Monday, September 12, 2011

What is the CMHC up to?

Last week we were all angry about the lunacy of the BC Ferries Corp buying boxes at Canuck games and paying untold amounts to be a Canuck's major sponsor...and to what end?

Is there another Ferry corp that they are competing against? Do we have a choice? We have the helicopters and sea-planes and all their capacity will fill half a ferry without cars. So why are they spending OUR money this way. When we see the Ferry Corp logo on the TV are we going to run and book a ferry crossing to Victoria?

Well it seems that this self-serving type of advertising is not restricted to just provincially owned corps. I was browsing some international financial sites and lo and behold, there was an ad from the CMHC! It said something like ..'keeping Canada's housing market stable' or some such drivel.

In my very very humble opinion I think that is misleading advertising. How is helping facilitate a bubble keeping things stable? BTW - I won't bore you with how again, the CMHC is garnering a veritable army of on-call critics and Ben here is one of the best at exposing their many flaws.

Anyway back to the ad. Not only is the ad not true BUT why is it even there??

Presumably they are paying good money to have the ad there. Why? Will we rush out and get a CMHC insured mortgage after reading it? I doubt it, since their mortgage insurance is peddled by Mortgage Brokers.

Maybe it is a self-serving way to counter the many critics, including the Government, which is trying to reign in the monster it helped create. Better keep their money for when the time comes to pay the policy holders (banks).

BTW this is what the Irish have to say about our CMHC! Full Article Here

Because the government not only owns the Canadian Mortgage and Housing Corporation (CMHC), which accounts for more than two-thirds of the mortgage insurance in force, but also provides a 90 per cent guarantee on private mortgage insurance obligations, policymakers play a major role in the evolution of underwriting standards and can thus contain potential excesses.

The government may well exert a strong influence on underwriting standards on paper but, in reality, the government-backed guarantees have introduced moral hazard through the transfer of default risk from bank shareholders to taxpayers.

Bank managements are incentivised to play hard and fast with the written rules and, should a negative shock arise, the CHMC has little room to absorb the losses. The government-owned company currently insures $536 billion in mortgages and has just $11 billion in equity: just 2 per cent equity against its total exposure. It’s easy to envisage a scenario in which the taxpayer is left holding the bag.

When this bubble bursts and we are deep in it, the analysts and the Government and the CMHC will be saying 'who-coulda-known'. We must not let them get away with it. We have ample, well written info in bear blogs, for years now, saying that such a high level of risk is not acceptable.


  1. same goes for ICBC..

  2. "We must not let them get away with it. We have ample, well written info in bear blogs, for years now, saying that such a high level of risk is not acceptable."

    Ah but they weren't really credible you see, being online and hiding behind their anonymity, out of the reach of the normal fully-vetted peer review process we have come to love from the MSM muckrakers.

    Any relation to the truth in the blogosphere is therefore more coincidence than acumen, I'm afraid. After all we don't really know where the conclusions came from, do we, and whether or not their data and logic are credible. Lest we actually think.

    Don't believe me? The blogosphere has already been hit on by the G&M, as well as "experts" who warn of the dangers of listening to some crackpot unvetted blog where "anyone" can write and say anything they want. You'll see. CalculatedRisk and a few others managed to break through into the MSM but this doesn't disprove that in general there's more noise than signal online. (And I cannot wholly disagree.)

    The other argument that will be used is the "thousand monkeys random walk" argument, that at any given time, someone will be right. Doesn't mean they're "right" though...

  3. Anon- agree ICBC, BC Hydro all the other monopolies. I guess it makes them feel important and gets their own self-serving messages out. Basically we are paying to be told how great they are.

    Jesse- there is a lot of noise on the internet, granted. However we have paid analysts and shills basically missing the boat and they are never held accountable for their bad calls...on stocks or RE.

    Here we have a group of bloggers who get paid nothing or next to nothing (nothing so far for this fish) and they can see the glaring imbalances.

    The Housing Bubble blogs were the only ones posting on the coming catastrophe in the US. Had they been listened to, we would be in a different situation now. Nothing to do with anonymity. It is just vested interests.

    Who buys advertising in papers, who pays political contributions, what do the very rich own? Answer those questions and you will see why we have been ignored.

  4. I cant really agree with ICBC and BC Hydro being in the same league as the ferries and CMHC. Most ICBC ads are about road safety and most hydro ads are about electrical safety or conserving energy. Both of those are reasonable messages to get out there IMO.

    It would be pretty tough to convince most people that the government could have seen this coming. Even though the government is very aware of what is going on right now, they are so screwed there isnt much they can do about it. Can't raise rates (hurts exports) and can't really limit the CMHC too much since it is a huge support of the market right now. They have slowly started to bring the CMHC down, which is all they can really do at this point.

    There have been articles in the MSM about the CMHC and all the risk it exposes us all to, but I havent seen it make a huge splash or anything. For the most part it is just posted all over the bear blogs who have been saying the same things for years.

    Meanwhile, personal debt in this country continues to rise as consumers "take advantage" (soon people may realize that they were being taken advantage of) of low rates.

  5. The best way to treat a disease is to prevent it.

    The bear blogs have been saying the CMHC is a threat since the Government doubled the size of CMHC borrowing. Just like the US bears said about Fannie and Freddie and were ignored until $1 trillion in laibilities have piled on the US tax-payer.

    Sure the Government is screwed now, but make no MISTAKE at all, this was a monster of their own creation.

    When 2008 hit, they turned to the quickest and dirtiest faucet to provide liquidity and that was housing.

    The irony is, they dont even like the CMHC type bodies. Look at the fight over the Wheat Board. The farmers have just voted to keep it as their marketing arm and the Government refuses to accept the vote and will try and close it anyway.

    The Wheat Baord is peanuts compared to the CMHC.

  6. Davers - I was thinking of ICBC's Olympic sponsorship.

  7. Interesting what Davers mentions about BC Hydro running ads encouraging us to save energy...this is not really about energy conservation, as BC Hydro simply wishes to have a larger energy surplus that they can then sell to the energy-hungry US states like California - for 3 times the regulated BC price.

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