Superb article on sub-prime crisis…

7 02 2008

I lifted this Dean Barker article from the website found here:  Not really much to do with Canada (yet) but raises some interesting issues towards the end.


  We are nearing the end of the subprime crisis, but this is not exactly grounds for celebration. There are still millions of low- and moderate-income homeowners who are facing the loss of their house through foreclosure. Nothing currently on the horizon seems likely to change this fact.

    The reason the subprime crisis is about to fade from the headlines is that the mortgage crisis is moving upmarket. The rate of foreclosures among people with prime loans has been rising rapidly. By the end of the year, the foreclosure rate on prime loans will be where it was with subprime loans just a few years ago. The reason is simple: House prices are plunging.

    The latest data show house prices were falling at a 16 percent annual rate in the fourth quarter of 2007 and were already down by almost 8 percent from their year-ago levels. In several cities, the rate of price decline was considerably more rapid. In San Francisco, prices were dropping at a 22.2 percent annual rate, in Los Angeles at a 24.7 percent rate and a 27.0 percent rate in San Diego.

    This rate of price decline means millions of recent homebuyers, who put little or nothing down on their home, now have houses that are worth less than the value of their mortgage. This is important for two reasons. First, homeowners with no equity in their homes have no margin for error. If they lose their job or get a serious illness, they cannot borrow against equity to pay their mortgages through the bad times.

    This is the situation that has caused many subprime homeowners to lose their homes. While predatory mortgages are a key part of the story in many cases, if the house was worth more than the value of the mortgage, it would always be possible to borrow against the equity to meet a monthly mortgage payment. If house prices were not falling, the subprime crisis would not be happening.

    However, there is another dimension to this story. When the house price is less than the value of a mortgage, there is a strong incentive to give up a home even if the homeowner is able to pay the mortgage. The logic is simple. Suppose a homeowner owes $400,000 on a home that is now worth just $300,000, a situation common in places like Los Angeles, Miami and San Diego. If the homeowner continues to pay their mortgage, they will have eventually paid $400,000 (plus interest) for a home that is worth $300,000. That’s not a very good deal.

    Alternatively, suppose the homeowner decides to buy the comparable home across the street for $300,000, and stops sending the mortgage check to the bank each month. The bank will presumably foreclose on the first house, but the homeowner has effectively pocketed $100,000 on the day he moves across the street. That would be a good payday even for the Wall Street crowd. Of course, the bank will take a big hit, since it will not be able to recover anything close to its original $400,000 loan, but that is not the homeowner’s problem.

    Is it moral to just walk away from a loan and leave the bank holding the bag? That’s an interesting question.

    We live in a country in which CEOs can run a corporation into the ground and then walk away with pay packages worth tens, or even hundreds, of millions of dollars. Equity and hedge fund managers, who rank among the richest people in the country, have successfully lobbied Congress so that they pay a lower tax rate on their earnings than schoolteachers and firefighters. After walking away with this multi-million dollar tax break, at least one prominent member of this crew has been leading the charge to cut Social Security, pointing out he doesn’t need his Social Security check.

    Then, we have the pharmaceutical companies and insurance industry. They designed a Medicare drug benefit that will unnecessarily add hundreds of billions of dollars to federal spending over the next decade, and needlessly complicate the lives of tens of millions of seniors. Of course, this benefit will add hundreds of billions of dollars to their profits over this period. And then, we have Halliburton, Blackwater, and the other defense contractors in Iraq and Afghanistan. Nothing needs to be said about this one.

    In this world, is it moral to profit by walking away from a mortgage you can actually afford to pay? Perhaps President George “WMD” Bush can address this issue for the country in a fireside chat.


Middlesbrough FC

6 02 2008

One of the largest passions I seem to have developed during my time in the UK is football (or soccer as it’s called over here for some bizarre reason).  The atmosphere at a game is unlike anything you will ever experience at a North American sporting event and the game itself is beautiful.  It also has the advantage that it is not like American football or baseball in that the action is pretty continuous for each half.  There are no breaks for the TV viewers to get bombarded with adverts (I am sure the Americans would love FIFA to adopt a 4 quarter approach purely for tv revenue purposes).

I’ve been a Middlesbrough supporter as soon as I took to seeing football matches in the UK.  This mostly derives from the fact that is where my parents are from so it seemed as good a reason as any to follow a team.  This is despite the time I was in Leeds during the quick rise of Leeds United’s fortune that saw them go all the way to the European Cup final and their equally spectacular demise due to bizarre transfers and internal club management issues.  I also had the dubious pleasure of being behind the Middlesbrough goal when Brian “Donkey” Deane scored the goal that relegated us 😦  It would be easy to be like most people I’ve encountered who ‘support’ football in North America who support Manchester United (and who probably could not name 5 first team players).  But that’s another issue…

Supporting a ‘non-glamour’ club like Middlesbrough has its ups and downs.  I went to our first ever FA cup final game at Wembley (and was behind the goal when Ben Roberts let in the fastest goal ever scored in a FA cup final).   I was fortunate enough to see the arrival of superstars like Juninho, Ravanelli and Emerson and they were awesome to watch.  Emerson’s thunderbolt shots from outside the area were something you had to see in person to appreciate.  Check out the video below to see Juninho and Emerson in action…

I moved back to Canada by the time we qualified for Europe which was a bit of a shame as I would have gladly went to some of those away matches (and the home ones, I was a season ticket holder for three years).  The UEFA cup final was probably our highest profile game although the result was disappointing.  Seville were the better team on the day clearly but it might have been so different if he had that penalty called when one of their defenders plastered Viduka onto the pitch…

This season has been nothing to write about so far.  We sold our best strikers Viduka and Yakabu and have no suitable replacements at all and we’ve been shown up week in and week out for that shortcoming.  However, brighter times may be ahead now we’ve signed the Brazillian Alfonso Alves from Heerenveen.  He’s had a phenomenal strike rate in the Dutch league so let’s hope he can reproduce that form in the Premiership and keep us above the drop zone.  I don’t think there is much to play for this year (we’re still in the FA Cup however) but his impact next year could be impressive.  I’m looking forward to his debut against Fulham this weekend.  It’s a shame the games are harder to come by on TV over here in Canada.  The only places I can catch the occasional games are a couple of pubs here in town.  Even during the world cup they would rather show baseball than the football (unbelievable or what?).


4 02 2008

After my fun and games with my flight back from Vegas I got an email today telling me they’ve given me a $250 flight credit for future travel due to the problems!

That was a pleasant surprise!

Hurrah for WestJet!  They have a clue!