Some lenders such as TD, have begun to make it a policy to only register a collateral mortgage charge instead of a regular mortgage when you finance with them.  Why?  Well because most lenders won’t accept a transfer of a collateral mortgage from another institution.  It also allows the lender to book up to 125% of the value of the property, alleviating them the necessity of re-registering a new mortgage if you need more financing down the  road.  This circumvents the federal governments guidelines for lenders for traditional mortgages.   This is dangerous as you’ve no doubt gathered.  It also allows them in many cases to put on a registered interest rate of P + 10%!!!!   That might not be the contract rate but since a collateral mortgage is a promissory note secured by a mortgage then they can change the rate on your mortgage after closing up to that amount!!!

Some are referring to this type of mortgage as a mousetrap because should you try to seek financing elsewhere because you don’t qualify for more financing with the existing lender (they may have changed their qualifying rules) no other lender will lend you money as long as that collateral mortgage is there.

So when offered it, don’t take it.  Pretty simple.  If that’s the only option as it seems it is at TD, then go elsewhere…. heck ask me and I’ll find you lenders that don’t force you to take on a collateral mortgage!

The following is an excerpt from Sean Goldsmith of Stansberry and Associates who makes a great point about the ban on short selling.  Governments will vilify anyone to take away the focus from themselves and those who they are in cahoots with.

“The problem with this partial ban is it will simply redirect short sellers’ efforts. Instead of shorting the troubled banks directly, they will look for other banks with heavy exposure to Italy, Spain, and France. Short-selling expert Jim Chanos, founder of Kynikos Associates, explained other consequences of the ban.

“EU policy makers don’t seem to understand the law of unintended consequences,” he told Bloomberg. “The vast majority of short-selling financial shares is by other financial institutions, hedging their counterparty risks, not speculators. The interbank lending market froze up completely in October to December 2008 – after the short-selling bans.”

In other words, banks are constantly lending huge sums of money between themselves. And they sell short shares of banks they’re doing business with for protection. If they can’t hedge their risks, the banks will stop lending money.

A lot has happened this last week.  How about a catastrophe in Japan, the world’s third largest economy?   It hasn’t affected our rates here in Canada though.  In fact, if anything due to reduced oil prices it’s diminished the probability that the Bank of Canada will raise rates so as not to quash a fragile Canadian economy. So how does that help you? It keeps rates low.

House prices in Canada stand 6.6 per cent above their pre-recession peak, but growth is slowing, a fresh measure shows.

Home prices rose 0.2 per cent in August from a month earlier, according to the Teranet-National Bank National Composite House Price Index, though results differed from city to city. Prices rose in Toronto, Montreal, Halifax and Ottawa, but dipped in Calgary and Vancouver.

“August’s rise in the composite index is the weakest over a string of 16 consecutive monthly gains that began in May 2009,” said NationalBank senior economist Marc Pinsonneault.

“Looking ahead, prices are likely to fluctuate without tendency over the next few years. At the national level, current market conditions, close to the boundary between balanced market and buyers’ market … herald a deceleration in home price inflation.”

from todays Globe and Mail.

The important thing I noticed was the statement that, …” prices are likely to fluctuate without tendency over the next few years”.   So don’t count on the price of real estate to necessarily rise!

Be careful dear readers.  Remember that the central banks of western countries have pushed interest rates down in an attempt to spur economic activity over the last several decades.  As a result, consumption has been brought forward.  That has created a number of bubbles that we have all heard about:  dot-com, real estate, decreasing purchasing power of the currency for example.  Even here in Canada, despite being more conservative in our practices than our neighbours to the south, we are not immune to bubbles.

CCPA says bubble to burst, CD Howe dismisses, CMHC predicts soft landing

Three significant housing reports published yesterday paint very different pictures of the future of Canada’s housing market.

CD Howe Institute says that in spite of recent dips in Canadian house prices, we will not experience a US-style housing crash because of our stricter government policies and tighter underwriting standards.

However, the report published by the Canadian Centre for Policy Alternatives, has a different view on what will ultimately cause the bubble to burst.  David Macdonald, the economist behind the report entitled “Canada’s Housing Bubble: An Accident Waiting To Happen”, says that affordability and low interest rates are the issue.

With average house prices at 4.7 to 11.3 times Canadians’ annual income — much higher than historical comfort levels of between three and four times income, home owners may not be able to cope once interest rates goes back to their historic norms.

This is a great article written by an incredibly successful entrepreneur.  He outlines how government works to eliminate the incentive to create jobs….. not the other way around.   Give it a read… you’ll love it!

by Porter Stansberry. August 21, 2010.

“I’d like to make you a business offer.

Seriously. This is a real offer. In fact, you really can’t turn me down, as you’ll come to understand in a moment…

Here’s the deal. You’re going to start a business or expand the one you’ve got now. It doesn’t really matter what you do or what you’re going to do. I’ll partner with you no matter what business you’re in – as long as it’s legal.

But I can’t give you any capital – you have to come up with that on your own. I won’t give you any labor – that’s definitely up to you. What I will do, however, is demand you follow all sorts of rules about what products and services you can offer, how much (and how often) you pay your employees, and where and when you’re allowed to operate your business. That’s my role in the affair: to tell you what to do.

Now in return for my rules, I’m going to take roughly half of whatever you make in the business each year. Half seems fair, doesn’t it? I think so. Of course, that’s half of your profits.

You’re also going to have to pay me about 12% of whatever you decide to pay your employees because you’ve got to cover my expenses for promulgating all of the rules about who you can employ, when, where, and how. Come on, you’re my partner. It’s only “fair.”

Now… after you’ve put your hard-earned savings at risk to start this business, and after you’ve worked hard at it for a few decades (paying me my 50% or a bit more along the way each year), you might decide you’d like to cash out – to finally live the good life.

Whether or not this is “fair” – some people never can afford to retire – is a different argument. As your partner, I’m happy for you to sell whenever you’d like… because our agreement says, if you sell, you have to pay me an additional 20% of whatever the capitalized value of the business is at that time.

I know… I know… you put up all the original capital. You took all the risks. You put in all of the labor. That’s all true. But I’ve done my part, too. I’ve collected 50% of the profits each year. And I’ve always come up with more rules for you to follow each year. Therefore, I deserve another, final 20% slice of the business.

Oh… and one more thing…

Even after you’ve sold the business and paid all of my fees… I’d recommend buying lots of life insurance. You see, even after you’ve been retired for years, when you die, you’ll have to pay me 50% of whatever your estate is worth.

After all, I’ve got lots of partners and not all of them are as successful as you and your family. We don’t think it’s “fair” for your kids to have such a big advantage. But if you buy enough life insurance, you can finance this expense for your children.

All in all, if you’re a very successful entrepreneur… if you’re one of the rare, lucky, and hard-working people who can create a new company, employ lots of people, and satisfy the public… you’ll end up paying me more than 75% of your income over your life. Thanks so much.

I’m sure you’ll think my offer is reasonable and happily partner with me… but it doesn’t really matter how you feel about it because if you ever try to stiff me – or cheat me on any of my fees or rules – I’ll break down your door in the middle of the night, threaten you and your family with heavy, automatic weapons, and throw you in jail.

That’s how civil society is supposed to work, right? This is Amerika, isn’t it?

That’s the offer Amerika gives its entrepreneurs. And the idiots in Washington wonder why there are no new jobs…”

I’ve had a lot of inquiries lately about the mortgage changes that the Canadian government recently imposed in April.  All the inquirers were concerned that they needed 20% down.   WRONG!   A bank must have told you that!!!  HA!

If you are purchasing a home and have a regular job then all you need is 5% down!  That’s a huge difference!  Rental purchases, self employed people and refinances are different.  So check with me first.

Now aren’t you glad that you read this blog!

There are unpredented things happening in the world economy, investment, banking and commodity markets.  Want to know why?

The world’s largest countries have deployed a strategy of inflating their economies for the last several decades.  Unfortunately when you do that, excesses get built into the prices of things like stocks (remember the Dot Com bubble?), commodities, real estate and so on.  However the excesses have never been allowed to correct properly.  As a result the over bloated western economies are dealing with a Great Correction as Bill Bonner says in his Daily Reckoning.  That means the governments are trying to stimulate an economy by continuing to inflate it by stimulus measures but it’s not only not having any effect, but it’s causing a misallocation of capital and some unintended consequences.  The most obvious unintended consequence is uncertainty in investment markets.  As a result money is moved out of nearly all classes of assets…   but guess where it goes?  US Treasuries of all places!!!  This is dumbfounding given the state of the US economy and finances.  In many respects they are exactly like Greece!  Wow!   SO WHAT DO YOU DO?

Sooner or later, the debt that has been used as stimulus will have to be monetized or turned into cash by the governments and that by definition (ie an increase in the money supply)  is inflationary.  It also means that currencies will devalue as their value erodes.   Since no one knows when that will be but that it will happen, you have to buy gold and silver bullion primarily to protect yourself. “But Mark”, you say,” Gold is going down too”.   Yes it’s going down now because it’s been speculated upon and those people are taking out profits now.  However as the economies muddle through or decline more, bullion prices will continue to soften, making it a great time to start accumulating it.  Don’t try to time it.  Remember, buy bullion as a safety measure first.   Also remember, given the unprecedented times that we are in, there could be any number of events that cause more uncertainty.  Nasim Taleb calls them ” Black Swans”.  Become familiar with that term. Call me to find out how to protect yourself, I can help.

Dave a kind reader, wrote and wondered how he can get rich.   That’s a million dollar question for sure.  Surprisingly the answer is simple but not easy to do.  Why?  Because most people allow emotions to guide their decision making and that’s usually fatal.   Ok so here it is, the number one rule for getting rich… for real!

We all agree that you need to take some kind of risk to get a reward.  So most people understand that they need to invest in something.  As far as the investment markets go, the number one rule to making money and getting rich is………..DON’T LOSE MONEY……..please read on.

Now most of you think this is pretty obvious, but believe me when I tell you most people ignore this one rule.  So the question is:  Mark, how do I not lose money?

There’s 2 ways to do that…  Position sizing and trailing stop loss orders.  If anyone wants to know how to use these techniques that the pros use TO BECOME RICH, then ask me.  I know… I use them.

The Costs of Carbon Legislation. Robert P. Murphy, Mises Daily.

In two of his recent op-eds (here and here) for the New York Times, Nobel laureate Paul Krugman has challenged critics of the government’s intentions to regulate carbon dioxide emissions, and he has even specifically endorsed the pending Waxman-Markey bill which includes a “cap-and-trade” program.Your browser may not support display of this image. According to Krugman, the costs of such legislation are no big deal, and in exchange we avert catastrophe. So why all the criticism?

In the present article, I want to show the fragility of Krugman’s position. For one thing, the true economic harms of “global-warming” legislation could be much higher than his own cited figures. For another, the benefits of such measures — in terms of averted climate-change damage — are quite negligible, unless other countries follow suit.

Finally, Krugman’s strategic position on carbon legislation — “this bill is better than nothing” — is inconsistent with his own views of Obama’s “inadequate” stimulus bill and Geithner’s plans for revamping the banking sector. In short, if the world really is on the verge of catastrophe — which many alarmists tell us it is, and that’s why we need to take immediate action — then why are so many of these same activists supporting legislation that their own models show will do virtually nothing?
The Economic Damages of Reducing Carbon Emissions

When politicians propose to penalize carbon dioxide (or more broadly, greenhouse-gas) emissions, the natural question most people ask is, “How much will it cost?” Because we live in a world of scarcity, if the government takes away options from producers (namely, the ability to emit as much CO2 as they want) then the output of goods and services will necessarily be lower than it otherwise would be.

So, if we are going to enjoy a smaller volume of output, in exchange for a lower probability of damages from climate change (according to certain models), then we need to have some idea of the quantitative tradeoffs involved. This is a purely utilitarian approach, to be sure: some people think carbon emissions need to be limited out of moral responsibility (either to the planet or to other humans living on the coasts of poorer countries), while others might think that factory owners have a moral right to emit as much CO2 as they want.

These are important questions, and most Austrian economists would want to answer the issue of ultimate property rights before even considering “costs and benefits.” Yet I want to keep this article brief, and I have important points to make even taking Krugman’s arguments on his own terms. So let’s accept the basic framework of the debate as it will unfold in the media and much of the blogosphere over the coming months.

Here is Krugman talking about the economic damages of carbon legislation, or what is loosely classified as “the costs” of such measures:

A cap-and-trade system would raise the price of anything that, directly or indirectly, leads to the burning of fossil fuels. Electricity, in particular, would become more expensive, since so much generation takes place in coal-fired plants. … Consumers would end up poorer than they would have been without a climate-change policy.

But how much poorer? Not much, say careful researchers, like those at the Environmental Protection Agency or the Emissions Prediction and Policy Analysis Group at the Massachusetts Institute of Technology. Even with stringent limits, says the M.I.T. group, Americans would consume only 2 percent less in 2050 than they would have in the absence of emission limits.

Now hang on a second. What Krugman is doing here is exactly analogous to a “skeptic” or “denier” of manmade global warming pointing to a paper by Richard Lindzen or Roy Spencer, both of whom are very “careful researchers” and don’t think greenhouse gas (GHG) emissions are nearly the problem that many other people in their field believe. Now when the “denier” on a blog cites the estimate of temperature sensitivity to GHG emissions from a Lindzen or Spencer, what does the average opponent do? Why, he claims that these guys are outliers, and that “the consensus” as represented by the Intergovernmental Panel on Climate Change (IPCC) shows what the real estimates are.

So in the same spirit, I can challenge Krugman’s experts. The latest IPCC report (AR4Your browser may not support display of this image. ) says that aggressive action against GHG emissions — and the schedule of cutbacks contained in Waxman-Markey is very aggressive in the range of models studied by the IPCC — could cost up to 5.5 percent of global GDP by the year 2050, relative to the baseline trajectory of GDP if no carbon caps are imposed. Don’t take my word — or the Heritage Foundation’s — for it, either; big-time activist Joe Romm quotes their figure here.

Now the IPCC’s (high-end) estimate is 175 percent above Krugman’s reported figure. I have not parsed the particular studies Krugman relies on, and it’s possible that their much lower cost estimates are the result of studying much less aggressive legislation than what the IPCC’s representative models examined. But my point is, if the alarmists want to beat people over the head with “IPCC consensus,” then let’s at least be consistent. According to the IPCC, if the whole world followed the aggressive emissions schedule contained in Waxman-Markey, then the economic opportunity costs could be 5.5 percent of GDP by the year 2050.

Before moving on, let’s make sure we understand what the economic jargon is saying: If your household would normally take in $100,000, then aggressive carbon legislation could raise the prices of goods and services such that you lose up to $5,500 in purchasing power, by the year 2050. (Because the total cap on emissions shrinks over time, the annual impact on consumption gets worse and worse as time rolls on. In the early years, the hit to income would be lower than $5,500 annually.)
Estimate Relies on Textbook Enforcement and Efficient Use of Revenues

It gets worse. These MIT and IPCC estimates assume an optimal enforcement of the climate policies, for all major governments and for a century straight. If you move beyond the “Summary for Policymakers” and turn to the actual meat of the IPCC report, you will find the following major caveat:

It is important to note that for the following reported cost estimates, the vast majority of the models assume transparent markets, no transaction costs, and thus perfect implementation of policy measures throughout the 21st century, leading to the universal adoption of cost-effective mitigations measures, such as carbon taxes or universal cap and trade programmes…. Relaxation of these modelling assumptions, alone or in combination (e.g. mitigation-only in Annex I countries, no emissions trading, or CO2-only mitigation), will lead to an appreciable increase in all cost categories. (Working Group III, p. 204, emphasis added)

It gets even worse. Most, and perhaps all, of these studies assume that the government uses the proceeds of the cap and trade (or carbon tax) in an efficient manner. In other words, the calculated “cost” of such measures refers to the economic concept of a “deadweight loss.” For example, if the government collects $350 billion from auctioning off carbon permits, that revenue is not part of the “cost” of the program. Rather, what these typical studies call the “cost” — which can rise up to 5.5 percent of GDP by 2050, remember — refers to the forfeited goods and services due to the constraints on production possibilities, since the economy must emit a smaller amount of carbon dioxide.

Yet the government in practice will certainly spend more money than it otherwise would, if it has hundreds of billions in auction revenues at its disposal every year. The implementation of cap and trade will not simply reduce the deficit, or be used to reduce taxes dollar-for-dollar on labor (as many economists propose). Thus the costs in practice will be far higher; the government will end up squandering far more than 5.5 percent of total output in the year 2050, even if we took all of the other modeling assumptions at face value.
Benefits of Waxman-Markey Negligible

We have seen that the economic harms of legislation such as Waxman-Markey could be quite high. So what will it do to avert climate damage? According to this estimate by climate scientist Chip Knappenberger, Waxman-Markey would lead to a planet that warmed 9/100ths of a degree Fahrenheit less than would otherwise be the case, by the year 2050. In case you think Knappenberger’s figure is bogus, look at the reaction by NASA scientists and others at a leading pro-intervention blog. They don’t dispute the figure; they instead say that the United States must show leadership by capping its own emissions.

Ah, but this leads to an obvious follow-up question: has any researcher who is for Waxman-Markey done a simulation to show this process, by which other countries like China and India follow suit (after how much delay?) because of US leadership? Tyler Cowen — who is quite worried about climate change — has now twice asked on his own popular blog for advocates to give him such a model. He is aware of the arguments for the United States to take unilateral action (even though Knappenberger shows how little such action will do in and of itself), and Cowen simply wants these arguments to be formalized.

As of this writing, Cowen heard crickets chirping on this question. So far as I know, not a single person has even done a blog post giving a decent model showing the strategic interactions of various world powers, and what the likely net benefits are — including savings to the environment — from the Waxman-Markey bill.

Coming back to Krugman, this is all very interesting. For when the issue was the stimulus bill or bank “reform,” Krugman argued that an inadequate measure could be worse than nothing, because it would squander President Obama’s political capital. (See the last paragraph in this blog post for a good example.) So if the United States ends up having a huge legislation showdown, with pundits on both sides going nuts and accusing the other of all sorts of devilry, and the result is legislation that does very little to change global temperatures, might that be worse than nothing — especially if we have a very short time frame to act, as some leading alarmists tell us?
Conclusion

The global-warming debate has now been completely politicized, and partisans on both sides have often injected hidden values masquerading as scientific facts. I understand that even some libertarians believe the underlying science proves that “business as usual” will mean a huge form of aggression on the property rights of some of the world’s most vulnerable people. Your browser may not support display of this image. Even so, I think that the real threat to humanity comes from governments growing ever more powerful in the name of fighting climate change. Paul Krugman’s recent attempts to justify these bold new measures ignore the IPCC itself, and even its “consensus” figures are based on wishful assumptions about the behavior of governments in the real world.

Whether you are a “denier” or whether you think carbon dioxide emissions need to be sharply reduced very quickly, you should be extremely skeptical of the process now unfolding in Washington. This isn’t about saving the planet; it’s about money and power.