..it doesn't seem to be as simple as "Canadian banks are more tightly-regulated".
1. We never had restrictions on interstate banking, so Canadian banks spread their assets and liabilities across Canada. (So it doesn't matter if a local housing market goes bust).
2. We don't have Glass-Steagal. The investment banks joined the retail banks some years ago.
3. We don't have mortgage interest deductibility from taxes. So paying down your mortgage is a tax-free investment. So most people want to pay down their mortgages.
4. (Except in Alberta), mortgages are fully recourse. You can't just walk away from a negative equity home and hand the keys to the bank; the bank will come after you for the difference.
I wouldn't describe those differences as "Canada is more regulated".
But we do have higher capital requirements. And mortgages over 80% must be insured (mostly by the government-owned CMHC).
The standard liberal response is that all of those regulators were in the grip of Anglo-saxon free market mania. Maybe. This Anglo-Saxon mania seems awfully broadly distributed, into countries that don't show much sign of it in other sectors of their economy. More importantly, even if all of these countries had banking systems that were equally unregulated by some metaphysical metric divinable only by contributors to Crooked Timber, they were differently unregulated. Yet countries with very different (assuming arguendo, all bad) regulatory systems were all hard hit.
But I don't find this list all that plausible either. 1-4 also describes Britain, indeed, much of Europe. And the last item describes America--it's just people found cute ways to get around the insurance requirement with piggyback loans.
I hate to say it, but the best explanation I've heard comes from Canadian bankers, and people who have worked in/with Canadian banking. It's that the Canadian bankers are, well, Canadian. They're very conservative. And they don't trust easy money.
I echo, and perhaps amplify, Megan's thoughts. The root cause of all of this was the relaxing of that last statement. I can clearly remember having my downpayment scrutinized, 15 years ago.
Did you borrow this money?
Did you parents give you this money?
Etc.
Plus, as you say, if it was less than 20% of the loan, you had to get the insurance. No exceptions.
Who relaxed these rules? Liberals. Bill Clinton, George Bush, Barney Frank, Andrew Cuomo, Lindsay Graham, etc., etc., etc.
Social Engineering gone awry, yet again.
Did banks prey on this? Of course they did. That's what banks do. But if the liberals had never mandated that mortgages be given to people who had - and have - no business getting mortgages, this would have never happened.
You would have some good points if you didn't hide it in liberal bashing. George Bush and Lindsay Graham are not liberals. Perhaps the conservative desire to disown them and call the "liberal" indicates there's some conservative culpability here.
If conservatives can't take part of the responsibility (read too much cheap money, for starters), it will be more difficult to find a path forward.
I'm not all that happy about it being a liberal way, I'd prefer a more mature, bi-partisan approach. That's got to start with conservatives doing some soul searching, and not just casting blame.
You haven't noticed how many people have walked away from the RNC specifically because people like Bush, Graham, McCain, etc. *are* liberal in so many policies that they might as well take the whole title?
Too much cheap money, I agree 100%. But, again, what Conservative would have called for a monetary policy that led to such unbelievable inflation? And why, still, don't people recognize that the housing bubble was nothing more than that - classic "too much money chasing too few goods" inflation.
And, to go a step further, we are *still* seeing monetary policy that is guaranteed to result in inflation - particularly since the Fed has teamed up with Treasury and are actively monetizing debt. It's madness, and the only people who don't recognize it - or deny it - are those in power, or in love with those who are in power.
China certainly recognizes it, as demonstrated by their recent "we think we've had enough of your debt, thank you" messages.
Re: bashing, I use words that apply. They aren't pejorative or exalting, they merely describe a mind-set. It's easier to use the term "liberal" than to write out the litany of their beliefs, like: large-government, transfer-payments, open borders, ignore the debt even when it's alarming, etc.
Some of Bush's positions did alienate him from his base, but he was elected president as a Republican twice and maintained a staunch social conservativism throughout both terms. Stating that some of his policies were too liberal, and leaving it at that, will advance the debate much farther than trying to definitioneer him into a liberal, because that charge won't stick.
@aMouse
he was elected president as a Republican twice and maintained a staunch social conservativism throughout both terms.
While most Republicans are conservative, self-identifying as Republican doesn't make you conservative. See e.g. Sen. Arlen Specter.
Likewise, while many social conservatives agree with conservative economics, many others don't (except to pay lip service). See e.g. Gov. Mike Huckabee, Pres. George W. Bush, etc.
My brother worked as a mortgage underwriter in a bank, and about 3 years ago, the bank was purchased by a larger Canadian bank.
In the midst of the housing boom, first thing the Canadian bank did was shut down the underwriting department, had it done elsewhere, and tightened up lending significantly. And my brother was out looking for a job.
I've wondered about the wisdom of that bank often, since.
This is an interesting post. But, it is hard for someone who doesn't know your back-story to follow. Some questions:
Are you in America or Canada? So your brother was working at a smaller Canadian bank or American bank?
Do you think it was a good idea for the Canadian bank to shut down the underwriting department? Why do you think they did it? Did your brother say there was crazy stuff going on? Or does he say that they were doing a great job, and it was a mistake for the Canadian bank to shut it down?
You say you wondered about the wisdom. What do you mean? At the time why did you think they shut it down (just to save costs for example?) what when through your mind, and your brothers mind?
This would be a great story if you gave some more details. Please dont assume we know what you are talking about. :-)
As to point 4, it is not true that mortgages throughout the United States are nonrecourse. There are some nonrecourse states, including most notably California, but the majority of states are recourse.
"Canada is one of the few countries without a major banking crisis."
Are there really that few countries without major banking crises today? Even if you limit your universe to OECD countries, aren't there more countries without major banking crises today than with them?
Australia is in a similar situation to Canada, and shares the attributes of free interstate banking, no regulatory division between investment and retail banking, recourse mortgages, and no mortgage interest deductibility on a primary residence (there is deductibility for investment property). Despite a housing bubble that mirrored California's (in price appreciation if not overbuilding) its unwinding has not buried retail banks in Australia, either. The only financial institutions facing liquidation in Australia are those (like Babcock and Brown or Challenger) that went into securitization in a big way. The practice - common to banks in Canada and Australia - of retaining mortgages on a balance sheet ipso facto means a less leveraged and more robust financial system.
My guess is that they have some common sense math that helps them keep tabs on a few things.
What proportion of the home loans out there are nonrecourse? My understanding was that most loans here in the U.S. were recourse, and nonrecourse was more the exception.
Still, I don't know to what degree nonrecourse loans had to do with the crisis--I doubt many borrowers were considering that their homes would end up underwater when they borrowed, let alone relied on the idea that they could walk away relatively scott free afterwards.
I remember the atmosphere a few years back--everyone was convinced (from word of mouth, from the media, etc.) that house prices would keep going up and at worst maybe plateau. The idea was that land was ultimately finite, and so it couldn't drop in value--population over time would keep increasing, demand would remain strong, etc. What wasn't properly considered was that prices would soon outpace incomes to such an extent that there would be far too much inventory for the buyers and the whole stack of cards would come crashing down.
In all this, underwriting standards were ignored, borrowers were foolish, and the government did what it could to keep the bubble growing (low interest rates, lack of regulation, all sorts of tax deductions for homes). Good for the Canadians for being more prudent.
This sounds very much like Marie-Josee Kravis' Op-Ed in the WSJ yesterday. Inspired by?
And not to nitpick, but I think the word is "Exceptionalism": "the condition of being different from the norm ; also : a theory expounding the exceptionalism especially of a nation or region."
How many of their banks were leveraged 30+ to 1?
Megan's final point IS the point. Belt and suspenders and nevermind what the cool kids are doing. Scottish/British-colonial heritage and "group vs the elements" type risk perception. Imagine what the usa would be like if it was all your northernmost states.
I'm not so sure that Canadians are expectionally conservative (risk-averse?). Probably we are more conservative than Americans, but I can't imagine we are more so than Swedes, Germans or Icelanders.
If you look elsewhere in the economy (the labour market and our social safety net for example), our taste for risk is somewhere in between the US's and Europe's.
By the way frankl, aren't a disproportionate number of banker-types on Wall Street from the northernmost states?
If I may stereotype the entire Canadian banking system...There is a deep-seated mistrust of all loan applicants (and bank customers in general) that originated long ago in both classist and racist WASP bigotry. I've experienced it numerous times in Canada; and I experience it in the US whenever I go to a bank branch that believes itself to be serving a poor minority population.
Don't forget that correct decision-making is about both process and outcomes. The Canadian outcomes may have been better than other countries, but that doesn't mean that the process was remotely correct.
Mark, but that has been megans point from the git go. Minorities are less likely to afford their loan, and any step you take to make your loan more secure will at the same time be limiting loans to minorities. So you can have a "correct process" or a correct outcome. We picked the former, the Canadians picked the latter.
We may have picked the "correct outcome" in this limited situation, but the same "incorrect process" makes Canadians terrible venture capitalists. In Canada, what we call VC funds are really just management buy-out funds, or sources of mezzanine financing for established companies. As a result, getting a venture of any kind off the ground in Canada is essentially impossible, unless you're in an industry that scales down well (think timber harvesting).
It's not nice to steal content without giving a link, Megan.
Here's the original source.
i was thinking of minnesota/wisconsin/northdakota/maine parts of the usa being very canadian-like and i don't think many WallStreet denizens hail from those sparsely-populated zones - in fact there are LOT of canadians working on WallStreet and in London too.....but the guys at the top of canadian banks are not like the guys who chase high finance jobs around the world, at all, at all.
zic- by any objective standard, Bush is a liberal.
Sorry, you don't get to cleanse conservatism that way. Too much I say this, but I mean that in conservatism today, this is just another example.
He was was a conservative, elected by the Supreme Court in 2000 and elected by re-elected by conservatives in 2004. You want to call him al liberal? That's just adopting more double-speak and refusing to take responsibility for the failure of conservatism he represents:
- failure to control fiscal policy
- failure to respect individual privacy
- failure to responsibly manage government
- failure of international diplomacy
- failure to conserve resources.
These are conservative principals I love; I grieve we've lost sight of them in jaw-boning about abortion, gay marriage, prayer in school, torture, illegal wars, and Moses monuments.
"These are conservative principals I love; I grieve we've lost sight of them in jaw-boning about abortion, gay marriage, prayer in school, torture, illegal wars, and Moses monuments."
And yet you want to discredit all conservatives through connection with Bush? I've got news for you - there were a lot of things Bush did that had (true/traditional) conservatives pretty apoplectic.
It's that the Canadian bankers are, well, Canadian. They're very conservative. And they don't trust easy money.
Finally, you made a point I can agree with.
Cultural conservatism - business, financial, temperment - this is what stopped the rot. Canadian financial institutions assume that what was true of the panic of 1890 would be true in 1930 and is true in 2009. Capital requirements, lending practices etc.. have remained remarkably consistent. Politics comes into this too, because in 1995 the Canadian bankers did get together and petitioned the federal government to let them merge... so they could have the heft to play the securitization games Citi and UBS were playing. The Federal Liberal government in power applied its innate conservative principles and said no. (I know that one might be hard for some to get your heads around but keep trying, it'll come) That was a big bullet dodged. The practice of separating the CEO from the Chairman of the board on Canadian Banks is another asset. Keeps responsibilities clear.
To build enough new homes to increase the risk to the banking system in the time frame of a bubble, you need weather permitting and an itinerant labor supply. Maybe Canada was saved from a crisis by its climate and other practical matters unrelated to regulatory policy.
No, construction is a year-round activity up here. All you need is a bit of plastic sheeting and a few space heaters.
It is nice to have Canada as a point of reference, involving questions of cultural ethics and direction, modeling courage, fortitude, and eminent good sense. Some believe Canada is what the U.S. once was. Whether myth or reality, it is good that Canadians project an image of doing things differently with success.
I would suggest that the major difference is that the only areas where housing increased in price substantially and dangerously (and who are taking write downs, under water mortgage holders, and the like) make up only 1/6th of the canadian population.
Canada is made up of, lets illustrate, New York State and 9 Iowas. Half the population lives in one city, which has been underperforming, and although had some increase in prices, didn't see the mad increases as elsewhere. It is a stagnant economy, with the industrial base disappearing, wages dropping, etc. So there wasn't the boom, hence the banks weren't exposed.
On the other hand, Alberta and British Columbia, and at the tail end of the boom, Saskatchewan, had real estate prices triple or more. For Alberta and Saskatchewan, it has been a resource driven boom, and housing prices rising from ridiculously low to affordable up to what would be moderate to high elsewhere. British Columbia is probably in the worst shape; starting high and going very high, and now dropping substantially. But it is a small portion of the national market, and the banks being nationwide, are able to swallow it without too much difficulty.
And the Canadian Federal Gov't bought the dodgy mortgages at the end of last year. They insure them anyways under CMHC, so they assumed them, leaving the banks without the drag on the balance sheet.
As for banks not lending, I wouldn't say so. They tightened up seriously 3rd quarter 08, but before that you could get what you wanted, almost. 5% on a $4-500 thousand mortgage is almost a rounding error and can be swallowed in the monthly fluctuations in the real estate market, and yet they were made. Right now people building houses are forced to actually decide what they can afford, which didn't happen in years past. I'm dealing with that this morning. A new house over budget. A co worker was told that they could get a Visa with a high limit to cover those sorts of things. A few years ago. Not now.
I would suggest the biggest difference is not on the downside, but the upside. Anyone losing serious money here doesn't have a second chance. The tax rates and dampening effect of government blanket regulation makes building assets a long process. Short memories are not an option because you have one chance in a lifetime to accumulate some assets. Which enforces some conservatism. Losses are unrecoverable.
Derek
Derek, Can you please tell me how 5.5 million (the population of Toronto) is 1/2 of 33.5 million (the population of Canada)? Even the entire population of Ontario (13.4M) is less than half that of Canada. Also, how it it that you view BC, with a population of 4.5 million as negligible while Saskatchewan with a population of just 1 million is worthy of comment? Far from your asseration that Canada is one NY and 9 Iowas, Canada is made up of a diverse group of provinces--more like and Illinois, a Virginia, a Colorado, an Oregon, a Delaware, a Vermont, a Wyoming and a few other diverse provinces. (On the flip side it would be like saying that the US is like Ontario and 49 Alberats)
Also, the Canadian economy has been almost as dynamic as the US economy over the past decade, and while it may have slightly lagged the growth seen in the US, the current economic crisis has had nowhere near the effect in Canada as in the US, despite the close trade ties. In fact, while the US continues its recession the Canadian economy will lead the G7 in economic GROWTH in 2009 (albeit a only 1.2%)
Finally, even if there is less of an upside in Canada as derek suggests, Canadians as a society, have apparently been able to do far more with their economic growth. Canada has 5 of the world’s 25 most livable cities, compared to the US which is shut out of the top ranks. As for Toronto, in a separate study by the Economist, it ranks 5th (while US cities shut out of the top tier). Not bad for a city that you characterize as an ‘underperforming’ and ‘stagnant’ city.
Also, the Canadian economy has been almost as dynamic as the US economy over the past decade, and while it may have slightly lagged the growth seen in the US...
I doubt you need the modifier "almost" if you're indeed talking about the last decade. The US under George Bush has been a sluggish performer by rich world standards, with modest growth, surging debt, and stagnant wages. In PPP terms, Canada's per capita GPD is now about 83% of the US figure (source: cia.gov), an increase in Canada's favor, IIRC, from where the ratio stood in the mid-nineties. If you're talking about the last decade, it seems to me Canada's economy has been at least modestly outperforming that of the US (and that's without even getting into the two countries' public sector finances).
Wouldn't it be fairer to say, 1 NY State, 2 Iowas, 4 Maines, 1 Washington, 1 Texas, 3 Alaskas and 1...well, whatever the hell Quebec is?
Derek, you are misinformed on many, many points.
Well then, maybe you could explain for us naiive types. When two people contribute, and one presents information and the other says "nope", guess which one gets the credibility points?
The meme up here is that Canadians are smart, Canadians manage things better. Not true. Any time Canadian banks venture into the US market they seem to lose their shirts.
This is a very narrow parochial country, and the banks/political class/bureaucracy are very close. The banks are one of the few quasi monopolies in Canada that don't LOSE money. I suppose that is something to celebrate.
Outside of narrow areas, Canada hasn't seen the boom that the US has, outside of government revenues from resource royalties. There is a single wealth generator in the country. The rest are 'have not provinces', otherwords aren't generating enough economic activity to maintain the level of government that exists.
One could call that wonderful management, or wise conservatism all you like. It is more like a soft management of decline.
Derek
So TD Waterhosue, Sun Life, RBC, CIBC Mellon, Harris have all lost their shirts in the US?
If anything Canada is a far more worldly, open and diverse country that the US. Canadians travel more, and inv4ested in a higher percentage of (there are more Canadian owners of US companies that per capita the US owners of Canadian ones), (even in the financial sector there are numerous foreign players adding a diversity of investment options)
Derek, once again your ideological googles are all fogged up.
Yes, Canada is a resource dependant country (something that the consumer dependant US economy should be thankful for), However, their resource wealth has been shared by far more than a 'single' wealth generator. While Alberta has led the way in the past, other provinces like BC, Saskatchewan, and Newfoundland are quickly catching up and now net contributors to the countries overall fiscal health.
And while the Liberal party did have close ties to the financial sector, they have been all but discredited and the current Conservative government was built on a populist grass roots ethos that they continue to nurture. As such the Canadian system is nowhere near as beholden to corporation and special interests as it's American counterparts.
It's helpful to think of the derivatives markets in the same way that insurance companies think of reinsurance companies. They allow you to expand your capacity (i.e., write a larger volume of profitable business).
In the US, growth was at such a pace (especially housing growth) that the banks couldn't keep up. The MBS market took mortgages off of the banks' balance sheets to expand their capacity and allow for that huge growth. Some took advantage (securitizing ~100% of their mortgage book and focusing on the commission, not the trade). All of this was great (for the brand new homeowners) until the housing market declined AND the credit markets began pricing MBS's assuming a 100% foreclosure rate (i.e., completely frozen). It was the confluence of these two events that led to our crisis, not just the former.
I don't know anything about Canadian economics, but if there was no hyper-growth, then there was no pressure to expand the capacity of the banks, and therefore, no ill effects when the global credit markets (irrationally) froze.
You can call this conservative if you like, but I think the more accurate descriptor is "untested." Had the Canadian economy boomed like the U.S., would the Canadian banks have simply refused mortgages to the newly wealthy (or newly middle-class)? Or would they have ventured down the road the Americans (and most of the rest of the world) took?
I leave it to you economists to answer that question...
And the last item describes America--it's just people found cute ways to get around the insurance requirement with piggyback loans.
That was a matter of irresponsible underwriting, not people finding "cute" evasions. As late as 2000, when I bought my first house, our 20% down was sharply scrutinized. At one point I told my loan officer that I was a "legitimate olive oil importer," which made him laugh but didn't satisfy the underwriters. Humorless bunch.
There are a couple of other points of departure for Canada (and Australia which a prior commenter noted as being similar)
- They are oligarchs. The top 5 banks in Canada and top 4 in Australia have dominant market shares. The stranglehold that NAB,ANZ,Westpac & Commonwealth is multiples that of JPM,Citi,Wells and Goldman in the US. Being oligarchs, they enjoy oligopolistic pricing power - they can earn high returns at lower risk than in the more competitive US market
- They are viewed in their local markets as income not growth stories. The large Australian banks pay higher portions of the earnings as dividends (which in Australia are much more tax efficient than the US). As oligarchs there are lower risk but lower growth. These firms by their size also dominante the market cap of the local exchange so there is pressure to maintain this somewhat lower risk tolerance.
- They do not have outsized compensation cultures that you will find in a US investment. These firms are, at their core, prudent retail banks that have a wholesale arm rather than an investment bank (eg Citi,JPM) that have retail arms. This isn't to say there are not highly paid people, but not to the same degree. Basically the retail people keep the investment banking people at bay on pay.
- big fish in small ponds. They can make a highly lucrative living dominating 95% of the local business. There is a lucrative 5% they miss out on - say large scale debt/equity underwriting or global M&A - they cannot compete in. There just aren't enough big Canadian or Australian companies to support a large scale Goldman size M&A shoppe. Goldman though has global scale and can man a modest shop in Sydney or Toronto and market for that 5% efficiently given its global scale.
To mess up big, you need to be big, and if you have a small home market it is too hard to get too big to screw up too much (yes, Iceland and Ireland are exceptions).
i think derek above is right in many ways (not *perfect* but neither am i) - in terms of when will canada be tested wrt bubbles, it'll either be when energy or water goes stratospheric (and i am inclined to think it'll be "water with energy" if it comes to that) - the problem (if i may stray a bit off the thread topic) for north america is that we are becoming more and more like europe since there is no more land to steal from the first nations, and we aren't going to build any more Toronto/Vancouver/NYC/Denver/Atlanta etc anymore - more and more we are about infrastructure maintenance than building (the latter having been predominant for the last two centuries) - cheerio
Maybe it's just that the US has a higher proportion of crooks?
I know the argument of who to blame more - the borrower or the lender - will likely continue unabated with the outcome based largely according to ones own ideological predilection but seriously, doesn't Meg's last paragraph support the claim that US banks DID NOT behave as responsibly as they should have.
There are a couple of pieces missing for me.
1) What are the fees levied by Canadian banks on loan applications? It is clear that, especially in the last few years, banks have been less interested in what they earn over the life of the loan, and more from what they earn from front end fees and points. On a refi I did last summer, some were downright ridiculous ( $185 notary fee, $200 document courier fee, etc...).
2) Do Canadian banks hold onto the paper, or do they sell the loans for securitization?
Can anyone answer these questions?
1) My mortgage (concluded in July, before the world fell apart) entailed no fees at all. I used a mortgage broker who I presume took a slim haircut off the rate, but I didn't pay any upfront fees and my rate is now 1.5%.
2) We ran into some trouble about a year and a half ago with so-called "Asset-Backed Commercial Paper" which were essentially securitized mortgage bonds, but managed to unwind the mess with little widespread impact. It wasn't a widespread practice and appears to be even less so now.
Interesting.
I continue to believe that if loan originators were forced to hold onto the paper, and if fees simply reflected expenses actually incurred, a lot of this mess would never have happened.
Happened in Spain, didn't prevent a housing bubble or the subsequent economic decline.
Some folks were just more conservative (small-c) than others in the way they handled their finances. For instance, my credit union is in very good shape - they stuck to the same tried-and-true lending practices that had been in effect for many years. They did not get into the sub-prime*** market, so they did not suffer from the failure of some of those loans. If the majority of Canadian banks did the same, kudos to them!
***FWIW - I purchased my townhouse using a sub-prime loan, but the lender was still smart about it... My issue was that I did not have the 15-20% to put down, so I took out a loan on 97% of the price of the house. The lender made sure my job history and current salary was sufficient to cover the loan payment. I was also conservative about my choices - I did not buy all the house I was eligible for. I based my search on what I felt I could pay, not what some chart stated I could pay. When I got a raise before I closed, I chose to stick with this house rather than upgrading, even though the seller would have let me out of the contract without a penalty (somebody offered him 10% more than we had agreed on right after we signed).
Sadly, some banks and people got greedy, or bit off more than they could chew, or their eyes were bigger than their stomachs, etc.
Megan, the Canadian government has injected $125 billion of bailout into its banking system, by buying bad mortgages. It seems like your list of reasons ought to include, "vast inflow of government money."
Tom, those mortgages the Canadian government bought weren't bad. The banks would have been perfectly happy to hold on to them if the government hadn't offered to buy them outright. They were NOT bought to bail out the banks, they were bought as an economic stimulus measure to allow the banks to free up extra capital for additional lending. A rather totally different situation than what happened in the U.S. with the bailouts... where the U.S. government was pouring money into a bottomless pit from which much of it would never return to try to keep banks from failing. The Canadian government just bought itself some assets which they have every reason to expect will eventually offer them full return on investment while giving the banks some incentive to lend some more money to get the economy moving in the process.
If those mortgages hadn't been bought the banks would have still been been perfectly fine, they just would have been less inclined to engage in more new lending.
There's no bottomless pit. Today's Washington Post has an article about how the US Treasury finds itself flush with cash, because the banks no longer need new funds. Indeed, adjusting for the relative size of the economies and banking industries, I suspect Canada's cash injection to its banks looms much bigger than that of the US. Further, when you take into account the fact that in both the US and Canada, the banks are just sitting on the bailout money without loosening the credit market, the perceived differences between the two economies shrink that much more.
A much delayed reply...
No, the banks in both countries are not just sitting on the bailout money, because only the banks in one country received any. I did point that out. There was NO bailout money for Canadian banks. None. Zero. Not one shiny little penny. The Canadian government bought some *perfectly sound* mortgages off of them to loosen up credit as an economic stimulus measure... an action that had absolutely nothing to do with "bailing out" those banks. They didn't require bailing out, the mortgages were GOOD. The banks were perfectly fine.
And yes, the U.S. treasury is going to get back some of the TARP funds. Maybe even most of the TARP funds. If they're really lucky, ALL of the TARP funds. SO? The TARP is hardly the only money the FED poured into the financial system to keep it from imploding, that bill is measured in Trillions, not Billions... and they're not getting all that back.
So those Canadian folk, with all their social democratic practices and Liberal governments for a lot of the time, are very "conservative". Interesting; and the financial policies of the George W. years in the USA were not "conservative". Might one of the benefits of this crisis be that Americans are forced to sort out what they mean by "consevative" and "liberal". I was only educated to sixth grade in the States; maybe its something you learn in US High Schools or Colleges?
Back to banking; the Canucks got it right through bankers' common sense; only a few Aussie bankers got fooled by the magic of securitisation; it seems that the Brazilian bankers just stuck to doing business their old-fashioned way; here in Spain we have an obstinate central bank which makes banks provide against the bad debts they have when the housing boom ends, and saying securitise all you like provided you keep 10% of the risk on your books and put up capital for anything you want to take off balance sheet. All of those approaches have taken a lot of the pain out of the crisis in each of those countries.
The common factor seems to be that those who came off least bad remembered the old copybook lessons, while Wall St., London, etc., bowed down and praised the Gods of the Market Place. As usual the Gods of the Copybook Headings came limping up again to teach such uncomfortable lessons as "If you take risks, you face losses", or "On the crest of a wave, there is dangerous surfing ahead."
>If anything Canada is a far more worldly, open and diverse country that the US. Canadians travel more, and inv4ested in a higher percentage of (there are more Canadian owners of US companies that per capita the US owners of Canadian ones), (even in the financial sector there are numerous foreign players adding a diversity of investment options)
My point exactly. Canada hasn't boomed as much as the US due to sclerotic tax and regulation regimes, and also the inability of locals to sell their businesses to the highest bidder, ie. someone from the US. So it hasn't had as far to fall. Very simple. If you want to build something and profit from it, you do it elsewhere.
As for spreading the wealth, it's quite funny actually. New Brunswick workers are commuting to northern Alberta to work. There isn't anything locally.
Derek
Derek, you're a bit behind the times. Alberta workers are now commuting to New Brunswick to work on the gas pipeline, the LNG terminal, the refinery and the nuclear reactor that are being built.
I'm no fan of socialism, but Canada's "sclerotic tax system" is an overplayed cliche. The average family in the US pays a big chunk of cash monthly towards health insurance premiums that we don't have to pay (except in a very token way in Ontario) in Canada. When you factor the several thousands of dollars a year that adds up to (paid either by the employer or the employee - it doesn't really matter), the total Canadian tax burden looks pretty good.
I wonder if part of it is sheer scale. Due to a bigger population and the bigger US banks having enormous international operations, there is so much money sloshing \that banking is usually hugely lucrative. Since the standard bank profit function is lend at X%, borrow at Y% where Y is hopefully less than X, and the difference is profit, the more money you can pump through, the more money you make. And the more things where you can apply this profit function, the more money you'll make.
In a smallish economy, there are fewer things where you can do this, and transaction costs get more troublesome.
Canada didn't have politicians pushing loans to poor credit risks and crying "racism!" when anyone suggested it might be a little risky.
*likes this*
Canadian bankers are, and have ever been, rather boring.
This is now a good thing.
Because there are very few Canadian banks - five at the moment - and because mortgages stay at the branch which issued them, the manager knows the client.
There will be sour mortgages in this recession, Of course there will. But there will not be the bizarre situations where the borrower cannot find his lender nor will there be a drive towards foreclosure.
Canadian banks have been writing down their more doubtful assets quickly and taking the balance sheet hits. Will they survive? You bet.
Because they are really, really, boring. Just the way we like it.
NorthernObserver has twice mentioned the separation of CEO and Chairman as a possible cause of Canandian bank's insulation from risk taking. European banks often have the same model and in many caes the "Supervisory Board" e.g. the Directors does not include any executives. Unfortunately that model in itself did not help euorpean banks from making horrible loans (to europeans mostly)
as to "there are more Canadian owners of US companies that per capita the US owners of Canadian ones" there are simply fewer opportunities in Canada
One opportunity that Canadian banks have perused impressively (I own two Canuck bank stocks) is banking in the Caribiean. In what is supposed to be America's back yard you'll find a hell of a lot more canadians and canadian bank activity. Americans are quite insular - probably because the big bucks are paid here. If you go to the Cayman Islands and look at the expatriate bankers, you'll find candaians, brits, even more australians than americans. Some of it is the effect of the long arm of US income taxes and old Commonwealth ties, but mostly it is simply an attractive part of the world that US banks have overlooked.
I believe the Bank of Nova Scotia had a branch in Kingston, Jamaica (1889), before they even had a branch in Kingston, Ontario.