Alan Ferguson
Province
Stock traders negotiate in the future dollar pit at the Mercantile and Futres Exchange in Sao Paulo, Brazil. The ripples from the struggling U.S. housing market have spread outwards to every stock exchange in the world. —AFP/GETTY IMAGES
Wordy explanations of the credit crunch that has brought the western world to the brink of a meltdown might fool you into thinking it’s all very complicated.
But the only unexplained phenomenon is how an advanced economy like that of the U.S. could have allowed its financial integrity to be undermined by an orgy of unregulated greed.
It’s only a decade or so since the Savings and Loan scandal in the U.S. bilked thousands of small investors out of their life savings.
This time, it’s the exploitation by the financial elite of gullible, wannabe homeowners.
In a booming economy, people on the fringes of society were cruelly encouraged to aspire to a dream of home ownership they could ill afford.
Lenders, eager to squeeze every last cent from the real-estate bonanza, paid a criminal lack of heed to the ability of their clients to pay. They offered so-called subprime mortgages whose initial, tempting terms were hard to refuse.
But, unlike in Canada, where mortgages generally stay with the institution issuing them, in the U.S. they were passed around like hot potatoes at a barbecue.
Wall Street brokers bought them wholesale, to be parcelled out in job lots for global investors scenting a high return.
Neither the identities of the original mortgagees, nor their ability to pay, were spared a thought. As long as the money kept coming, who cared? It seems to have occurred to very few people that even a minor hike in interest rates would topple this house of cards.
Wall Street financiers seemed oblivious to the risks, and kept flogging the mortgage bonds long after their weaknesses should have been apparent.
Investors who bought them were equally stunned to suddenly find themselves out millions, holding worthless paper.
A few smart guys saw what was coming and made small fortunes betting against the misplaced optimism. Their profits, legal enough, are nevertheless tainted with the misery of those now facing ruin.
With the U.S. housing boom now a bust, prices are tumbling and thousands of low-income owners face foreclosure.
They will be turfed on the orders of faceless, nameless officials in cities perhaps thousands of miles away, still owing money they don’t have.
The fallout from this folly is spreading around the world, with financial markets reeling like a drunk.
Money that could be borrowed for a song a few months ago now is hard to come by.
Canada‘s central bank is just one among many having to pour millions into the system to try to stem the panic.
The good news for Canada is that, for now, our housing market is showing resistance to the downward spiral in the U.S.
In fact, both prices and sales are projected to keep rising.
But I’d be very leery of anyone who says: “Have I got a mortgage deal for you.”
© The Vancouver Province 2007