1:36:22 I think the idea was to facilitate industry consolidation. … Charlie’s not here, but an interesting factoid is, Chairman Bernanke’s 2nd most cited paper on the Great Depression is actually one that compares the business cycle in the United States and Canada in the 1930s. And the contraction activity was much more gradual [in Canada]. The reason? Canada didn’t have bank failures, because Canada had a consolidated banking system. – AEI1 Resident Fellow Vincent Reinhart, Oct 2, 2008
So this is a bit of shameless self-promotion for Doom’s new transcript of 2 hours worth of battle chatter at the American Enterprise Institute a couple of weeks after Lehman’s collapse a year ago tomorrow.
Meanwhile the Mothership is patting itself on the back because Canada hasn’t lost any banks so far this time either, …
… but of course that had everything to do with the C$32 billion subsidy the banks got when retail and institutional investors (including Quebec’s main pubic service pension fund) got stuck holding the bag in Bay Street’s ABCP meltdown. The US equivalent, the $300+ billion ARS nightmare, got placed on the laps of financial institutions, courtesy of NY’s Attorney General.
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[1]: "What Lies Beyond the Credit Crunch? Part III", AEI event homepage, October 2, 2008.
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John-
Are Canada’s banks in better shape? It seems like banks are going to have to write down a lot of RE in places like Vancouver where prices went out of site and building went crazy.
U.S. banks are now being hurt because prime mortgages that should have been sensible and safe are going bad. Isn’t Canada going to be vulnerable as well?
If I recall correctly, before gaining his post a few years ago, Bernanke had to divulge where he has money invested; a good amount of his money is tied up in Canadian interests. Even then, Bernanke had some foresight of which (banking) system was safer…?
Although it is obvious what the Canadian government and people prefer, I wonder if the Canadian banks would prefer the U.S. Wild-West (non)regulation system or the more strict Canadian bank regulation system. I’ll bet that despite the high risk in the wild-west system, the big Canadian banks would prefer that, because it allows them to reap bigger rewards during bubble build-ups… and when push comes to shove the biggest banks will not be allowed to fail, but will have to be propped up by taxpayers. What do big banks have to lose?
Thank goodness the Canadian government has held on to the stronger regulation system thus far…
twist – Vancouver is still horribly overpriced, although prices have more or less flat-lined for a while now.
According to one bank study, Vancouver has the second-highest mortgage carrying costs in Canada right now, with 55.3% percent of pre-tax income needed to cover a mortgage:
http://www.vancouversun.com/business/Victorians+highest+home+costs/1978807/story.html
As the article states, Victoria, a much smaller city near Vancouver, has Canada’s highest mortgage carrying costs (56.6%).
Speaking of Victoria, one interesting bit of news is that for the first time in decades, a home in an affluent area of Victoria (“Oak Bay”) is scheduled to be auctioned off later this month due to non-payment of property taxes for several years. Make that FIVE properties scheduled to be auctioned off later this month from this part of Victoria!!! However, reporters in the area exect that the auctions will be called off, as some sort of funding will most likely be found (eg. the banks holding mortgages are thought to likely pitch in).
That said, employment in Victoria and Vancouver is still bad, and rumors are that the provincial government is about to start another round of job-cutting.
Already-high home prices? Higher unemployment? Homeowners flirting with foreclosure? Possibility of higher interest rates next year? Stay tuned, the Canadian chapter on the housing bubble is not nearly over.
BTW, here’s a link to that story about five homes in the nice part of Victoria possibly being auctioned off, the first time for this to happen in decades :
http://www.bclocalnews.com/vancouver_island_south/oakbaynews/news/58510017.html?mobile=true
twist -
Vancouver is scheduled to host the Winter Olympics in 5 months. That will blast the municipal budget to smithereens for a generation, but the economic boost may keep private businesses going a bit through a tough year.
As far as the banks are concerned, I have no reason to expect anything like WaMu / Countrywide in the foreseeable future.
John-
It sounds like it isn’t just the RE market that can cause problems. As this article states, it’s tough when demand from your largest trading partner drops 30% and the partner is having a harder time time paying their bills:
I suppose the U.S. could have a cold and Canada only sneezes, but that would definitely be a change from the usual pattern. : )
Did anyone see that table that was like a balance sheet for the major North American banks? And after all the US banks have been folding, there’s like 3 Canadian banks in the top 10? Craziness.
It’s like reverse “Manifest Destiny”!
Canada had a bit of government help. See below
http://marketdepth.typepad.com/marketdepth/housing/