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mises
Joined: 05 Nov 2007
Location: retired
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 Posted: Fri Apr 17, 2009 10:47 am Post subject: Is Canada a Banana Republic? |
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http://www.economist.com/world/americas/displaystory.cfm?story_id=13415555
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White-collar crime in Canada
Too trusting
Apr 2nd 2009 | OTTAWA
From The Economist print edition
Why does justice move so much more slowly north of the 49th parallel?
OUTSIDERS tend to think of Canada as a wholesome, boy-scoutish kind of place. Many Canadians have the same view. Yet their country is as shockingly slow as many in Latin America when it comes to dealing with allegations of corruption and white-collar crime, as a rash of recent cases demonstrates.
Public hearings began this week in a judicial inquiry into the relationship between Brian Mulroney, a former prime minister, and Karlheinz Schreiber, who was once a lobbyist for Airbus and for Thyssen, a German defence and steel company. The matter under investigation dates back to 1993, when Mr Mulroney is alleged to have accepted the first of three envelopes stuffed with cash from Mr Schreiber. It is six years since these payments became public knowledge.
Yet the inquiry is the first attempt by the government to get to the bottom of the affair. Mr Mulroney says that the cash�C$225,000 ($170,000 at the time) he says; C$300,000 says Mr Schreiber�was payment for lobbying work carried out after he ceased being prime minister, and he insists he has done nothing wrong. But should the inquiry�s findings lead to criminal charges against him, the subsequent trial would probably drag on for several more years.
This is what happened in the case of Garth Drabinsky and Myron Gottlieb, two Canadian theatre impresarios from a company called Livent who were convicted of fraud on March 25th. They were indicted in the United States in 1999, and promptly fled to Canada where they were not charged until 2002. Justice has moved only slightly faster in the case of Larry O�Brien, the mayor of Ottawa, who was charged 16 months ago with trying to bribe an opponent in an election in 2006. His trial begins next month.
Canadian sloth in these matters is shown up by American zeal. Conrad Black was jailed for fraud south of the border but was never charged in his native Canada, although some of the press baron�s offences were committed there. The contrast stems in part from differences between legal systems. America�s grand juries, which have no counterpart in Canada, allow investigators to subpoena witnesses and require them to testify under oath. Plea bargaining provides another tool to extract evidence. Canadian police must rely on voluntary co-operation from busy businessmen. If they procrastinate, cases may be dropped because witnesses die or because of undue delay, as happened with Robert Topol, a third Livent manager. Another time-consuming Canadian procedure requires police to disclose all documentary evidence when they file charges.
A bigger factor may be public attitudes. Canadians tend to defer to authority and trust their institutions. Although the main parties, the Liberals and the Conservatives, play up corruption claims to gain political advantage, their outrage rarely provokes a public groundswell in favour of speedy action or change. The exception was a scandal over Liberal advertising spending, which cost the party the 2006 election.
The Liberals have had little success in trying to tar Stephen Harper, the Conservative prime minister, with the problems of Mr Mulroney, who formerly acted as a mentor to him. Mr O�Brien has refused to step down as Ottawa�s mayor. The Canadian Broadcasting Corporation plans to air a new series of a talent show in which Mr Drabinsky is one of the judges. Mr Mulroney continues to sit on several corporate boards. �Canadians are complacent about these things,� says Tony Coulson of Environics, a polling firm. At this rate they won�t earn their boy-scout�s badge for housecleaning. |
In the interest of fairness.. |
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anynag
Joined: 01 Jan 2009
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| Posted: Fri Apr 17, 2009 5:43 pm Post subject: |
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| Are so-called republics going bananas? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Sat Apr 18, 2009 5:28 am Post subject: |
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| Wait, my bad. Canada isn't a republic. A banana federation? |
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Gopher
Joined: 04 Jun 2005
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| Posted: Sat Apr 18, 2009 8:51 am Post subject: |
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| Part of Britain's larger banana dominion, I imagine. |
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RJjr
Joined: 17 Aug 2006
Location: Turning on a Lamp
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Manner of Speaking
Joined: 09 Jan 2003
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| Posted: Sun Apr 19, 2009 8:35 am Post subject: |
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Speaking as a Canadian, the author makes a very good point. I'm not sure if the expression "Banana Republic" is most appropriate, as in my mind the expression suggests phoney elections, the military being far too involved in politics, no respect for human rights, etc...
However, the securities industry and financial sectors are very poorly regulated in Canada compared to the US and Europe; prosecutions involving white collar crime, as well as public inquiries like the Air India inquiry, seem to move at glacial slowness. You guys should read up on the Westray Mine Explosion Inquiry or the Gerald Regan trial as a perfect example.
Even here in Korea, it took only a few weeks for prosecutors to decide to haul Roh's behind into their office to ask him a few questions. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Sun Apr 19, 2009 8:39 am Post subject: |
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| I'd still rather be in Canada's shoes. |
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Manner of Speaking
Joined: 09 Jan 2003
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| Posted: Mon Apr 20, 2009 12:55 am Post subject: |
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Hmmm...I guess one could argue that the sub-prime lending crisis in the US kinda skews the bell curve on my opinion above.  I really don't know enough about the mortgage market differences between Canada and the US to be able to comment.
However...
...don't you have to get mortgage insurance in the US regardless of your credit rating or the size of your down payment? I think you have to in Canada. |
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supernick
Joined: 24 Jan 2003
Location: Seoul
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| Posted: Wed Apr 22, 2009 3:19 am Post subject: |
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Hmmm...I guess one could argue that the sub-prime lending crisis in the US kinda skews the bell curve on my opinion above. I really don't know enough about the mortgage market differences between Canada and the US to be able to comment.
However...
...don't you have to get mortgage insurance in the US regardless of your credit rating or the size of your down payment? I think you have to in Canada. |
It depends on the type of mortgage. If you have what they call a conventional mortgage, where one puts down at least 20%, you don't need insurance on it.
I don't really want to compare how things are done in the U.S., but I do know something about the Canadian banks. They are highly regulated due to how Canadian banks operated 90 years ago, which was much like how American banks operate today. There were 20 or 30 banks that folded as they were lending in a recless fashion and many people lost millions. If you look at Canadian banks today, they are the best run and best managed and most profitable due to intervention and regulation.
http://www.time.com/time/printout/0,8816,1855317,00.html
In the midst of the worst financial crisis since the Great Depression, Canada has joined the ranks of governments that in recent weeks stepped up to help banks cope with more fallout from bad U.S. subprime mortgages. In Canada's case, however, the reason for the assistance is a little different from some of its G-7 partners. Unlike banks in the U.S., Britain and Germany, which needed to be bailed out with hundreds of billions of dollars in new capital, Canada's major banks are solid and solvent. They don't need any help to work through their subprime exposure. (Find out 10 things to do with your money.)
So why did Ottawa agree to insure the money they routinely borrow from other banks, a practice that keeps their credit operations liquid? Ironically, the troubled non-Canadian institutions that received capital injections and loan guarantees in other countries now carry a government seal of approval that tilts the playing field in their favor when it comes to borrowing. That leaves Canada's big banks, including Scotiabank, TD Bank Financial Group, RBC Royal Bank and CIBC, at a competitive disadvantage. So the government acted to level the field, not to aid troubled banks. (See pictures of the global financial crisis.)
Why has Canada withstood the subprime tornado better than other countries, and should the Canadian banking system be a model for G-7 and G-20 leaders when they gather in Washington on Nov. 15? Consider that the Geneva-based World Economic Forum, an influential think tank whose annual conference attracts the likes of Bill Gates and Tony Blair, earlier this month ranked Canada's banking system as the soundest in the world. The U.S. came in at No. 40, and Germany and Britain ranked 39 and 44, respectively. (Switzerland was No. 16, just ahead of Namibia.) "For Canadian banks, having higher capital ratios than anyone else in the world is a source of pride," says analyst Mario Mendonca with Toronto-based investment bank Genuity Capital Markets. (Read "Four Steps to Ending the Foreclosure Crisis.")
The average capital reserves for Canada's Big Six banks � defined as Tier 1 capital (common shares, retained earnings and non-cumulative preferred shares) to risk-adjusted assets � is 9.8%, several percentage points above the 7% required by Canada's federal bank regulator. That's a little better than major U.S. commercial banks like Bank of America, but significantly higher than an average capital ratio of about 4% for U.S. investment banks and 3.3% for European commercial banks.
Another factor that helped make Canada the new gold standard in banking was Ottawa's decision in the late 1980s to allow commercials banks to acquire investment dealers on Toronto's Bay Street, the country's financial hub. As a result, these institutions are subject to the same strict rules as commercial banks, while U.S. investment dealers are subject to only light supervision from the Securities and Exchange Commission. Morgan Stanley and Goldman Sachs, of course, will now be under the U.S. Federal Reserve's supervision since they have been chartered as bank-holding companies.
Canada's banks make bad investments on occasion. When Toronto-based CIBC, Canada's most aggressive big bank, took $3.5 billion in charges against the U.S. subprime debacle, federal regulators quickly arrived on the scene. But here's the difference: CIBC ended up selling $2.94 billion worth of its own shares in the first quarter of this year to shore up capital reserves. "The relationship between government and banks is a positive one," says Minister of Finance Jim Flaherty. "We have a lot of discussions and regular meetings. The common goal is a sound financial system."
There is, of course, a flip side to Canada's regulatory system. When the global economy was flying high, Canadian banks complained about not being allowed to merge to become more significant international players. "In hindsight, that decision may have saved Canada from having a Royal Bank of Scotland on its hands," says Lawrence Booth, a finance specialist at the University of Toronto's Rotman School of Management, referring to the overly ambitious bank's bailout earlier this month by the British government.
Says FFlaherty: "The credit crisis we're facing is the result of unbridled greed. We need to bridle greed." Perhaps when world leaders sit down in Washington to forge a 21st-century New Deal for the global financial system, it may have more than a smattering of Canadian banking know-how. |
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Manner of Speaking
Joined: 09 Jan 2003
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| Posted: Wed Apr 22, 2009 6:56 am Post subject: |
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| Another factor that helped make Canada the new gold standard in banking was Ottawa's decision in the late 1980s to allow commercials banks to acquire investment dealers on Toronto's Bay Street, the country's financial hub. As a result, these institutions are subject to the same strict rules as commercial banks, while U.S. investment dealers are subject to only light supervision from the Securities and Exchange Commission. |
Now THAT's interesting, I didn't know that. Thanks for the post!
Other than the banks, however, I do think the securities industry in Canada could stand a bit more regulation. Bre-X happened in Canada, and it doesn't make sense for every province to have it's own securities regulatory regime, IMHO....that's too balkanized. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Wed Apr 22, 2009 9:32 am Post subject: |
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Canada is about 18 months behind the US in terms of the housing collapse. I wouldn't count our chickens before they hatch.
"They" say lots of things, right? And right now "they" are saying Canada's banking system is top. Who here read the report? I did. It was a survey of customers, not an examination of balance sheets. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Wed Apr 22, 2009 9:35 am Post subject: |
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| Manner of Speaking wrote: |
Hmmm...I guess one could argue that the sub-prime lending crisis in the US kinda skews the bell curve on my opinion above. I really don't know enough about the mortgage market differences between Canada and the US to be able to comment.
However...
...don't you have to get mortgage insurance in the US regardless of your credit rating or the size of your down payment? I think you have to in Canada. |
No. Most home mortgages in the US are non-recourse, which means if the mortgagor defaults, he/she can just walk away. This leaves the bank/mortgagee with the gain/loss. And with the housing market slumped, this usually results in a loss for the bank.
In Canada, I was told home mortgages are recourse, which means the mortgagee can sue the mortgagor on a default. In this situation, I would imagine the bank/mortgagee would demand insurance so that some entity could pay it on default. |
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Manner of Speaking
Joined: 09 Jan 2003
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| Posted: Thu Apr 23, 2009 8:31 pm Post subject: |
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| Kuros wrote: |
| Manner of Speaking wrote: |
| ...don't you have to get mortgage insurance in the US regardless of your credit rating or the size of your down payment? I think you have to in Canada. |
No. Most home mortgages in the US are non-recourse, which means if the mortgagor defaults, he/she can just walk away. This leaves the bank/mortgagee with the gain/loss. And with the housing market slumped, this usually results in a loss for the bank. |
Holy F*** are you serious? You can just walk away from a mortgage, not have to pay, with no consequences? 
| Quote: |
| In Canada, I was told home mortgages are recourse, which means the mortgagee can sue the mortgagor on a default. In this situation, I would imagine the bank/mortgagee would demand insurance so that some entity could pay it on default. |
In Canada at the end of World War II, the housing stock was in poor shape after the Depression and war. Only about 50% of homes in Canada had indoor toilets. The federal government brought in a National Housing Act, mainly to stimulate new home construction and provide jobs for returning vets. One of the minor provisions of the act was mortgage insurance, which actually turned out to be the most influential provision.
I think how it originally worked, the home buyer had to purchase mortgage insurance at the same time that they got the mortgage, and the monthly fee was set at a value of about 5% of the mortgage payment. In the beginning the feds paid half the fee and the homeowner the other half. For the banks, home loans became a guaranteed investment because if the homeowner defaulted, they could recover the full value of their investment. They didn't even have to sue, they would just get it automatically upon default. In the first five years after the war, something like a million new homes were built because of the mortage insurance system.
I don't know if mortgage insurance is a legal requirement nowadays in Canada, but I doubt if a bank will even look at you if you don't get it...or they will make it a condition of the mortage unless you've got a VERY good credit rating or a ton of money in the bank.
In the US, I can see now why so many people would be just tempted to walk away from their mortage, if/when housing prices dropped...I've heard about situations like people being stuck with a $300,000 mortage for a house whose value dropped to $120,000 or something. In Canada I don't know what someone does if they are in a situation like that... |
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Manner of Speaking
Joined: 09 Jan 2003
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| Posted: Thu Apr 23, 2009 8:41 pm Post subject: |
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| The other thing with the Canadian economy is that most big companies are too lazy to invest in value-added exports. We don't produce any cars, computers, very little furniture, no cell phones...Bombardier produces small planes, but that's about it. Most companies would rather produce raw materials like wood, paper, minerals, etc....things which are expensive to transport, so the only place they are exported to is the nearby US market. As a result the Canadian economy is very tightly coupled to the US manufacturing sector, so if things are bad there, they are bad here. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Apr 23, 2009 9:04 pm Post subject: |
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| Manner of Speaking wrote: |
| The other thing with the Canadian economy is that most big companies are too lazy to invest in value-added exports. We don't produce any cars, computers, very little furniture, no cell phones...Bombardier produces small planes, but that's about it. Most companies would rather produce raw materials like wood, paper, minerals, etc....things which are expensive to transport, so the only place they are exported to is the nearby US market. As a result the Canadian economy is very tightly coupled to the US manufacturing sector, so if things are bad there, they are bad here. |
Have you read this book?
http://www.amazon.ca/Why-Mexicans-Dont-Drink-Molson/dp/1553652258
From the amazon.ca summary:
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It's hard not to feel pessimistic about Canada's chances of transcending perennial bridesmaid status on the world's business stage after reading Why Mexicans Don't Drink Molson. If author Andrea Mandel-Campbell is to be believed--and given her experience as a foreign correspondent for London's Financial Times, Argentina's Business Week, the Miami Herald, and the Globe & Mail--and she is--the current (soon-to-be-ex?) G8 nation is less investment powerhouse than provincial backwater.
Using illustrative examples too numerous to list (but including the titular Molson company whose colossal failure in Brazil is emblematic of Canada's larger foreign expansion problem), Mandel-Campbell describes a nation hobbled by arrogance, diffidence, xenophobia, short-sightedness, excessive government intervention, and a general lack of moxie, as well as some really appalling manners.
"In 1997, the Mexican president returned to Vancouver to attend an APEC leaders' summit, which included a dinner held in his honour with the CEOs from eighteen Asia-Pacific countries. During the dinner's opening speeches, the Canadian hosts stumbled while trying to pronounce Zedillo's name. The most embarrassing point, however, came when the head of the Vancouver Port Authority attempted to engage Mexico's minister of commerce in conversation. 'Do you own a car?' she asked, followed by: 'Do you live in an apartment?' The Westcoast Energy people were already squirming in their chairs when the head of the Port Authority managed to outdo herself. As the waiter came over to fill the water glasses, she leaned over to the Mexican minister, lightly touching his elbow, and confided, 'In our country, it's safe to drink the water.'"
Mandel-Campbell argues that the real action is unfolding in China; if Canada hopes to soar in areas of manufacturing, trade, R& D and finance, it must step outside its comfort zone, adjust its worldview and take a damn chance already or the missed opportunities will continue to mount. The author closes with examples of entrepreneurs and companies that have done just that with bona fide success while suggesting tenable ways of reversing this downward trend. Why Mexicans Don't Drink Molson isn't easy reading, but it is essential for anyone--business or lay person--unwilling to be left behind in our ever-changing world. -- Kim Hughes
Book Description
A scathing wake-up call castigating the timidity of Canadian companies in international markets, combining bracing analysis and compelling anecdotes with shrewd prescriptions for the future.
Canada has all the makings of a global leader, yet it has opted to become a laggard, frittering away its jackpot of rich resources rather than building viable multinationals that are ultimately the country�s best defence in a globalized world. Andrea Mandel-Campbell interviews some of Canada�s leading executives, such as Stephen Jarislowsky, and behind-the-scenes movers and shakers to reveal the hidden challenges to Canada�s global success and the perils of continued complacency.
A lively and authoritative compendium of never-before-heard tales of Canadian companies abroad, Why Mexicans Don�t Drink Molson is also a hands-on guide for innovative competitiveness, helping readers to identify the nation�s previously underestimated assets and abilities. |
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