Photo: The grand entrance of Michigan Central Station stands empty and crumbling as the building awaits a decision on its ultimate fate. (Megan O'Toole/National Post)

Detroit was the Silicon Valley of the 1920s — the booming home of a glamorous new industry, a place where huge fortunes were conjured in years, sometimes months. But while the creators of the computer industry have as yet bequeathed very little to the built environment, the automobile industry piled up around it an astounding American city, in astoundingly little time.

The Detroit of 1910 was a thriving Midwestern milling and shipping entrepot, a bigger Minneapolis. The Detroit of 1930 had rebuilt itself as a grand metropolis of skyscrapers, mansions, movie palaces and frame cottages spreading northward beyond the line of sight, exceeding Philadelphia and St. Louis, rivaling Chicago and New York. I had a chance to tour central Detroit recently, my first visit to the downtown core in many, many years.

Some of the old visual magnificence remains, has even been improved. The Guardian tower displays again the blazing colors of its vaulted atrium, long covered up by dry wall. The marble adorning the Fisher building still glows. The Renaissance Center, once as walled and moated against the city as a medieval castle, has lowered its defenses, especially on the side facing the Detroit River. But for the most part, all is decay. Whole towers stand empty, waiting to join the long line of grand structures that have either been abandoned to pillage and ruin, like Detroit’s once magnificent neoclassical skyscraper of a train station, or else pulled down entirely, like the downtown Dayton Hudson department store, once the largest enclosed shopping space in the United States.

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Canada’s banking system is not only number one in the world right now, but rather we do things a bit different than the US as well… Our banking system is made up of what is called Deposit Banks, where the banks that do investments also are the same ones that you and I, as Canadians hold our chequing and savings accounts in.  The banks are much, much more regulated and supervised here in Canada vs. the US.

In Canada and most other industrial nations, investment banking — which can include stock trading, packaging and selling securities, corporate advice on mergers, and making investments for profit — is mostly done by the same commercial banks that offer savings and chequing accounts through branches on every street corner.

Commercial banks are closely supervised by government regulators and their leverage — the amount of borrowed money they use to do business — is limited to a fraction of that formerly found in the lightly regulated U.S. investment banks.

That means they can never earn the fabulous profits reaped by the U.S. investment banks in good years. But it also means that they have much less risk in bad years. Better still, they are cushioned by profits from their more stable consumer and business lending, and their large pool of depositors’ money means they’re less dependent on borrowing in bond markets to do business.

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The good news for Canada is that this country doesn’t have serious problems with its financial system or a collapse of home prices. We’ll be hurt by the U.S. slowdown, but our internal strength means that growth here should remain positive.

I have to say that this is a good behind the look at what has happened in the US and the financial markets.  The one thing they are missing is a ‘big thing’.

CONSUMERS…

The main reason this whole collapse has happened, as consumers / investors are always chasing the dollar and chasing the ROI (Return on Investment)  that companies create risky products to keep shareholders happy, keep investors investing and their companies strong.  This is a very simplified version of the reality, but it’s true.
What are your thoughts?  How did this collapse happen?

I encourage you to watch this video, and please make your initial comments below…

It is shocking what is happening in the US!

Jacqueline Thorpe’s interview with Robert Shiller sparked a lively reader discussion on the value of Canadian home prices. Shiller, an economist at Yale University and the namesake behind the Case/Shiller Housing Price Index, predicted both the tech and the U.S. housing bubble. He said Canada could see a similar housing bust, particularly in the Calgary and Vancouver markets.

Here’s a selection of some of those comments from readers, some slightly edited. You can find the original comments attached to the online story.

I would like to say that the first three comments below are exactly how we at The Calgary Real Estate Blog view the economy and in Alberta specifically.  We will be able to weather the storms that are brewing to the south as the economy/housing is different in Canada.  We have not had Sub-Prime lending and selling the mortgages out the back door to third party investors.  Our government has now taken the 40 year mortgages and zero % down away, which was a good plan, but on the flip side, would have never taken us as far as our friends to the south.

Summer6727: People like Mr. Shiller are the very people that create fear with the lack of confidence. Fear drives the markets, which is, sorry to say our own doing by the way of technology, via email, TV, word of mouth. I sometimes think people like Mr. Shiller love to watch people panic and worry. To see what is unfolding in the U.S. makes others look at the current situation within and adjust.

Rockie Bear: Summer6727 is dead on. The American economic wizards frequently don’t understand their own system let alone the country next door. This type of commentary shouldn’t be published in Canadian newspapers.

jscheema: Mr. Shiller: We didn’t do any sub prime lending in Canada as was done in U.S. House prices rose steadily not doubled in just six months as in many parts of California. Canada is far better than the U.S. on employment, wages, interest rates, financial institution liquidity. Please do not cause panic and … fear mongering among Canadian people.

vancouver guy: Here in Vancouver I am witnessing people with part-time jobs and not much in terms of income put 5% down on $300,000+ properties. And sometimes the 5% down payment comes from racking up the credit cards. How is this not subprime? And it is all with 35- or 40-year mortgages. How is this sound borrowing when those 40-year mortgages come at odds with basic human life-expectancy data? “Please God, just one more bubble before I die.”

IndexTrader: I can’t understand folks who think that the housing meltdown in the U.S. will mysteriously miss Canada. These bubbles are global. Blaming Robert Shiller for the problem is like blaming the water for a sinking ship that hit a reef. Global asset bubbles have impacted nearly every major and minor economy around the world. The greater that a market appreciated, the greater the correction it will feel. Unfortunately, the fact that we don’t want the meltdown has little bearing on the outcome.

What do you think?  Will the US melt down effect Canada, specifically Calgary and Vancouver?  In Calgary we haven’t seen super spikes in prices over extreme short periods.  If you look at a past post about the prices over the last few years, the graph there shows that since 2000 we have had steady growth with some small jumps, which will happen in a heated economy like Alberta.  The GDP of Edmonton and Calgary region is one behind China.  This is a strong economy.

What do you think?

Here’s the question…

Now that the US passed the Bailout plan, what effect will this have on our economy and in-turn our real estate?

Looking forward to a great discussion…

Sometimes… seeing a picture is worth a thousand words.  We have all heard that the US is in a housing crisis… but the above photo puts another spin on it, and lets us really see what is happening.  Really makes you start to wonder when will the bottom happen for the US? Source:Bloomberg.com

Would love to hear your comments on where you think the US is heading!