Why do economists sometimes HAVE to try and find something bad?
I have a few comments on the response from some economists who are trying to find something bad out of the governments decision yesterday to purchase good mortgage assets from the banks in an effort to grease the wheels of commerce and give the banks some liquidity to lend to consumers and businesses.“The quid pro quo here has to be the banks have to keep lending to households and businesses at low interest rates, and as long as that happens, I don’t think there’s much risk,” said Jim Stanford, an economist with the Canadian Auto Workers union.Duhh? Wow this is truly earth shattering, of course the banks have to keep lending to consumers and businesses, he suggests that instead of purchasing the mortgages the banks just need to go lend?? With what money genius? That is why the government is doing this. Could it be sour grapes? He works for the Canadian Auto workers union…aren’t they looking for a bailout of an industry that likely should not be kept alive in our country…we can’t compete with global labour rates.Alan White, the Mitchelson Professor of Investment Strategy at the Rotman School of Management at the University of Toronto, said “the whole objective here is to prime the pump – to get the banks to lend money.”White said the moves are “probably a necessary thing.” But, he warned: “I’m always cautious about these things because people in the financial markets think very carefully about this and I’m sure they’re thinking of some way to unload the worst quality stuff they can on the government. And the government’s job is to try to ensure that doesn’t happen, that they get reasonable quality debt passed on to them.”First of all remember that the government of Canada and therefore taxpayers already guarantee these mortgages so purchasing them adds no ADDITIONAL risk, second of all the overall delinquency rate in Canada is lower then .25% of all mortgages outstanding, so how likely is it that all the mortgages sold to the government will be toxic.Here is the last word on this…the government stands to make a moderate profit on these purchases as well. So here it is again…The taxpayer is purchasing assets that they already insure, using money that does not come from government coffers, but rather CMHC’s war chest, and finally the tax payer stands to actually make money on this. The end result allows the banks to get through the liquidity crisis without massive bailouts from the government and therefore the tax payer that our unlucky neighbours to the south.Stop looking for the glass to be half empty…it is not.
