… and in spite of that he was a buddy of mine. One of the few that didn’t have his head in the sand and instead of just trying to push loans through to get the commission, he actually cared about the likelihood of repayment. He was a brand new banker, and in being such was crippled by his idealism and integrity. One day, obviously frustrated he pulled me into his office, closed the doors and asked me, “Look, I need your help. What the heck is going on here?”
An engaging read. Thanks for the link!
A rising tide lifts all boats.
If enough buy into the belief that values will appreciate “forever”, caution is tossed to the wind.
If enough buy into the belief that’this-time-it-is-different’ , fools rush in.
Self-feeding, self-perpetuating stage. Bubble.
Even Pet Rocks had their time in the sun.
It keeps happening. People have short memories.
Buyer beware is the only defence. Cannot ledgeislate against stupidity.
Stupid is not getting in on the action soon enough. Real stupid, too late.
Timming is everything — but impossible to do, consistantly
Under Clinton, Alan Greenspan drove interest rates to zero in an attempt to save the Tech Bubble. Didn’t work.
Then, if people could not earn any interest on deposits, they would stick it in a “sure thing” — houses.
The only thing that is ‘for sure’ is that ‘nothing’ is for sure.
The US sub-prime housing market bubble is just one of many —- we hear about it because it is the media’s favourite. (Kelowna?)
A long-in-the-tooth salesman of #300k pieces of farm machinery; “If I would have written up deals like this (4s) during the 1970s, I would have been fired on the spot.”
Don’t forget about 4.9, too; as in the 4.9 percent stake in the bank’s shares that Jimmy’s boss is eventually going to have to sell to the nice people in Abu Dhabi in order to raise some cash to cover all those spiffy loans.
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Everyone should read this article. It is a true glimpse behind the scenes of our “expert financial personnel”
I have long felt that most financial planners and loans officers have zero talent. This article gives us the mechanics of how they actually think and operate.
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Arnie, I think you’re missing the point. I see it as the “banking system” being the cause. Its sales goals and the bottom line. Has very little to do with what any one financial planner or loans officer (actually there’s a big difference between the two) does or does not do. In a bank they have higher-ups that they have to answer to who also have higher-ups to answer to and so it goes. That might help to explain why a bank like the Canadian Imperial Bank of Commerce would allow itself to get involved in the sub-prime mortgage market in the first place.
I would have thought that the “graduated mortgage” experience of the 1970’s – 80’s would have taught a lesson to banks but that was a generation and a half ago. All those people are retired and gone so if we don’t learn the lessons of the past we are surely doomed to repeating those blunders. And for what? Profit!! Market share!!! Shareholder value!!! And so it goes.
I know many Financial Planners and many of those are very competent and well educated people. The real good ones open up their own shop or work for the big brokerage houses. Most loans officers work in banks and credit unions. They are the ones who are under the gun. There is a ladder of authority and they are usually sitting on one of the bottommost rungs. You know what they say about Sh&t – it runs downhill and they are the ones that eat most of it from the higher-ups so they have to perform.
I think the federal government department of finance should have greater power to monitor the type of lending that goes on in banks. Maybe a national securities regulator could have more say when it comes to these types of lending practices that can badly errode shareholder value such as in the case of the CIBC whose share price has dropped by over 30% since the sub-prime mortgage mess.
The idea in modern banking is not to issue secured loans but to bait with easy fiat credit and capture tangible wealth through either usury or default.
Now I know why I use a credit union
“All it was, was just one simple thing;
The number 4.”
This also describes the corporate ethos of other institutions…certain universities, for example.
Brilliant read.
I live in Edmonton and bought a house two years ago just at the beginning of an unbelievable real estate boom which, saw my new purchase double in value in 18 months (my old house did too).
When I applied for a mortgage I knew exactly what I could afford, how much I felt comfortable with in the amount that I borrowed, and I knew exactly how much what it was that would be considered indebted servitude for me. The bank offered me three times the mortgage of my own personal limits. They literally wanted to enslave me in debt because quite frankly they didn’t care about me, they wanted to be owners of the property I was purchasing and nothing else.
What I am trying to say is this: it’s not just the bank and the way they do business, you have to be accountable for your own actions as well. How much of a slave do you let the banks make you be?
The CDN investment ‘industry’, is now on the hook for somewhere between 30 and 35 billion dollars for this ‘asset-backed paper’.
Question: Did all of this asset-backed paper originate in the USA?
How about Enron- any CDN investors lose money on that?
Just asking………………
It takes massive incompetence for banks to lose when they can lend at least 10 times more than they have. And charge interest on money created out of thin air.
A loans or mortgage officer does not change the rules by him or herself.
Strict rules which have protected the banking industry against these types of losses have existed for a very long time.
The rigid rules of considering the c’s…capacity,character,credit history,collateral,etc before handing out money were put aside in an orgy of greed that only could have been ordered from the top.
I hope some heads will roll,but I won’t be holding my breath.
A friend just lost his parents and is dealing with settling the estate and has to deal with the banks etc. Straight forward estate, no probate to speak of and guess which banking institution is giving him the most problems. (Hint it has been mentioned previously.)
ol’ Hoss:
“It takes massive incompetence for banks to lose when they can lend at least 10 times more than they have. And charge interest on money created out of thin air.”
Either that or unfathomable greed and surreal belief in taking the fractional reserve credit system to 20 or 40 times what’s in reserve.
What a great banking story.
And just like real life, no happy ending.
Definitely more people need to read this one.
So now we have both the US and the UK in housing crisis mode, ie bank crisis mode.
And the UK is running up govt debt almost as fast the US also.
In fact one of the well known UK economists recently said that if the banking system and govts do not get this economic blip/blimp under control and quickly, the resulting economic downturn could ‘make 1929 look like a walk in the park’.
About all we need now is for the severe southeastern US drought to move up into the US corn crop like they usually do, to send the food and gas prices crazy.
And kaboom, there goes all the ethanol investments.
Time to hunker down?
Or at least go and look at the woodpeckers, Pine Grosbeaks, Bluejays, Chickadees and the resident squirrel who have arrived for lunch in our backyard.
The killer, or irony, of this story is it’s absolutely true. Oh — and the comment “Don’t forget about 4.9, too; as in the 4.9 percent stake in the bank’s shares that Jimmy’s boss is eventually going to have to sell to the nice people in Abu Dhabi in order to raise some cash to cover all those spiffy loans,” — is true too! All of a sudden everyone’s (the banking industry) a financial expert and wants your business and is your friend. As Art Buchwald said “my financial planner is my friend “for money”. Get over it! If you want to make it, control spending, stay out of debt — that means zero debt, play the banks for their perks and make it a policy to never pay any fees — most banks are nothing but legal whores — not the people that work in them but the industry itself — remember that and you’ll live out a financially comfortable life.
Good business deals require that parties with opposing interest identify all the value in a deal and negotiate how that value will be shared. When the two parties, the original borrower and the original lender, do not have opposing interests, because the loan is just going to be sold in secondary market and then syndicated, then the deal has to be bad for someone else. In this case that someone else is the entire investment world who bought up all this toxic waste. For the most part, I would wager that these buyers had no knowledge of the crap they were buying. In fact, the rating agencies colluded on the deception, offering top rating to some of the most toxic ooze that was being put up for sale.
These scams are going to cause almost everybody who is involved in investments (in Canada that means almost everybody, since we all have a share through bank stocks, mutual funds, pension funds etc.) to lose something. When enough people feel cheated, you just know they are going to demand that their government do something. Depending on the wisdom of that particular government, they could do something helpful, but more likely something that makes the situation ultimately worse.
The best thing we can do as investors is insist on more and more disclosure regarding the actual asset we are thinking of acquiring. The best thing governments can do in legislation is to require transparency in the nature of assets for sale in the financial markets.
I’ve been paying attention to this “asset backed paper” business for some time now. This article by Captain Capitalism is hands down THE best explanation of it I’ve seen anywhere. Nothing in the newspapers or TV has come close.
Which is odd, you know? Because one would think that the Blob and Snail or the Financial Post or BNN would have been able to do better than some random guy’s blog on the internet, right?
From this lapse I have two possible conclusions to draw.
A) The MSM financial writers don’t actually understand the whole banking/ABP thing and just pretend they do, or
B) They understand but don’t want their readers to.
Occam’s razor says never assume eeeevile where simple stupidity will suffice, but it still makes me go “Hmmm…”
Here in the US, the typical Dem reponse to the irresponsible that used their homes as ATM machines to buy more stuff is to ask the responsible to bail out the irresponsible. That’s the scenerio percolating now in Congress.
Just as the lenders were irresponsible slobs, so were the greedy real estate flippers and the clowns that refinanced beyond their means and house value.
Being an election year, the whining irresponsible will probably prevail.
@The Phanton:
There’s a third reason, which happens to be the closest to the truth:
C) They understand, as a possibility, but the risk of defamation lawsuits are too much of a deterrent to make them step up to the plate.
I don’t want to come across as a left-winger here, but MSM organizations are corporations – and I know of only one (the CBC) that isn’t a profit-making corporation. Their string can be yanked by Parliament, though…and for the record, the only popular show that was ever cancelled for political reasons (This Hour Has Seven Days) was axed under a Liberal government.
Officers of corporations have to observe rules, and (increasingly) laws, which remind them that “you’re not spending your own money.” So, to indulge a foreseeable act of imprudence, like courting a libel suit, is a no-no in a way that wouldn’t be for a sole proprietor.
The MSM companies, as an industry, are already losing gads of money – as Kate has been pointing out. Why would their officers add to those losses through incurring defamation liabilities too?
Anyone who thinks that this is a mere apologia should consider the recent travails of the Free Dominion. Once bloggers get sued for defamation, and/or libel, the reason for the self-restraint on the part of the MSM will become immediately evident…unless the blogworld responds by developing a buccanneer spirit which treats personal bankruptcy as an earmark of daring.
Dunno Daniel, seeing as how Captain Capitalism would be a better lawsuit target than the Mop & Pail. Its much easier to bankrupt one guy than a newspaper, one guy can’t afford the lawyer’s fees to even get as far as discovery.
Besides, banks as a class can’t get together and sue you for the suggestion that they have sloppy business practices. Particularly when they are writing off billions in loan defaults due to sloppy business practice.
However given that pinko Maclean’s Magazine is getting hauled before the Canadian Human Rights Commission for not even slander, you may have a point.
Penny, I agree with you about the stupidity of Democrats agitating for a bail-out. Obviously crooked politics, you don’t bail out banks that make bad loans accidentally on purpose.
In the who’s to blame category, these days it is quite surprising (to me anyway) the number of people who will back up the truck and load up when somebody leaves the candy machine unlocked. Personal integrity and respect for others seem to be at a nadir these days, eh?
The present situation is just the wages of sin, I suppose. 800 pound chickens coming home to roost and whatnot.
@The Phantom:
Captain Capitalism is an American, not a Canadian, and as such is subject to much less stringernt American norms and case law. I was talking about Canadian MSM companies.
As far as your point about supposed financial reserves, how would you like to have seen ‘defamation expenses’ in their income statement or in the notes to their financial statements had you been a shareholder in an MSM company?
As far as the banks are concerned, you’re free to try it yourself. No need to take my word for it, except as a cautionary point.
Daniel, if Mark Steyn is any example country of residence is no defense from the CHRC. Mr. Steyn wrote the offending Maclean’s article, but he lives in New Hampshire.
I don’t own any MSM stock, nor shall I until their current management teams are a distant memory. I buy stocks that have a snowball’s chance of going up.
I don’t own any bank stocks either, for the same reason. The only Canadian bank smart enough to eschew commercial paper investments was TD. They did SELL it though, which makes them somewhat more clever than their peers if not more upstanding.
At any rate, I suppose its possible that you’re right about the newsies. Should that be the case, that would mean MSM outlets are -afraid- to tell the public the truth about our banks and investments. That is more alarming than having them lie for personal gain, don’t you think?
@The Phantom:
That’s the way it looks from this end. You should discuss it with a business reporter you trust (if practicable for you.)
Part of the difference is, of course, cultural. An old-style, American-style newspaper proprietor would consider torts incurred by ripping into a bunch of “crooks” to be a mere marketing expense. This ethos, though, is foreign to Canada from what I’ve seen.
(Plus, to get back to an earlier point I made, a corporation’s officers’ hands are tied in a way that a sole proprietor’s isn’t. It’s one thing if you risk your own dime, and another thing if you risk someone else’s.)
To be honest, I don’t know of any case where an American MSM organ has ripped into a Canadian company or industry at all. So, I can’t say whether or not country of origin is relevant with respect to defamation of a Canadian company.