“Over the years, we refinanced our home a few times to pay off our debts. Now we’re selling our home as we can’t keep up with mortgage payments. In this market, we’re not sure if we’ll break even.”

Q: “Over the years, we refinanced our home a few times to pay off our credit cards and other debts, but we never actually got ahead. Now we’re faced with selling our home as we’re having a hard time keeping up with our first and second mortgage payments. With the market the way it is, we’re not sure if we’ll break even. What can we do?”

A: “… With over a decade of extremely low mortgage rates and fast-rising home values, many homeowners refinanced their mortgages to access the equity in their homes. Unfortunately, this can work against you if you aren’t living within your means.”

– from ‘Evaluate all options before selling your house’, Scott Hannah, The Province, 11 Mar 2013 [hat-tip Alexcanuck]

Savings rates in BC have been negative for years.
The average BC consumer debt is a remarkable $38,837, the highest in the country (up 6.2% in the last year!).
Whether by means of low downpayment or large HELOC, a significant percentage of owners are woefully over leveraged to the RE market.
All of this information represents downside risk for the RE market.
– vreaa

74 responses to ““Over the years, we refinanced our home a few times to pay off our debts. Now we’re selling our home as we can’t keep up with mortgage payments. In this market, we’re not sure if we’ll break even.”

  1. “We never got ahead”

    Accounting is hard. Leave it it the experts.

    • bwaaahahaaa +1

      Three people apply for an accounting job.. the first two are asked the question: What is 500 + 500? They answered: 1000. Sorry, not correct, says the CEO/CFO/HRM interview team. The third prospective account says: What do you want it be?…. Correct! says the top managers. Our shareholders will love you!!! You’re hired!!!

    • Simple math operations – additions and subtractions – are very hard – way above the ability of the average Joe…

  2. Delinquencies are key to watch for weakness. Consumer debt growth can be interpreted in many ways, including as a sign of a growing economy. 6.2% growth is not massive given student loans alone grow faster than they are paid off. Inflation chews into the 6.2% too. Definitely not dire numbers. No doubt there are those out there who are well in debt and are in trouble but these problems exist in every city, country, culture and market.

    • If you think that debt levels increasing by 6.2% p.a. is trivial, your entire model of understanding current predicaments may be unsound.

      • http://www.cbc.ca/news/canada/story/2013/02/04/business-transunion-credit-debt.html

        “In terms of consumer debt, the largest increases were found in Alberta (at 11.2 per cent), Quebec (9.39 per cent) and Prince Edward Island (9.04 per cent.)”

        “Debt loads ticked higher in every province except B.C., where they shrank by 0.09 per cent.”

        “Installment loans have the highest delinquency rate of any consumer debt, but even it is only 1.18 per cent, down by more than three per cent from the same level a year earlier. None of the other forms of consumer debt (either credit cards, lines of credit or auto loans) had a delinquency rate anywhere higher than 0.3 per cent.”

        Like freakonomics, headline numbers don’t always speak the truth.

      • 6.2% is not trivial, I agree. However, can we really expect government balance sheets to expand and not the consumers’? After all, that is the intention of central banks around the world right now. To keep rates down and encourage more spending and lending. Which is why I’m not convinced they can unwind the easing.

        Pretty close to the ultimate source of th problem that this blog points to is that central banks around the world have lost independence.

      • Why would government debt spending be directly proportional to consumer debt spending? If anything, I’d assume the opposite. If the Canadian government spent less on say health care, you can bet consumer debt spending would rise significantly. If the government spent less fixing roads you can bet consumer spending on car repair would rise significantly . . . I could go on all day with these.

        Debt levels rising for the population as a whole at the same time the boomer population should be at their absolutely peak savings point in their lives is just bad. Their savings should be overwhelming all other numbers. A mere 6.2% fall is masking a much larger problem.

      • @AG Sage I can appreciate how you might see government debt spending as a means to reduced consumer spending. That, I’m afraid, is not how the game works. If the government is borrowing and spending (ie printing money, expanding its balance sheet) then the ultimate goal is to get the consumer to spend. If consumers don’t respond, the the central bank has failed – like Japan’s deflation.

        Government spending to better roads conditions or to connect to new areas effectively stimulates new economic activity and new consumers to buy cars. Healthcare also offers citizens to become workers and consumers for longer.

        Rising debt levels is actually a good sign in moderation. Can you imagine if our debt levels were the same today as they were in the 50’s? It is a paradox but without rising debt levels to match inflation, longer life expectancies, and the cheaper cost of money then we would all be in trouble – even the savers. That’s capitalism.

        One explanation I’d throw out there is that because rates are so low, auto companies are offering 0% financing in some cases. If you had the money to buy a car up front, why would you if you could invest that money in a GIC of 1%-2%? In that case, we would need to see consumer ‘net debt’ to get a full picture on things.

        Canadian debt levels are well in the safety zone by global standards. Mortgage debt, which were excluded from the stats in this post, are also fine as asset prices support it. What if rates go up? Well, that is why I’m arguing it won’t as central banks would rather see high inflation than to see through the pain of an economic contraction.

      • BLM: “Rising debt levels is actually a good sign in moderation. … It is a paradox but without rising debt levels to match inflation, longer life expectancies, and the cheaper cost of money then we would all be in trouble – even the savers. That’s capitalism. … Canadian debt levels are well in the safety zone by global standards.”

        These are the kind of statements that, IMO, are so dangerous because they are made with such confidence yet they are completely unsound and baseless.
        – Household debt to disposable income in Canada is now 165%; it is higher than the equivalent debt level was in the US prior to their RE plunge.
        – Consumer debt in BC is now an unprecedented $38K per person (not including mortgage debt).
        – Debt levels have been increasing at rates that are well above inflation, for more than a decade, often a lot more.
        How can you say this is all “good”? How do you anticipate this plays out?
        How can debt accumulation continue at this rate?
        Our economic system has become entirely dependent on ever increasing debt levels at rates above the inflation rate… in other words, dependent on something that is a mathematical impossibility. When reality reasserts itself, the economy will be crushed. Even if things went flat (everybody simply spent what they earned, instead of spending 2% to 8% more per annum) the economy would be extremely distressed.
        And, if you think that “hyperinflation” will make it all go away, what do you think will happen to interest rates in a hyperinflationary environment?

      • @BLM. That is not true – newer roads do not “stimulate” consumers to buy cars. In the ’50s, that was partly true only bc it opened up new places for consumers to drive. For example, the Pattullo bridge allowed folks to come to Whalley to shop and eventually buy/commute. This generated a reason to purchase a car.

        The connection between gov’t spending and consumer spending are low interest rates. When the gov’t has high levels of debt, they do what they can to keep interest rates low for their own debt. Consumers also utilize these low interest rates to buy and spend.

        But that is not a good thing – it can lead to assets bubbles! Take a look at Cyprus to see how high debt is not a good thing! Greece, Italy, Spain and France are proving the folly of your theory.

      • Vreaa – your articulation is a global problem that applies from the US to Europe to China, generally speaking. Actually it is a delicate issue that faces capitalism with democratic countries being more vulnerable. I agree it is a problem and the end game will not be pretty – for some, but not for the wealthy. It may very well not be a problem we face in our lifetime, or it may, I don’t know.

        Regarding the growth of consumer debt, auto loans and student loans do have a large part to play. Growth of self employment over the years too.

        The numbers you post, seem scary for some but not to others. It just depends on the individual’s financial position and values. We need to see the assets of the borrowers too for a full picture. Alberta has a stronger economy, less taxes (so more take home pay), and a reasonable property market, yet:

        “The average debt in Alberta stood at $37,377.” Vs BC’s $38,000.

        Source: http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/canadians-back-to-borrowing-as-average-consumer-debt-hits-new-high/article8182111/

        We don’t need hyper inflation to clear this mess. Only sustained inflation. Even 3% compounded over ten years will do the job nicely.

        I agree with your conservative views on personal finance but we just differ with our macro views.

      • Deanne – actually, government spending, on roads or whatever else, is the basis of stimulating consumer spending, cars being one. For every road built, plenty of private companies are put to work and therefore more jobs are created. As workers earn, they aspire and consume. A car is still something the average Canadian aspires to own. Just know that when the government spends $1 on stimulus, in theory, it should equal to roughly $7 for the real economy. This wonder happens through the magic of the banking system and requires a separate discussion.

        At the heart of our discussion is one of Kenynesian economics Vs Austrian economics.

        Regarding your argument of government keeping rates low to service its own debt, that’s only part of the equation. They in fact keep rates low to mostly stimulate ‘consumer spending’ / economic activity and not to service their own debt. The Bank of Canada, Fed etc (Central Banks) are supposed to operate independently from the fiscal side (the borrowing/budgeting side) of the government. The great concern of our time is that Central Banks are losing independence and are being pressured to, as you say, keep rates low by printing money, to help make government debt serviceable.

        As for Europe, the right course of action is to print even more money in a very short amount of time to give its economy a jolt and to create inflation (and therefore jobs and therefore consumer spending and consumer loans). Of course they can’t do that because it is an economic union and any money printing needs to be agreed by all the countries – impossible. The US has printed money and they are showing signs of a recovery, but they will come out of this wounded, though perhaps stronger in other ways.

        The government and economists see growing debt as a positive sign, contrary from an individual basis. Take Japan for example where they can’t give out loans at 0%. No one has debt. Their economy deflates and the government is forced to keep on borrowing to 200% of GDP to keep its way of life. You talk about an economic freak show, Japan is one.

        Its all about moderation. Canadian debt is nowhere near defcon 5.

      • “Canadian debt is nowhere near defcon 5”
        Agreed.

      • With no sleight against vreaa, BLM, yer macro tourist acumen deserves a wider audience than this humble blog. Consider writing an oped for the Economist. You can do it!!!!!!

      • @YVRHOUSING Thank you for the compliment. I actually follow you on Twitter and quite enjoy your tweets.

        I do contribute somewhere but not with the Economist. Mostly, I like to engage in discussions with regular folks to bounce ideas off of with just anecdotal evidence which this blog allows me to. I’m originally from Vancouver and find the property market there fascinating which is why I follow it.

        It’s quite thrilling to know you find my writing interesting – thank you!

  3. kagurazakaman

    These were two of the headlines listed in my Google Alerts, both from Vancouver Sun in the last 24 hours:

    Record debt burden continues to weigh on Canadians: StatsCan
    Vancouver Sun-20 hours ago
    … was largely unchanged in the quarter, with owner’s equity as a percentage of real estate remaining just under 69 per cent. © Copyright (c) The Vancouver Sun …

    …and then 14 hours later…

    Household debt problem may be stabilizing, StatsCan report says
    Vancouver Sun-6 hours ago
    The debt report came the same day the Canadian Real Estate Association reported … As well, household equity as a proportion of real estate they owned …

    • Real Estate Tsunami

      That’s why I’m no longer on the roller coaster. On day up, next day down.
      Much more more fun sitting in the beer garden and watching the circus unravelling.

  4. Debt becomes you indeed, 2013 will be spectacularly unlucky.

  5. 4SlicesofCheese

    I saw Amanda Lang try to spin the debt numbers last night saying at least the debt is mainly in mortgages which is at least backed by an asset.

    • Not much of a name...

      Not a bad thing at all…until the asset starts losing value.

    • I saw that too. Lang is as much part of the MSM as are most of the other “journalists” out there.

      • You mean the corporate agenda to mold our thinking? Lord, I wish I owned a TV station of my own. I would so be messing with your minds. It must be irrisistable.

      • Realtor behavior

        Speaking of the media, I did recall an “awesome” subscribed programme on TV replaying for hours on a weekend back in late 2005 in my rented Toronto basement apartment. I was not really watching, when a kid, 14 to 15 I believed, repeatedly blah blah blah blah about how much money he had made and had donated from buying and selling properties in the States, no money down or just as much as $5000……and all the viewers could have done it too…….

        So, good luck with that if you has listened and follow suit!

  6. Amanda Lang apparently got married last year and purchased a house at what was probably the peak of the market – of course she wants valuations to continue to rise. Her father is Otto Lang, former Liberal MP, so she is well versed in the political nuances of manipulating facts and figures.

    • Quack Duffy and Libya Frum

      As a spinmiester with the last word, you’ll never get the straight goods from a TV talking head. That said, it’s interesting to note her Year of Birth, and what it means to be a 42/43 year old woman with ‘spending needs’

    • I laughed when she talked about “stress-testing” the mortgage on her modest Rosedale (or was it Forest Hill?) homestead on an episode of The National’s “Your Money”,,,,,,A-HA-HA-HA-HA!!

      Amanda’s Money Advice: just marry a millionaire – like I did!

    • Try this for trivia…..a scandal back in the day regarding Amanda’s dad, the extremely boring Otto Lang…… Zzzzzzzzzzzzzz……(thump!)

      http://www.macleans.ca/article.jsp?content=20050502_104657_104657

      “….Some errors of judgment are so colossal they defy categorization. In 1976, Liberal transport minister Otto Lang got caught trying to fly his kids’ Scottish nanny back home for free on an armed forces plane.(The more scandalous aspect might have been that he was paying her $50 a week to look after his seven children.) Lang himself racked up $740,000 worth of “business” trips on government planes in three years, including an $8,000 jaunt to a Grey Cup game in Calgary…”

      • “All Hail Kabloona!”

        [NoteToEd: In the overall scheme of things, it wasn’t that long after I began my Sorcerer’sApprenticeship under the ‘Cruel’Tutelage of Dr. W at CanterburyChristChurch and subsequently @ Kings, thence Cambridge that I had begun to think of the discipline in terms of PoliticalCoprology. Just between the two of us, ED – Dr. W. was a Doppelgänger , literally and figuratively, for EducatingRita’s ‘Dr. Bryant’… Dr. R, the DearlyDepartedJesuit formerly of the Sorbonne played a supporting role. StemWinder… it’s worse than sodium thiopental!]

  7. Why do people think we’re different than Americans in borrowing debt up to our eyeballs? Some people are just too stupid or ignorant to look at recent history.

  8. War on saving has been going on for a few decades now. It can’t end well.

    • Ralph Cramdown

      A completely ridiculous notion. My household is being heavily subsidised by those who can’t or won’t save. My mind boggles at how much more tax we’d pay if we didn’t save and invest. You can say there’s a war on savings or you can say that the rich keep getting richer, but it must be hard to believe in them both.

      • You are misinterpreting my position (yet again). The system is set up to benefit the well connected. That is not mutually exclusive with war on saving. Inflation = war on saving while at the same time it benefits those who have first access to newly created money (banks). What was done in Cyprus = war on savings while protecting well connected bond holders. Etc.

      • Ralph Cramdown

        Bubbly, all a saver has to do is click “buy” and he can be a part owner of these well-connected banks. I own a few myself.

        On the other hand, a quick perusal of the big three Cypriot banks shows six month Euro term deposits paying 5.15% on a very interesting monthly escalator structure. Please don’t tell me that innocent savers thought they were entitled to that as a risk-free rate. That was the rate paid by banks that everyone knew were insolvent. Now the depositors are shocked, SHOCKED that they won’t be getting all their money back. The situation is somewhat reminiscent of Iceland in 2008.

      • Ralph Cramdown

        Also bubbly, the Eurogroup statement indicates that the banks’ junior bondholders will be bailed in (i.e. their bonds will be converted to equity).

      • You are completely missing the point, which is ironic, because you yourself wrote that “the banks’ junior bondholders will be bailed in”, which supports my point about well connected people quite well.
        Anyway, no economy can properly function without savings. Whether the Cypriot savers should have known better is a completely different issue. They may have been naive or stupid, but bailouts (anywhere) are criminal.
        FWIW, I believe that government backed deposit insurance should be abolished too (I have nothing against private deposit insurance as long as it is not backed by taxpayers… Btw, bond holders have insurance options too, they should use it.)
        Cyprus is just a more extreme example of the war on saving. Inflation, interest rate manipulation, bailouts, permanent deficit spending etc. are also part of the broader picture. This is for a longer discussion and there is a huge amount of literature that explains the role of savings in economy, look it up.

      • Ralph Cramdown

        If you don’t believe in bailouts or government deposit insurance, then I guess you’re happy with what happened in Cyprus, because 5.8bn of the 10bn recapitalization is coming from the banks’ creditors, i.e. the savers.

        This pithy quote expresses things well, I thought: “Four choices have been faced ahead of every bailout; screw the local taxpayer; screw the creditors; the Germans pay for everything; or fiddle the numbers in the hope the crisis just goes away. The Irish programme rested heavily on option 1, the Portuguese and Greek (especially) on options 1 & 4. Hopes for option 3 (ESM buys shares in the banks) are dead in the water. This programme indicates option 2 gaining in strength, 3 & 4 sinking.”

      • I am starting to think that you are “misunderstanding” me intentionally. You conveniently ignored senior bondholders.
        I have also mentioned Cyprus as just one piece of a much bigger issue, which I have explained in the past already and which you keep missing (and I have an idea why)…

      • Ralph Cramdown

        1. That’s the joy of being a senior bondholder. You get a lower interest rate when things are going well, but you’re the last to lose your capital when things hit the fan. You can be a senior bondholder, too, bubbly. Just call your broker and tell him you want to buy some of the senior bonds. Or buy subordinated debt at a higher rate and a greater risk of loss. Or some preferreds, the same only more so. Or buy equity, the greatest risk in exchange for a share in the upside. Or walk through the front doors and make a demand or term deposit. The choice is yours, and almost never has anything to do with connections.

        2. Looking at Laiki’s (the worst of the three Cypriot banks) balance sheet, senior debt was only 0.33% of the balance sheet, and subordinated debt 2.9%. Hardly consequential.

        3. I’m not keeping a file on you with notes on all the things you’ve said previously, that I may more completely understand your views on banking and finance. I’m not intentionally misunderstanding you either.

        These banks were insolvent. Given the size of the banking system relative to the size of Cyprus, Cyprus was insolvent in the event that it guaranteed to make depositors whole.

      • Robert Dudek

        because 5.8bn of the 10bn recapitalization is coming from the banks’ creditors, i.e. the savers.

        1) Depositors are being forced to recapitalize the bank – i.e. it is not voluntary.

        2) They are not receiving any equity for this “recapitalization”. They are not shareholders of the bank. Everyone understands that shareholder money is always at risk; deposits are supposed to be safe.

        So this is straight out theft, much the same as if I broke into your home and took 7% of the cash you had under your mattress.

        The banks in Cyprus should be allowed to fail, nationalized and then sold off at a later time. The deposits should be guaranteed by the ECB (after all Cyprus is in the Eurozone).

      • Robert – The ECB should protect the depositors? Where’s the logic in that?!

      • Ralph Cramdown

        Actually, depositors ARE getting equity.

        Deposits are as safe as the bank they’re in. If its backed by the government, they’re as safe as that government. The ECB doesn’t play lender of last resort to private banks, much as the rest of Europe would like the Germans to pay for everything.

        If a bank doesn’t have enough assets to cover its liabilities, figuring out who gets what isn’t theft; it’s a cramdown.

      • No Robert. I have to disagree. The problem is Cyprus is similar to problems in all Western nations. The public has simply acquired and used too many social benefits (health care, pensions, welfare, education allowances) that can no langer be paid for. They have voted for these only to discover tax revenues were insufficient to cover all of the obligations. So now living standards must fall to bring balance back to the ledger. Who else should pay if not the citizens? The 9.9% levy on the populations savings looks modest given how much everyone has collectively taken out of the system in the past. Do you not agree that those who have the benefits of tax revenues should not be the same ones asked to pay a share when losses are overwhelming? What this amounts to is a retroactive tax and nothing more. Nobody should have been surprised since they have known for quite some time the government was technically insolvent. The other option they could have chosen instead was that the banks fail and all money would be lost. The government is in no position to insure bank savings on that scale so it was all or 10%. Which would you have chosen? This will pass without a hitch.

      • Robert Dudek

        Farmer,

        I am afraid you have swallowed the austerian logic of neo-liberalism.

        Did you know that Spain had smaller deficits than Germany before the banking crisis?

        The problems of the Eurozone countries has to do with the major design flaw in the Euro itself: you have a common currency without a common fiscal policy. The great benefit of a fiat money system is that you can create the currency as needed (it is also its greatest danger).

        The people of Europe did not live beyond their means, any more than Americans or Canadians have. They have had more welfare provisions, but have always paid higher taxes to support them. Ask yourself why Danes and Swedes are not having the same problems? It is because they control their own currency.

        This crisis was manufactured by the banking system and the little people have been made to pay for it. That is what has happened in the entire Western world and the rhetoric of living beyond their means is designed to get them to swallow the pain.

        Austerity has led to economic collapse, as anyone who has even a passing interest in Keynes would have told you would happen.

        Regarding deposit insurance… Yes, I understand that there ought to be a limit to deposit insurance, but in the case of Cyprus, even the small depositors are having some of their funds confiscated. And yes the ECB OUGHT to be the lender of last resort – they are the only ones who can print the required money. In a fiat system there has to be one or else the system doesn’t function. What the Euro is is the worst aspects of a fiat and gold standard mixed together.

        We learned during the bank runs of the 1920s that deposit insurance is a very good thing for the stability of the system.

      • Cyprus is a good example of a country torn between what its intelligentsia sees it needs to do — become more German in its economic structure — and thousands of years of societal habit. Their economy is unproductive relative to others and to compensate that necessitates cash transfers under a harmonized monetary framework. They are trying to resolve the “tear” by punishing their less-productive citizenry so as to coerce them into being more productive. The deposit tax to me is more a sign their leadership and citizens are exasperated by their inability to effect a major economic renaissance.

      • @RC: “That’s the joy of being a senior bondholder. You get a lower interest rate when things are going well, but you’re the last to lose your capital when things hit the fan.”
        Historically, depositors were always senior to all bond holders. What is happening now in Europe is bending of the rules for the benefit of the well connected.

        @RC: “You can be a senior bondholder, too, bubbly. Just call your broker and tell him you want to buy some of the senior bonds.”
        Your smug attitude is not helping your argument. I am aware of what I can and cannot do and you really have no idea about my investments.

        @RC: “I’m not keeping a file on you with notes on all the things you’ve said previously, that I may more completely understand your views on banking and finance. I’m not intentionally misunderstanding you either.” Then why do you keep responding to my posts arguing things that I have never said? And when I explain my position to you, you do the same again a few days later.

      • So the plan in Cyprus was modified and senior depositors are being wiped out. Savers will be hit after them.
        That’s how it should be!

      • Ralph Cramdown

        Any way you slice it, it has to be the most poorly conducted bank bail out of the modern era. Now the rumour is that the UK branches remained open and the Russians wired out all their money through those. If this turns out to be true and there isn’t enough to make the small depositors whole, the Germans are going to be so mad that they’ll probably invade Poland again.

      • I agree that the whole thing has been screwed up and has created a lot of unnecessary damage.
        It is possible that ‘they’ arrived at the correct solution only after well connected people got out. The banks should have gone into bankruptcy a long time ago and all bondholders and shareholders should have been wiped out with it.

    • @Robert Dudek – “Everyone understands that shareholder money is always at risk; deposits are supposed to be safe.” – which is incorrect. Only insured part of deposit is supposed to be safe, i.e. 100K in Canada and I do not know what the arrangement was in Cyprus.
      People that have more money in the Cyprus banks than the insured amount+10% win from the accepted plan versus bank going bankrupt, but people that have their deposits under the insured amount – they loose.
      On the other hand the banks are not officially insolvent so they have to comply with the deposit agreement? What would stop the customers from suing for the full amount?

      • Cyprus has deposit insurance. The government didn’t keep it’s promise. They stole from the depositors. Bondholders – senior and junior and owners (shareholders) of the bank should take a hit first. Depositors should be last to take a hit. They were not investors.

      • Robert Dudek

        EU has deposit insurance up to 100,000 Euro, Cyprus included. Now they want to take 6.75% of it as a “levy”

        No way around the fact that this is straight up theft. You can’t call this a tax because tax changes don’t go into effect overnight without warning.

        Please remember that it is not the depositors of the at-risk bank that all being stolen from – it is depositors from ALL the banks in the entire country

      • Ralph Cramdown

        Robert, calling this a theft just makes you look silly. There wasn’t any money to steal. The banks were (in varying degrees) insolvent. Cyprus herself, if you include the banks’ balance sheets, was insolvent. Europe (Germany) will send Cyprus ten billion euros, and Cyprus’s GDP in 2012 was only 18 billion euros. Alas that 10 billion won’t be enough, so bank depositors won’t be getting all their money back.

        This is what a bank failure (or a country debt failure) looks like. And they always happen over a weekend. Don’t like inflation? Well, this is what it looks like when the central bank refuses to print.

      • Again this “silly” ad hominem.
        Deposits were always senior to shareholders and bondholders. Unless these two groups are wiped out first, then taking from depositors to reimburse bondolders IS theft.
        Robert also correctly points out something worth repeating: “it is not the depositors of the at-risk bank that all being stolen from – it is depositors from ALL the banks in the entire country”.

      • rod_jonsson

        sigh … if a failure, in principle, depositors should be 1st in line … but of course that is atypical since justice ‘little guys’ don’t buy justice … however, in this instance they may have a bit more pull b/c their treatment here sort of sets precedent with everyone watching … all of that discussion is effectively beside the pt … takeaway is none of this affects root issue – AGAIN … for all that has passed in eu, they have accomplished NOTHING … how can a rational observer not expect more of the same until there is a crisis big enough to deliver change? you know it’s coming – just not exactly when

      • Ralph Cramdown

        Bubbly, I actually did a bit of digging as to how depositors are senior to other debt, but couldn’t find much. An American law referencing this is apparently only a few decades old. There were some interesting goings-on regarding clearing agent seniority when CCB and Northland failed in Alberta in ’85. In most recent failures I know of, depositors were made whole, often by the government.

        Be that as it may, relying on your seniority in a restructuring is a dangerous game. Chrysler bondholders were screwed out of their rights by the executive and judicial branches of the US government during Chrysler’s Chapter 11. Lehman bondholders were forcibly overruled. Yellow Pages management managed to ram through a highly unusual restructuring over the objections of some creditors at a point when they weren’t even in default — common shareholders even got a vote.

        In this case, the takings from depositors are being structured as a tax, junior bondholders are getting equity, and senior bondholders’ debt amounts to a very small part of the deficit. It’s possible that they’re the result of a recent recap done under English law written to be super senior (How else does a distressed bank borrow? No lender will be subordinate to depositors). The amount seems to be less than a penny on the dollar for deposits, so even if you want to call it ‘theft,’ it’s a minor side issue. Banks are special. All restructurings have to happen over one short weekend, lest the on-demand creditors flee. There’s no time for long nuanced fights over who gets what. There’s still fights, but they tend to be short, unnuanced, and decided in minutes by the executive branch rather than days, weeks or months by the courts.

        Generally speaking, euro countries got what they wished for. They wanted the benefits that come with a Bundesbank style monetary policy, and this is one of them. The ECB is refusing to print enough money to bail everyone out.

  9. “On April 1, the HST will be gone, along with a lot of other things the Liberals were banking on.”

    http://www.timescolonist.com/news/local/clark-on-defensive-as-b-c-election-nears-with-legislature-session-ending-on-sorry-note-1.92332

  10. forget all this … there’s nothing like the sound of a well-tuned accordion to restore balance and harmony … ok, this would work too … http://tinyurl.com/af2y227 … pffft!

  11. The BackLash begins… Not a lotta ‘Zen’ this morning, DearReaders… but for those of you following the institutional Yanqui REO to Rental saga the following LA Times piece may prove entertaining….

    “They create the problem — and now they are taking advantage of the problem,” John Husing, Economist, Inland Empire

    [LAT] – Housing investors buy in bulk, aim to profit in hard-hit areas –
    Investors say they’re providing nice homes for families by buying up bargains, holding them and renting them out. Critics say they’re taking advantage of a situation they caused

    …”In all, major investors have raised between $6 billion and $9 billion to buy single-family homes, according to a recent analysis by investment bank Keefe, Bruyette & Woods. The goal is to bring corporate scale and efficiency to what has historically been a mom-and-pop, single-family-home rental business.

    These firms are also exploring ways of packaging rental income streams into securities, similar to the way mortgages were bundled during the boom years. Those mortgage bonds — often packed with risky home loans that produced mass defaults — turned into the toxic assets that helped bring down major banks during the financial crisis.”…

    http://tinyurl.com/csrn6gn

    [NoteToEd: Upwards&Onwards to securitization!? DejaVu, much?]

  12. Jim Rogers: We’re Wiping out the Savings Class Globally, to Terrible Consequence

    Throughout our history – any country’s history – the people who save their money and invest for their future are the ones that you build an economy, a society, and a nation on.

    In America, many people saved their money, put it aside, and didn’t buy four or five houses with no job and no money down. They did what most people would consider the right thing, and what historically has been the right thing. But now, unfortunately, those people are being wiped out, because they are getting 0% return, or virtually no return, on their savings and their investments. We’re wiping them out at the expense of people who went deeply into debt, people who did what most people would consider the wrong thing at the expense of people who did the right thing. This, long-term, has terrible consequences for any nation, any society, any economy.

    If you go back in history, you’ll see what happed to the Germans when they wiped out their savings class in the 1920s. It didn’t lead to good things down the road for Germany. It didn’t lead to good things for Italy, which did the same thing. There were plenty of countries where it wiped out the people who saved and invested for their future. It’s usually a serious, political reaction, desperation in some cases, and looking for a savior and easy answers is usually what happens when you destroy the people who save and invest for the future.

    http://www.peakprosperity.com/podcast/81158/jim-rogers-3-9-2013

    • Ralph Cramdown

      Yes, America’s great mythology has always been about those heroic Marvin Milquetoasts whose epitaphs are carved with “He Turned Pennies into Nickels.” With those famous rags-to-better-rags stories of Horatio Alger’s contemporary whose name currently escapes me, the never failed and never bankrupt peers of Henry Ford, Thomas Edison, P.T. Barnum, Mark Twain, Walt Disney, Stan Lee, Francis Ford Coppola, William Durant and all those other losers down the generations who overstretched instead of dutifully saving their pennies, generation upon generation, that one day a hedge fund manager and commodity trader might get really cheap loans from their banks in order to make giant, zero-sum bets on life’s necessities and the currencies used as a store of value by hundreds of millions of people worldwide.

    • Savers are not really being punished, they were given a loan that is now being repaid. From a certain point of view 🙂

      Or more food for thought I recently overheard, any economic arguments that do not devolve to accounting are likely not sound.

      Book recommendation: Momo by Ende

    • Perhaps you two should do some reading yourselves…

  13. bubbly, Farmer, Olga, BLM, Ralph, Robert…and whoever else I am missing. I have to say that I am enjoying your discussion. It doesn’t matter who I agree with there. It is just SO nice to see intelligent debates – sadly they are becoming so rare. Or worse, they are not intelligent and devolve into name calling and trolling. Glad to see that not happening here.

  14. Pingback: ?Over the years, we refinanced our home a few times to pay off our … | gotaturypyn

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