The banks did do better up here generally. CIBC was the one that seemed to have been caught up in some of the bad commercial paper but it seems to have survived quite well without bailouts. Most of that was/is due to the types of regulations we have in place as well though. We don’t have as many banks as you have so that could be a factor(?) but I’m not too sure of that.
As to the real estate market up here we have seen something of that melt down in places like Vancouver BC although nowhere near to the extent you’ve seen in California or Florida. Where I am in London ON our market did not go through any melt down–we seem to be going upwards a little even—which is interesting—
The housing market in Vancouver did have a correction, but I wouldn’t call it a meltdown. Prices had been too high, partly due to the upcoming Winter Olympics, which have been called the most successful ‘stimulus program’ in North America.
We basically have 6 strong banks in Canada, each of which has branches in most cities from coast to coast, along with a couple of regional banks, and a lot of local ‘Credit Unions’.
The financial housing bubble was caused in the U.S. by too much regulation, not by insufficient regulation. Congress forced Freddie Mac and Fannie Mae to lower their credit standards in order to increase lending to people who were underrepresented in the mortgage creation market. The reason those people were underrepresented is that they were under-qualified borrowers, due to having bad credit and/or low income.
Of course these borrowers were higher risk, but congress assured bankers that Freddie and Fannie would assume that extra risk. Consequently, the sudden flood of new buyers caused a rise in housing demand, which cause housing shortage, thus driving up housing prices, and causing a boom in new construction.
When the under qualified borrowers could not pay their mortgages, congress made good on their previous pledge to assume the risk. That was the TARP bailout. However, all of the excess housing that was created during the boom has driven market values down.
Regarding financing equipment for trucking, generally what kind of time periods would be involved? Three years for trailers, and five for tractors? Surely bankers must have seen the dangers in the housing bubble coming when current loans were made?
The financial housing bubble was caused in the U.S. by too much regulation, not by insufficient regulation. Congress forced Freddie Mac and Fannie Mae to lower their credit standards in order to increase lending to people who were underrepresented in the mortgage creation market. The reason those people were underrepresented is that they were under-qualified borrowers, due to having bad credit and/or low income.
Of course these borrowers were higher risk, but congress assured bankers that Freddie and Fannie would assume that extra risk. Consequently, the sudden flood of new buyers caused a rise in housing demand, which cause housing shortage, thus driving up housing prices, and causing a boom in new construction.
When the under qualified borrowers could not pay their mortgages, congress made good on their previous pledge to assume the risk. That was the TARP bailout. However, all of the excess housing that was created during the boom has driven market values down.
That is a good question. Bankers originate mortgages and sell them to Freddie Mac and Fannie Mae. Therefore, the bankers’ credit standards for housing needed to be at least as high as the housing credit standards of Freddie and Fannie because if the bankers originated mortgages at a credit standard below the credit standard of Freddie and Fannie, Freddie and Fannie would not buy those mortgages. So when F&F lowered their credit standards to a new low threshold, the banks followed suit and lowered their mortgage origination standards to the same new low threshold. This is how the government assumed the risk of risky loans.
I ran into the flip side of this when the company I work for was bought by GE five years ago. They made it very clear that any shipping was going to be handled by carriers that were vetted by GE.
I am going to disagree with you not completely, but somewhat.
Regulations were relaxed in two instances that had huge consequences in this matter:
Glass Stegal was repealed. This law allowed banks to provide investment banking services, and vice versa. Thus you had giant financial supermarkets such as Citi.
Another huge issue was that the leverage regulations were relaxed around 2005. Suddenly these financials which were leveraged 15-1 were allowed to pump up the leverage. Lehman and others soon had leverage ratios approaching 40-1. Thus, a 3% drop in the valuations of the holdings would wipe out ALL equity. This is what occurred.
Not all of these subprimes were handed over to F&F. Many were bundled into “Asset Backed Securities”, with the homes as ultimate collateral. These mortgages were sliced and diced into tranches of various risk and bundled and sold as AAA rated securities. Why? Because Moodys and others assigned those ratings. Credit default swaps were issued as “insurance” against failure of these securities. Who issued the CDS? AIG and others.
If you want to see how a one man hedge fund saw this coming and made hundreds of millions of dollars, perhaps billions, read Michael Lewis’ book excerpt “Betting on the Blind Side” in this month’s Vanity Fair … it is on line and is an excellent description of how things blew up and how one man saw it coming years ago.
This is the same Michael Lewis who wrote “The Blind Side” about the football player. The article is long and will take at least 45 minutes, but is well worth it.
Bucyrus, I agree in principal with nearly all of your views, but in this case two relaxations of regulations, along with the F&F fiasco, led to all of this.
Thanks for that information. I do not dispute your explanation. I have heard of some of those details, but have not studied them in great detail. I’ll take a look at the article that you mentioned. My main concern was to point out the role of F&F, along with congress because the popular belief is that the subprime mortgage bubble was caused 100% by a failure of capitalism and the private sector due to greed. And, so much effort has gone into creating that perception that I doubt it can ever be corrected.
The F&F was a mess and continues so today. They are just burning money.
Without getting too political here, there was a definate level of responsibility with Congress, along with the investment banks. I will just leave it at that.
Do read the VF article. The ending is pretty amazing. Well worth the time.
I remember the incident because: 1) It happened near Chicago, 2) It was bad, and 3) the truck driver was a woman. Two dead and one badly injured. Traffic had backed up and stopped on northbound I-5
Greyhounds, I’ll try to explain it, but I can’t guarantee you will understand. I’m just a dumb truck driver, after all…
When a load is brokered, the person paying for the transportation pays the freight broker a rate. The broker keeps some of this money as a “fee”, and passes the rest onto the company or owner-operator. Ed’s mention of the broker keeping 30-40% of the rate is not too far off, that is how CH Robinson earned the nickname “Cheap and Heavy”.
In my experience in the last two years, freight volume and rates were pretty good until about October of 2008, when the bottom dropped out of both. I had a hard time making 2000 miles a week in the first quarter of 2009, and that was as a company driver. With closing of several companies, the volume has picked up for us a bit, but rates are still low, as there is still too much capacity in the market. Being the major carrier for a certain beer brand has helped us a lot, too…
I have noticed that brokers seem to be out of touch with what happens in the industry. Case in point: After emptying out in Binghamton, NY, I was dispatched to pick up a load near Rochester, about 150 miles away, a 2.5 hour drive. The load was supposed to be in Chicago at 9am the next morning, 700+ miles away. Leaving at 10am central, got there just before 1pm (after they changed the loading point on me, and going to the new loading point), had to wait till nearly 3 to get into a dock, and was loaded and rolling again by 5:15pm. Four hours later, stopped for fuel, and decided to take my required rest where I fueled, as I had only two more hours available to drive. Next morning the broker was not happy with that fact, but I told him the
Couple this fascinating article with what occured in congress during that same time frame + some lax oversight(sic?) and one gets a very weird feeling.
The odd thing about this is that I remember a few blogs that appeared on Seeking Alpha during that time talking about what he was doing and how the SEC tried to shut down certain shorters who were going after the housing bubble “pushers”----an amazing period[:-^]
Greyhounds, I’ll try to explain it, but I can’t guarantee you will understand. I’m just a dumb truck driver, after all…
When a load is brokered, the person paying for the transportation pays the freight broker a rate. The broker keeps some of this money as a “fee”, and passes the rest onto the company or owner-operator. Ed’s mention of the broker keeping 30-40% of the rate is not too far off, that is how CH Robinson earned the nickname “Cheap and Heavy”.
In my experience in the last two years, freight volume and rates were pretty good until about October of 2008, when the bottom dropped out of both. I had a hard time making 2000 miles a week in the first quarter of 2009, and that was as a company driver. With closing of several companies, the volume has picked up for us a bit, but rates are still low, as there is still too much capacity in the market. Being the major carrier for a certain beer brand has helped us a lot, too…
I have noticed that brokers seem to be out of touch with what happens in the industry. Case in point: After emptying out in Binghamton, NY, I was dispatched to pick up a load near Rochester, about 150 miles away, a 2.5 hour drive. The load was supposed to be in Chicago at 9am the next morning, 700+ miles away. Leaving at 10am central, got there just before 1pm (after they changed the loading point on me, and going to the new loading point), had to wait till nearly 3 to get into a dock, and was loaded and rolling again by 5:15pm. Four hours later, stopped for fuel, and decided to take my required rest where I fueled, as I had only two more hours available to drive. Next morning the broker was not happy
I’m not sure that I agree, that they divert freight from rail intermodal. While these zombies might be selling their services below cost, and disrupting the real cost of transportation, that’s certainly nothing new. It seems like there always has been, and always will be, truckers and trucking firms willing to haul goods to cheap for their own good. It doesn’t matter whether it’s an owner/operator trying to make a payment, a trucking firm trying to get enough cash flow to keep the wolf away from the door, or a zombie trucking outfit running on empty. The end result is the same.
It seems to me, that rail intermodal would be sold to customers with an ongoing need for reasonably priced transportation, with high reliability. Even if you could save some bucks by shipping something with a zombie trucking outfit, how much do you save when the goods don’t get there?
Regional note: In our part of the world, the truckers who sell their services too cheap, and mess it up for everyone else, have always been known as bull haulers. That term predates the zombies by several decades.
“Free Enterprise” at its best! If they can make a dime, and avoid joining the Teamster’s Unions, more power to them! Tough way to make a living, though…