Quote:
Originally Posted by Spoon
Thing is, nobody knows how the cookie's going to crumble. Unlike the US, mortgages here are backed by CMHC. WTF happens when the bubble bursts? They get the government (essentially tax payers) to pay up?
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I don't get this philosophy.
In the case of Fannie Mae/Freddie Mac (US' CMHC equivalent), they went bankrupt (basically) and US treasure simply backed its obligations and prevented it to go under. As of 2015, they have more or less repaid what the funding they received from the federal gov't. (without adjusting to inflation)
They were able to do it because market revived after the disaster and they cut their losses by taking advantage of federal guarantee. Then the companies themselves started to deflate (as they become smaller and smaller each year)
If it were to happen in Canada, it's more or less the same thing, CMHC would take over the bad properties and unload it little by little. This would actually be the safest way to deflate a RE bubble (let everything come back to its fundamentals). If our gov't had the guts, they'd have exploded the RE bubble back in 2008 (ceasing further guarantee from CMHC and banning any form of sub-prime lending) and we'd have been back to normal already.
Oh, I forgot... our gov't was stupid enough to let the bubble continue to inflate, so instead of the 7 years it took US to recover, it might take few decades for us to do it. Unless Harpie gov't can come up with a feasible long term plan on how to effectively cool down the RE, I don't see how it could be done otherwise.