Jump to content
House Price Crash Forum
Sign in to follow this  
_w_

Canadian Borrowing Gone Mad

Recommended Posts

From Mish:

http://globaleconomicanalysis.blogspot.com/2010/12/canadian-borrowing-gone-mad-look-at.html

This is a shocking post. That banks and governments failed en masse in their duty in the nineties and naughties is something I can understand (greed and incompetence). That banks and governments ruined a number of western economies by encouraging over-borrowing to compensate for the post '01 recession, even though they all knew this approach would lead to ruin, I can understand (misplaced patriotic fervour + greed and incompetence).

But that Canada is _now_ actively following the same path, with banks pushing lending at 10 times salaries, knowing it will ruin the Canadian government and people (encouraged by said Government) and I start to wonder: have we got this whole thing wrong? Am I misunderstanding the whole play here? There is only so much you can put down to incompetence. A path seems to be systematically followed in every single country but for the life of me I can't understand the objective: what would be the point of ruining every government and people???

Some extracts:

Statistics Canada released data Monday showing that Canadian household debt has risen to 148 per cent of disposable income. The eye-popping figure is all the more alarming considering it's the first time since the 1990s that Canada's ratio has been higher than that of the U.S.
If policy makers want Canadians to stop borrowing too much, it’s up to Ottawa, not financial institutions, to force a change in behaviour, says one of Bay Street’s longest-serving senior bankers.

Toronto-Dominion Bank chief executive officer Ed Clark acknowledged Canadians’ alarming debt levels, but said the issue is a matter of public policy and would be best resolved by a tighter government rules on residential mortgages.

In an interview with The Globe and Mail, Mr. Clark said that no bank wants to be the first to impose stricter requirements on borrowers out of fear that it will suffer a major loss of customers to rivals. Personal banking “is a highly competitive industry,” Mr. Clark said. “If we said ‘Look, we’re going to be heroes and save Canada from itself, and we’ll impose a whole new [mortgage] regime on everyone else,’ the other four [large] banks would say ‘Let’s carve them up.’ ”

Mr. Clark said it is impossible to expect any bank to crack the whip on borrowers because “market share loss is perceived as a strategic loss, not just a numerical or dollar loss.”

Toronto-Dominion's CEO does not give a damn about fundamentals, about acting on their clients' interests, or for that matter acting on shareholder interests. Clark's only concern is in not losing market share to the other Canadian banks until the whole mess blows sky high.

Canada's banks clearly don't care what happens as long as they can pass the trash to the Bank of Canada, the Canadian equivalent of Fannie Mae.

Share this post


Link to post
Share on other sites

The Canadians are suffering from the Aussie disease. They think that current high commodity prices are permanent.

They have bought into the bubble massively. It will pop.

Share this post


Link to post
Share on other sites

It's always worth remembering that a lot of people did very well in the credit boom and still have their money - and not just bankers and property developers. Plenty of people will ride the wave, take the risk and make a fortune.

It's simply a function of individualism - everyone knows where it will end, but they are happy to take the chance that they will be the one to profit and survive and they don't really care about anyone else.

Plenty on here have the same attitude, they're just hoping to jump on at a different point in the cycle.

Share this post


Link to post
Share on other sites

The Canadians are suffering from the Aussie disease. They think that current high commodity prices are permanent.

They have bought into the bubble massively. It will pop.

The French are doing the same thing though. Credit up 6.5% y/y, biggest bank in the world is now BNP (!!!), property prices through the roof...

It seems that every country is at it. Any country that is not yet bumping along the debt ceiling (like the US) is rushing towards it.

Share this post


Link to post
Share on other sites

It's always worth remembering that a lot of people did very well in the credit boom and still have their money - and not just bankers and property developers. Plenty of people will ride the wave, take the risk and make a fortune.

It's simply a function of individualism - everyone knows where it will end, but they are happy to take the chance that they will be the one to profit and survive and they don't really care about anyone else.

Plenty on here have the same attitude, they're just hoping to jump on at a different point in the cycle.

But if you look at things in aggregate no one wins. Look at those Irish chaps who made a fortune, their only option now is to leave Ireland. I read about a lot of them going to the US but it's like out of the frying pan into the fire. Canada is viewed as one of those last havens but reading this you just know government finances will be a disaster sooner rather than later.

Share this post


Link to post
Share on other sites

That bank ceo clearly says the only solution is to regulate the lending to households. Or else each bank will have to take more and more risk to stay in the game versus the competing banks. Chuck Prince of Citigroup basically said the same thing, while the music is playing you have to get up and dance. If you don't, all the customers will go to the most reckless lenders and you won't be in business anyway.

Of course a recent trend is to put a mountain of useless regulations that require an army of bureaucrats and consultants to move through, but which completely miss the core issues. The best regulations are very simple and fair. For example in Germany they require banks to have a high reserve ratio. Stopped the speculative bubble.

Share this post


Link to post
Share on other sites

But if you look at things in aggregate no one wins. Look at those Irish chaps who made a fortune, their only option now is to leave Ireland. I read about a lot of them going to the US but it's like out of the frying pan into the fire. Canada is viewed as one of those last havens but reading this you just know government finances will be a disaster sooner rather than later.

As long as you are the one coming out the other end with a pile of cash, why does it matter that the rest of the country is screwed? This is the way people see it.

Share this post


Link to post
Share on other sites

That bank ceo clearly says the only solution is to regulate the lending to households. Or else each bank will have to take more and more risk to stay in the game versus the competing banks. Chuck Prince of Citigroup basically said the same thing, while the music is playing you have to get up and dance. If you don't, all the customers will go to the most reckless lenders and you won't be in business anyway.

Of course a recent trend is to put a mountain of useless regulations that require an army of bureaucrats and consultants to move through, but which completely miss the core issues. The best regulations are very simple and fair. For example in Germany they require banks to have a high reserve ratio. Stopped the speculative bubble.

+1

And to make absolutely clear to one and all that 100% of the commercial risk will fall on people partaking in the business, and that must include savers at these banks. It's the only way.

Share this post


Link to post
Share on other sites

As long as you are the one coming out the other end with a pile of cash, why does it matter that the rest of the country is screwed? This is the way people see it.

Taxes and pitchforks.

Share this post


Link to post
Share on other sites

That bank ceo clearly says the only solution is to regulate the lending to households. Or else each bank will have to take more and more risk to stay in the game versus the competing banks. Chuck Prince of Citigroup basically said the same thing, while the music is playing you have to get up and dance. If you don't, all the customers will go to the most reckless lenders and you won't be in business anyway.

Of course a recent trend is to put a mountain of useless regulations that require an army of bureaucrats and consultants to move through, but which completely miss the core issues. The best regulations are very simple and fair. For example in Germany they require banks to have a high reserve ratio. Stopped the speculative bubble.

But in the case of Canada the regulation is that government will guarantee all those loans however irresponsible; this is suicidal.

Share this post


Link to post
Share on other sites

The best regulations are very simple and fair. For example in Germany they require banks to have a high reserve ratio. Stopped the speculative bubble.

Fair observation, but the German banks just shagged off to Dublin and went crazy on US mortgage debt. German taxpayer still gets yoked to the speculative losses.

Share this post


Link to post
Share on other sites

But in the case of Canada the regulation is that government will guarantee all those loans however irresponsible; this is suicidal.

The CMHC is an accident waiting to happen.

The problem with Ed Clark is that at heart he is really just another person who looks at government as being part of the solution (Google : National Energy Program Ed Clark). He has done a few clever things in the last 10 years at TD and before that at Canada Trust but deep down, he doesn't trust markets and wants governments to provide solutions.

Share this post


Link to post
Share on other sites

QUESTION

Is the Canadian debt on the books, or have our own banks bought a load of overblown CDOs based on Canadian MBS.

If not, then this wont lead to an International crisis, just a local one.

If so, then it might be time to cash a portion of any cash pensions one might have.

Share this post


Link to post
Share on other sites

But in the case of Canada the regulation is that government will guarantee all those loans however irresponsible; this is suicidal.

So no moral hazard, excellent.

A nanny state at it's very best and they've wrote a blank cheque for the bankers.

Share this post


Link to post
Share on other sites
That bank ceo clearly says the only solution is to regulate the lending to households. Or else each bank will have to take more and more risk to stay in the game versus the competing banks. Chuck Prince of Citigroup basically said the same thing, while the music is playing you have to get up and dance. If you don't, all the customers will go to the most reckless lenders and you won't be in business anyway.

Remind me again the social value of private banks...oh yes- it's their great expertise in the allocation of capital and it's correlating risk assessment. :lol:

What's fascinating about the above quote is how it takes absolutely for granted that Banks and Bankers simply cannot be relied upon to exercise any degree of prudence and accepts that they will behave more or less like children let loose in sweet shop who will simply gorge themselves on cash until they are sick or run out of other people's money.

So much for self regulation- or even self control. These people are a joke. Prince's quote is understandable only if you assume- as he clearly does- that the Bankers cannot be trusted to exercise intelligent stewardship of the credit creation/allocation process.

So in the light of this confessed credit creation incontinence what then are these people actually good for?

Share this post


Link to post
Share on other sites

The French are doing the same thing though. Credit up 6.5% y/y, biggest bank in the world is now BNP (!!!), property prices through the roof...

It seems that every country is at it. Any country that is not yet bumping along the debt ceiling (like the US) is rushing towards it.

have you been to France lately? or are you referring to Paris as being France (i.e. London being the UK)?

Share this post


Link to post
Share on other sites

+1

And to make absolutely clear to one and all that 100% of the commercial risk will fall on people partaking in the business, and that must include savers at these banks. It's the only way.

If that is how things work then 1929 crisis must have been the last

Let's see...

1990 : Japan

1997 : Asia

2001 : Dotcom

2007: US/Western Europe

2013 ?: Australia/Canada/China/Brazil/Europe Sovereign defaults

Share this post


Link to post
Share on other sites

have you been to France lately? or are you referring to Paris as being France (i.e. London being the UK)?

I have to admit yes.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.