Not a single Canadian bank failed during the Great Depression, and not a single one failed during the recent U.S. crisis now dubbed the Great Recession. Fewer than 1 percent of all Canadian mortgages are in arrears.
That’s notable given that the recent U.S. economic turmoil was triggered by a meltdown in mortgage finance, forcing an unprecedented government rescue of Wall Street investment banks and the collapse of more than 300 smaller banks as the housing sector went bust.
How’d Canada avoid all that?
“This sounds very simple, but one of our CEOs has said we are in the business of making loans to people who will pay them back,” said Terry Campbell, vice president of policy for the Canadian Bankers Association in Ottawa.
“This sounds very simple, but one of our CEOs has said we are in the business of making loans to people who will pay them back,” What a novel idea.
as has been documented here many times, government (Community Reinvestment Act/Fannie/Freddie) colluded with banks to give loans to unqualified borrowers. It was as simple as that. The Canadians did no such thing, good for them.
It also helps that mortgage interest in not deductible on Canada’s income tax. This means people don’t have an incentive to get the biggest mortgage they can possibly qualify for.
Members of Congress, such as Barney Frank, compelled the banks to lower their lending standards; then the mortgage lenders’ own greed took over. Our northern neighbors were fortunate indeed not to have either problem.
There was a [url=http://www.marketobservation.com/blogs/index.php/2011/01/04/david-stockman-reagan-s-budget-director-is-interviewed-by-reason-tv-s-nick-gillespie?blog=10 ]good interview of David Stockman, budget director for Reagan on Reason.tv[/url]. He talked about the S&L debacle. The cronies back then could invest in junk bonds and if they lost – the government would and did bail them out. Thirty years later we had the same thing with the banks.
IIRC, in Canada banks have to keep more cash in the vault than is allowed in the US. Also in the US it is allowable to count as an asset some pretty shaky things, things looked at in horror by auditors to the north.
Or, perhaps, the Canadian banking system just doesn’t bankroll their politicians as well as their American cousins do.
Normally I look with a certain disdain on the usual comparisons made with our neighbors to the North. For example, even though I’ve read a multitude of articles telling me how superior the Canadian health system is to our American one, there is a reason so many Canadians travel to the US when they need treatment.
But in this case I agree with those making the comparison. Banking should be boring. No big payoffs, but no big risks either. Or, if someone wants to take the risks, fine. Just don’t do it with my money!
Re #6
Blue Ontario,
You nailed it. In Canada the government regulates the banks . In the United States the banks regulate the government.
In my post #6 please substitute “required in the US” for “allowed in the US.”
Sorry, #2/4, the impact of CRA has been vastly exaggerated; it was not a major factor. The primary cause was the lenders’ ability to securitize loans and sell them without recourse. That led to the heavy push to sell subprime and pay option ARMs. Lenders lost all interest in loan quality when they no longer had any risk. BTW, such lending practices violated numerous Federal lending laws and rules, but the lenders are not being held to account; rather they are being bailed out… daily.
#10 So where is Eric Holder? The FBI? Why aren’t these criminals in jail? Where are all the state’s Attorneys General? Is this a massive conspiracy by those in the Dept. of Justice to aid and abet criminal fraud? What of the political leadership that oversees Eric Holder?
I just can’t resist: [i]The primary cause was the lenders’ ability to securitize loans and sell them without recourse.[/i]
Guess what entity(s) was buying every piece of paper in sight so that that certain high level executives of said entity(s) could maximize their bonus payouts?
Fannie & Freddie!!!!!!!!!! Better known as the “trillion dollar sinkhole twins”
And of course, who backs up Fan & Fred? Why, lil ole you and me!