Is it time to look north to our neighbor? Unlike most banks in the United States, Canada's banks are not experiencing gut-wrenching adjustments. A main reason is that Canada does not have a heavy regulatory hand that forces its banks to engage in high risk loans to promote equality of outcome. With the exception of Alberta, Canadian banks are not constrained by non-recourse paper the way American banks are. In Canada, banks can seek other assets of the borrower in the event a foreclosure does not satisfy the amount stated in the note.
Clearly, in Canada buyers have a bigger stake in the transaction and are going to think twice, or three times before walking away from their home. Food for thought, or just a feeble exercise in comparative political economies?
Did anyone notice the politicos in the beltway smiling and back slapping each other after they passed that 700+ billion dollar salvage bill for the investment and banking industries? What are the odds that in two years Congress will be back seeking more money? They will hold hearings, grill executives in the private sector and vilify the free market economy. But not once will they question the wisdom of a reckless and subsidized home ownership program that allows people to purchase homes thay can afford only for the first couple years. Realtors may cry foul but I believe one prudent thing to do is require prospective home purchasers to shoulder a larger portion of the purchase price. This way homeowners will think long and hard before walking away from their investment.
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