The Great Solvent North (NY Times)

[Prometheus Bound]

By THERESA TEDESCO
Published: February 27, 2009
HAS the world turned upside down? America, the capital of capitalism, is pondering nationalizing a handful of banks. Meanwhile, Canada, whose banking system had long been notorious for its stodgy practices and government coddling, is now being celebrated for those very qualities.

The Canadian banking system, which proved resilient in the global economic crisis, is finally getting its day in the sun. A recent World Economic Forum report ranked it the soundest in the world, mostly as the result of its conservative practices. (The United States ranked 40th).

President Obama has joined the adoring throng. He recently said that Canada has “shown itself to be a pretty good manager of the financial system in the economy in ways that we haven’t always been here in the United States.” Paul Volcker, former chief of the United States Federal Reserve, commented that what he’s arguing for “looks more like the Canadian system than the American system.”

...Canadian banks are known to be risk-averse, and this has served them well. While their American counterparts were loading up their books with risky mortgages, Canadian banks maintained their lending requirements, largely avoiding subprime mortgages. The buttoned-down banks in Canada also tended to keep these types of securities on their books, rather than packaging them and selling them to investors. This meant that the exposures they did have to weak mortgages were more visible to the marketplace.

http://www.nytimes.com/2009/02/28/opinion/28tedesco.html?em

[Spazito]

1. There is an irony here...

in that the author of the op-ed is from the National Post, the right-wing paper Conrad Black once owned. The paper that is decidedly for the current harper government who, just recently, was trying to deregulate that which they are now claiming credit. Hypocrites.

Thanks for posting this, though, it was an interesting read. Proof, yet again, that regulation is common sense.

Edited to add: A belated welcome to DU and to the Canadian Forum!

[Prometheus Bound]

2. Thanks for the welcome Spazito. There's another irony.

The Harper government tried its best to push the "financial innovation" that has destroyed the US economy. I wish I knew how to get this out to as many Canadians as possible. If Harper had been in power earlier he might have destroyed the Canadian economy.

How Harper Gov't Pushed Financial Deregulation Here, Abroad
By Ellen Gould
Published: October 8, 2008
Listen to Stephen Harper and you might think Canada plays to our national stereotype when it comes to the world of finance. We might be boring but at least we don't stand for the risky policies adopted by our American cousins.

In response to a pessimistic Merrill Lynch report on Canada's housing market, for example, Harper said "We don't have the same situation here with the mortgages as was the case in the U.S. with the subprime mortgages there. So, therefore, I think that our market is in a much stronger position."

There are differences in the Canadian and U.S. housing markets, differences that can generate sharply contrasting points of view on whether Canada will experience a housing meltdown comparable to the one in the U.S.

The thing is, the Harper government is responsible for pushing the envelope on deregulation both domestically and internationally despite cautionary events in the U.S. clearly indicating what could go wrong.

Promoting mortgage 'innovation'

In his first budget as Harper's finance minister, Jim Flaherty invited "new players" -- that is, U.S financial corporations -- into Canada's mortgage insurance market and doubled the amount of government money available to back up private insurers from $100 billion to $200 billion. Flaherty's 2006 budget states that "These changes will result in greater choice and innovation in the market for mortgage insurance, benefiting consumers and promoting home ownership."

...In November 2006, Canada Mortgage and Housing Corporation responded to the competition from private insurers by starting to insure no-down-payment, interest only, and 40-year amortization mortgages. A CMHC spokesperson was quoted in the National Post as saying: "We're the third guys coming up to the plate with these products. AIG has done it, GE has done it. We're just doing something that's in the marketplace."

Competition from U.S.-based mortgage insurers meant risky products rapidly took over the Canadian mortgage sector. Forty percent of new mortgages approved in 2007 were amortized over 40 years, and in overheated markets like Alberta's, the percentage was even higher. By 2007, there was clear evidence from the U.S. on the hazards of loose mortgage standards, but the Harper government did not step in to tighten regulations here.
http://thetyee.ca/Views/2008/10/08/HarperEcon/

[CHIMO]

3. There But For The Grace of God

Go I.

Bank Mergers Defeated by Ottawa

On the face of it, Paul Martin’s personal invitation seemed gracious. The federal finance minister had set out to do what Royal Bank of Canada chairman John Cleghorn had refused to do for Martin last January - provide Cleghorn with a heads-up warning about what was happening with his company’s plan to merge with Bank of Montreal. Not only was Cleghorn the first of the four pro-merger bank chairmen invited to attend a private meeting with either the minister or representatives of the finance department, his status as Canada’s most influential banker, as well as his personal relationship with Martin, meant Cleghorn was invited to visit Martin at his home in Montreal for a Sunday chat on the afternoon of Nov. 29.
Banking and government sources both say Martin did his utmost to be diplomatic. He did not want to appear to have made up his mind, given that the federal competition bureau would not deliver its report on the mergers for almost two weeks, but he also wanted to prepare the banker for bad news. Like everything else arising from this year’s ill-fated bank mergers, however, this meeting between two of the most powerful figures in Canadian finance went off the rails fairly fast. For weeks, Cleghorn’s fuse had been growing shorter as his frustration mounted over Canadians’ inability to understand the bankers’ point of view. In response to Martin’s evasiveness, something apparently snapped. Cleghorn asked straight out whether the Royal’s merger with the Bank of Montreal, and the Toronto Dominion Bank’s copycat arrangement with the Canadian Imperial Bank of Commerce, were going to be allowed to proceed. "No," Martin said simply. Cleghorn, according to both banking and federal government sources, said something along the lines of "No, but . . . ?" or "Unless what?" Martin repeated his first answer. "No."

This was when the usually composed banker lost it, according to government officials. Watching a year’s work sacrificed to what the bankers see as political expediency and parochialism was apparently too much to swallow. His face grew red and he pounded the table, while giving the minister an earful.

For once in his life, Martin remained ice-cool. As Cleghorn gave vent to his complaints, all the finance minister said was: "John, you’re not listening to me." Sources close to Martin say he repeated this phrase several times before Cleghorn calmed down.

http://www.thecanadianencyclopedia.com/index.cfm?PgNm=TCE&Params=M1ARTM0011841

I think that we were just lucky. I can remember the head guy st Nortel saying that our tax system was sending everything away.

And also, welcome.

[Prometheus Bound]

4. I'd like to see that bit made into a movie.

Thanks for the welcome CHIMO!