A monthly scorecard on the state of the economy in North America and beyond


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Canada’s retail banking industry is normally a fairly sleepy but profitable place. Competition for consumers tends to come in the form of TV spots about branches open past 4 p.m., rather than big savings rates and cut-rate account fees. So it is unusual to see a real fight break out for customers, as is now happening in the mortgage business. Bank of Montreal has led the charge, slashing rates in a bid to steal market share from its rivals. Suddenly, the banks are in such a tizzy doling out mortgages at such low rates that they’re pleading with the federal government to regulate their business and essentially save them from themselves—a notion which strikes the finance minister as “a bit odd.”

“[Bank executives] must forget that they are actually the ones that issue the mortgages. It’s their market. It’s not my market,” said Jim Flaherty last week. The Conservative government, concerned with rising debt levels, has already stepped in three times before to tighten mortgage rules (requiring shorter amortization periods and bigger down payments). But the banks are the ones that decide the interest rates and lending terms. For any bank to characterize itself as an addict in need of intervention isn’t just odd, it’s insincere.

The real hitch is that banks don’t shoulder the risks associated with insured mortgages backed by the Canada Mortgage Housing Corp.—taxpayers are the ones on the hook. This is where the real intervention is needed. Ottawa is on the right track, having recently set a new $600-billion limit for the amount of mortgage insurance the CMHC can have at any one time. If mortgage risk starts to shift back to the banks, where it belongs, it seems likely the Big Five would have no trouble regulating their behaviour. And the economy would be better off.

By the numbers

10 per cent: The proportion of Canadians now using Netflix. Those users also watch 28 per cent more TV than average.

78 cents: Air Canada’s stock price last week after wildcat strikes by ground workers in Toronto and Montreal.

$1.6 million: The low selling price of the 14-bedroom home in Chicago made famous by the film Home Alone. Jealous, Vancouverites?

62 million: People who visited the U.S. last year, a record (21 million of them were Canadians).

$200 million: The writedown Disney will take on the film John Carter, 2012’s first blockbuster flop.

$25 billion: Profit earned by U.S. taxpayers on mortgage bonds bought by Washington during the financial crisis.

‘I am directing my administration to cut through red tape, break through bureaucratic hurdles and make this project a priority.’

—U.S. President Barack Obama on plans to build the southern leg of the controversial Keystone XL pipeline. Back in January, TransCanada was denied a key permit by the Obama administration for the entire 2,700-km project, stretching from Alberta’s oil sands to the Gulf Coast, in the face of stiff political opposition from environmental groups.

Signs of the Times: To new markets, and beyond

Nissan is planning to dust off the Datsun name after 30 years. Sadly, there will be no return of the 240z in Canada. The move is part of a bid to lure young buyers in emerging markets, like India and Russia, with entry-level cars. Nissan hopes to boost market share to eight per cent globally in the next five years, up from 5.8 per cent.

After guiding McDonald’s through years of steady growth, Jim Skinner is retiring as CEO. His timing isn’t to everyone’s taste. Incoming CEO Don Thompson lacks Skinner’s overseas experience, and outside the U.S. is where real growth opportunities lie.

The head of the Federal Aviation Administration said in a hearing last week that the space tourism industry will be worth $1 billion a year in the United States within the decade. The first liftoffs are scheduled for 2014.

China now leads the U.S. in the adoption of smartphones, according to a new report by the research firm Flurry. Its market is booming—China started 2011 in 11th place among countries. Almost a quarter of all Apple and Android smartphones in the world are now being activated in China.

The bad news

Manufacturing in China hit a four-month low, raising fears of a slowdown in the world’s second-biggest economy and pushing global stock markets down l ast week.

Two economists with the U.S. National Bureau of Economic Research say deep recessions with slow, jobless recoveries will be the new norm. Enjoy the good times while you can.

For the first time Apple is selling more smartphones in Canada than rival Research In Motion. So much for that home-field advantage.

Condo sales were down 59 per cent in Toronto in February from a year earlier. The real estate industry says it’s just a typical February lag, but 59 per cent!?!

The bad news

FedEx is scaling back operations, parking some planes in anticipation of slightly weaker economic growth of 2.1 per cent in the U.S.

Wholesale trade in Canada fell one per cent in January. It was the second drop in three months. Manufacturing sales also dropped, off 0.9 per cent. The economy sputters along.

The good news

Building permits in the United States jumped 5.1 per cent in February to 717,000. Two-thirds are for single-family homes. The once shattered housing market is back.

Jobless claims in the U.S. fell to 348,000, the lowest level in four years. The jobs recovery could be the real deal, even despite a persistently high unemployment rate.

Canadian retailer Lululemon reported fourth-quarter revenues were up 51 per cent, to $371 million. Yoga pants: not just a fad after all.

U.S. imports shipped in containers, from auto parts to furniture, jumped 4.1 per cent in January from a year earlier. America is in a buying mood again.

Amazon is spending $775 million to buy Kiva Systems, a maker of robots for shipping centres. It won’t cut human jobs. (But when machines take over, we’ll know who to blame.)

Retail sales in Canada rose 0.5 per cent in January. The largest boost was seen among new car dealers, with the healthiest monthly gain in nearly three years.

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  1. “It seems likely”?

    Pray tell why?  Because hoping and wishing make it so?  Why do you think they’re asking now for the government to pass regulation?  After all, if the CMHC is the one taking the risk, what’s it matter to them?

    The thing is, the banks already know they’re well beyond what the CMHC can actually afford to insure if it all starts to collapse.. the risk is already on them, which is why they’re calling for changes in the first place. Has that mitigated their behavior at all? Doesn’t seem so. But why should it? After all, mortgages are a long-term risk game, stock options — which is what they primarily get paid in — are a short-term game.  And they all know if they take action on their own to cover the long-term risk, their stock options suffer as competition pulls the short-sighted people (aka, most of them) away.

    This is at the crux of why the libertarian manifesto doesn’t work.. it relies on two things – first, that people are thinking rationally about their long term prospects as well as their short term. But the truth is that by and large we don’t. This isn’t a fault of people being stupid.. this is evolutionary heritage. Because people who think long term and not short term are more likely to die before they breed, while people who think short term, whether they think long term or not, are more likely to have progeny to carry on those short-term thinking genes.

    Second, that people’s actions have no effect on each other except for when they directly interact. Which is complete horse-crap. If enough people around you go bankrupt, odds are you’re losing your job, even if you’re the smartest, hardest worker on the block.

    •  It doesn’t “seem likely”. It “is so”. If the CMHC were to stop insuring mortgages, banks would automatically raise their lending standards and start making safer loans. They do not “already know they’re well beyond what the CMHC can actually afford to insure”. The CMHC is a government agency. As the recent history of western governments in economic crises has shown, we are more than willing to bail out loser banks without making anyone take even the smallest of haircuts, in the process shifting the liability to taxpayers as a result of the moral hazard that they themselves created.

      When the government gets involved in banking, it creates crises. Let’s read that again–the government creates gigantic banking crises, not the free market. First, the CMHC. As explained above, when the government is insuring mortgages, the risk is inadequately priced. There should be a free market for mortgage insurance as with many other types of insurance, not a government-run cheap insurance factory. Why should taxpayers be on the hook when someone defaults on their mortgage? That is socialism–socialized losses, which is something that people on the left dislike when banks gets bailed out but apparently fail to realize that the exact same phenomenon occurs with government-granted mortgage insurance.

      In that very same vein, the second government intrusion in banking, insured deposits (via the CDIC), is another factor in the loosening of lending standards. When you are deciding which bank to store your money with, do you really care which one you choose? Not really–the only real differentiating factor between the big 5 is a few more hours the branches are open or some other similarly small thing. Why? Because the government insures your deposits (socializing losses if the bank goes under–finding a theme here?). The reason you don’t care is that the government insures your deposit. If they did not, banks would have to compete for your money based on another dimension: safety. Let me emphasize this: safety. If the government did not insure your bank account, banks would compete for your deposits by being the safest. Then you could choose for yourself what bank you want to use, and the amount of “risky” loans they make would be reined in.

      Free markets ensure that losers are cleansed from the system. Governments that back banks, both implicitly (as in the US) and explicitly (the US and Canada), ensure that excessive risk can be taken with complete impunity. If you want safety in Canadian banking, tell the government to get the hell out.

      • Blah, blah, blah, blah.. since your rant against the CMHC entirely missed the point here it is again. But this time I’ll try to use simple steps so that you don’t lose focus quite so easily.

        1. *All* banks are receiving the same insurance from CMHC.
        2. Therefore, whether the risk is priced appropriately is *irrelevant* to the discussion, because it is priced at the same (inappropriate) levels for all of them.

        Is that so hard to understand? They all get CMHC now. They all have the same risk. Remove CMHC. They all *still* have the same risk — it’s just higher.

        They wold *still* have to compete, and people would *still* pick the mortgages with the lowest rate, and competition would *still* affect their stock values which is *still* what the bank executives get paid in, so they would *still* be calling for the government to regulate the bottom end to prevent them from killing themselves in the long term because of the short term reaction of stock prices to their activities.

        If we removed CDIC, it’d get replaced by private entities. Banks would take out insurance from private companies and all claim that their deposits were insured. They would also, being driven by shareholders and the urge to keep costs down, all take out this insurance from the company offering the lowest rates. Does the name AIG ring any bells? Meanwhile, average joe consumer has neither the time nor the wherewithal to peruse the balance sheets of their banks, wade through insurance documents, then peruse the balance sheets of their insurers, and so on down the line, so they’d all go with whoever said they were insured. And when it collapsed, we’d be looking at bank runs like in the great depression, and the financial system would ground to a halt for anybody without extra cash stuffed in their mattress.

        Free markets do NOT insure that losers are cleansed from the system. Depending on the size, losers can take a lot of hits. Depending on the barriers to entry — which can be natural, legislative, or even corporate driven (see software compatibility) they can take even more hits.

        All the free market does is ensure when there’s a hit, it’s the smallest guys who get their teeth knocked out.