First published: August 24, 2007
The global stock market tumult last week was a bit of a shock; but it was also a reminder of how vulnerable our complex financial systems are despite our blind faith in them. It also provides a unique insight into some deeper issues.
Over several days, stock markets around the world recorded massive losses and wild swings as international investors bailed out. Countrywide Financial Corp, the largest mortgage lender in the United States, borrowed $11.5 billion from a group of 40 banks to fund loans. This was interpreted by stock traders as a signal of a weakness in market. The company was lending money to high-risk people who have a poor credit history. The skyrocketing default rate caused a meltdown.
It turns out the mortgage companies and banks pool the loans and then sell them off to institutional investors, including mutual funds, insurance companies and mortgage-backed securities.
Of course, every investment broker and major bank was on the evening news pleading with the public not to panic. The media spin within all the major newspapers chimed in with similar comments. As one commentator on the Global nightly news said bluntly, “What would you expect us to say?” Fear could unravel the entire mess. We are talking a global financial crisis that would make the Depression of the 1930s look like a tea party.
While this could be a marvelous opportunity to grind away at so many of the global fiscal policies that leave Canada so open to harm (remember, this was an American problem. Canada is in good financial shape, according to the federal Finance Minister Jim Flaherty) And, in the light of the multilaterial meeting going on in Montebello, Que. Between Canadian Prime Minister Steven Harper, American President George Bush and Mexican President Felipe Calderon, it gives one a reason for serious pause. We should be questioning the true value of these agreements, despite the propaganda fed to us from both sides of the argument. We are witnessing the results.
Instead, it may be more useful to think carefully about the roots of the crisis. Certainly, this is a story about greed. As mortgage companies, banks and other lending institutions work overtime to amass profit and increase their own value and return more to shareholders, they become blind to any reason that would make them stop to think about lending money to high-risk borrowers.
There is certainly a deeper story here related to housing. There can be no doubt around the importance of giving every person an opportunity to own a house. As the price of housing goes through the roof (pardon the pun), it is becoming increasingly difficult to own a decent house. Just look at real estate prices in West Northumberland to realize the rising barriers to owing a home. Most places are expensive, due mainly to Toronto refugees who sell their homes in Toronto and come to our area spending money like drunken sailors on shore leave. All this drives the price of housing up.
So, one might argue that the lenders are demonstrating compassion by giving these marginal people an opportunity to buy their dream home. But, if it means over-extending themselves, then it is surely foolhardy, at best.
What this crisis really screams out is the need for affordable housing, so that people who cannot afford the high-priced homes can find a good place to live and raise a family.
Sadly, the affordable housing crisis in the county is not improving. Even with a $1.7 million federal/provincial grant to build affordable housing in Northumberland has not stirred one developer. And, if the money is not used by November, it will be lost.
A community-based committee is working to bring more affordable housing to the area. Meanwhile, the situation is growing more dire because landlords are converting apartments into condominiums. A Canada Mortgage and Housing report says there is less than a two per cent vacancy rate.
Northumberland is merely a microcosm of a much larger problem. When responsibility for housing was downloaded on to municipalities, the federal and provincial government were able to reduce their budgets substantially. However, it is crazy to think property taxpayers can afford to sustain these kinds of projects. It is time for the provincial government to become more directly involved in building units rather than merely throwing up subsidies and grants. With the provincial election gearing up, this must be a topic of debate.
Still, this does not address the problem entirely. Municipal leaders must step forward with a bold vision. Either the county or local politicians should call a housing summit, pulling together developers, contractors, social service organizations, activist groups and concerned citizens. A strategy must be developed and implemented immediately.
We have witnessed a near global fiscal catastrophe because we cannot be bothered to address the housing needs of those at the lower end of the economic scale. The neo-conservative approach of leaving it to the private sector has failed and the repercussions are spanning the planet. It is time to address the affordable housing issue directly. Northumberland cannot wait. Neither can the rest of the world.
