Where are House prices going?

Cosmo said:

Although US based, it is relevant to Canada as well.

In short it is predicting a 50% drop in real estate values.

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'American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.'
- Alan Greenspan

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Below are excrepts from Alan Greenspan’s 1966 paper, http://www.321gold.com/fed/greenspan/1966.html :
A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.

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1933


Glass-Steagall Act creates new banking landscape


Following the Great Crash of 1929, one of every five banks in America fails. Many people, especially politicians, see market speculation engaged in by banks during the 1920s as a cause of the crash.

In 1933, Senator Carter Glass (D-Va.) and Congressman Henry Steagall (D-Ala.) introduce the historic legislation that bears their name, seeking to limit the conflicts of interest created when commercial banks are permitted to underwrite stocks or bonds. In the early part of the century, individual investors were seriously hurt by banks whose overriding interest was promoting stocks of interest and benefit to the banks, rather than to individual investors. The new law bans commercial banks from underwriting securities, forcing banks to choose between being a simple lender or an underwriter (brokerage). The act also establishes the Federal Deposit Insurance Corporation (FDIC), insuring bank deposits, and strengthens the Federal Reserve's control over credit.

The Glass-Steagall Act passes after Ferdinand Pecora, a politically ambitious former New York City prosecutor, drums up popular support for stronger regulation by hauling bank officials in front of the Senate Banking and Currency Committee to answer for their role in the stock-market crash.

In 1956, the Bank Holding Company Act is passed, extending the restrictions on banks, including that bank holding companies owning two or more banks cannot engage in non-banking activity and cannot buy banks in another state.

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Oct.-Nov. 1999
Congress passes Financial Services Modernization Act

After 12 attempts in 25 years, Congress finally repeals Glass-Steagall, rewarding financial companies for more than 20 years and $300 million worth of lobbying efforts. Supporters hail the change as the long-overdue demise of a Depression-era relic.

On Oct. 21, with the House-Senate conference committee deadlocked after marathon negotiations, the main sticking point is partisan bickering over the bill's effect on the Community Reinvestment Act, which sets rules for lending to poor communities. Sandy Weill calls President Clinton in the evening to try to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to get White House moving on the bill or he would shut down the House-Senate conference. Serious negotiations resume, and a deal is announced at 2:45 a.m. on Oct. 22. Whether Weill made any difference in precipitating a deal is unclear.

On Oct. 22, Weill and John Reed issue a statement congratulating Congress and President Clinton, including 19 administration officials and lawmakers by name. The House and Senate approve a final version of the bill on Nov. 4, and Clinton signs it into law later that month.

Just days after the administration (including the Treasury Department) agrees to support the repeal, Treasury Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises eyebrows by accepting a top job at Citigroup as Weill's chief lieutenant. The previous year, Weill had called Secretary Rubin to give him advance notice of the upcoming merger announcement. When Weill told Rubin he had some important news, the secretary reportedly quipped, "You're buying the government?"

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Krustee said:

I don't doubt that the info & predictions shared in the video will most likely come to fruition, but I think here in Canada we will not see a fall to the same extent as south of the border.

Some of the reasons I believe that are for one, our banks did not wholesale embrace the "creative financing" espoused by Greenspan.

This irresponsible mindset & the fact that Slick Willy (Clinton) who was courted by Citicorp's Sandy Weill & John Reed to repeal the Glass-Steagall act are what caused the US to nosedive.

Let's first look at the man, Alan Greenspan, Federal Reserve Chairman from August 11, 1987 – January 31, 2006

The quote I am referencing above is here:


This seems to be in contrast to what I gauge as some pretty sound reasoning on economics found in 'Gold and Economic Freedom'
This article originally appeared in a newsletter: The Objectivist published in 1966 and was reprinted in Ayn Rand's Capitalism: The Unknown Ideal


Now, when we look at Slick Willy & the Clinton administration we see what basically amounts to a hippie occupation of the Whitehouse from January 20, 1993 – January 20, 2001.

Bill showed he had very little concern for the American people other than keeping himself popular through appeasement policy & public opinion polling.

What he allowed to happen on his watch is, in my belief, worthy of criminal acclaim.

The Glass Steagall act was enacted in protect the people from the financial institutions manipulating the stock market. read here:


Slick Willy, after some friendly courting by Weill, used his considerable influence to swing the vote on a regulation that would have protected the American people from a repeat of the crash of 1929.

How utterly prophetic those snide words, "You're buying the government?", would become as we look back at this now & can take into account the over 100 million dollars the Clinton's have been given by financial institutions since leaving office.



Now you know what happened south of the border but what about here?

Because we did not have similar regulation policies nor the same tenacious financial moguls hounding our government to give the blank check to print money in the stock market, we were serendipitously spared from the full assault on our people.

I'm not saying that our banks up here are not just as greedy as those in the US but they just have a higher, more refined, class of corporate criminals.

What will determine the extent of our housing market fall is the exposure our banks have to the Mortgage Backed Securities (MBS) that they purchased along with all the other opportunistic institutions around the world.

Right now I am happy that Royal Bank & TD seem to have resisted the temptation to acquire large quantities of these risky notes.

Not so with CIBC, Scotia & Bank of Montreal from what I have read & heard, so you can expect tight lending practices & customer gouging from those banks as they try to generate additional revenues to cover some of their losses.

My prediction?

I think the Western regions of Canada will only fall by 30-37%.

The plains provinces & Ontario will probably see an additional 5-7% drop.

That is all

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wess said:

I think Royal was the first canadian bank to have a share sale so who knows what they are really into right now. In terms of stock price of these banks it doesnt really matter which bank has more MBS exposure because when one of the 5 go down in price, the rest will follow. I just dumped some money in BMO and Scotia because they have a higher dividend. Thats the big question. Which will be the first of the big 5 to cut thair dividend? When one does it the rest will take the oppertunity too. Then they all fall again...

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