News - Housing Crisis

There has been a lot of talk about the housing crisis in the United States. Until recently I had no idea what this meant. Were there not enough houses? Too many houses? Were the houses infested with mouses, louses, tumbling and bumping into spouses?

Recently I sat down with the blog's financial market researcher Terry Parsons to discuss the problem in depth. Unfortunately the interview was not recorded so I will attempt to recreate it here-- moderate to excessive artistic license has been taken:

I: Good evening Terry thank you for joining me to discuss the recent financial crisis in the United States.

T: Thank you for having me Ian. I have been a long time follower of your blog and admire the contribution you add to the rich fabric of Halifax.

I: What type of fabric? Would you call it woolen? Cottony soft? Silken?

T: All of those things.

I: Would you call it the Silken Lamen of fabrics to Halifax?

T: I believe that was a rower.

I: I digress. So the financial crisis, many of my readers have been asking me: "Ian. What is this housing crisis?"

T: Well Ian it works like this; a lot of banks got greedy.

I: How greedy? Scrooge McDuck greedy? Or the type of greed exhibited by a squirrel who has his cheeks filled with nuts?

T: The first one.

I: Do you think they have a pool of money like Scrooge McDuck swam in?

T: I can't answer that. Basically they said to everyone: "we want to put you in a home..."

I: An old-folks home?

T: No-- we want to get you in a home, not an old-folks home just a home." and to do that they offered crazy deals like interest-only mortgages for the first five years. Which is useless because you're not paying down any of the principal.

I: So you're basically paying rent sort-of?

T: Exactly. So these people went through five years of paying the interest and since they couldn't afford the home before, they (surprise surprise) still can't afford the home in five years when the bank comes looking for the principal.

I: So the bank re-possesses it like a maple-leaf meat product?

T: Right, only let's say you "bought" the home five years ago for 250,000 well now the housing market in the US is pretty bad.

I: Worse than Posh spice's new hair?

T: Everyone loves that new hairdo.

I: Yeah, stupid people ... I digress.

T: Right. So the houses that cost 250,000 then cost a lot less now. Maybe 200,000. But because these people never paid any of the principal and were only paying down the interest they're out 50,000. But can you afford 50,000 if I come knocking at your door?

I: No. And why would I pay the 50,000 difference if you're taking my home?!

T: Exactly. So the banks are out the money. Billions and billions of dollars of money from all these people they gave bad mortgages to. And these people don't want to lose their homes so they're also racking up debt trying to make payment on the principal.

I: So it is just a debt party?

T: I'd hardly call it a party.

I: Why not? It's called the "Republican party" and I'd hardly call John McCain a "party."

T: What about Canada?

I: Well ... I guess he might let loose a bit more in Canada.

T: Right.

I: I digress. So that's why the government had to give a massive bail out and why these financial companies are failing?

T: Exactly. But the markets rise and fall, if we ride it out it'll get better. Really I'd only be worried if you had intended on retiring in the next 3 years.

I: Nooo my plans are ruined! Welp I guess there's no early retirement for me.

T: Right.

I: Well Terry thank you for joining me, perhaps next time we can turn this witty repartee into some sort of podcast. Or I can copy down the conversation we actually had.

Terry is the financial market researcher to the Mullington blog as well as some sort of employee at TD Bank. Fun fact: he has been to Thailand.