Posts Tagged ‘Canada’

Bonn Climate Change Summit Has Its Own Storm Clouds

Monday, June 4th, 2012

Disagreement emerged early during the latest round of international climate change talks in Bonn, with the European Union (EU) and developing countries clashing over the future of the Kyoto protocol.  Under the terms of last year’s Durban Platform, the EU had agreed to sign an extension of the Kyoto protocol before it lapses at the end of this year in return for an agreement from all nations that a new binding treaty will be completed by 2015 and enacted by 2020.

Climate negotiators want to build on the progress achieved in Durban last year, like the agreement on a second commitment period for the Kyoto Protocol, a treaty which limits the emissions of most developed countries but which expires at the end of this year.  The length of the second commitment period is one of the issues under discussion in Bonn.  Unfortunately, Kyoto plays an progressively more marginal role in the climate-change issue because it doesn’t include the biggest emitters of carbon dioxide and other gases that contribute to global warming.  The United States exited Kyoto, claiming it was unfair because it didn’t impose any emissions reductions on fast-growing developing nations such as China and India.  Canada also said it would withdraw from the treaty last year.

Last year’s United Nations (U.N.) climate talks in Durban supported a package of measures which would ultimately force the world’s polluters to take legally binding action to slow the pace of global warming.  Delegates agreed on the “Durban Platform for Enhanced Action” – a process that would apply to all parties under the U.N.’s climate convention.  A clear timetable and targets have not yet been set.  “Parties need to think between now and Doha how they want to organize their work between now and 2015 and how they will move towards that legal agreement,” Christiana Figueres, executive secretary of the U.N.’s Framework Convention on Climate Change, said.  “My hope is they will establish milestones along the way so they are able to measure their progress.”

Figueres cited new research that predicts that the Earth’s temperature could rise by as much as five degrees Celsius (41 degrees Fahrenheit) from pre-industrial levels on current pledges.  “We still have a gap remaining between intent and effort,” Figueres said.

Additional issues discussed in Bonn and at a larger climate change conference in Qatar later this year include implementing an extension to the Kyoto Protocol; how long that will last; how to raise ambition on emissions cut pledges, as well as raising long-term financing to help vulnerable countries adapt to the harmful effects of climate change.

The treaty currently being negotiated would require all nations to curb warming.  Identifying those requirements is the primary challenge, which is why negotiators are focusing on solving incremental, less contentious issues before moving on.  “First and foremost we have to ensure that there is no backtracking on what was agreed in Durban,” said Christian Pilgaard Zinglersen, a Danish official representing the European Union.  Climate activists warned that potentially disastrous consequences of global warming, including floods and droughts and rising sea levels, will be impossible to prevent unless the pace of negotiations accelerates.  “If you look at the science, we’re spending time we don’t have,” said Tove Ryding, Greenpeace’s climate policy coordinator.

We have all the means at our disposal to close the gap, and the long-term objectives of governments remain attainable,” Figueres said.  “But this depends on stronger emissions reduction efforts, led by industrialized countries.  A sufficient level of ambition to support developing country action, concrete and transparent implementation, today, tomorrow and into the foreseeable future, is the answer.  Progress here in Bonn can give countries the confidence they need to push ahead with national climate policies.  In turn, many countries are beginning to adopt ambitious climate change legislation, which is sending good signals to the international negotiations.  All of this can give society and businesses confidence to act faster themselves.”

How Canada Avoided a Housing Bust

Wednesday, March 2nd, 2011

Canada avoided the collapse in housing prices that devastated American homeowners and the U.S. economy, thanks to tighter financial regulations, the lack of subprime lending and securitized mortgages. Foreclosures are rare.  As a result, Canadian real estate steadily appreciated while property values in Florida, Arizona and other hard-hit American markets tanked.

According to James MacGee of the Federal Reserve Bank of Cleveland, The United States’ and Canada’s “Monetary policy was very similar in both countries from 2000 to 2008, but housing prices rose much faster in the U.S. than in Canada. This suggests that some other factor both drove the more rapid appreciation in U.S. prices and set the stage for the housing bust.

And what is that other factor?  Canadians are a bit plodding: Perhaps the simplest story is that Canada was ‘lucky’ to be a late adopter of U.S. innovations rather than an innovator in mortgage finance.  In addition, bank capital regulation in Canada treats off-balance sheet vehicles more strictly than the U.S., and the stricter treatment reduces the incentive for Canadian banks to move mortgage loans to off-balance sheet vehicles.”

Relaxed lending standards in the United States, highlighted by the rise in subprime lending, played a vital role in creating the housing bubble. This weakening of standards led to an increase in housing demand.  Mortgages were frequently given to people who were likely to have trouble making payments.  Extending credit to risky borrowers helped fuel the housing boom and set the stage for the resulting surge in defaults and foreclosures, which were a big factor in the housing bust.  Additionally, according to the Case-Shiller Index, house prices in the United States from 2000 through 2006 appreciated at a rate nearly double that of Canadian residential real estate.  In contrast with the United States, Canadian house prices continued to appreciate until late 2008, and are now nearly 80 percent higher in value than in 2000.

MacGee said “The potential risks of increased household mortgage debt depend critically upon its distribution across borrowers. To see how the distribution of mortgage debt has changed, we examined the distribution of the ratio of the outstanding loan to house value (the LTV) of borrowers.  A high LTV implies that a small decline in the house price would leave the owner with negative equity.  Negative equity is problematic as it removes the option for a homeowner who is unable to meet their mortgage payments to sell their home to repay the mortgage.”

Canadian home prices are leveling off in 2011, though, with an overall decline of 0.9 percent anticipated for the year.  A home worth $100,000 will likely decline by $900 in 2011.  In some areas, home prices might actually increase while other areas might see prices fall two or three times as much. The Canadian Real Estate Association (CREA) expects a 7.3 percent decline in home sales in 2011.

“Canadians are debt-averse,” said Kevin Fritz, a Canadian who recently purchased a home and made a 40 percent downpayment. This is an attitude that is partly cultural and partly shaped by banking practices and regulations designed to keep people out of homes unless they can clearly afford them.  “People here don’t leverage.”

“It is a regulatory structure in Canada that created the Canadian mortgage system, and it was a regulatory and political structure in the U.S. that created the U.S. mortgage system,” said Ed Clark, chief executive of TD Bank.  “The irony is…that one of the primal causes of the crisis was the U.S. mortgage system.”

In an interesting aside, more Canadians are finding housing bargains in Florida, and today account for eight percent of residential sales in the state.  Doug Flood, who relocated to the Sunshine State from Toronto in 2008, now runs a business that helps his fellow Canadians find the home they want.  “There’s clearly a perfect storm.  If you’re Canadian, you’ve got very low interest rates at home if you want to borrow against your house.  You’ve got a foreign exchange par, dollar-for-dollar.  And prices down here that are 40 to 50 percent lower than what they were five years ago.”

To listen to our interview with the Brookings Institution about financial regulations, click here.

Covered Bonds Could Be a Viable Alternative to CMBS

Monday, November 15th, 2010

A financing vehicle invested in Prussia in 1769 could be the solution to failed #CMBS.A financing vehicle that has been used in Europe since it was invented in Prussia in 1769 is finding its way to American shores as a replacement for commercial mortgage-backed securities (CMBS).  The vehicle is known as covered bonds, which is a securitized debt instrument backed by a pool of top-quality assets, primarily mortgages. What is different about covered bonds is that the assets – known as a cover pool – are maintained on the issuer’s balance sheet.  This acts as a safety measure because the issuer is less likely to underwrite loans that carry significant risk.

Currently, the United States has no established market for covered bonds, although they are a $3 trillion business in Europe.  In July, the House Financial Services Committee approved a bill that would establish a regulatory framework for covered bonds.  Although the bill just missed being included in the Dodd-Frank financial reform overhaul, the consensus is that the legislation could win House and Senate approval in 2011.

“We have seen the difficulties wrought by the complexity of securitizations,” said Bert Ely, a financial and monetary policy consultant.  “Covered bonds, on the other hand, are a very clean and simple tool.  A bank makes a loan, keeps the loan on its books, and issues a covered bond.  There is no sale and resale of mortgages.”  With a covered bond, several elements protect the bondholder.  All assets in the covered pool are subject to monthly monitoring by an independent third party.  If one of the loans becomes non-performing, the issuer must remove it and replace it with a loan that is performing.  Thanks to the safety features, the majority of covered bonds enjoy a triple-A rating.

Despite the fact that many in the investment community support covered bonds, the Federal Deposit Insurance Company (FDIC) has some concerns about them.  Primary is the fact that the pools are over-collateralized – sometimes by as much as three times the bonds’ face value.  The FDIC wants access to these assets when a bankruptcy occurs.  The FDIC argues that if the cover pools protect the bulk of the banks’ assets from being claimed, the depositors are being asked to take on too much risk.  “We support covered bond legislation, but not at the expense of our obligation to protect the deposit insurance fund,” said the FDIC’s Michael H. Krimminger.

Australia Rules In Market Transparency

Tuesday, July 13th, 2010

Australia’s office market is the most transparent, according to report.  Jones Lang LaSalle and LaSalle Investment Management have noted reasonable improvement in global market transparency, according to their recently released 2010 Commercial Real Estate Transparency Index.

According to the Index, Australia ranks as 2010’s most transparent market.  Canada is next in line, and improving markets include China, India, Poland, Portugal, Romania, Greece and Hungary.  Market transparency had fallen in Pakistan, Venezuela, Dubai and Bahrain.

“The 2010 Global Real Estate Transparency Index reveals a notable slowdown in the progress of real estate transparency over the past two years,” said Jacques Gordon, LaSalle Investment Management’s global head of strategy.  “It suggests that the recent turmoil in global financial, economic and real estate markets has impacted on market behavior, with real estate players focusing on survival rather than market advancement.”