Broadcastthis's Weblog

There’s a great saying (reminiscent of P.T. Barnum) that goes something like…”there’s a sucker in every deal….if you can’t spot the sucker….”

Amidst my dearest friends and family (i.e. – those than can tolerate me), I’m known as “The Prince of Gloom” for my ramblings on politics, media and (if you’ve ever had the misfortune of getting cornered by me at a dinner party)….the sub-prime credit crisis

For over a year now, I’ve heard (from those who will actually engage in a conversation on this topic), that the credit crisis “isn’t likely to affect us here in Canada” or, “our economic fundamentals are more sound” or, “it’s different here…we’re not American”. Usually these statements are made with the intent to bring the conversation to a quick close, so I make sure I always know who the latest cast-off is on “Dancing With The Stars”, to help with a seamless segue into more “polite” chatter.

However, the above statements are rarely backed up with anything more than a cursory knowledge of the latest headlines. Sometimes the statements are followed-up with “our economic fundamentals are more sound…*because*…we-have-a-strong-dollar-and-we-have-water-and-tar-sand-oil-and-softwood-lumber-and…we’re nicer-and-we’re-a-peace-loving-nation”.

A brief bit of exposition…

A little over a year ago, my wife and I decided to sell our house in Toronto. We had been living out east, and renting out the Toronto house which we had renovated into a triplex. It was what we called, an “income property”. When the largest of the three apartments became vacant, we headed back to T.O. to fix it up for new tenants, and soon decided to list it instead.

See (being the nerd that I am….seriously, I could read a furnace manual and find something of interest), I had been interested in this thing called “sub-prime lending” since about 2006. It’s a longer (and more boring) story to explain how I came to be “interested” in this, but by the time we were re-painting for new tenants, it occurred to me that this looming “credit crisis” could actually turn out to be something that just might effect our financial position.

I’m “sub-prime”?!

As someone with a “variable income” (meaning: I’m an actor/musician….do the math), it occurred to me that even though I kept hearing that “our fundamentals are stronger” and “we don’t give out mortgages like that in Canada”, I couldn’t help but face the obvious….we’re sub-prime borrowers. This means….we bought our house with a high-ratio mortgage (read: small amount down), and had an income that really didn’t justify the amounts of real estate that we were allowed to own.

But it couldn’t *possibly* happen in Canada….

The Coles Notes of the “sub-prime credit crisis” can be described as:

The global economy is tanking because people are finding it increasingly difficult to pay their bills.

Now, I was hearing this chatter about “sub-prime lending” leading to a financial melt-down many months before the shit hit the fan in July of 2007, so I was still considered to be in “paranoid conspiracy theory” territory. Our real estate agent gave us stock answer #1 (“it’s different here, we’re not *them*), and – what the hell? We were all going to be making money. It was a red-hot real estate market in the spring of ‘07.

Across the street, there was a guy about to list his house and he too, is a real estate agent. I asked what his thoughts were on the looming “sub-prime credit crisis”. He also gave stock answer #1. They were repeating what the news outlets (the ones that would even mention it at all, that is…), were saying.

You know what I mean….the same news outlets that can say things like, “the TSX Composite Index took a beating today on Bay St.” with a smile in their voice (you can’t shake investor confidence, y’know…).

End of exposition…

Well….the good news (for us), is that we all sold and we all made money.

My reasoning for selling at that time (and this is what convinced my wife – who does not enjoy reading furnace manuals, oddly enough), was this:

What if everyone here is 1/2 right? What if prices don’t drop…but in a year from now…people can’t borrow the money required to buy? Where will that leave us?

A quick bit of math told us that we’d better “put a line in the water” to see what we could get. All I can say, now in the spring of 2008 is….glad we sold!

*Disclaimer*!! – I’m not saying that I’m a financial prognosticator, I’m only underscoring the fact that people will generally give you an answer for the sake of giving an answer. AND…that answer will more than likely reflect the needs and desires of the person giving the answer as opposed to reflecting reality…or fact.

How can this affect Canada, then??

Let’s ask a slightly different question…

If foreclosures in California, Florida, Georgia etc., can bring Iceland’s economy to a grinding halt…or towns in Norway…or Spain...or Germany…, remind me again how can it *not* affect us up here? How will the population that sits directly due north of the catastrophe get out unscathed? How is it that the financial collapse experienced by our largest trading partner won’t hurt us here at home? (And BTW…if you’re thinking that the word “collapse” is too strong a word…)

Enter Max Keiser…watch Part One of “The Money Geyser” below, to get a bit of a grip on what’s going on. His daily podcast with Stacy Herbert is fantastic.