[cacruden]

I get the odd feeling sometimes that some people wish the worst for the country - as long as it serves their political needs.

 

[cacruden]

Mr. Cowen said he would bring the responsibilities of the central bank and financial regulator under one roof in a new Central Banking Commission, based on a Canadian model.

http://www.theglobeandmail.com/serv...irelandbank0228/BNStory/crashandrecovery/home

Ireland signals radical financial overhaul

CARMEL CRIMMINS
Reuters
February 28, 2009 at 5:06 PM EST
DUBLIN — Ireland's Prime Minister unveiled Saturday an overhaul of the financial services landscape to try and restore the country's international reputation and his own popularity.
A string of banking scandals and the bursting of a local property bubble have undermined Ireland's credibility as a financial services centre and triggered widespread public resentment at the use of taxpayer funds to bail out lenders.
“There is huge anger and disgust out there at the way some of our bankers behaved,†Brian Cowen said in a keynote speech at his party's convention.
“What we need to do now is fix the damage they have caused.â€
Scandals surrounding nationalized lender Anglo Irish Bank have created an impression of a cozy corporate culture and lax regulatory regime.
Highlighting that criticism, Mr. Cowen said he would bring the responsibilities of the central bank and financial regulator under one roof in a new Central Banking Commission, based on a Canadian model.
Mr. Cowen vowed that this Commission would have new powers and an internationally respected head of banking regulation.
“In the weeks ahead, I will introduce new standards of banking regulation and new standards of corporate governance, which will restore our reputation and move us to the forefront of best international practice,†he said in a televised address.
To loud applause, Mr. Cowen said chief executives of any banks receiving state aid would face a salary cap.
URGENT WORK
Ireland is expected to unveil a plan to tackle banks' exposure to risky commercial property loans after its €7-billion ($8.87-billion U.S.) recapitalization package for the top two lenders was sidelined by the scandals at Anglo Irish.
“We are now looking at the issue of how we can minimize risk in relation to that,†Finance Minister Brian Lenihan told Reuters on the sidelines of the convention. “It is urgent work.â€
He declined to give a time frame for a decision or outline his favoured option.
Investors are waiting to see whether Dublin will follow up a program to inject €3.5-billion into each of Bank of Ireland and Allied Irish Banks with a possible British-style insurance scheme for their bad debts or the establishment of a “bad bank†to section off soured assets.
AIB and Bank of Ireland have nearly doubled their provisions for bad debts, mostly related to loans to property developers, and investors fear there may be more shocks in store.
A poll in Saturday's Irish Independent newspaper showed that 84 per cent of the public are dissatisfied with the government's handling of the banking crisis.
SUPPORT OF ECB
Dublin's bailout of the banking sector comes at a time of unprecedented pain for the wider economy, with Ireland heading into its worst recession on record this year.
With the loss of crucial property-related taxes, the government is facing a budget deficit of 9.5 per cent of gross domestic product this year, the worst shortfall in the euro zone, and that is after €2-billion worth of spending cuts.
Cutbacks this year, including a pension levy on public sector workers, have sent government approval ratings to record lows, triggered a one-day strike by thousands of civil servants and prompted 100,000 people to protest last weekend.
But Mr. Cowen signalled on Saturday that he was going to push ahead with more tax increases and spending cuts as he seeks to reassure Brussels and ratings agencies that he is tackling the budget shortfall.
In another nod to European partners and a referendum later this year on the European Union's reform treaty, Cowen reminded delegates that the euro zone was an economic harbour for Ireland.
“We could never have contended with this financial crisis if we were not a member of the euro zone and if we did not have the support of the uropean Central Bank.â€

 

[jade_lee]

If our banking system is so sound why is it that the federal government has used tax dollars or even worse money they don't have! to buy 125 billion dollars worth of risk the banks here in Canada once owned? No political agenda here but instead lots of questions with respect to what the reality is once the smoke and mirrows disappear.

 

[afransen]

It was $125 billion worth of mortgage debt that the federal government had already guaranteed (through CMHC). The risk of buying these mortgages is literally zero, as the government was already on the hook (it's equivalent to buying government debt).

It was a cheap investment in ensuring the Canadian banks remained liquid. It cost the government nothing.

 

[cdr108]

Let me just say that I work for one of the big 3 banks in Canada, and their Credit and Risk Management Dept over the 7 years before the financial crisis came decided to pursue profits over managing appropriate risk.

Those senior VPs have been dismissed and the ones that wanted to be more prudent are being referred to alot more. So don't believe all the 'news' that Canadian banks are all that conservative.

 

[kEiThZ]

I get the odd feeling sometimes that some people wish the worst for the country - as long as it serves their political needs.

Just jade_lee.

 

[kEiThZ]

Let me just say that I work for one of the big 3 banks in Canada, and their Credit and Risk Management Dept over the 7 years before the financial crisis came decided to pursue profits over managing appropriate risk.

Those senior VPs have been dismissed and the ones that wanted to be more prudent are being referred to alot more. So don't believe all the 'news' that Canadian banks are all that conservative.

Hardly 7 years. The whole 40 year mortgage thing was only a phenonmenon of the last few years (2006-2008). And it should be noted that as of yet, it should be noted that there is no evidence that the default rate for these mortgages is any higher than for other sets. Moreover, many of these mortgages are often locked in with their interest rates and will not be due to renew at any point during this recession. And if they were, they would likely face lower interest rates. So let's keep this thing in perspective.

Canadian banks remain by far the safest bet in the developed world if not the whole world. There really are good reasons why the rest of the world is now looking at the Canadian model. Jade_lee's hopes for the demise of our country's financial framework notwithstanding, our banks although having made some mistakes have not bet the farm on any particularly risky investment. They have taken some risks (to be expected of any financial institution) but they have also continued maintaining diverse operations and diverse investments that have diluted their risks for the most part. And if our banks are in trouble, there's not much hope for the rest of the world!

 

[cdr108]

It goes beyond just the mortgages on their books.

 

[jade_lee]

I have no desire for our banks to fail but I also don't think they are being completely honest or open about what is going on behind the scenes. I do think however that much of the preditory behaviours of lending institutions in this country have yet to be exposed or prosecuted.....anyone notice the payday lending operations out there and how they have been targets of late by those who pretend to care for the exploited desperate borrowers? Who are the major stake holders of these operations? Yep I think it's our rock solid banks. As I have said, Harper is blowing his horn about how stellar our banking system is prior to them being tested....the jury is still out.

The explanation offered up here with respect to the 125 billion bailout of the banks to make them more liquid doesn't satisfy the rationale behind the purchase if in fact our system is "solid" in it's practices. AIG appears to have it's hand in the till and have openly stated that the insured mortgage business in Canada is like printing money for them with our current government offering to cover all risks they might experience as well.....nice how our generous government supports their American cousins.

 

[urbandreamer]

http://www.telegraph.co.uk/finance/...hock-and-awe-policies-to-halt-depression.html

We need shock and awe policies to halt depression

Last Updated: 8:47PM GMT 28 Feb 2009

As ordinary citizens with no power over the levers of policy, we watch from the sidelines, and weep. The whole global economy has tipped into a downward spiral. Trade and output are contracting at rates that outstrip the leisurely depression of the 1930s. Debt deflation has simply washed over the drastic measures taken by governments everywhere.

Judging by the latest Merrill Lynch survey of fund managers, investors have a touching faith that China is going to rescue us all and re-ignite the commodity boom. How can this be? Taiwan's exports to China fell 55pc in January, Japan's fell 45pc. These exports are links in the supply chain for China's industry. Manufacturing output in the Shanghai region fell 12pc in January.

My favourite China guru, Michael Pettis from Beijing University, is in despair – as you can see on his blog (http://mpettis.com). The property bubble is bursting. Developers have built more offices in Beijing since 2006 than the entire stock in Manhattan. There is a 14-year supply glut. We have seen this movie before.

Factory output is collapsing at the fastest pace everywhere. The figures for the most recent month available are, year-on-year: Taiwan (-43pc), Ukraine (-34pc), Japan (-30pc), Singapore (-29pc), Hungary (-23pc), Sweden (-20pc), Korea (-19pc), Turkey (-18pc), Russia (-16pc), Spain (-15pc), Poland (-15pc), Brazil (-15pc), Italy (-14pc), Germany (-12pc), France (-11pc), US (-10pc) and Britain (-9pc). Norway sails blissfully on (+4pc). What do they drink up there?

This terrifying fall has been concentrated in the last five months. The job slaughter has barely begun. Social mayhem comes with a 12-month lag. By comparison, industrial output in core-Europe fell 2.8pc in 1930, 5.1pc in 1931 and 3.9pc in 1932, according to RBS.

Stephen Lewis, from Monument Securities, says we have been lulled into a false sense of security by the lack of "soup kitchens". The visual cues from Steinbeck's America are missing. "The temptation for investors is to see this as just another recession, over by the end of the year. But this is not a normal cycle. It is a cataclysmic structural breakdown," he said.

Fiscal stimulus is reaching its global limits. The lowest interest rates in history are failing to gain traction. The Fed seems paralyzed. It first talked of buying US Treasuries three months ago, but cannot seem to bring itself to hit the nuclear button.

As the Fed dithers, a flood of bond issues from the US Treasury is swamping the debt market. The yield on 10-year Treasuries has climbed from 2pc to 3.04pc in eight weeks. The real cost of money is rising as deflation gathers pace.

US house prices have fallen 27pc (Case-Shiller index). The pace of descent is accelerating. The 2.2pc fall in December was the worst month ever. January looks just as bad. Delinquenc-ies on prime mortgages were 1.72pc in September, 1.89pc in October, 2.13pc on November and 2.42pc in December. This is the trajectory eating away at the banking system.

Graham Turner, from GFC Economics, fears the Dow could crash to 4,000 by summer unless there is a "quantum reduction" in mortgage rates. The Fed should swoop in to the market – armed with Ben Bernanke's "printing press" – and mop up enough Treasuries to force 10-year yields down to 1pc and mortgage rates to 2.5pc. Monetary shock and awe.

This remedy is fraught with risk, but all options are ghastly at this point. That is the legacy we have been left by the Greenspan doctrine. We are at the moment of extreme danger in Irving Fisher's "Debt Deflation Theory" (1933) where the ship fails to right itself by natural buoyancy, and capsizes instead.

From all accounts, the Fed was ready to launch its bond blitz in January. Something happened. Perhaps the hawks awoke in cold sweats at night, fretting about Weimar.

Perhaps they feared that China and the world will pull the plug on the US bond market. If so, it is time for Washington to get a grip. America remains the hegemonic global power. The Obama team should let it be known – and perhaps Hillary Clinton did just that on her trip to Asia – that any country playing games with the US bond market in this crisis will be treated as an enemy and pay a crushing price.

Pacific allies already know that they cannot take the US security blanket for granted. As for China – and others pursuing a mercantilist strategy of export-led growth – they must know that the US can shut off its market and wreak havoc to their economy.

To Europe, they might make it clearer that unless the European Central Bank is brought to heel by the Continent's leaders (whatever Maastricht says) and forced to play its full part in emergency efforts to save the global economy, the NATO military alliance will wither and the region will be left to fend for itself against a revanchist Russia.

Should the main threat come from an exodus of private wealth, Washington may have to impose temporary capital controls. Never forget, America is the one country with enough strategic depth to go it alone, if necessary. The US is not going to let foreigners keep it trapped in a depression.

I doubt matters will ever come to this. Japan is already in dire straits. Exports crashed 46pc in January, year-on-year. The Bank of Japan may soon start buying US Treasuries for its own reasons – just as it did from 2003 to 2004 – in order to reverse the 30pc rise of the yen over the last 18 months. If it helps preserve the Sino-US defence alliance in the face of Chinese naval expansion, so much the better.

In any case, the storm has shifted across the Atlantic to Europe. Germany faces 5pc contraction this year (Deutsche Bank). The bill has come from the burst bubble in the ex-Soviet bloc. Europe's banks are on the hook for $1.6 trillion (£1.1 trillion). For the first time since the launch of monetary union, Europe's leaders are speaking openly about the risk of EMU break-up.

A run on the US dollar looks a remote threat as the euro drama unfolds. The Fed may soon have all the room for manoeuvre it needs. Small comfort.

 

[cacruden]

The next one to go boom will be Austria ....

For the US, it all hinges on the real-estate market - reducing oversupply and price slides. My guess is that that will happen sometime near the end of the year - then the economy will be able to put in a bottom. There is an interesting dynamic coming into the real-estate market recently, the number of chinese buyers is increasing.

I can see why someone writing for a UK newspaper would be more pessimistic..... it is one country worse off than the US.

 

[jade_lee]

Thomas Jefferson's Warning To America : "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around (the banks) and will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.

The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Written by Jefferson in a letter to the Secretary of the Treasury Albert Gallatin (1802)


History shows that the first casulty of "war" is the truth by obtaining control of the information via all means necessary!

 

[afransen]

All corporations belong to people.... The property can never be owned by anyone but the people.

 

[cacruden]

^ Yes, but never by all the people

What Jefferson is saying basically is that he does not support the idea of private banks (Federal reserve banks) issuing currency, that it should be done by a central bank - directly controlled by congress. Basically he is arguing for something like what Canada has - Bank of Canada which is a crown corporation (since 1938 - 4 years after being founded as a private bank). There are arguments that doing so would lead to less independence and fluctuating with the whims of the current administration or political winds. Canada has actually done ok here, the Bank of Canada is reasonably independent (crown corporation - appointed board) with the government rarely interfering in it's operation. The current problem is not of the making of the federal reserve per se, but the making of other private banks lending practices.

 

[Glen]

Let me just say that I work for one of the big 3 banks in Canada, and their Credit and Risk Management Dept over the 7 years before the financial crisis came decided to pursue profits over managing appropriate risk.

Those senior VPs have been dismissed and the ones that wanted to be more prudent are being referred to alot more. So don't believe all the 'news' that Canadian banks are all that conservative.

Thanks for the insight!

For all the lauding that our banks are receiving, it should not be lost that given the opportunity our banks have and would have behaved in the same manner. It was not the banks, but the limitations placed on them that saved them.