$this->bbcode_second_pass_quote('', 'I') expect this mess to hit B.C. hard.
Our real estate is so out of whack compared to people's average incomes that I suspect it will crash harder here than anywhere else in Canada.
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The Gloom Spreads North
Re: The Gloom Spreads North
by rockdoc123 » Thu 09 Oct 2008, 09:49:07
so true......and it's been that way for quite sometime. I remember back in the eighties that a 900 sq ft WWII bungalow in Kitsilano on a relatively small lot would easily sell for $400K versus a larger lot an brand spanking new home in Calgary for about $150. Now its more like 1.5 MM versus 600 K. I have a number of friends who live in Vancouver and it's nearby areas that have stated it is unlikely most people in the area will ever own their home in their lifetime as they all took the minimum downpayment route.
Price you must pay for living in Lotus land I suppose. The big difference now versus Alberta in the eighties is that inflation was at an all time high back then....people walked from their mortgages. As long as people in Vancouver can stay employed they should be OK as the Canadian banks seem to have largely dodged the bullet.
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Re: The Gloom Spreads North
by Nickel » Thu 09 Oct 2008, 10:03:46
$this->bbcode_second_pass_quote('Cashmere', 'N')ickel has assured me that Canada's economy is not dependent on the U.S. economy.
No, Caz, what I've objected to are instances where you purport our ENTIRE economy is dependent on it. The great majority of trade is, in fact, domestic. I know we go on and on about being a trading nation, and we are, but the fact is that, as with most healthy economies, we consume the majority of what we produce and sell the excess. Foreign export trade represents about 37% of our economy, and of that, the US accounts for about 4/5, down from about 90% in the late 90s. Obviously a downturn in the US economy implies ramifications here. I never denied that. It's one of the reasons I've been championing expanding our trade with other countries and why I really hope we strike a deal with the EU.
We need to keep some perspective. First of all, some industries will be hit more than others. Manufacturing, unfortunately, tends to produce things people WANT, but can do without, where raw materials and energy tend to be things they NEED. So some sectors will experience more of a downturn than others. It also requires a reduction of sales to the US over over 3% to represent a 1% contraction in our economy. Unless the entire planet winds up living in refrigerator crates (in which case, it's a bit much to single out Canada), the US is always going to need to buy things from Canada.
So aside from the trade aspect, we need to also keep in mind that many of the fundamentals are different. We have a separate currency, a separate interest rates structure and bond issue, a separate debt and debt servicing structure, an economy that has been paying down the debt since 1995 instead of increasing it, and only a handful of chartered banks, whose exposure to the housing bubble in the US is concerning but limited by a lot of regulation.
Will things get bad here? Sure; it's a global downturn. Will they get as bad as in the States? I have my doubts. The economic fundamentals, as I've said, are different here. I haven't seen RBC or CIBC or TD or BMO or ScotiaBank about to topple over because of bad debt (oh, sure, they're bitching about negative numbers and looking for sympathy, but that's not the same thing), or having to be propped up or bought up by the federal government. Canada was always more conservative when it came to deregulation, and though the banks screamed about it in the past, I've been be reading lately that there's some grudging acceptance that maybe it wasn't a bad idea after all.
Moley's not the only one who can quote from the Globe, by the way...
$this->bbcode_second_pass_quote('', '
')Lucky or prescient? Chretien takes credit for stronger banks
From Wednesday's Globe and Mail
October 8, 2008 at 1:42 AM EDT
NEW YORK — Jean Chretien is smiling.
Ten years ago this fall, after his government rejected a pair of proposed bank mergers, the financial community was awash in dire prophesy: Canadian banks were too small to compete with their bulked-up neighbours to the south, the critics complained.
They were too insulated to remain relevant in a global economy characterized by lightning change and mind-bendingly complex products.
Yet today, amid the worst financial crisis in a generation, those predictions have been turned squarely on their head. While Wall Street titans succumb to a credit meltdown, spreading their contagion to Europe, the Canadian banking system has emerged as the most stable and best performing in the world.
Three Canadian banks are now in the top 10 in North America by market value, and the remaining two are not far behind.
Mr. Chretien, who faced considerable Bay Street backlash for his stance on the banks, now credits his government's policy with helping to ward off the financial meltdown currently gripping much of the G8.
“While everybody's in turmoil, Canada is not in turmoil,” Mr. Chretien explained in a brief interview.
“And the two big reasons are that we balanced the books in '95, and we said no to the merger of the banks.”
Of course, it's impossible to say with any certainty whether the decision to quash two mergers – one between Royal Bank of Canada and Bank of Montreal, the other between Toronto-Dominion Bank and Canadian Imperial Bank of Commerce – shielded the Canadian industry from the mortgage-fuelled fallout that has ravaged Wall Street.
One school of thought is that if the Canadian banks gained scale through mergers in 1998, they would have made bolder moves south of the border, and perhaps become entangled in the same toxic lending activities that have prompted the collapse of several major U.S. banks.
Indeed, sources said that had RBC and BMO joined forces, one of their first acquisition targets would have been Wachovia Corp., the North Carolina bank that has been hobbled by soured mortgages, and is now the subject of a takeover battle between Citigroup Inc. and Wells Fargo.
“It was a crazy race they were in,” Mr. Chretien said of the U.S. banks, which were expanding frantically in the belief that bigger was better.
“Our guys were not in that race because they claimed they were too regulated.”
Charles Baillie, the former head of TD, believes that had the Canadian banks merged, they would have been able to resist the temptation of reckless lending that consumed Wall Street, and might be in a better position now to participate in an industry-wide buying frenzy.
Yet he acknowledges it's no sure thing, and said that the current health of the banking sector probably nullifies any appetite for industry mergers.
“If we had been allowed to merge, we might have thought that we were big characters and played more aggressively,” he said. “But I think it's more likely we would have played by the same lending standards we have now.”
RBC, TD, and BMO have each established a presence in the U.S. market, albeit not in the transformative way they may have imagined when they lobbied for mergers. And CIBC's painful experience in investment banking there in the late 1990s proved that a bank can find trouble through foreign expansion regardless of whether they first tie the knot with a domestic partner.
Yet while the impact of merger policy is debatable, the issue of culture isn't: indeed, it is one of the main reasons why the Canadian industry has remained stable in the face of a global banking mess.
Canadian banks have historically been more cautious lenders than their U.S. peers, preferring to hang on to most loans they underwrite rather than package them off in complex securities to third parties.
The numbers bear this out: As of the end of last year, only 23 per cent of mortgage loans in Canada had been securitized, with the remainder sitting on the balance sheets of federally regulated institutions. In the U.S. market, by contrast, 51 per cent of mortgage debt had been moved off balance sheets through securitization, much of it Byzantine.
Ian de Verteuil, a BMO Nesbitt Burns analyst who compiled the numbers in a recent research report, noted that there are several problems with such a heavy reliance on securitizations. Underwriting standards become less stringent (if you're not keeping a loan on your books, there's less reason to be picky); the complexity of the securities backed by these mortgages require more reliance on rating agencies, which have shown themselves to be sorely lacking; and the fact that many of these securities are held by unregulated entities like hedge funds makes central bank interventions less effective.
“We believe the fundamental difference between the Canadian and the U.S. banking systems is that Canada still effectively runs an on-balance-sheet banking system, while the U.S. does not,” Mr. de Verteuil wrote in his report.
This is not to say there haven't been problems: several of the banks have had exposure to subprime mortgages and faltering bond insurers.
CIBC, the worst hit, suffered almost $7-billion in writedowns.
Even so, the capital position of these banks remains very strong, and investors have noticed this. Although the index of Canadian banks has fallen about 10 per cent this year, that is far less than the U.S. industry (25 per cent), Europe (38 per cent) or Asia (37 per cent). And this relative strength has catapulted RBC to the number four ranking among North America's big banks – a big leap, considering its planned merger with BMO in 1998 would have made the combined company a distant 10th.
Instead of being devoured, the Canadian banks might do some devouring of their own. Chief executives of the Big Five are being pitched daily on potential acquisitions in the U.S. sector, and most believe they will find some bargains to fuel their expansion.
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Re: The Gloom Spreads North
by deMolay » Thu 09 Oct 2008, 13:28:57
Nickel, one thing to keep in mind, Chretien did not create the banking system in Canada it has existed like that for over 100 years. And the only reason he did not take the bait was not from wisdom. I remember the event quite well. It was because he would have faced a serious backlash from all Canadian's and the polls on the proposed mergers and changes told him to leave things alone. Luckily he took the advice of Canadians.
"We Are All Travellers, From The Sweet Grass To The Packing House, From Birth To Death, We Wander Between The Two Eternities". An Old Cowboy.
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Hey, I thought Harper said Canada had no economic problem?
by some_math_guy » Thu 09 Oct 2008, 13:50:20
Credit Crisis hits Canada link
Baa hahahahahahaha
Fixed link. Please use the hyperlink function (instructions in the 'How To Get Around This Site..." thread in the Welcome Forum.) Thank you.-FL
Baa hahahahahahaha
Fixed link. Please use the hyperlink function (instructions in the 'How To Get Around This Site..." thread in the Welcome Forum.) Thank you.-FL
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Re: Hey, I thought Harper said Canada had no economic proble
by Snowrunner » Thu 09 Oct 2008, 13:52:05
No, you heard him wrong, he said he had a plan, he just couldn't tell us.
No worries, all is fine. Flaherty said so this morning too and he must know, he was Finance Minister in Ontario.
No worries, all is fine. Flaherty said so this morning too and he must know, he was Finance Minister in Ontario.
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Re: Hey, I thought Harper said Canada had no economic proble
by Ferretlover » Thu 09 Oct 2008, 13:53:34
If nothing else, Everyone should know by now that when someone says "All is well," it isn't.
"Open the gates of hell!" ~Morgan Freeman's character in the movie, Olympus Has Fallen.
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Re: Hey, I thought Harper said Canada had no economic proble
by Dreamtwister » Thu 09 Oct 2008, 13:53:46
And you believed him?
The whole of human history is a refutation by experiment of the concept of "moral world order". - Friedrich Nietzsche
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Re: Hey, I thought Harper said Canada had no economic proble
by Snowrunner » Thu 09 Oct 2008, 14:03:36
$this->bbcode_second_pass_quote('Dreamtwister', 'A')nd you believed him?
Moi?
Not at all, he clearly is in over his head and now desperately tries to learn how to swim. For him it was never about Leadership or Vision always about having the power, hence why he pulled a fast one for the election hoping to beat reality and sticking us with four more years of his "Leadership".
Last edited by Snowrunner on Thu 09 Oct 2008, 14:30:36, edited 1 time in total.
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