending choices.

Agreed, how Canadians choose to spend their money is indeed up to them.

So how is it that Denley comes to the conclusion that other Canadians, through government intervention in the housing market via CMHC insurance, should be asked to assume the risk of those foolish expenditures by our fellow citizens?

"Looser mortgage rules do increase the risk that some people will get overextended and lose their homes. That’s unfortunate, but people make bad financial decisions all the time. Does that mean everyone else should face government controls on their investments?

Buying less house than you can afford and keeping your debt under control are prudent choices, but they should be our choices. It’s our money and our risk.

Bingo! It's your money and YOUR RISK.

Which is exactly why CMHC shouldn't be insuring those mortgages and passing that risk onto the backs of other Canadians through government guarantees in the first place.

It's comical to watch Denley criticize Flaherty for the changes he made.

We've become so addicted to government interference in our housing market that when the government does start to pull back... newspaper critics scream THAT'S government interference.



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  1. Completely Agree!!! If there was no government intervention in the form of insurance and the banks decided what risks to subject themselves to then we never would have got here in the first place because the banks would be to terrified of the potential defaults with the amount of leverage that has gone on.

  2. Excellent, excellent post. I couldn't agree more. Thank you!

  3. Can't say it better.

  4. This is the exact argument that drives me crazy from people who are opposed to the rule changes. They all cry foul over government interference in the free market, yet choose to completely ignore the CMHC. Government interference in the free market at it's finest.

  5. OMFG is that guy for real? Have the poor fellow google "canada mortgage bond" for some insight into government interference.

    Thanks for the hump day chuckle.

  6. Great post. There is too much greed in the banking system to let things go unregulated. See how well that worked in the US? People left to their own devices will rack up too much debt, the problem being it will drag down the economy if they are allowed to. Like flies in a jar given too much food they will over-consume and collapse.

    I see people living lifestyles in the lower mainland that there is no possibility they can afford unless they have a grow-op. I know an instance of a women with several kids who has racked up 25k in debt that her husband does not know about. I bet this is common place. People think that if things hit the fan they can just sell the house and everything will be fine. Anyone with who got a 40 year mortgage 5 years ago has next to no equity despite payments that are 50% higher then renting.

    I don't agree with everything Garth Turner says but last night was one of the darkest posts he has done. Krugman's latest writing is getting more dire in terms of Europe, basically saying we are on the road to a second great depression. Europe pretty much is already in it. Both him and Roubini saying that Europe will likely have a disorderly exit from the Euro in a matter of months not years. If you don't think these factors along with housing won't crush the Canadian economy take a look at GDP by sector. The amount of unemployment will be unthinkable as the world resets.

    I find what's going on very scary.

  7. It is interesting how Garth Turner changed his opinion on financial markets, just yesterday. Turner has been outright rude to anyone who disagreed with his opinion that Europes problems were contained, or that things in the US were improving. He dissed Richard Russell as being too old, called Celente a nut and simply ignored John Embry and Eric Sprott, while providing no rational economic analysis of his own. In addition he continually labelled $50 drops in the gold price as a collapse, while being oblivious to the run from $300 to $1900.

    1. The S&P 500 has outperformed gold the last 30 years. It doesn't matter if it's gold, oil, ethanol, corn, guano, if someone in the market can make money off of it and make derivatives and CDSs... they will. And if they can do all of that there are investment banks big enough to manipulate it and profit off of it.

      I think Roubini put it best when asked what he thought people should invest in. "I've always believed the best investment is an education."

  8. LOL @rp1 - couldn't have said it better.

    1+ Trillion and counting...