The Elusive Canadian Housing Bubble

[vinoveri]

Re: A Possible Needle in the Hay Stack?

Perhaps the feds and FIRE are settling into an "arrangement" where DOJ turns a blind eye to FIRE's "indiscretions", so long as a nice big slice of the action gets into the treasury.
The Vampire Squids of FIRE may be finding new work as the highly compensated tax collectors for Uncle Sam.

that's so cynical it just may be true

Fraud and looting is a win-win: Feds celebrate all the windfall tax revenue we get from prosecuting those banks who have a "rogue trader" here and there doing something improper (but overall the system is clean save a few bad apples). Reminds me of the celebration around how the government actually made money on TARP (even though we destroyed capitalism and institutionalized "moral hazard" as a result - but who cares - as long as we can fund the Treasury)

[thriftyandboringinohio]

Re: A Possible Needle in the Hay Stack?

+1, and worth repeating

...its merely just another cost of doing bidness...

BTW, does anyone here know where the fine money goes?
Into the general treasury?
Into a department budget?

These ongoing large fines with no criminal charges are starting to look like a new method of general taxation.

I know a wealthy man, his wife and his mistress who all appear happy enough in their unspoken "arrangement" which still goes on after many years.

Perhaps the feds and FIRE are settling into an "arrangement" where DOJ turns a blind eye to FIRE's "indiscretions", so long as a nice big slice of the action gets into the treasury.
The Vampire Squids of FIRE may be finding new work as the highly compensated tax collectors for Uncle Sam.
.
.
.

[lektrode]

Re: A Possible Needle in the Hay Stack?

uh huh - esp when we see that 'the largest settlement/fine ever' - amounts to just 1/2 of 2012's earnings?

but yet theres still no criminal indictments...

just another 'whitewash'/distraction, so they can point to 'enforcement'

at least (some) the enron mob got (some) time at club fed and the principals lost near everything(? thats a question)
meanwhile the current occupant's biggest contributors still fly into lower manhattan in helicopters from the hamptons, collecting BILLIONS IN BONUSES??

'enforcement' my ass - its merely just another cost of doing bidness...

[vinoveri]

Re: A Possible Needle in the Hay Stack?

The debate is far from closed in the USA. It may be just getting started in earnest; the recent actions against JPM one indication. Goldman is in the gunsights now I expect. Politicians won't support an industry or companies that are openly attracting public censure for a lack of probity...remember how quickly George Bush Jr dumped Ken Lay and Enron (his biggest single campaign contributor) after it started to collapse. I doubt there's a single Congressman or Senator in D.C. that hasn't seen the Twitter collections from JPM's failed attempt to "communicate with the great unwashed". The banks are now "damaged goods" in D.C., a political liability for anyone seen to be trying to defend them. Some of them are now up shzt creek...

Resolved: "Fraud should be prosecuted under the law" the fact that we have to debate such as thing indicates where we are.


The debate may continue but the effectiveness is nil. Throwing the banksters under the bus may occur, but it will be a well orchestrated and planned transition, sort of like they let Lehman go but saved Goldman. They will all change names and chairs. They're may be public outrage leading to reform but only after many more years and/or economic catastrophe. By then the guilty are away scot free and the country is worse off than ever.

The issues of corruption and regulatory capture have been well apparent to anyone paying attention since TARP and nothing has been done; 5 years + of looting goes along way to insulate those involved substantive penalties (e.g., make $1B in looting, pay $10m fine); the continuing of the exposure of the frauds committed by the banksters is helpful, but the reality is not a damn thing is being done of substance to reform the system. The US AG admission is just a tacit admission of the reg capture, including that office, and attempting to "wash their hands" of the matter. Representation in the US is challenging with only 535 elected reps for the size population, and the judiciary too is in the hands of the corporation. I fear we are on our way to some sort of radical populist movement without honest leadership in the political classes.

[GRG55]

Re: A Possible Needle in the Hay Stack?

Except of course in the United States where the debate is essentially closed; i.e., "if its legal it must not be corrupt" notwithstanding that the financial/monetary system has been radically corrupted since the 1970's and we're now seeing it for what it is, nothing other than a pyramid scheme of essentially free liquidity for the gov and primary dealer cartels to operate with impunity in financing expenditures and extending power and dispossessing the middle/lower classes of wealth respectively.

The debate is far from closed in the USA. It may be just getting started in earnest; the recent actions against JPM one indication. Goldman is in the gunsights now I expect. Politicians won't support an industry or companies that are openly attracting public censure for a lack of probity...remember how quickly George Bush Jr dumped Ken Lay and Enron (his biggest single campaign contributor) after it started to collapse. I doubt there's a single Congressman or Senator in D.C. that hasn't seen the Twitter collections from JPM's failed attempt to "communicate with the great unwashed". The banks are now "damaged goods" in D.C., a political liability for anyone seen to be trying to defend them. Some of them are now up shzt creek...

This sort of admission isn't going to continue to be accepted. That's becoming very clear:

Eric Holder Admits Some Banks Are Just Too Big To Prosecute

Posted: 03/06/2013 3:29 pm EST | Updated: 03/06/2013 6:56 pm EST

When the Attorney General of the United States admits some banks are simply too big to prosecute, it might be time to admit we have a problem -- and that goes for both the financial and justice systems.

Eric Holder made this rather startling confession in testimony before the Senate Judiciary Committee on Wednesday, The Hill reports. It could be a key moment in the debate over whether to do something about the size and complexity of our biggest banks, which have only gotten bigger and more systemically important since the financial crisis.

"I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy," Holder said, according to The Hill. "And I think that is a function of the fact that some of these institutions have become too large."

Holder's comments don't come as a total surprise. His underlings had already made similar confessions to The New York Times last year, after they declined to prosecute HSBC for flagrant, years-long violations of money-laundering laws, out of fear that doing so would hurt the global economy. Lanny Breuer, formerly in charge of doling out the Justice Department's wrist slaps to banks, told Frontline as much in the documentary "The Untouchables," which aired in January.

Some observers have defended the Justice Department, suggesting that prosecuting law-breaking banks would amount to a death penalty that could upset the financial system and trigger another recession -- although nobody really knows if it would do any such thing. But by not prosecuting law-breaking banks, and confessing to its terror of prosecuting those banks, the Justice Department has waved a big checkered flag to the biggest banks to go ahead and break all of the laws they want.

Holder's confession comes after several weeks of criticism from lawmakers about the Justice Department's failure to prosecute banks not only for potentially hard-to-prove cases involving the financial crisis, but also for cases in which proof wasn't as hard to find, as in HSBC's case...

[vinoveri]

Re: A Possible Needle in the Hay Stack?

.

That much of the money has been secured through "corrupt" means should not surprise. What is up for debate is what exactly passes for "corrupt" in mainland China. I expect that the hunters are at best only slightly less corrupt (or more adept and advantaged by their positions to avoid disclosure) than the hunted...

Except of course in the United States where the debate is essentially closed; i.e., "if its legal it must not be corrupt" notwithstanding that the financial/monetary system has been radically corrupted since the 1970's and we're now seeing it for what it is, nothing other than a pyramid scheme of essentially free liquidity for the gov and primary dealer cartels to operate with impunity in financing expenditures and extending power and dispossessing the middle/lower classes of wealth respectively.

[GRG55]

Re: A Possible Needle in the Hay Stack?

I'd be interested in knowing how accurate the data for that graph is?

As I read it, it looks like Chinese property investment in the US is only 5x of NZ, and Canada/Australia are only 3X of NZ.

I know our property market didn't hit the skids like the US(no jingle mail), but we're also looking at higher interest rates and shorter fixed term loans.

But I guess Chinese foreign property sales being largely cash negates any interest rate influence.

Looking at how little(little to nothing) was done by the UK from Russia's perspective regarding The City being a harbour of oligarch money of questionable origin since the fall of the Soviet Union, I wonder how much will actually be done in the US/Canada/Australia/NZ regarding recovery of white collar corruption money?

Wouldn't even a couple of high profile property seizures risk a Chinese property exodus?

If Chinese property buyers are desensitized to price when momentum is moving up, wouldn't they also potentially be more so when price momentum is moving down?

If the goal is to export grey money and convert it into a form of legitimate and secure capital, surely the owners of it would be more than happy to accept a massive haircut compared to the heavily mortgaged host nation citizens?

Would it be more appropriate to look at Chinese property investment in the English speaking west as an exercise in mass money laundering?

If so, should the question be asked what frictional costs are folks looking to launder money willing to bear to achieve their goal of exporting and legitimizing grey money in a safe harbour? 10%, 20%, 30%, 40%, ??

So does that mean once the market turns the foreign grey money propping up the property market will act as an accelerant?

Has Canada experienced any fall in property prices since the influx of Chinese money leading up to and after the 1997 Hong Kong transfer? Any idea how that market segment impacted on any price pullbacks?

This isn't money laundering in the classical sense. To do that they don't take it to jurisdictions with fairly strong legal systems like Canada, Australia, NZ, etc. They take it to places like Dubai to launder it.

This is capital flight for personal security...someplace safer than mainland China to escape to, if necessary. We saw something similar in the early to mid-90s just before Hong Kong was handed over, but at that time it was the wealthy and influential Hong Kong Chinese that were moving the money. Now the money comes from the mainland via Hong Kong.

That much of the money has been secured through "corrupt" means should not surprise. What is up for debate is what exactly passes for "corrupt" in mainland China. I expect that the hunters are at best only slightly less corrupt (or more adept and advantaged by their positions to avoid disclosure) than the hunted...

[lektrode]

Re: A Possible Needle in the Hay Stack?

I was thinking the same thing.....except.....wasn't the Japanese money buying US assets largely directed at prestige properties(Pebble Beach Golf Course comes to mind) that were more ego driven than capital flight to safety driven?

interesting question, but would have to think that capital flight out of the tokyo bubble was a big part of it - was living in downtown beantowne when they bought the paine webber bldg in the fin district and the local scuttlebutt at the time was that they had paid twice what a US buyer would've - by the time i'd arrived in HNL the headlines were along the lines of 'the land under tokyo alone was worth more than the entire US lower48, incl TX' (and just the ginza district was worth more than CA ? IIRC)

and then shortly after, the hyatt waikoloa - that they put near 400mil into, was sold for 55mil - so that would've been a real ego bubble buster - and as they retreated thruout the 90's, the rest of the market followed and prices 'crashed 20%' in 94-99
(with the local prognosticators saying 'no bubble like last time/then' in 2005, with bubblishessness popping up again ;)

methinks the chinese will play the game (of monopoly) differently tho - will be more of a 'long' bet (vs their game at home) -
... this one sheds some light on things

but, genl'y out here, all/most eyes are on larry

[nedtheguy]

Re: A Possible Needle in the Hay Stack?

redacted

[lakedaemonian]

Re: A Possible Needle in the Hay Stack?

not that this sort of thing hasnt ever happened before...

I was thinking the same thing.....except.....wasn't the Japanese money buying US assets largely directed at prestige properties(Pebble Beach Golf Course comes to mind) that were more ego driven than capital flight to safety driven?

[lektrode]

Re: A Possible Needle in the Hay Stack?

not that this sort of thing hasnt ever happened before...

[lakedaemonian]

Re: A Possible Needle in the Hay Stack?

Two interesting things from your comments, lakedaemonian, and don's article above (http://qz.com/143017/beijing-goes-hunting-for-overseas-real-estate-by-corrupt-officials/):

- I hadn't thought before that all of this hot Chinese money floating around into various world property markets could actually be dirty. Of course. Behind every great fortune is a great crime? I don't know enough the politics in China, but I do know Australia is welcoming the overseas Chinese property investors with open arms. Anything to keep the housing bubble inflating. It is in full on insanity mode right now. Anecdotally in the past two weeks (N = 1), I witnessed a rental flat get 6 offers at the very first showing and a house go to auction for 10% above the expected value. Both to property investors who are looking to rent the places out. Now these were existing properties and overseas investors are only allowed to invest in new properties by law. I can't believe it though - it truly is irrational exuberance and fundamentals are all out the window. I guess you can expect as much with low interest rates. But all is OK, because our new treasurer has in effect proclaimed it's different here: http://www.macrobusiness.com.au/2013...ey-ponzi-lord/ And after mentioning government, that brings me to the second thing...

- Whether or not the claim of the Chinese government that this money was stolen by criminals is true. After all, even if the money was acquired through legitimate means, if China doesn't want the money to leave, couldn't you just declare them criminals? Who decides legitimacy? Could these news stories be the Chinese government front running stories of catching illegal criminals in order to impose tougher capital controls? Very interesting, especially for Australia, as we are headed over the mining cliff here and the housing bust we mostly dodged was thanks to the sale of minerals and commodities, largely to China, the price of which have since largely dropped. If these stories are meant to scare off Chinese investors from investing overseas could this spook the local housing market? Will be on the lookout for stories in the local mainstream media of the Australian government assisting Chinese officials with foreign property bought with dirty money. Right now it's all about how foreign investors will pay any price to get property in Australia. The Reserve Bank here has cut rates to get things propped up, now the market is on fire and there are rumors that they will start raising rates. Seems we are at global ZIRP with too much hot money chasing yields. Can't see how this ends well for anyone...

Hi Ned......I'm guessing the hot money chasing yield is an entirely different phenomena from Chinese "hot" money chases bolt hole security.

I wouldn't think the hot money chasing yield would be willing to take a capital haircut.....but I would think "hot" money chasing security would be more willing to take a capital haircut.

Is it maybe clearly different(and assumed) perspectives between hot money chasing yield and "hot" money chasing security?

I'm guessing the perspective of hot money chasing yield is like picking up nickels in front of a bunch of steam rollers around the world. Speed, aggression, vigilence.

I'm guessing the perspective of "hot" money chasing security is like buying a spot in a lifeboat for your family and your three suitcases full of money. While it would be nice to keep your family and your three suitcases full of money safe, you'd probably be quite willing to surrender 1 or 2 suitcases full of money to ensure your family's safety as well as the safety of the remaining suitcase full of money.

I wonder how important perspective and mindset is for "hot" Chinese money and how it will respond to western property markets that turn negative and gain momentum? And more importantly, what impact, if any, will that have in mitigating or accelerating a property decline?

It would be interesting to learn if Chinese capital flight into western property markets is(or becomes) a policy issue between China and respective western governments?

[nedtheguy]

Re: A Possible Needle in the Hay Stack?

redacted

[lakedaemonian]

Re: A Possible Needle in the Hay Stack?

I'd be interested in knowing how accurate the data for that graph is?

As I read it, it looks like Chinese property investment in the US is only 5x of NZ, and Canada/Australia are only 3X of NZ.

I know our property market didn't hit the skids like the US(no jingle mail), but we're also looking at higher interest rates and shorter fixed term loans.

But I guess Chinese foreign property sales being largely cash negates any interest rate influence.

Looking at how little(little to nothing) was done by the UK from Russia's perspective regarding The City being a harbour of oligarch money of questionable origin since the fall of the Soviet Union, I wonder how much will actually be done in the US/Canada/Australia/NZ regarding recovery of white collar corruption money?

Wouldn't even a couple of high profile property seizures risk a Chinese property exodus?

If Chinese property buyers are desensitized to price when momentum is moving up, wouldn't they also potentially be more so when price momentum is moving down?

If the goal is to export grey money and convert it into a form of legitimate and secure capital, surely the owners of it would be more than happy to accept a massive haircut compared to the heavily mortgaged host nation citizens?

Would it be more appropriate to look at Chinese property investment in the English speaking west as an exercise in mass money laundering?

If so, should the question be asked what frictional costs are folks looking to launder money willing to bear to achieve their goal of exporting and legitimizing grey money in a safe harbour? 10%, 20%, 30%, 40%, ??

So does that mean once the market turns the foreign grey money propping up the property market will act as an accelerant?

Has Canada experienced any fall in property prices since the influx of Chinese money leading up to and after the 1997 Hong Kong transfer? Any idea how that market segment impacted on any price pullbacks?

[don]

Re: A Possible Needle in the Hay Stack?

"You can't just steal money from China and then enjoy life in Canada." Reuters/Mark Blinch

Seizing Bo Xilai’s French villa may be just the beginning.
+


China’s corrupt officials and crooked businessmen have smuggled billions of dollars overseas, much of which has ended up in real estate in the United States, Canada, Australia and the United Kingdom—particularly in high-end neighborhoods in London, New York, Los Angeles, Sydney and Toronto. Now the Chinese government is embarking on a worldwide hunt to seize the properties with help from foreign governments, according to asset recovery and anti-corruption specialists.
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Since Wang Qishan, the Communist Party chief tapped to head China’s new anti-corruption drive, took office last fall, he has been pushing to crack down on capital flight from the country. In recent months, Chinese officials have quietly said they are specifically targeting foreign assets, and sought help from organizations like the OECD, anti-corruption groups and the foreign government agencies including the US Commerce Department about their newly aggressive pursuit of overseas real estate.
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Chinese officials “are interested in understanding where the assets are” in the US, and “the US has said it will work with them,” said Nathaniel B. Edmonds, a former Department of Justice official and a partner with the Washington DC law firm Paul Hastings. In July, Canada and China agreed to seize, share and return the proceeds of crime.
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Beijing’s interest in hunting down the proceeds of corruption takes place amid a similar push around the globe, with countries like Libya seeking to take back the assets that their corrupt officials have squirreled away. “There is an increased push to use asset recovery mechanisms in the context of corruption globally,” said Faisal Osman, a barrister with the London firm ARM Stolen Asset Recovery.
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Following the money

President Xi Jinping’s corruption crackdown has resulted in a surge of convictions—in the first quarter of this year alone, China’s prosecutors handled nearly 3,700 corruption cases involving $87.5 million. And the campaign has claimed some prominent scalps, many of which involved prominent foreign property holdings. When the Jinan People’s Court sentenced former Politburo member Bo Xilai to life in prison in September, it also announced plans to seize a villa owned by his wife on the French Riviera. Separately, a home in Walnut, California, believed to be owned by ex-railway minister Zhang Shuguang, is also a likely target for Beijing’s asset hunt.
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Those high-profile cases may be just the beginning.
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Estimating exactly how much corruption-tinged cash has fled China in recent years is difficult, but Ran Liao, senior program coordinator for Transparency International, a non-profit that works with governments and the private sector to curb corruption, said estimates run as high as 500 billion yuan ($82 billion) taken overseas in recent years. Other mind-boggling estimates abound:
+

• A leaked report from China’s central bank estimated that from the early 1990s to 2008, some 18,000 officials and employees of state-owned enterprises pilfered a total of 800 billion yuan ($123 billion) from state coffers, with the culprits most likely to flee to the US, Canada, Australia and the Netherlands.
• China’s anti-corruption unit, the Central Commission for Discipline Inspection, predicted in another leaked report (link in Chinese) that $1 trillion may have fled China in 2012.
• “Grey income”—household revenue above what’s declared officially—reached an estimated $1 trillion in 2011, according to the China Society of Economic Reform.

For a corrupt official with money to invest, putting funds directly into an overseas bank or stock market can be risky, because financial institutions are required by global anti-money laundering agreements to report suspicious funds. But real estate agents in most countries have no such requirements. So when Chinese buyers land with suitcases full of cash, as they have in recent months, real estate deals can get done quickly.
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Chinese buyers spent $30 billion on overseas real estate in 2012, estimates Juwai.com, a property website. Of that, $9.1 billion went to the United States and much of it specifically to California. And almost 70% of the purchases made by Chinese buyers in the United States were made entirely in cash, according to the most recent report from the National Association of Realtors.
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Australian regulators approved $4 billion in real estate purchases by Chinese investors in the 2011/12 fiscal year (pdf, pg. 30), the most recent figures available. Canada keeps no hard data about foreign investors in real estate, but Chinese buyers in one year outnumbered local buyers in Vancouver by a three to one margin. They also bought 27% of new homes sold in London last year.
+



Hunting “naked officials”

The soon-to-retire Chinese bigwig who has stashed money and relatives abroad in preparation for his escape is such a common character in China that it has its own phrase: luo guan, or “naked official.”
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Some of them have laid the groundwork for years; one common ploy is to send a son or daughter overseas to a private university as a way to legitimize sending funds out of China. For example, the leaked Chinese central bank report on corruption showed that former ministry of finance official Xu Fangming deposited roughly 1 million yuan ($164,000) into the bank account of a son studying abroad. Perhaps not coincidentally, the number of Chinese students studying abroad has jumped in recent years. In the United States, it more than doubled to 194,000 in the 2011/2012 school year from five years ago.
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Another popular strategy for gaining a foothold overseas is securing a foreign passport through “immigrant investor” programs.
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The ultimate goal in transferring money out of China, said Transparency International’s Liao, is that either the official or his offspring will have a happy life after they leave China. The new crackdown on overseas assets is designed to stop this process.
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“The government wants to make them hopeless,” Liao said. The message is “You can’t just steal money from China and then enjoy life in Canada.”
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A tough road to recovery

Whether the Beijing’s hunt for overseas properties will be a success, and perhaps even impact home prices in Los Angeles or London, remains to be seen.
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Seizing and recovering assets in a foreign country can be a tough slog for any government, experts in the field say. While China and most Western nations are signatories to the United Nations Convention Against Corruption, in which countries pledge to help each other recover the stolen funds, the process is lengthy, arduous, and fraught with diplomatic and legal complications.
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In the United States, for example, the party hoping to seize a home needs to prove that it was purchased entirely with funds derived through corruption. “In drug-related cases you seize the house and the car,” quickly and authoritatively, said Edmonds. But corruption-related cases are often more complicated, because tainted funds are mingled with other, legitimate, funds, he said.
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Another glaring vulnerability in any US-Chinese cooperation on asset seizure is the lack of a “Mutual Legal Assistance Treaty” between the two countries, which allows governments to seize foreign assets related to crime, said Daniel F. Roules, a Shanghai-based partner with Squire Sanders. That means Chinese authorities need to rely on cooperation from their US counterparts.
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And while US government officials have pledged to help, Laio of Transparency International said that Chinese officials he’s spoken with aren’t getting as much assistance as they would like. The US State Department and Department of Justice declined to comment.
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Jurisdiction shopping in Britain

British courts, on the other hand, see themselves as “world leaders in asset recovery,” Osman said, because there are powerful laws on the books, a long line of precedents and relatively straightforward laws.
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A 10 million pound ($16 million) home in Hampstead Gardens, a wealthy London suburb, purchased by Saadi Gaddafi, son of the deposed Libyan dictator, was seized in 2012 by the Libyan government after British courts ruled that Saadi could not have made enough money to purchase it on his military salary. Often officials hoping to pursue property they believe was purchased by the fruits of corruption will “get a judgment here [in the UK] and get it enforced in another jurisdiction,” Osman said.
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A UK judgement can sometimes be used successfully in the United States, as it was to seize a mansion in Houston and two Merrill Lynch brokerage accounts belonging to Nigerian governor James Onanefe Ibori.
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Whether the Chinese campaign to halt corruption and seize overseas assets will have real impact on property markets in the United States, Australia and Canada has less to do with international laws than it does what happens in Beijing in coming months.
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“What it comes down to is political will,” said Osman. Given the changing winds of politics, a push towards recovering assets of one person or group can sometimes be halted abruptly. “These by their very nature are lengthy proceedings and sometimes the political will fades,” he said. In one case he worked on involving a South Asian country, “the guys’ assets we were tracing a few years ago are now the guys in power.”
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Ivy Chen and Jennifer Chiu contributed reporting.