Take it to the bank

And make sure it’s a Canadian bank. The things are bullet-proof, apparently. I can certainly vouch for the incomparably higher quality of Canadian banks compared to, say, their awful, awful, awful French counterparts.




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Take it to the bank

  1. I don’t know about you, but I find this worth pondering:

    “But the report wasn’t all praise. Canada’s macroeconomic stability failed to receive a competitive grade in any of the five sub-categories and was ranked 43rd overall. The government debt – nearly 70% of GDP – ranks 107th of the 134 countries surveyed, while the national savings rate ranks 61st, and inflation ranks 26th.

    In addition, nearly a quarter of respondents cited Canada’s high tax rates as of the “the most problematic factors for doing business.” About 15% also cited tax regulations, and 12% said government bureaucracy was a top problem.

    Yet if the Prime Minister’s comments on Wednesday are correct, those same regulations that are burdensome to investors may be the same ones that have helped keep the financial sector in order and out of crisis.”

    BTW, I don’t thing the Conservatives can take credit for the success of the Canadian banking system, especially based on this:

    “Our government saw the U.S. problems coming more than a year ago, so we weatherproofed Canada’s banks before the storm hit,” the Prime Minister said. “We’ve had a plan for the past year to deal with the banking crisis … and it’s why our banks are safe and other countries’ banks are not.”

  2. What I would like to know is where are all those experts that used to complain that our banks were over-regulated, too risk averse, too small, etc. etc. during the 90s?

    It would seem that those characteristics that held back economic boom are the very characteristics that protect us from the resultant bust.

    While the symmetry is appealing, there’s a mental disconnect there no?

  3. I sometimes ask myself whether Paul Martin saved Canadian banking when he refused the megamergers in the 1990s. I honestly haven’t the faintest idea what the answer to that question would be. Fun question though.

  4. Yet more evidence Harper should be encouraging wild panic… wait, what?

    What’s making me the most angry is that I’m starting to sound like a hyper-partisan clown… because you don’t get enough of those around here…

  5. So in other words, by decreasing debt repayment, failing to put the brakes on the oilsands (which have been driving inflation), and adding to the complexity of the tax code, Harper has been exacerbating our perceived economic weaknesses?

  6. The government debt – nearly 70% of GDP – ranks 107th of the 134 countries surveyed.

    What the heck is this? According to Konrad Yabasuki in today’s Globe, and my general understanding, we peaked at 68% in the ‘Northern Mexico’ phase, and are now below 30%… where is this 70% coming from? Is that including provinces?

  7. That figure is total government debt, not just federal, but provincial and municipal.

  8. Sure, our banks are the best but are they… the BEST ENOUGH? Oh my God… must panic… THE PTA HAS DISBANDED!

    *jumps out window*

  9. “comment by Paul Wells on Thursday, October 9, 2008 at 11:31 am:

    I sometimes ask myself whether Paul Martin saved Canadian banking when he refused the megamergers in the 1990s. I honestly haven’t the faintest idea what the answer to that question would be. Fun question though.”

    I’m not an expert so, who knows. The banks claim they wouldn’t have expanded any more into the US had they been bigger. But seen as the mergers were supposedly necessary for more growth down south, I don’t believe them.

    All I know is this:
    1. The banks are keeping half of that rate cut in their pockets instead of putting it in ours.
    2. My insurance from TD Meloche Monnex went up 20% for no reason (no accidents, nothing).

    I think the banks are exposed to the mess down south, they’re just quietly passing on the costs of their investment losses to consumers, through their lending arms (the half-assed rate cut) and their insurance arms (my jacked up insurance).

  10. I think the banks are exposed to the mess down south, they’re just quietly passing on the costs of their investment losses to consumers, through their lending arms (the half-assed rate cut) and their insurance arms (my jacked up insurance).

    Exactly.

    While banks are “safe”, because the government underwrites their risky investments, somewhere down the line someone has to clean up their mess after their all-night partying.

    And that someone ends up being us.

    To spout off that “our economy is sound” or that “our financial system is safe” is a connived contrivance…nothing more, nothing less.

    Austin

  11. But is it the US banking system which is at fault in all this? It seems to be more about the merchant banks and money markets being allowed to play fast and loose with their capital ratios plus Washington meddling (Fannie Mae and Freddy Mac). Yes – a couple of major banks got sucked in as well, but the vast majority of US banks (and there are thousands of them) are chugging along just fine.

    The subprime problem is a particular problem, not some symptom of general malaise in the banking system.

  12. Every one can thank their lucky stars we live in Canada…. a beacon of light in a storm.

  13. Austin – not sure what you are on about, but the key factor in favor of Canadian banks is that they have enough capital to cover their liabilities. Sure, they have risky investments but they can cover these easily.

    Also, just a side note: banks are not a social service, they are for-profit corporations with shareholders. Their job is not to make money for anyone except themselves and those shareholders. If you don’t like their charges/insurance fees etc., take out your money and put it under your mattress.

  14. Paul,

    in defense of mergers, a few points.

    1. Large banks are more likely to internalize the externalities of engaging in risky and dangerous schemes like subprime lending, because they comprise of such a large share of the Canadian economy.

    2. Overseas acquisitions give our banks a more diversified portfolio that is LESS risky in the long-term. Canada is sometimes in recession while the US is not and vice versa.

    3. Why wouldn’t Canadian banks run their overseas acquisitions as prudently as their Canadian holdings? Regulations might be different (I have friends that work for the banks and it is surprising how little regulation there is in the US), but that still doesn’t change the fact that the big 5 are risk averse managers by design. For instance Canada doesn’t have a reserve ratio requirement (a requirement that a certain % of money lent out be stored in the ole vault), but our banks maintain reserves voluntarily because they are inherently risk averse.

  15. Makes sense to me, h2h. I don’t have any strong opinion on the wisdom or otherwise of the megamerger decision.

    Now I do hope you’ll go back and look at everything else that was happening in the Swedish economy in the early ’90s…

  16. Paul,

    I see your “censured hidden news stories” tag on this, probably for kody and I…

    Here’s a fun test. There is a reference to this story somewhere on globeandmail.com Try to find this story on globeandmail.com without using a search engine.

  17. Everyone who should know agrees with Harper : we have no reason to panic, we should change nothing.

    At the same time, Harper is ridiculed for not panicking, not changing anything.

    I’ll vote for no one but Harper.

  18. The Economist suggests “Harper does not deserve to be dumped.”

    “in a sinking world, Canada is something of a cork. Its well-regulated banks are solid. Growth has slowed but not stopped. [...] But it is his seeming non-reaction to what is so far a non-crisis that looks likely to deny him the majority he was seeking, and could even let in the opposition. In what is the first credit-crunch election in a big Western country, Mr Harper’s ejection would set a dispiriting precedent that panic plays better politically than prudence.”

  19. Canadians banks are strong because of the regulatory reforms coming out of the Reagan Recession and the NEP in the mid-eighties while Mulroney was in power). Canada had its own “subprime” mortgage problem in the early seventies, which spawned reviews and reforms that were completed during the mid-eighties
    http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?DetailID=372

    Disallowing mergers kept the banks from getting into mischief. Now there will be no need for mergers, because Canadian banks can go be “predators” in the States now if they want to get big.

  20. Did anyone, Mansbridge, other interviewer, or campaign reporter, ever ask Harper whether the Liberals should get credit for the strength of the Canadian banking system, or did he want to take it all??

  21. Manny, I do wish you’d be clearer about how you’ll vote. Your ambiguity is torturing us all.

  22. On Mergers:

    One of the reasons Canadian Banks didn’t get as far into the subprime stuff is because they make money hand over fist – this is a highly profitable banking market, driven in part by being an oligopoly.

    Canada’s bank executives tend to be risk averse, because who would risk the huge profits they already make?

    Going from 5 banks to 2 or 3 probably would have had no effect or even reduced the risk appetite of the bank.

    On the topic of Haper’s government ‘forseeing’ this crisis and fixing it in advance:

    Are you guys going to let him get away with saying that with out backing it up?

  23. Mike G, interesting article in the Economist. But you forgot this part…

    Stéphane Dion, the Liberal leader, bravely proposes a carbon tax, which he claims would be revenue-neutral. Simply to rubbish this as a “crazy” idea that would “screw everybody”, as Mr Harper has done, shows a disappointing lack of leadership, and is grounds enough to deny the Conservatives a majority.”

  24. On the topic of Haper’s government ‘forseeing’ this crisis and fixing it in advance:

    Are you guys going to let him get away with saying that with out backing it up?

    Why not Scott? Everyone seems to want to blame him for his do-nothing approach, when as of yet THEY have provided no evidence that a) he has done nothing and b) that any drastic action is even required, given the recent reports about our relative health.

  25. John G:

    On your point a) Evidence should be provided of doing nothing vs. have done something? Makes my head spin.

    Agree wholeheartedly with your comments on point (b).

    But Harper’s claim that the government saw it coming and fixed it in advance is at best a major stretch of the truth and at worst a lie.

    Had they seen it coming, shouldn’t they have publicly shared it with (i) the Canadian people and (ii) our biggest trading partner in a very aggressive way so as to help avoid a mutual recession?

  26. Manny, I do wish you’d be clearer about how you’ll vote. Your ambiguity is torturing us all.

    I think my favorite part about following this election is watching people like Paul—-people who aren’t exactly doctrinaire socialists—-lose all patience with the desperately spinning conservative trolls.

  27. Had they seen it coming, shouldn’t they have publicly shared it with (i) the Canadian people and (ii) our biggest trading partner in a very aggressive way so as to help avoid a mutual recession?

    (i) Absolutely not. No government publicly muses about a crisis months in advance of it happening, otherwise it becomes a self-fulfiling prophecy

    (ii) Maybe they did, but did so behind closed doors. See (i) above.

  28. I’ve always been impressed by mindreading.

  29. “The Economist” says…
    Stéphane Dion, the Liberal leader, bravely proposes a carbon tax, which he claims would be revenue-neutral. Simply to rubbish this as a “crazy” idea that would “screw everybody”, as Mr Harper has done, shows a disappointing lack of leadership, and is grounds enough to deny the Conservatives a majority.”

    At least the Economist didn’t buy Dion’s assertion that the proposed tax, which he plans to introduce regardless of economic circumstances, is revenue neutral.

    The Economist is also correct that Harper missed a golden communications opportunity in attacking the carbon tax. What Harper should have done is to point out that it is lousy environmental policy.

    The tax doesn’t discourage fossil fuel consumption in the one area where it should have had the biggest impact – gasoline. By exempting gasoline (the transportaion sector accounts for 40 percent of all GHGs in Canada) the Liberals showed they see the carbon tax as a symbol not a real environmental tool.

    Moreoever, Harper should have gone after the fact that the tax is not being used to advance green tecnologies, but rather it is a revuenue source for a bunch of Liberal friendly social programs such as daycare. Since when should our government be using a carbon tax to pay for daycare?

  30. Gasoline is not exempt. All existing excise taxes on fossil fuels would be rolled into carbon tax. It just so happens that gasoline has the highest ‘carbon tax’ already.

  31. Canadian banks won’t look like such a safe bet if they start buying dodgy Yankee banks, as seems to be in the works :

    http://www.financialpost.com/story.html?id=866521

    Also, the Bank of Canada has already pumped $20 billion into the banking system in Canada :

    http://www.cbc.ca/money/story/2008/10/03/bankofcanada.html

    The Bank of Canada in co-ordination with the Bank of England, the European Central Bank, the Swiss National Bank and the US Federal Reserve put another $3 billion into the system :

    http://www.bank-banque-canada.ca/en/notices_fmd/2007/not121207.html

    Canada has a financial exposure in this crisis. Time to stop pretending.

  32. “The tax doesn’t discourage fossil fuel consumption in the one area where it should have had the biggest impact – gasoline. By exempting gasoline (the transportaion sector accounts for 40 percent of all GHGs in Canada) the Liberals showed they see the carbon tax as a symbol not a real environmental tool.”

    Oh, and I fully agree. The carbon tax is Dion’s “green” version of Harper’s incrementalism. The tax would just be the start of it, which is why I’m not a big fan of Dion and I would reconsider voting for him if he was going to win.

  33. Harper and Flaherty claim that their response to this upcoming crisis was to accelerate the GST cut.

    Unfortunately, that was the worst possible thing they could have done since in a panic/recession situation, everyone sits on their money and does not spend. Therefore the benefit of a GST cut becomes increasingly neglible.

    If they had provided an income tax cut, that would of at least put more money into our pockets up front increasing the likelihood of our continuing to spend money.

    Failing that, if they had just forgone the GST cut and provided the manufacturing sector of Quebec and Ontario (and the rest of Canada really) with a Green Loans program of 5-6 billion dollars which would have helped to maintain or create new “green sector” jobs (fuel efficient cars, solar cell & wind turbine manufacturing, etc.). Even Bushco knows enough to do this (with a $25 billion green loan fund being create south of the border).

    So yes, Steve and Jim did react a year ago to the upcoming crisis. But they did pretty much the worst thing they could do: provide a useless tax decrease that did not help our economy or cushion the current economic blow.

  34. PW, I think it’s obvious that we’d be in a world of hurt (along with the rest of the world) right now if those mergers went through. Not because those mergers were bad themselves, but because the stated goal of the mergers were to bulk up so that the domestic banks would have the size and scale to compete on an international scale, and to most, that meant the USA. I’d imagine a Royal Bank of Montreal would have loved to take a run at something like a Wachovia. In fact, in the most recent wave of consolidation in Europe (mostly now bankrupt) there was incessant hand wringing about how the Canadian banks were left out of the fun, and would have loved to take on ABN Amero, if only they were allowed to merge and had the size and scale to do so. I can’t remember how many times I read an woe is Canada article about how the Royal Bank of Scotland used to be the same size as the Royal Bank of Canada just a few short years ago, and is now 10 times the size (well, up to a few weeks ago).

    Anyway, before we give Paul Martin too much credit, let’s keep in mind this was certainly NOT the reason that he didn’t allow the bank mergers to go through, but as they say, better be lucky than smart, right? Anyhew, Europe, and it’s complete inability to deal with it’s EU sized International banks problems with national sized ineffective government bailouts and rescue packages just shows that the era of international banking is coming to an abrupt close. Lucky for us, we never bothered to really get into that business, except for a few toes dipped into New England (TD), North Carolina (RBC), Chicago (BMO), and South America (BNS), but nothing to the scale of our friends across the pond and down south. The situation in poor Iceland (to be blunt, they’re screwed!) is a perfect example of why we now know it’s a pretty darn bad idea for a small country to develop a banking sector that is so disproportionately bigger than it’s domestic GDP.

  35. Mulletaur, we have exposure because we’re not an island. In a global credit squeeze, if we are a part of the globe, we feel it too. We have liquidity problems because everyone is scared of lending, but the difference between us and other countries is our banks do not have capital issues. We are doing bank of canada liquidity injections, not government of canada capital injections (like the 700 billion dollar taxpayer funded congressional bailout in the US was).

  36. Mulletaur, I agree. The “don’t worry, be happy” line irritated me, and it seems most of us were skeptical. But to be quite honest, I’m even more annoyed with the doom and gloom Layton and Dion approach. Anyway, I’m sure people will agree or disagree based on what side of the political spectrum they are on, but in the end, what we can all agree on, is that this turned out to be a BAD BAD BAD time for an election. I’m also kind of concerned about what will happen if they need to transition finance to someone else, like if Flaherty is (and probably will be) defeated in the next couple days. Ugh. We need to do something about this faltering political system, lest we look back at 2004 and see it as the year when Canadian politics became Italyified.

  37. Meany, it’s never a bad time to have an election.

    The economic crisis which has taken place during this election has highlighted the differences between the parties’ economic and fiscal policies : the Conservatives believe in the same laissez faire policies which got us into this mess to begin with, kept us down during the Great Depression and do not provide any solutions as any interference in the ‘market’ is wrong even if market failure caused the problem to begin with ; the NDP doesn’t believe in profit and thinks the treasury is an eternal spring from which they can endlessly draw money for their utopian socialist projects without any cost to the economy ; and the Liberals believe in both the free market and the role of the government to regulate it or fix it when it goes wrong.

    On second thought, perhaps it was a bad time to have an election. For the Conservatives, that is.

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