Juggling Dynamite

Alberta and Saskatchewan are the only two Canadian provinces that allow underwater homeowners to leave keys for the bank and “walk away” from their mortgage obligations without further recourse or damage to their credit rating.  But this option is not available for those who bought with less than 20% down and bought taxpayer-backed mortgage default insurance to complete the purchase.   Insured borrowers are typically sued by CMHC or Genworth to recover any shortfall between the resale price of the home and the outstanding principle, interest, admin and legal fees.  On a default, compound interest costs and fees tend to escalate quickly eating up any equity the owner may have once had in the house.  Foreclosure sales also tend to be depressing of market values even for those who are maintaining their payments.  See:  Surviving foreclosure in Alberta:  “I thought I could do it”.  Alberta offers a cautionary tale for the perils of highly leveraged, over-valued real estate across Canada:

A recent survey by Manulife Financial found a third of respondents would have difficulty making their monthly payments after three months if the family’s main earner lost his or her job. One in six said they would have trouble making mortgage payments if interest rates rise…Another survey earlier this year by Ipsos Reid found nearly half of Canadians were $200 a month away from being unable to pay their bills and other debts.

Human life is full of great risk.  Health problems, accidents, breakups, job losses and  economic downturns are all regularly recurring events.  The mean reversion of over-exuberant asset prices that have been enabled by debt is not random, bad luck, but rather a normal, foreseeable part of the credit cycle.  The longer the rising phase, the deeper or longer the mean reverting phase. Wise people plan for the downturns, foolish people hope they won’t happen.

Larry Kudlow is a poster-child for all that is wrong with mainstream financial ‘experts’.  A slick, supremely confident permabull on the economy and stock market, he has been a dangerous cheerleader for the sell side from the CNBC bully pulpit for the past 20 years.  As a Trump policy adviser, he is likely to be even more damaging, and is typical of the “flabby, pretending, weak-eyed devil or a rapacious and pitiless folly” character type (described in Joseph’s Conrad’s Heart of Darkness) of Trump and his inner circle.

“Overconfidence, partisan  thinking and too much focus on old problems are dangers at the best of times. When combined with  a mercurial president like Trump, they may be even more perilous.”

See this oped:  Kudlow is a troubling economics adviser for Trump.

A system where unethical, illegal, self-serving actions are allowed to triumph over merit is parasitical, counter-growth–socially and financially destructive.  When the cops are allowed to be dishonest and corrupt, the situation is truly hopeless.

Deutsche Bank whistleblower and former risk officer Eric Ben-Artzi raised quite a few eyebrows this summer, when he publicly rejected a multimillion dollar award from the Securities and Exchange Commission via an op-ed in the Financial Times.

In October, Ben-Artzi was interviewed by Guy Rolnik, a Clinical Associate Professor of Strategic Management at the University of Chicago Booth School of Business and co-director of the Stigler Center, via video conference. During the interview, he discussed at length both his reasons for becoming a whistleblower, and what he has learned about the American judicial system and the revolving door within the SEC. Here is a direct video link.

Here is the transcript and some key quotes:

“…crime on Wall Street, the misdeeds on Wall Street, are a symptom. They’re not the disease. The disease is that in the judicial system in the U.S., there are far too many conflicts of interest that go not only unpunished, but unaddressed. It’s completely prevalent…Unfortunately the SEC is not the only regulatory body in the U.S. that has been co-opted by the people that it’s supposed to regulate”

…I think that in the U.S in particular, but throughout the developed world today, corruption is probably the number one problem. The biggest fight that we have is against the influence of money in our government, but especially I would say in the legal system, because to me at least that’s the most painful part.

You assume that politicians are going to be…They’re elected officials, you don’t expect much from them, but you expect a lot from a judge or from a prosecutor. My experience over the last few years, seeing that that component of our system is for sale, especially in the U.S., was shocking. It was a huge disappointment.

I think you and I, and hopefully other people, we’re going to change that together. I don’t feel that I’ve been successful ultimately on a personal level. I don’t know if you will be. Hopefully you will be one day. All I can say is that because of us, because of Darcy Flynn, because of whistleblowers before him and hopefully whistleblowers that will come after us, eventually we’re going to win.”