rabble blogs are the personal pages of some of Canada's most insightful progressive activists and commentators. All opinions belong to the writer; however, writers are expected to adhere to our guidelines. We welcome new bloggers -- contact us for details.

As the world turns...and the bubble expands

Please chip in to support more articles like this. Support rabble.ca for as little as $5 per month!

A tiny news story this week confirmed a column I wrote a few weeks ago about the real estate bubble developing in Canada -- quoting none other than Finance Minister Jim Flaherty, the man responsible for creating it.

In my Oct. 24 column I detailed Canada's own sub-prime mortgage scandal (see "Canada's sub-prime mortgage time bomb in the right hand column) pointing out that Canada Mortgage and Housing Corporation (CMHC) had become the biggest sub-prime lender in the world -- putting Canadian taxpayers at risk of huge payouts for defaulted mortgages (CMHC will own $500 billion by the end of next year -- making it a bigger financial institute than all the banks except RBC).

Such warnings about a possible real estate melt-down have been repeatedly dissed by the Harper government which created the bubble to make itself look good in terms of economic policy. But now the Bank of Canada is voicing concerns, pointing out Canadians' average debt is now 142 per cent of annual income -- an all-time record. That forced Flaherty to blink: "We certainly want people to be careful and there's lots of money being lent, and I do ask Canadians to be mindful of the fact that interest rates will not be low indefinitely." While the language sounds moderate, it is the equivalent of screaming from the roof tops for free-market zealot Flaherty.

And it's not just the mortgages themselves, as many home owners have followed in the path of their U.S. cousins (many now living in their cars) who used the equity in their homes to spend on other consumer goods. It isn't clear how much of the so-called signs of economic recovery is based on this mirage.

Yet, while warning Canadians about cheap money, the government is at the same time boasting at the WTO (go the site and search for S/FIN/M/58) about its banking system and sound mortgages: "Canadian households generally had relatively smaller mortgages and the system had not had the same sort of exposure to sub-prime components of lending that might be found in other markets." This is patently false. The majority of mortgages insured by CMHC are sub-prime and the value of the average mortgage is equal to seven and a half times annual income -- compared to five times in the U.S. when their bubble burst.

The Bank of Canada has an idea of just how bad things are. According to its calculations, the percentage of mortgage holders whose yearly interest payments exceed 40 per cent of their annual income could reach 10 per cent by 2012 (the 10 year average is just over six per cent). That 40 per cent figure identifies mortgages that are at high risk of default.

Do the math: 10 per cent of $500 billion in mortgages insured by CMHC by the end of 2010 means the federal government could be on the hook for $50 billion in defaults. That amount would be paid to the big banks despite the fact that in lending this money they took absolutely no risk themselves. What do they care which citizen's pocket the money comes from -- the right pocket of people still solvent, or the left pocket from which they paid their taxes?

The legions of people now buying homes they clearly cannot afford are being driven to this potential disaster from two directions -- both generated by the sub-prime madness. First, people sensible enough to realize they should be renting cannot find rental accommodation because developers aren't building apartments any more -- condos and single family units are so much more profitable.

So the tight rental market drives them into the home-buyers market they tried to avoid. And when they get there they find deals that must seem to be too good to be true -- because they are. Mortgages at two per cent, but on houses whose prices have been driven through the roof. These purchases represent the myth of the affordable mortgage. This is what CHMC was established to do in 1949. But all those people who purchased no-down-payment and/or 40-year mortgages in 2007 didn't get affordable housing -- they got hooped. A 40-year mortgage [on a $350,000 home] lowered their weekly payments by $73 but will cost an extra $254,000 in interest than if they had opted for 25 years.

Thank you for reading this story…

More people are reading rabble.ca than ever and unlike many news organizations, we have never put up a paywall – at rabble we’ve always believed in making our reporting and analysis free to all, while striving to make it sustainable as well. Media isn’t free to produce. rabble’s total budget is likely less than what big corporate media spend on photocopying (we kid you not!) and we do not have any major foundation, sponsor or angel investor. Our main supporters are people and organizations -- like you. This is why we need your help. You are what keep us sustainable.

rabble.ca has staked its existence on you. We live or die on community support -- your support! We get hundreds of thousands of visitors and we believe in them. We believe in you. We believe people will put in what they can for the greater good. We call that sustainable.

So what is the easy answer for us? Depend on a community of visitors who care passionately about media that amplifies the voices of people struggling for change and justice. It really is that simple. When the people who visit rabble care enough to contribute a bit then it works for everyone.

And so we’re asking you if you could make a donation, right now, to help us carry forward on our mission. Make a donation today.


We welcome your comments! rabble.ca embraces a pro-human rights, pro-feminist, anti-racist, queer-positive, anti-imperialist and pro-labour stance, and encourages discussions which develop progressive thought. Our full comment policy can be found here. Learn more about Disqus on rabble.ca and your privacy here. Please keep in mind:


  • Tell the truth and avoid rumours.
  • Add context and background.
  • Report typos and logical fallacies.
  • Be respectful.
  • Respect copyright - link to articles.
  • Stay focused. Bring in-depth commentary to our discussion forum, babble.


  • Use oppressive/offensive language.
  • Libel or defame.
  • Bully or troll.
  • Post spam.
  • Engage trolls. Flag suspect activity instead.