Canada shows how to avoid mortgage crisis
...Canada did not have the Clinton-Cuomo plan for making bad loans which would then worm their way into the baking system like a virus. They did not have Democrats thwarting regulatory oversight of Fannie and Freddie. Democrats are still avoiding reform of the institutions responsible for the debacle while they hammer banks who were victims of their sorry scheme. They think they cna run against Wall Street this year while ignoring the real problems. If we had used Canada's lending standards we would not have had the foreclosures or the need for trillion dollar "stimulus" programs that did not work.Canada and its banks were barely touched by the epic 2008 financial crisis that nearly brought down the U.S. banking system and led to the biggest recession since the Great Depression. That has led the International Monetary Fund and World Economic Forum to showcase Canada for having the healthiest banking system in the world.
Despite the geographical proximity and cultural similarities to Canada, the U.S. Congress and Obama administration have largely shunned lessons that could be learned from the neighbor to the north.
The ingredients of Canada's success are not secret or complicated: One is keeping conservative, even old-fashioned lending standards, such as requiring substantial down payments and proof of income for home loans. Canadian banks also set aside high levels of capital reserves — going beyond international banking standards — so they can weather losses on defaulting loans and recessionary storms from the south.
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Canadian bank losses were so low, and their cushion of reserves so high, that the banks managed to post profits for months in the aftermath of the 2008 crisis while major U.S. banks were teetering on the brink of insolvency and getting $250 billion in Treasury bailouts to cover burgeoning losses on bad mortgage loans.
Canada's examples of lending principles were mostly shunned in the financial reform debate in Congress, despite the massive regulatory crackdowns on banks in House and Senate bills.
The Senate specifically rejected amendments aimed at imposing more disciplined and conservative lending standards like those in Canada, although it did adopt an amendment to impose higher capital requirements on the biggest banks, which the financial industry and Obama administration are expected to fight in House-Senate conference.
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As a Canadian, I have a certain perspective here. Originally, the Liberals under Jean Chretien wanted to change Canadian banking rules and regulations to mimic the U.S. system. They wanted to loosen lending standards so that aboriginals and minority groups will be eligible for easy mortgages. This was nixed when Finance Minister Martin found the program not feasible .... a policy that he did not change when he became Prime Minister, and a policy that has since been continued by the Conservative Government. But even with this track record, there are still many in Canada who want to repeat the same mistakes and errors that the US system has followed .... the reason why is simple, it has all to do about politics .... and nothing about economics.
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