Worthwhile Canadian Initiative

Canadian banks are typically leveraged at 18 to 1--compared with U.S. banks at 26 to 1.
Published Feb 7, 2009
From the magazine issue dated Feb 16, 2009




The legendary editor of The New Republic, Michael Kinsley, once held a "Boring Headline Contest" and decided that the winner was "Worthwhile Canadian Initiative." Twenty-two years later, the magazine was rescued from its economic troubles by a Canadian media company, which should have taught us Americans to be a bit more humble. Now there is even more striking evidence of Canada's virtues. Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it's Canada. In 2008, the World Economic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th.

Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn't grown in size; the others have all shrunk.

So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada's more risk-averse business culture, but it is also a product of old-fashioned rules on banking.

Canada has also been shielded from the worst aspects of this crisis because its housing prices have not fluctuated as wildly as those in the United States. Home prices are down 25 percent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for overconsumption that the U.S. code does: interest on your mortgage isn't deductible up north. In addition, home loans in the United States are "non-recourse," which basically means that if you go belly up on a bad mortgage, it's mostly the bank's problem. In Canada, it's yours. Ah, but you've heard American politicians wax eloquent on the need for these expensive programsinterest deductibility alone costs the federal government $100 billion a yearbecause they allow the average Joe to fulfill the American Dream of owning a home. Sixty-eight percent of Americans own their own homes. And the rate of Canadian homeownership? It's 68.4 percent.

Canada has been remarkably responsible over the past decade or so. It has had 12 years of budget surpluses, and can now spend money to fuel a recovery from a strong position. The government has restructured the national pension system, placing it on a firm fiscal footing, unlike our own insolvent Social Security. Its health-care system is cheaper than America's by far (accounting for 9.7 percent of GDP, versus 15.2 percent here), and yet does better on all major indexes. Life expectancy in Canada is 81 years, versus 78 in the United States; "healthy life expectancy" is 72 years, versus 69. American car companies have moved so many jobs to Canada to take advantage of lower health-care costs that since 2004, Ontario and not Michigan has been North America's largest car-producing region.

I could go on. The U.S. currently has a brain-dead immigration system. We issue a small number of work visas and green cards, turning away from our shores thousands of talented students who want to stay and work here. Canada, by contrast, has no limit on the number of skilled migrants who can move to the country. They can apply on their own for a Canadian Skilled Worker Visa, which allows them to become perfectly legal "permanent residents" in Canadano need for a sponsoring employer, or even a job. Visas are awarded based on education level, work experience, age and language abilities. If a prospective immigrant earns 67 points out of 100 total (holding a Ph.D. is worth 25 points, for instance), he or she can become a full-time, legal resident of Canada.

Companies are noticing. In 2007 Microsoft, frustrated by its inability to hire foreign graduate students in the United States, decided to open a research center in Vancouver. The company's announcement noted that it would staff the center with "highly skilled people affected by immigration issues in the U.S." So the brightest Chinese and Indian software engineers are attracted to the United States, trained by American universities, then thrown out of the country and picked up by Canadawhere most of them will work, innovate and pay taxes for the rest of their lives.

If President Obama is looking for smart government, there is much he, and all of us, could learn from our quietOK, sometimes boringneighbor to the north. Meanwhile, in the councils of the financial world, Canada is pushing for new rules for financial institutions that would reflect its approach. This strikes me as, well, a worthwhile Canadian initiative.

© 2009


http://www.newsweek.com/id/183670/output/print.

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"deeds, not words"

Although I agree with most of what this article, but the following is utter bull$hit...

Canada, by contrast, has no limit on the number of skilled migrants who can move to the country. They can apply on their own for a Canadian Skilled Worker Visa, which allows them to become perfectly legal "permanent residents" in Canadano need for a sponsoring employer, or even a job. Visas are awarded based on education level, work experience, age and language abilities. If a prospective immigrant earns 67 points out of 100 total (holding a Ph.D. is worth 25 points, for instance), he or she can become a full-time, legal resident of Canada.

Our immigration system is a corrupt mess, and only those with money are guaranteed a spot in the country.

My fiance's brother came to Canada on a work Visa. He got a job working for a carpentry company, worked here for 2 months, paid his taxes like everyone else, and when the time his Visa was about to expire, he applied for landed immigrant status.

He was denied. He got a lawyer to see if he could get a little help. This is an HONEST guy who came to Canada to work and make a better life for himself. He didn't start selling drugs or work under the table. He got a legitimate job and paid taxes like everyone else.

The lawyer told him flat out, he seen many cases like this, and unless the people applying for landed immigrant status have large sums of cash to back up their requests, the Canadian immigration board usually sends them packing.

Another example. Someone I know came to Canada from Jamacia. First thing he did when he got here was get arrested on drug charges. When his Visa was expiring, he applied for landed immigrant status. He paid 12k CDN under the table to his immigration officer with money he made selling drugs. The idiot now lives in Montreal selling drugs, spending time in and out of jail, and sucking off of our welfare system. But he was allowed to stay simply because he had the money to do it.

Not too long ago, there were immigration officials exposed for this same thing. It was all over the news. They were taking bribes to allow people to stay.

Brother I hate to ask, but does the guy have any kids yet? And if he does etc.?

[IMG][/IMG]

Can't argue much with the banking points in the article........over the last couple of decades the U.S. has pursued some very lenient and loose lending practices allowing loans to people and companies with marginal ability to make good on them. It's biting them in the ass right now and how.


I am a market oriented guy, but, I am not opposed to stricter regulations (AND smarter government policies directing banking activity) to prevent just these kinds of situations in the future.