"Why Canada Can Avoid Banking Crises and U.S. Can’t"

[applegrove]

Why Canada Can Avoid Banking Crises and U.S. Can’t

By Victoria McGrane at the WSJ (of all places)

http://blogs.wsj.com/economics/2013/04/09/why-canada-can-avoid-banking-crises-and-u-s-cant/

"SNIP...................................................


Since 1790, the United States has suffered 16 banking crises. Canada has experienced zero — not even during the Great Depression.

It turns out Canada can thank the French for their stable system, according to a paper by Columbia University’s Charles Calomiris, presented at the Atlanta Fed’s 2013 Financial Markets Conference.

When it became a British colony, the majority of Canada’s population was of French origin — and the French inhabitants hated the British government.

So to keep the colony firmly within the Empire, British policymakers steered toward a government structure that would limit the power of the French-majority while also giving Canada more and more self-government. The eventual result was a highly-centralized federal government which controlled economic policy making and had built-in buffers for banker interests against populist forces, the paper argues

..................................................SNIP"


(and of course the Wall Street Journal blames deregulation of urban banking outright, while it walks softly in regards to glass steagall.... but still worth reading)

[MFrohike]

1. That is a load of shit

Populist forces, which have always been weak in the US, have had real influence over banking policy a grand total of one time. That was Jackson's fight against the Bank of the United States. The author should maybe study the later populists, who actually went by the name, and try to argue that they somehow had control over banking in this country. That is such a load.

The end of the article was particularly full of shit. The argument that a coalition of government, "big banks", and activist groups somehow created the subprime bubble is the same "blame the Community Reinvestment Act" bullshit we've heard for 3 years now. The most glaring part of this argument is the implication that "big banks" is meant to be read as commercial banks. I can't believe an economist with the slightest bit of sense would argue commercial banks were the driver of the collapse when it was the damn investment banks. You'd think an economist could maybe tell the difference.

[applegrove]

2. I took it to mean the populism means right wing in this case. But I agree this article

tries to connect with the delusion on the right that is was Franny Mae and Freddy Mac only that caused the bubble when it was investment banks mostly. Still I think the article is important because it points out that when the banking sector is 'captured' by vested interests and not properly regulated by government it bursts and destroys the economy..... when that doesn't have to happen.



http://en.wikipedia.org/wiki/Populism

"Although in the US and Europe, it currently tends to be associated with right-wing parties, the central tenet of populism that democracy should reflect the pure and undiluted will of the people, means it can sit easily with ideologies of both right and left."

[MFrohike]

3. How I saw it

His central argument is that the Canadian banking system is insulated from popular pressure. That sounds a lot like the arguments for an independent Fed in the US. Populists, who really are a mix of right and left for the most part, tend to favor inflationary policies rather than stable money/deflationary policies. That argument sounded a lot like "let the technocrats worry about the money" and we've see how well they've done with that. The assumption is a lot like austerity. Some right-wing economist assumes us unwashed heathens are too selfish to run the money supply because we'll do something crazy, like boost the demand side or lessen our debt load via inflation. Like the austerity fans, the economist also assumes that we need "discipline" which is always applied to the accomplices (society at large) and never to the ringleaders (the rentier class). It's such tired bullshit, but it's just more proof that economics is often closer to being a religion than a science.

[applegrove]

4. I don't see all that. I think the point that populism from either extreme can make

the banks, 'captured' by one side or the other, means that banking regulations then favour the populist side that captured it. Their argument here is that it was investment banks and urban banking that loosened or changed regulations (the article was obviously written by someone on the right). The point is banking should be a stabilizing for the country and not favour either extreme, who want more benefits $$$$$ for their populist base, or both at the same time. I'm in Canada. We had a mild depression because our manufacturing and export industries are so dependant on the USA. You crashed while we didn't. That vested interests controlling the banking system is a bad thing is something I'd like to sink into the brains of people reading the Wall Street Journal. Because not only do they blame urban favoured banking practices for the burst, but they actually made a lot of money off the bubble and would 'do it again'. The rich love bubbles. They did make lots of money in the 2000s. Then they didn't for two years but got bailed out. Now they are back to large bonuses and profits. I favour government leveling out banking cycles because I know any burst destroys the employment, home ownership, savings and retirement of millions upon millions of the working and middle class.

That being said I should have looked to the person who actually did the study rather than post it through the veil of the Wall Street Journal writer.

[MFrohike]

6. The thing about populism

Economic populism in the US is not really left or right. There's a broad majority of economic populists in this country. The division into left and right populists starts with social issues like immigration, abortion, gay marriage, etc. I only say that for clarity.

I can't really speak to why Canada didn't have as bad a landing as the US. I could speculate that extractive activities, like oil production, probably had something to do with it, but, as a stereotypical American, I really haven't paid attention to Canada. That being said, the populist argument by the author is not about the left/right divide. It is about debtors vs. creditors, aka the class war we can trace back to the Roman Republic, if not earlier. The author believes that debtors should suffer not only for their own sins, but for the sins of the rentier class (creditors) as well. That's the essence of pointing out the insulation of the Canadian banking system. It's also a fictitious picture of America, because the Fed is also independent. The author pretends that populist forces in the US somehow made the Fed bend to their will when the truth is that Greenspan and Bernanke have acted to preserve asset prices. Their actions had the unintended effect of creating the biggest debt bubble in history. This was not due to pressure, especially not with the clear example of Paul Volcker to follow, but due to their own ideological choice.

The author either doesn't understand the story or doesn't care about it. He's implicitly arguing for a deflationary monetary policy.

We agree totally on everything you wrote from the bolded portion to the end. Sometimes I think the purpose of high taxes on the wealthy is really to keep excess money out of their hands in order to prevent bubbles. I'm not sure if I really believe that or not, but there sure were a lot less bubbles in the US when marginal rates were higher.

[applegrove]

7. Canada had the chance to losen banking regulation and allow our 5 huge (big even for the US)

Last edited Thu Apr 11, 2013, 12:01 AM - Edit history (1)

banks and credit unions to merge. The government of Jean Chretien, specifically his finance minister Paul Martin, said no to mergers. We also had higher reserve rates. A few other things I cannot quite remember now. Point is the banks were regulated for stability which was the goal the government had. And we got stability. Our banks did not get into sub prime mortgages, we did not have a housing bubble. We, as a people in English Canada, have always had to get along and seek to understand the French. We had to compromise if we wanted to stay together. That attitude extends to rich and poor too. Though politics can be very partisan...all the parties would be considered liberal from your point of view.

[MFrohike]

8. Ok, I get you

Yeah, that sounds like the US before Jimmy Carter. The great "experiment" with deregulation started under him in 1980. Within 2 years, we had our first financial crisis since the Great Depression (Latin American debt). It'd be useful if more than a handful of Democratic politicians, including the president, had even a passing familiarity with American economic history, but I guess that's part of why we keep getting the shaft.

[mmonk]

5. Or more likely their government wasn't captured by their financial sector ( as the case with the US,

Britain, and the Eurozone). The same is true of the Scandinavian countries.