May 10, 2009

Why not Canada?

Various economic commentators such as Tyler Cowen are scratching their heads over why the single country most similar to the United States, Canada, hasn't yet had a gigantic banking crisis. It must be some subtle technical difference in bank regulations!

Yet, you'll notice that most of the losses on mortgage defaults in the U.S., which set off the American crisis, were concentrated in four states, none of which are anywhere near Canada: California, Arizona, Nevada, and Florida.

Daniel Patrick Moynihan used to note that the rate of social problems such as crime, illegitimacy, and dropping out of high school were lower in states closer to the Canadian border. He liked to recommend to policymakers that this data implied that they should attempt to move their states up closer to Canada, although he never, to the best of my knowledge, suggested how.

Perhaps we can add "defaulting on mortgages" to Moynihan's list?

My published articles are archived at iSteve.com -- Steve Sailer

34 comments:

nuke said...

The mortgage crisis triggered the banking crisis. But the underlying mechanism was the switch in interest rates for short- and long-term loans by the Fed. This was exactly the same mechanism which set off the dotcom bubble.

Anonymous said...

Lack of competition, period.

Also, Scottish DNA, they've run banking here since the beginning and are way too cheap to get burned on subprime.

Sort of a poor man's Jew, the Scotsman is a bright enough chap, hardworking, loyal to the hilt, but holy fuck, drag a shiny penny in front of them or, worse, get behind on payments and, well, there is no word in Gaelic for "forbearance", I'm guessing.

They're also, in this country anyway, shits, to a degree, historically. This country was built on a land speculation scam (railway) from the get go. I look at pictures of The Last Spike and don't see triumphant capitalists but men with hand-in-cookiejar eyes who can't believe they just got away with it. Fuckers.

Banks are the among most loathed sectors of business up here. You get pretty much the same policies from one bank to the next, and the business banking is particularly egregious. Bouncing a cheque up here isn't a crime or as serious as in the states, the downside being they routinely hold cheques for days and sometimes weeks no matter the credit worthiness of the individual or issuer, just to name one difference.

Some of the most virulent social policy I've ever seen come from reports and white papers from Canadian bank economists and analysts, especially on feminism/gay/family issues, for what that's worth.

I have crappy credit, make near 6 figures, sheltered income, gave up looking to buy a house years ago (no biggie, I have a nice flat and date inappropriately young women to make up for it, so suck it); imagine witnessing the USA bust from my perspective, watching the gubmint give houses to indigents hand over fist while I can barely get a credit card. Fu-fufu-fu-fu...

Signed,
Canadian Small Business Owner

Winston Smith said...

Prices may yet crash in Canada. Former MP Garth Turner makes a convincing case that real estate is overvalued and the situation is unsustainable.

http://www.greaterfool.ca/

stari_momak said...

Ireland, Iceland and to some extent the UK are in trouble, but not because of immigrant populations but because they bet on the US. The relevant question the Cowen and others are trying to answer is why the Canadian banks didn't make that bet. They are probably right that regulation is the reason. That does mean that the 'hispandering' home lending isn't a root cause of the situation, it just means that Canadian regulation mitigated against infection.

Anonymous said...

There are profound differences between the Canadian mortgage system and the US mortgage system.

In Canada, mortgage interest and related related taxes are NOT deductable.

Second, we don't have a Democratically controlled Congress passing legislation forcing banks to lend to those who can't afford the loan.

Instead we have an idiotic Liberal Party that just never got around to it.

Finally, Canadian banks are more conservatively regulated.

David

Anonymous said...

Garth is a joke, Canada has the highest population growth in the G8 and the world's highest immigration rate, while the crown still owns 90%+ of the land. You tell me if that sounds like a market that will crash anytime soon.

The country consists essentially of ten cities and a couple dozen duckburgs and there are no new cities or duckbergs, ergo they just get bigger and land gets more expensive.

John said...

I saw the Canadian Prime Minister interviewed on TV when he visited New York recently.

He specifically said it was because Canada didn't have a Fannie and Freddie pushing bad loans to bad people.

Anonymous said...

I don't have any lawbooks to cite on this, but I was once told by a Canadian woman that in Canada (or Ontario anyway) it's illegal to build a house on spec. The contractor has to be building for a customer who's contracted them. That might help prevent bubbles if true.

-Vanilla Thunder

anony-mouse said...

Francais > Espagnol? Strange because the Dominican Republic is doing better than Haiti.

Also Alberta is sitting on Saudi Arabia.

Of course ON is going the way of CA + MI economically.

And in most of Canada if you walk away from a house with a mortgage the mortgage goes with you.

Anonymous said...

When asking why Canada is the way it is, you're not allowed to notice that it's full of Canadians.

Anonymous said...

on an unrelated topic (given the interest about Italy and Italians
spurred by Steve's review of "Il Divo"), any comments on the Italian government's new policy of shipping illegal immigrants directly back to Libya? (http://abcnews.go.com/International/wireStory?id=7526988) It is front-page news in Italy, especially after Berlusconi said that he does not want a "multiethnic Italy."

Vernunft said...

There's no sand state in Iceland, though.

This post was just a big swing and a big miss.

Anonymous said...

Scots are responsible with money? Huh? Scotland is going through its own banking crisis, which was brought on through excessive risk taking.

John Seiler said...

But a big part of the reason is that, since 9/11, Greenspan-Bernanke panicked and inflated the US dollar 200% (against gold), whereas the Canadian dollar went up only 100%. That's why Canada's money rose in value against US money. The Canucks thus enjoyed a commodities boom because of the US dollar's inflation -- and they're a big exporter of commodities.

Imagine where America would be today if the US dollar were worth $600, say, instead of $914 (as of May 10, 2009). As the Austrian economists keep telling us, inflation always causes a speculative boom, which soon becomes a bust. The boom was was relatively smaller in Canada, so they benefited from 1) having not as severe a boom, so not as severe a bust; and 2) being the relatively more sensible neighbors to an inflationary giant gone berserk.

It's also worth noting that, although Canada has a crummy socialized medicine system, otherwise their economy in some ways is freer than America's, such as having lower tax rates overall.

And, certainly, they have a more sensible mortgage system. They also generally can't deduct mortgages from their income taxes, thus reducing speculation (although that may be changing: http://www.canadamortgagecenter.com/TaxDeductibleMortgage).

In sum, if the USA went back to the gold standard, cut taxes so much mortgage deductions didn't matter (I'll never favor increasing anybody's taxes, such as by ending mortgage deductions), and tightened lending requirements, there would be no problem. Instead, Bernanke keeps inflating the dollar and Obama is guaranteeing bad home and even credit-card loans. The Bush-Obama Depression is just beginning.

Anonymous said...

Canada's always around 10 years behind the United States. We just didn't get around to it.

Melykin said...

small business owner wrote:
"...Bouncing a cheque up here isn't a crime or as serious as in the states, the downside being they routinely hold cheques for days and sometimes weeks no matter the credit worthiness of the individual or issuer..."------------------------

No one in Canada uses cheques any more--most stores don't take them now. I haven't written a cheque in years. Everything is Interac, direct deposit, or Internet banking.

From watching American TV I get the impression that there are hundreds of small banks in the States. In Canada there are about 4 really big banks that have branches all over the country: Royal Bank, CIBC, Bank of Nova Scotia, Bank of Montreal--and that's about it other then a few credit unions. Housing prices have gone down a bit, especially in over-heated markets such as Vancouver, but there has been no spike in foreclosures. However the economy here is being dragged down since it is attached to the coat tails of the US economy.


John Seiler wrote:
"...although Canada has a crummy socialized medicine system..." --------------------------------

We are very attached to our crummy socialized medicare system. At least we don't have any uninsured people. Even the Conservatives here know that if they even hinted about trying to privatize it they wouldn't get elected dog catcher.

Truth(er) said...

I propose that the US government should "stress test" the Canadian healthcare system with the following:

1) No Canadian may purchase healthcare in the United States.

2) All American pharma products should be sold to Canada (and world markets)on consignment by the US government. The requirement is to get at least 90% of the American market price.

We'll see how long socialized medicine lasts.

Anonymous said...

Melykin,

I can't believe you left TD off the list! They're the biggest of all.

-bushrod

Vernunft said...

"At least we don't have any uninsured people."

So those for whom insurance would be a net loser on a cost-benefit analysis are just out of luck. Sucks to distort distribution away from the highest-value users like that.

Anonymous said...

We are very attached to our crummy socialized medicare system. At least we don't have any uninsured people.


No, you don't. You do have a crummy healthcare system though. Which leads me to ask - why are you so attached to it?

John Seiler said...

Melkyn said: "We are very attached to our crummy socialized medicare system." At least, right now, when you get tired of dying waiting in long lines for serious illnesses, you can drive down to the USA for capitalist medical care. (See various Fraser Institute reports.)

But after Obama socializes American medical care, you'll have to drive to Mexico, where capitalist doctors will move.

Anonymous said...

Dude, people use cheques up here all the time. I've written 7 in the last month.

John Seiler said...

Melykin, I should point out that the USA actually has 2 health care systems, which is why our health care costs twice yours. The double cost is one reason why America's economy isn't doing as well as Canada's right now (see my first post on this site for other reasons).

About half of the U.S. medical system is capitalist; this is the half that provides the great care, quickly, if you have a bad illness. The other half is socialist and leeches off the capitalist half. Guess which half Obama will cut and which he will keep?

Soon, we'll be like Canada. He's a section from a Fraser Institute report on Feb. 9, 2009: "In Ontario, Lindsay McCreith was suffering from headaches and seizures yet faced a four and a half month wait for an MRI scan in January of 2006. Deciding that the wait was untenable, Mr. McCreith did what a lot of Canadians do: He went south, and paid for an MRI scan across the border in Buffalo. The MRI revealed a malignant brain tumor.

"Ontario's government system still refused to provide timely treatment, offering instead a months-long wait for surgery. In the end, Mr. McCreith returned to Buffalo and paid for surgery that may have saved his life. He's challenging Ontario's government-run monopoly health-insurance system, claiming it violates the right to life and security of the person guaranteed by the Canadian Charter of Rights and Freedoms."

Link: http://www.fraserinstitute.org/newsandevents/commentaries/6496.aspx

By the way, something similar happened to me 3 years ago. Within a week I had an MRI and other tests that revealed I was clear of tumors, as well as heart disease, getting rid of my fears. Cost: $6,000 to my capitalist insurance company. Then I went to my dentist and he diagnosed TMJ (temporomandibular joint disorder), fitted me with a mouth piece to cushion the bruxism, and I've been OK ever since. I lost only a week of work.

Under Canada's socialized system (and Obama's future system here), I would have lost months of work, been fired, and then who knows what might have happened.

Ross said...

"Various economic commentators such as Tyler Cowen are scratching their heads over why the single country most similar to the United States, Canada, hasn't yet had a gigantic banking crisis. It must be some subtle technical difference in bank regulations!"Canada didn't have a single bank failure during the Great Depression either so Canada's relative stability is probably down to structural differences.

clem said...

No one in Canada uses cheques any more--most stores don't take them now. I haven't written a cheque in years.For montly rent, cheques are still used very commonly. And if you bounce one, there will just be a $25 to $50 NSF charge.

Plus, small businesses (and their owners) do still write out cheques for payment to vendors, and to employees. The last full-time job I worked (for a software company that was too small to set up EFT) was paid in cheques; and I currently have one in my back pocket, for a website I put up last month.

It's true that no one uses them in stores anymore, but there's a whole world outside of retail transactions, you know?

And yes, we spell it "cheques," not "checks," for anyone who's wondering.

albertosaurus said...

It is also true that in the Great Depression while there were hundreds of US banks that failed no Canadian banks failed.

BTW the term the "Great Depression" may soon go the way of the term the "Great War". Newer, bigger events sweep away old terminology.

Sean Burgess said...

Sorry, I can't dig up the original link but I kept this from Will Dunning, Chief Economist with the
Canadian Association of Accredited Mortgage Professionals (CAAMP), which rang true to me:

The key reason that the Canadian housing market did not follow the US into the same quagmire is
that our lending industry and practices are structured differently:
• In particular, most Canadian mortgages remain on the lenders’ books, and there is strong
incentive to maintain high credit standards. Only about 6% of Canadian mortgages are held by
special purpose corporations and non-depositary intermediaries.
• In the US, on the other hand, widespread securitization eventually caused a breakdown in the
incentive to control risk. When it became apparent that mortgage originators would not have
ultimate accountability for credit quality, credit quality was abandoned.

Melykin said...

John Selier -- Don't beleive everything the Fraser Institute says. They are an ultra right-wing group who only care about making money. While the Canadian system isn't perfect by any means, no politician has ever suggested dismantling it and changing to an American system--if they did, NO ONE would vote for them. We hear plenty of horror stories about the US system from watching American TV.

We don't mind paying taxes to support the health care system, because we know it is there for us if and when we need it. What really makes me mad is people like "Anonymous" who wrote:

"...I have crappy credit, make near 6 figures, sheltered income, gave up looking to buy a house years ago (no biggie, I have a nice flat and date inappropriately young women to make up for it, so suck it); imagine witnessing the USA bust from my perspective, watching the gubmint give houses to indigents hand over fist while I can barely get a credit card. Fu-fufu-fu-fu...

Signed,
Canadian Small Business Owner
If this creep gets sick or injured, he will get free medical care too. I'm guessing that "sheltered" means he somehow doesn't pay tax on his six figure income. If you get too many people like this in a country, it will become like a third world country. This what makes third-world countries are so messed up--corruption.
------------------------
off topic comment:

Canada has gone a bit overboard letting in refugees, I'm afraid. It isn't pc to say this, but it is true. Yesterday thousands of Tamils shut down the main highway going through Toronto for many hours. Now most everyone hates them. These Tamel folks really need to get a clue. If they want to motivate people to help their cause, they should NOT:
1. Unlawfully shut down a major highway, causing massive traffic jams on Mother's Day.
2. Carry flags for a terrorist organization.
3. Bring babies to use as human shields against the police.
4. Shout and chant angry slogans while shaking raised fists--this is NOT going to help you win friends and influence people.

I'm wondering what the average IQ is among these Tamel immigrants that they thought pushing babies in strollers into the middle of the Gardener Expressway, along side riot police in full gear, would be a good way to spend a Sunday afternoon.

Svigor said...

There's no sand state in Iceland, though.

This post was just a big swing and a big miss.


Pithy, but not persuasive.

Truth(er) said...

So all America has to do to bring down the Canadian health care system (whose example keeps being rammed down our throat) is not allow Canadians to purchase health care in the United States.

In addition, all drug sales to Canada should be sold on consignment through the US government, with a requirement that the USG get at least 90% of the American retail price.

In fact, this policy should apply to every country on Earth. Then we'll see how wonderful socialized medicine is.

Anonymous said...

Melykin: Please tell us which specific assertions by the Fraser Institute we should disbelieve.

Ronduck said...

Shouldn't the title of this post be Why Not Brazil? Or maybe the title should be Why Not Mexico? Why Not Argentina?

If we are trying to compare ourselves to similar countries then we need to look south, not north.

Toronto Realtor said...

I'm actually pretty proud of Canadian banks now. First time ever probably. Not one of them went bankrupt or had a tough time surviving. I'm sure there is loads of factors that caused this and maybe some luck but we sure did get out of this one pretty undamaged. But I do believe that the prices won't crash and change. Thanks for the article,

take care, Elli

Anonymous said...

Interview: A Continent of Losers“If, on the other hand, one goes to Canada, where I have lived part of each year for the last 20 years, they have a completely different policy. They say: Our immigration policy has a simple base. Every newborn Canadian and every new Canadian who comes from abroad has to be more intelligent than those who were here before. And believe it or not: Of 100 adult Canadian immigrants, 98 have better professional qualifications than the Canadian average. In Germany and France the corresponding number is 10 per cent. So we went for quantity, and they went for quality".