Oh Canada! Sure we are boring, says our neighbours to the south, but we are Solvent!



I had a smile on my face when I read this article. I am sure you will too! Take a look at the article below or visit the following link for the story at http://trueslant.com/caitlinkelly/2010/02/01/canadians-may-be-boring-but-their-banks-are-solvent/ Ñ Canadians May Be Boring Ñ But Their Banks Are Solvent Yeah, yeah. CanadaÕs boring, So say many (snotty) Americans. Boring is one aspect of being risk-averse. Risk aversion can also mean being smart, conservative, cautious, prudent. YesterdayÕs Financial Times has a terrific piece on this; as does todayÕs New York Times, with Paul KrugmanÕs column: The New Republic famously pronounced ÒWorthwhile Canadian InitiativeÓ (from a Times Op-Ed column in the Õ80s) the worldÕs most boring headline. But IÕve always considered Canada fascinating, precisely because itÕs similar to the United States in many but not all ways. The point is that when Canadian and U.S. experience diverge, itÕs a very good bet that policy differences, rather than differences in culture or economic structure, are responsible for that divergence. And anyway, when it comes to banking, boring is goodÉ Above all, CanadaÕs experience seems to support those who say that the way to keep banking safe is to keep it boring Ñ that is, to limit the extent to which banks can take on risk. The United States used to have a boring banking system, but Reagan-era deregulation made things dangerously interesting. Canada, by contrast, has maintained a happy tedium. More specifically, Canada has been much stricter about limiting banksÕ leverage, the extent to which they can rely on borrowed funds. It has also limited the process of securitization, in which banks package and resell claims on their loans outstanding Ñ a process that was supposed to help banks reduce their risk by spreading it, but has turned out in practice to be a way for banks to make ever-bigger wagers with other peopleÕs money. ThereÕs no question that in recent years these restrictions meant fewer opportunities for bankers to come up with clever ideas than would have been available if Canada had emulated AmericaÕs deregulatory zeal. But that, it turns out, was all to the good. What Krugman doesnÕt address is one important and fundamental difference between snoozy Canucks and their southern neighbors Ñ and it isnÕt a government policy but a cultural norm. Owning your own home, whether you actually have the means to buy, maintain and pay your mortgage obligations in full every month for decades, is a deeply American fantasy. There is no ÒCanadian dreamÓ when it comes to home ownership. Canadians do not receive a tax deduction on their mortgage interest, an attractive pull into home ownership in the U.S. Whether youÕre a banker, mortgage broker, realtor, buyer or seller, there is remarkably little Canadian sentimentality attached, at any point, to buying or owning a piece of property. Unlike the U.S., where everyoneÕs rooting for you to buy a house, condo, co-op, anything, or they once were, thereÕs no FannieMae or FreddieMac, these faux-people offering money for your cosy little cottage. In Canada, you can afford to buy your home, or you canÕt. However elitist and demanding, banks expect buyers to show up with a hefty down payment Ñ none of these 99% mortgages up north Ñ which means having been Canadian enough (i.e. boring, safe, sober, conservative) to save a lot of money before the privilege of buying your home becomes possible. Owning your housing is not expected. ItÕs not a right. ItÕs not some shared fever Òdream.Ó Americans seek Òlife, liberty and the pursuit of happiness.Ó Now millions of them are in foreclosure, their home-owning reach having far exceeded their grasp Ñ in part, thanks to buyersÕ greed and ignorance, in part thanks to the easy/predatory lending by American banks. CanadiansÕ constitution promises Ñ zzzzzzz Ñ Òpeace, order and good government.Ó Boring, maybe. Solvent, yes. Caitlin Kelly Trueslant.com