CMHC was a key factor in creating the housing bubble ?

CMHC cools mortgage market with new cap for banks

Canada Mortgage and Housing Corp. is putting a cap on the amount of mortgage-backed securities sold by banks that it is willing to guarantee.

A spokesperson with CMHC confirmed media reports Monday that the national housing agency will, effective immediately, limit banks and other mortgage lenders to $350 million worth of new mortgage-backed securities per month. The decision comes in the wake of “unexpected demand” for the guarantees, a spokeswoman for CMHC said in an emailed statement.

Under the National Housing Act Mortgage-Backed Securities (NHA MBS) program, banks have been able to securitize large portions of the mortgages they carry on their books. Because those securities are backed by CMHC, not the banks themselves, they’re able to go out and lend that freed-up money to new homebuyers at lower prices, which adds fuel to Canada’s housing fire.

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Governments should do everything they can to prevent or mitigate bubbles. Instead the government did everything they can to create this bubble …

Housing, the most manipulated market in the world

Here is an executive summary of what happened to the U.S. economy:

  1. Cause of Great Recession:  Collapse of Banks
  2. Cause of Bank Collapse:  Collapse of Housing Bubble
  3. Cause of Housing Bubble:  Massive Socialist Government Manipulation

Socialist Manipulation

Free-market capitalism is a myth, as shown by housing, which is the most manipulated market in the world.

One can argue that the US housing bubble started with the government’s socialist policy of enabling every American to realize the American dream of home ownership.  According to this article:

“For nearly a century it has been the policy of the U.S. government to increase American homeownership.  Its efforts include (but aren’t limited to) bouts of easy money from the Fed, the mortgage-interest deduction, the exclusion of capital gains on primary residence sales, direct and indirect subsidies from the Department of Housing and Urban Development, and artificial liquidity pumped into the mortgage market via government sponsored entities Fannie and Freddie.”

Many policies and programs were put in place to manipulate the market, such as the 1977 Community Reinvestment Act, which required banks to extend loans to high-risk, low-income borrowers.  These borrowers bought homes that they couldn’t afford and therefore they eventually defaulted.

The manipulation of the housing market has not only created bubbles, but it has also created huge injustices.

The US government stole billions or trillions from non-homeowners, children (read “stealing from children“) and taxpayers to fuel a housing bubble through vehicles such as:

  • Fannie Mae and Freddie Mac purchased and guaranteed $5 trillion of mortgages (half of all U.S. mortgages) which transferred the risk from banks to them (source).  Even the riskiest mortgages were guaranteed.  Consequently, the bailout for Fanne and Freddie were the most expensive (source), so much so, that the bailouts of Citigroup and Bank of America look like chump change.
  • $3.9 billion in CDBG grants to help homeowners in poor neighborhoods.
  • Treasury Department bought shares of Fannie and Freddie’s stock to support stock price levels and allow the two to continue to raise capital on the private market (in order for them to buy and guarantee more mortgages).
  • Low interest rates fuel demand for housing.  Fed kept interest rates so low that they had negative real interest rates in 2002-2005 (source) and again in 2008-present.
  • Fed bought $1.25 trillion of mortgage backed securities, to enable more lending to home-buyers and to keep mortgage rates low (source).
  • mortgage interest is tax deductible
  • $10 billion for Cash for Caulkers (source), compared to $3 billion for Cash for Clunkers (source).
  • $75 billion Making Home Affordable program, “a.k.a. mortgage bailout” according to this article .
  • Federal Housing Administration (FHA) guarantees $300 billion in new loans to keep 400,000 homeowners out of foreclosure (source).
  • $15 billion in tax breaks (article).
  • FHA’s Refi program for underwater borrowers (aka the FHA Short Refi Program)
  • HAMP (Home Affordable Modification Program)

According to this video, the government raised red flags in April 2001 stating that the size of mortgage giants, Fanne Mae and Freddie Mac, is “a potential problem” because trouble in either one of them could “cause strong repercussions in financial markets”.  In 2003, the government’s warning of Fannie Mae and Freddie Mac (government sponsored enterprises) was upgraded to a systemic risk that could spread beyond the housing sector.  In 2005, Alan Greenspan stated:

“…Enabling these institutions to increase in size – and they will once the crisis in their judgment passes – we are placing the total financial system of the future at a substantial risk.”

Despite this, socialist politicians, such as Barney Frank, wanted Fannie and Freddie to do more to put low-income people into homes.  According to the above video, in 2005, Senator Charles Schumer stated:

“…I think Fannie and Freddie over the years have done a incredibly good job and are an intrinsic part of making America the best-housed people in the world…if you look over the last 20 or whatever years, they’ve done a very, very good job.”

In 2006, John McCain stated:

“For years I have been concerned about the regulatory structure that governs Fanne Mae and Freddie Mac…and the sheer magnitude of these companies and the role they play in the housing market…the GSE’s need to be reformed without delay.”

Our housing bubbles are created by huge socialist policies.  Socialist policies have been tried by dozens and dozens of countries around the world.  Without fail, they have always brought prosperity to a pocket of the population in the short run.  Without fail, they have always made the country poorer in the long run.  This record is unbroken in earth’s history.

Politicians, such as Senator Chris Dodd in September 2008, bragged about the government’s [false] achievement.  Starting at 3 minutes and 25 seconds into the video on the left, Dodd stated:

“…a great source of wealth creation in this country has been home ownership… Fannie and Freddie…created so much wealth for so many Americans…”

After the bubble collapsed, the fake wealth disappeared and the country became poorer.

Socialists are well-meaning, good-hearted people, but uneducated in economics and myopic.  Essentially, they don’t know how to grow a country’s wealth.  Capitalists appear cold-hearted, however, free market capitalism has been the only system in recorded history, other than killing and stealing, able to generate long term sustainable wealth.

Suggested viewings of Milton Friedman:

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