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Toronto as Global Financial Centre

The problem with letting the banks do as they please is that banks enjoy explicit and implicit government guarantees. Bank deposits are guaranteed. Most residential mortgages are guaranteed. Their debt is implicitly guaranteed in the event they fail. So government's have a valid interest in ensuring they don't fail.
 
The problem with letting the banks do as they please is that banks enjoy explicit and implicit government guarantees. Bank deposits are guaranteed. Most residential mortgages are guaranteed. Their debt is implicitly guaranteed in the event they fail. So government's have a valid interest in ensuring they don't fail.

Ha, I thank you sir, that's exactly the problem. It's called Moral Hazard. Why are most residential mortgages guaranteed? Because otherwise banks would not take the risks. Housing prices would not have spiraled out of control. Those who can afford them can own them. Those who can't can rent. We wouldn't have this big mess. And how does the government solve Moral Hazard? Why? They create even more moral hazards. If the housing market was left alone, it would have crashed and return back to historical trend line (which is flat with inflation). But of course that's not acceptable, so the government throws in more money to fight the market, thus prolong the crisis.
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I'd rather think Bank of American being too big to fail shows how deeply we have cocooned ourselves in a carefree bubble of communism and consumerism. While the dismissive altitude towards one of the most innovating companies left in the western world also shows how twisted our priorities are. If Bank of American is really too big to fail, then maybe we should think about how to decouple from them rather than tie them even closer to our own financial future.

Bank of American?!?
 
Both? And at the same time? Please clarify how that is even possible.

And thank you sir too. I was hoping somebody would call me out on that. First of all, let me clarify "communism". I don't consider communism a political model. Rather, it's an economical model. The core idea is that the government can control the economy and the government can make the market more efficient. There's nothing malicious about it at all, it's naive, but the intention is good. And what the government think is the best for our economy? Why? Everybody spends of course. That's why when the saving rates went up, the government was so nervous. The root cause of the US housing market crisis was because the government artificially decided that home ownership should be encouraged. Therefore, the government started to guarantee residential mortgage to drive down the cost. People took the bait and started to buy houses. The banks don't care. They know they have little risks with the government behind them, so they gave up sub-par loans. And due to the moral hazard, the banks got increasingly "creative" over a long period of time. A bubble was building, yet the government was blind to its danger. To be fair, the banks got caught in the little frenzy too and started to play Russian Roulette themselves. When the market became purely speculative, a crash was inevitable.
 
The core idea is that the government can control the economy and the government can make the market more efficient. There's nothing malicious about it at all, it's naive, but the intention is good.


it is inherently malicious in that, for the government to "control" the economy, it must first forcibly seize control from the multitudinous private stakeholders who preceded it.
 
And thank you sir too. I was hoping somebody would call me out on that. First of all, let me clarify "communism". I don't consider communism a political model. Rather, it's an economical model. The core idea is that the government can control the economy and the government can make the market more efficient. There's nothing malicious about it at all, it's naive, but the intention is good. And what the government think is the best for our economy? Why? Everybody spends of course. That's why when the saving rates went up, the government was so nervous. The root cause of the US housing market crisis was because the government artificially decided that home ownership should be encouraged. Therefore, the government started to guarantee residential mortgage to drive down the cost. People took the bait and started to buy houses. The banks don't care. They know they have little risks with the government behind them, so they gave up sub-par loans. And due to the moral hazard, the banks got increasingly "creative" over a long period of time. A bubble was building, yet the government was blind to its danger. To be fair, the banks got caught in the little frenzy too and started to play Russian Roulette themselves. When the market became purely speculative, a crash was inevitable.

China has done a good job of controlling the economy, it has even fabricated comparative advantage. It is also simplistic to assign the full blame of the the US housing bubble on FED policy. Yes they were to slow in recognizing the build up, on the other hand when outside countries buy such large amounts of your debt, as a means of pegging there currency, there is severe downward pressure on long term rates. The FED, while it could control short term rates, was at a loss to effect long term ones. You are correct that the banks didn't care. So long as the could securitize the mortgages and sell them off, they left no skin in the game. Nonetheless, the severe underpricing of capital was the result of a number of factors.
 
archfan, are you suggesting that we would not have bubbles without government intervention?

And I don't think that unguaranteed bank deposits is a good idea. It tends to cause runs on the bank. I think there is an efficiency argument to be made for some of these government guarantees. An economy without them would be positively starved of credit.
 
China has done a good job of controlling the economy, it has even fabricated comparative advantage. It is also simplistic to assign the full blame of the the US housing bubble on FED policy. Yes they were to slow in recognizing the build up, on the other hand when outside countries buy such large amounts of your debt, as a means of pegging there currency, there is severe downward pressure on long term rates. The FED, while it could control short term rates, was at a loss to effect long term ones. You are correct that the banks didn't care. So long as the could securitize the mortgages and sell them off, they left no skin in the game. Nonetheless, the severe underpricing of capital was the result of a number of factors.

Before the reform, China's economy wasn't doing too well. They loosened the control of the economy and the private sector boomed. In fact, a lot of the regulations are much more lax in China than here or in the US. However, moral hazards showed up there as well. The Chinese banking sector was near collapse at one point due to bad loans forced on by the government. Massive bailout had to be undertaken to purge these loans. Still, it's far harder to access capital in China than here. Most small businesses rely on underground banking system instead of the big banks.

I place the blame more on Freddie Mac and Fannie Mae rather than on the FED. I have no problem with marketing risks as long as these risks were correctly priced. The problem is somewhere in the loop, the risk was being ignored due to moral hazards.
 
archfan, are you suggesting that we would not have bubbles without government intervention?

And I don't think that unguaranteed bank deposits is a good idea. It tends to cause runs on the bank. I think there is an efficiency argument to be made for some of these government guarantees. An economy without them would be positively starved of credit.

No, I am suggesting the boom and bust cycle will happen more naturally and potentially re-balance quicker. Boom and bust are necessary to redistribute resource within a society in a constantly changing environment.

I am also not for completely removing government oversights. Government is a necessary evil. I am simply saying that government intervention should be kept to a minimum.
 
I'm reviving this dormant thread to plunk down this news:

That BMO is spending ~15B to buy 'Bank of the West' a 500+ Branch bank based in California, currently owned by French banking giant BNP Paribas.


****

People here (UT) sometimes wonder at my confidence in the downtown Toronto commercial office market.............

Subject to closing, this will mean more jobs in Toronto; sooner rather than later.

I'm not sure what percent of jobs they will retain in the newly acquired bank's head office. But there will certainly be some large scale efficiencies planned; some of that will likely go to BMO's U.S. HQ in Chicago;
while the rest will likely come here; though we'll have to wait for details.

PS. The Canadian banks are all sitting on piles of cash, I would be surprised if this was the only major acquisition in the next while.
 
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I wonder what came out of this? Seems like any troubles have yet to materialize.


I think there's could still be some significant risk in the REIT sector (i.e. Brookfield), especially as the post-pandemic work habits have pushed office vacancy rates extremely high in cities around North America.


Interesting anecdotes (though not necessarily factual):

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