Housing Crash the New S&L Crisis

When you build a house the key to the solidity of its construction is a well built basement. When you buy a house the key to its market stability is your mortgage. When you are poor and buy a house using a sub-prime mortgage you are buying on a weak foundation as the market is discovering in the U.S. this week.

As housing prices fall and interest rates increase those who bought over-valued homes in the U.S. on a variable mortgage will find themselves paying more for a home of less value.

And what they thought were sub-prime mortgages, that is below prime rates, are actually variable rate mortgages. The were sold as below prime due to being longer to pay back, but if interest rates increase they will increase to be above the prime rate. It is a classic bait and switch scheme. Already the U.S. is experiencing thousands of bankruptcies and foreclosures.

It is yet another example of business as usual which cheats the poor to line the pockets of the rich. In this case folks with bad credit were given credit by companies that had dubious funds themselves, who in effect once they had enough debt were able to be financed by the big banks looking to sink their profits into the market.

Then the market crashes, and the banks withdraw their funds from the sub prime market leaving the dubious credit companies without financial backing, and their creditors in foreclosure to the same banks that lent their creditors the credit in the first place. But only one of these crooked credit lenders is going to jail. And it ain't the big banks.

Instead the U.S. economy could tail spin, especially in light of massive layoffs recently announced by Chrysler and Hershey's, and other companies. The result will be massive foreclosures leaving banks and lenders holding declining valued properties that cannot be sold off fast enough to recoup their loses. And then they will come with their hands out asking for taxpayers to bail them out.

The market correction yesterday on news of the sub-prime crash impacted on global markets world wide even as far away as South Africa; US sub-prime crisis batters JSE

Sub-prime worries echo the S&L crisis

DID those troublemaking sub-prime US home borrowers actually know that their mortgage rates could (and in many cases certainly would) go up one day? Were they properly informed by sub-prime lenders? That's the startlingly mundane question at the core of the sub-prime mortgage meltdown, which threatens global markets and may billow into a financial cataclysm to rival the 1980s US savings and loan (S&L) financial debacle.

Both the question - obvious though the answer might seem to most Australians - and the comparison are worth scrutiny.

There is a reasonable chance some of these poor and usually first time home buyers - with loans Wall Street likes to refer to as "trailer-trash mortgages" - didn't understand they were taking out variable rather than fixed-rate home loans.

After all, most US mortgages historically were flat rate - repayments were constant over their 20 or 30-year term, although the mix of interest costs and capital repayments obviously varied.

Just as Australian mortgages became a more diverse mix of fixed and variable rate loans through the 1990s, a minority of the US market has gradually shifted to variable rate loans. And thanks to the exceptionally low level of near-term interest rates in recent years, which made these loans appear stable and cheap, these were often the very loans that sub-prime lenders pushed hardest to less traditional home buyers, such as those in, yes, you already know where they supposedly live.

The S&Ls were pillaged of their best assets by the big Wall Street houses, which quickly figured out that a bunch of dusty Fannie Mae-supported mortgages snapped up at 60 per cent of face value from struggling narrowly based S&Ls in the flyover states could be pooled, securitised and resold as diverse, near federal-quality, mortgage-backed bonds at large profits.

Fears of US mortgage crisis as homeowners face 12% interest

· Shares fall on worries for wider economy
· Research predicts 2.2m defaults on homeloans

Larry Elliott and Jill Treanor
Wednesday March 14, 2007
The Guardian

The US central bank was under pressure last night to underpin the country's troubled housing market as figures showed an increasing number of US homeowners falling behind with their mortgage payments and having their properties repossessed.

The problems had a knock-on effect on Wall Street where the Dow Jones Industrial Average fell 242 points to close at 12,075 amid fears the malaise in the housing market would infect the rest of the economy. There were signs of mounting problems for firms that have aggressively sold home loans to people with poor credit ratings - so-called sub-prime mortgages.

The US Mortgage Bankers Association (MBA) yesterday pushed back its forecast of a rebound in the real estate market from the middle of 2007 until the end of the year after reporting an increase in both late payments and foreclosures in the final three months of 2006. It said defaults had risen for all loan types but were particularly marked for those with sub-prime mortgages with adjustable rates.

Borrowers with loans totalling $265bn (£137bn) are scheduled to have the interest rates on their mortgages reset this year and many of the poorest homeowners in the US could face interest rates as high as 12%. The Fed meets next week to set base interest rates but is expected to leave them unchanged at 5.25% despite the latest mortgage default figures.

Research by the Centre for Responsible Lending has predicted that one in five of the sub-prime mortgages made in the past two years will end in foreclosure, resulting in the biggest crisis for the mortgage market in modern times.

The centre said 2.2m sub-prime home loans had already failed or would end in foreclosure and that the losses to homeowners could be as high as $164bn.

The data from the MBA showed total mortgage defaults up from 4.67% to 4.95%, but sub-prime delinquencies rose from 12.56% to 13.33%.

The problems have most clearly been illustrated by New Century Financial, which is on the brink of bankruptcy without enough cash to repay its own lenders. Its shares have been suspended by the New York Stock Exchange and it has admitted receiving a grand jury subpoena as part of a criminal inquiry into trading in its shares as well as accounting errors. State regulators in Massachusetts yesterday ordered New Century to fulfil its promises on loans in process and barred it from making new loans. It was coordinating its order with several other states, including New York, New Jersey and New Hampshire.

Other states, however, were reluctant to take action that could contribute to a lender filing for bankruptcy, leaving borrowers stranded.

US banks face sub-prime note inquiry

The fallout from America’s mortgage implosion continued yesterday when the state of Massachusetts said it is investigating the possibility that Wall Street firms had issued unrealistically upbeat research notes on leading “sub-prime” home loan makers to safeguard lucrative investment banking business.

William Galvin, the state’s commonwealth secretary, has subpoenaed Bear Stearns and UBS Securities for documents about their analysts’ recommendations of New Century Financial and other troubled lenders of high-risk mortgages made to people with the lowest credit ratings.

Mr Galvin said he was concerned that some investment banks may be violating terms of a 2003 global research settlement, reached in the wake of the bursting of the dot-com bubble. Under that agreement, investment banks paid fines and agreed to isolate their analysts from other businesses after regulators accused them of publishing biased research to win investment banking work from companies they covered.

Mr Gavin said: “Recent revelations that research analysts issued positive reports on mortgage lenders to those with less than solid credit ratings even as those companies faced more and more defaults suggests that the commitment of 2003 has not been met.”

See

China Burps Greenspan Farts Dow Hiccups

Housing Bubble

Housing

Economy



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Economist Trashes Made In Alberta Green Plan

Ouch!

Jeffrey Rubin, chief economist with CIBC World Markets, said Tuesday that governments in Ottawa and Alberta are pursuing a minimalist policy that will actually lead to significantly higher greenhouse gas emissions. Eventually, he said, Canada will have to get tougher, prodded by a growing movement in the United States to combat global warming.

Of course he is a Bay Street Banker part of the Kyoto Conspiracy.

See:

Environment

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Canadian Ponzi Scheme Funds Republicans

While the headline for this story emphasized the fact that there was some spurious connections with terrorism the real story is that a Christian Businessman from Canada and his American partner bilked Christian investors in a ponzi scheme that helped finance the Bush Regime. The good thing is that when he goes to jail he won't have to find Jesus.

The portly Mr. Anderson seems an unlikely financier of Islamist terror. A born-again Christian, he has actively fundraised for evangelical groups and worked at Trinity Western University until the late 1980s.

"During the time he was employed at the university, his role was in the fundraising office," said Ron Kuehl, senior vice-president of External Relations at the Christian university in B.C.'s Bible belt.

"It seemed that there was a bit of a variety of [job] titles but I would say that the function that he took at the university was clearly in the area of development."

Mr. Anderson’s troubles stem from the business ventures he launched in 2001, Frontier Assets and the Alpha Program, which securities regulators say were "Ponzi schemes" that conned investors
into handing over money that was never actually invested.

A lawsuit filed by nine people who claim they were scammed by Mr. Anderson says he deliberately sought out investors who "held strong Christian values and beliefs."

"Anderson told Plaintiffs that he was offering some very lucrative and confidential investment opportunities that would, while providing a good financial return to Plaintiffs, also benefit Christian organizations and projects throughout the world," the lawsuit says.

According to the FBI and the B.C. Securities Commission, Mr. Anderson collected at least $7-million from his backers, but the money was never invested and the investors were left empty-handed.

Mr. Anderson is tied to terror-financing allegations through his business partner Mr. Alishtari, a 53-year-old American of Moroccan origin who has donated generously to Republican election campaigns.

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Mackenzie Valley Pipeline

Back in 1980 when I worked as a custodian in the Alberta Legislature I cleaned Premier Peter Lougheeds offices which included the Sanctum Sanctorum the inner cabinet room. On the wall was a large geophysical map of Alberta and Northern Canada showing the Mackenzie Valley Pipeline project, the jewel in the Alberta Crown of Oil resource development.

It was to be the second greatest pipeline debate in Canadian history, and the second one to challenge the ruling Liberal party of the day.

Back then the Pipeline was projected to cost the same as it is today. The cost in the 1970’s was estimated at 8 billion dollars.

But it was halted at that time by Justice Berger. It was the real nail in the coffin of the NEP. Subsequently the petro-economy went through a tail spin downward in the 1980's allowing for the pipeline which was put on hold to be forgotten, and in the intervening years new deals were struck with Northern communities and peoples for self government as Berger had recommended.

With the oil boom of the 1990's the Mackenzie and Alaskan Pipelines became economically viable once again.

The proposed gas pipeline from the Beaufort Sea to markets in southern Canada and the United States was billed in the 1970s as "the biggest project in the history of free enterprise."

Mr. Justice Thomas Berger

It was up to a Canadian judge, Mr. Justice Thomas Berger of British Columbia, to examine the impact of the pipeline on the people who lived in its path. Berger took to the job so thoroughly that some said he ran off with the terms of reference that established what was formally known as The Mackenzie Valley Pipeline Inquiry, embarrassing the Liberal government that appointed him.

On May 9, 1977, Berger's report was released in Ottawa. Significantly, Berger titled his report Northern Frontier, Northern Homeland, for above all he wanted the world to know that though the Mackenzie Valley may be the route for the biggest project in the history of free enterprise, people also live there.

Berger warned that any gas pipeline would be followed by an oil pipeline, that the infrastructure supporting this "energy corridor" would be enormous - roads, airports, maintenance bases, new towns - with an impact on the people, animals and land equivalent to building a railway across Canada. Some dismissed the impact of a pipeline, saying it would be like a thread stretched across a football field. Those close to the land said the impact would be more like a razor slash across the Mona Lisa.

The hard news of May 9, 1977, was Berger's recommendation that any pipeline development along the Mackenzie River Valley be delayed 10 years, and that no pipeline ever be built across the northern Yukon. The pipeline was delayed far longer than 10 years.

In recent years, there has been a resurgence of interest in a gas pipeline up the Mackenzie Valley, and many of those now pushing for the pipeline were the young radicals who opposed it with such vehemence 25 years ago.

With the war in Afghanistan and Iraq reducing oil capacity, and with projected peak oil reserves waining by 2020 the new gold rush in oil was being pushed by the US. With their eyes on the prize of Alaskan Oil the Mackenzie Valley Pipeline once again became an economically viable alternative to the Alaskan Pipeline.

In 2001 the Mackenzie Valley pipeline was projected to cost between $2-3 billion. In 2002 it was estimated to cost between $3 billion and $4 Billion. In 2005 estimates for construction were double that of 2001; $5 Billion. In 2006 the total cost was expected to be $7 billion.

Basically the cost estimates jumped a $1 Billion annually then suddenly this year
it is quadruple the cost, it is estimated to cost $16.2 Billion.

New estimates of overall costs for the Mackenzie Gas Pipeline project have hit $16.2 billion, from an original $4 billion, Imperial revealed before stock markets opened early Monday.

The massive project's in-service date was also rescheduled to 2014, three years past original estimates, due to significant delays in regional permits and approval.

CALGARY/AM770CHQR - Jim Prentice, the Minister of Indian Affairs and Northern Development says, somehow, the Mackenzie Valley pipeline will be built.
Imperial Oil says it will cost a whopping $16.2 billion.
Prentice says, however, the project is a key piece of oil and gas infrastructure.

"We'll be studying the information and I will be proceeding to cabinet to examine alternatives and options. But this is a very important piece of infrastructure that we are committed to."

And Gary Lunn, Minister of Natural Resources, echos Prentice saying the federal government will do anything it can to help support this project, within limits.
Both Lunn and Prentice were in Calgary Monday.

However this is the total cost of the pipeline operations including finding oil fields. The actual pipeline cost remains $7.8 billion.

In other words one billion more than 2006, which is in line with the annual cost increases predicted by Imperial Oil which calculated that the pipeline could cost up to $10 billion when the project first came on line.

The original opposition to the Pipeline was over Native Rights and self government, as well as its environmental impact.The first nations issue was resolved by the Berger commission and today the first nations are full partners in development.

The opposition now is by a few bands that do not have first nations status and the environmental lobby. But Berger addressed the environmental concerns in his report; . Berger sees no compelling environmental reasons why an energy transportation corridor could not be established along the Mackenzie Valley. That development is being challenged by environmental groups because they see the pristine north as wilderness, now threatened with development. They want NO development in the North.

Most Canadians have never seen it. But it is perhaps our nation’s most treasured natural feature...the Mackenzie River.

The entire Mackenzie Valley is now threatened by Canada’s biggest natural gas pipeline project ever. The Mackenzie Gas Project (MGP), likely to cost at least CDN $7 billion, includes three major natural gas production fields north of Inuvik and two underground natural gas pipelines (the longest is 1,220 km) to carry the gas south along the Mackenzie Valley to northern Alberta. Other pipelines would be built connecting other gas fields to the main pipelines.

If it proceeds, this mega-project will trigger the transformation of the Mackenzie Valley from largely intact wilderness to industrial landscape. The environmental impact would be massive. It will fragment habitat for bears, caribou and wolves. It will harm fish and fish habitat by increasing sediment deposition into the rivers and streams of the valley from constructing pipeline crossings. It will permanently damage important breeding or staging areas for millions of geese, tundra swans and other migratory birds. Read about the Kendall Island Migratory Bird Sanctuary. It will cause forests to be clear cut and heavy machinery deployed to construct the infrastructure and the new underground pipelines which would tunnel under or cross 580 rivers and streams along the way. It will trigger a rush of oil and gas development in the Mackenzie Valley, which would accelerate further damage to wildlife and ecosystems. It will increase greenhouse gas emissions from the burning of fossil fuels by heavy equipment and from the cutting of boreal forests, destruction of wetlands, and melting of permafrost. It will accelerate climate change in the Mackenzie Valley. Even now, thawing permafrost is collapsing roads and buildings. Warmer, drier summers are causing the worst forest fires ever. Infestations of southern insects, especially the spruce budworm, are likely. Depletion of Arctic sea ice will likely push polar bears, walrus and some seals into extinction within 50 years.

The old alliance between first nations and environmentalists is now broken, and development of the North becomes the economic life blood for Northerners especially because of climate change.

It was, in fact, just a matter of time before this modern version of the Gold Rush resumed in earnest. The prize is simply too alluring. The National Energy Board estimates there are nine trillion cubic feet of discovered natural gas reserves in the Mackenzie Delta - and at least another 55 trillion yet to be found. In sheer volume, that would amount to more than a third of the known reserves in the more traditional gas fields of Alberta. To the west of the delta, at Prudhoe Bay, there are proven gas reserves of 30 trillion cubic feet and estimated total reserves of more than 100 trillion. Northern Alaska is already a significant oil-producing area, generating over one million barrels per day, which is piped south across Alaska and then put on tanker ships.

The opening up of the arctic due to global warming means once hard to access oil, gas, coal, uranium and other mineral deposits become economically feasible.

A proposed Mackenzie Valley natural gas pipeline is still before the regulators and it's already creating massive new plans for industrial development in the Arctic.

Vancouver-based West Hawk Development (TSXV:WHD) has unveiled plans to strip-mine extensive coal reserves along the Mackenzie River and begin building $2 billion worth of coal gasification plants to tie into the pipeline within four years.

"It's a property we're feeling very comfortable with in terms of generating natural gas from coal," West Hawk president Mark Hart said Monday.

The west was opened up by the railway, the north will be opened up with pipelines and mining. The difference is that development will be ameliorated by environmental watchdogs, and by the Northerners themselves which did not exist when the railway opened the west and the great Buffalo slaughter happened.

But already development and climate change have affected the peoples of the North and development of their resource base is crucial now to their survival.

Until about seventy years ago, the native peoples of the far north relied on their skills as hunters to feed their families and were self-sufficient. With the extension of Canadian sovereignty northwards, the nomadic people were encouraged to gather in permanent settlements where they could be supplied from the south with food, education and medical care. Settlements, such as those in the Arctic Islands for instance, were often well north of natural food supplies, leaving the inhabitants dependent on a supply route from the south. While fresh food and lightweight goods can be brought in by air or by road, heavy freight such as fuel still depends on the barges that travel in the Mackenzie River during the short summer navigation season. This is a life critically dependent for the necessities of life on the continued availability of fossil fuels.

It also offers an alternative to the Alaska pipeline, one that would destroy the Alaskan National Wildlife Reserve, ANWR. Which puts environmentalists in a difficult position. Unless the oppose all development of the North. Which essentially they do.

The proposed Alaska pipeline is estimated to cost roughly CDN $20 billion (US
$16.16 billion)9. This is a higher cost than the proposed Mackenzie pipeline and has a
number of stumbling blocks of its own. It also has a later estimated date for possible
completion, somewhere around 2014 by optimistic estimates10. It connects to a different set of deposits than the Mackenzie Valley Pipeline, as the Alaska line is intended to allow for shipment of the Prudhoe Bay gas. There have been suggestions that a smaller pipeline could be built between the Prudhoe Bay fields and the Mackenzie delta, to allow both deposits to be distributed through one pipeline.

Those who dream of some idyllic past for Northerners and their land, the noble savage in the pristine wilderness, fail to understand the revolutionary nature of capitalism, which is to destroy all those village traditions and replace them with dependence on development and civilization.

And they fail to understand that these people will not have a pristine wilderness to hunt and fish in given the changes happening in the Arctic thanks to global warming created by capitalism. Their survival is now to adapt to capitalism, not to hold back the development of the North. It is something they understand but Southern Environmentalists fail to. The reality of the North is that climate change is making development crucial to the survival of the peoples of the North, halting mega-projects like the Mackenzie Valley Pipeline will not stop climate change, but it will limit the survival of traditional communities now dependent on the South for food and fuel.

In the end, large construction projects are an essential part of human civilization, they just have to be done right. A genuinely useful megaproject must arise out of any public planning process, in which the citizens of the region looked at the long-term needs and options and discussed what should be done. The hype surrounding megaproject proposals also serves as a convenient way to distract the public from the more day-to-day problems of society and government. Seriously addressing our state's shameful social problems requires fundamental questions about the way our society functions, the types of questions that politicians hate being asked.

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