Mark Carney’s legacy, in his own words

By Erica Alini - Wednesday, May 1, 2013 at 10:50 PM - 0 Comments

(Chris Wattie/Reuters)

Bank of Canada Governor Mark Carney has 30 more days on the job, and he is determined to avoid the question that every journalist and MP would love to get him to answer: What does he think his legacy is? He dodged it at his last hearing before the Finance Committee last week, and aptly deflected it again this evening in Edmonton, where he was speaking at the University of Alberta: “I’m a member of a team, the Governing Council of the Bank of Canada,” he quipped, “if my legacy turns out to be bad, I’m taking them down with me.”

But the governor took Wednesday’s lecture as an opportunity to look back at the “fascinating, sometimes harrowing” five years he’s spent at the helm of Canada’s central bank—and in that sense he delivered the closest thing to an assessment of his own legacy that we’ll get from him for quite some time. Here’s the gist of it:

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Cypriot gov’t officials: Plan B aimed at getting bailout to be presented Thursday

By The Associated Press - Wednesday, March 20, 2013 at 10:51 PM - 0 Comments

NICOSIA, Cyprus – Searching for a way out of a crippling financial crisis, officials in Cyprus on Wednesday pursued a new bailout strategy that could include a loan from Russia in exchange for natural gas leases and selling off assets from its most troubled banks.

Cyprus needs to come up with 5.8 billion euros ( $7.5 billion) on its own in order to secure 10 billion euros in rescue loans from international creditors. But the country’s first plan to seize up to 10 per cent of people’s bank accounts failed miserably. Now officials are trying to limit the amount of money they need to take from customer’s deposits.

The new “Plan B” could be voted on as early as Thursday, three top government officials said.

The latest move came a day after lawmakers voted overwhelmingly against the earlier plan — a rejection that threw Cyprus’ entire bailout into question. That raised the possibility the country’s banks could collapse, the government would be unable to pay its bills and Cyprus could be forced out of the euro.

That could roil global financial markets as well as endanger deposits in the country even further.

The new “Plan B” was described by three top government officials, who spoke on condition of anonymity because details of the proposal were not being released until party officials had a chance to review them at a meeting Thursday morning.

The package includes a proposal to restructure Cyprus’ heavily indebted second-largest lender, Laiki. The idea would be to isolate the bank’s bad assets, which would be taken over by the government, from its good assets, which could be sold off to raise money. That strategy could also be applied to the country’s biggest lender, Bank of Cyprus.

To avoid bank runs and give officials time to push the package through, the country’s banks, which have been shuttered since Saturday, will remain closed for the rest of the week, said the central bank spokeswoman, Aliki Stylianou. Monday is a bank holiday, so banks will not reopen before Tuesday.

Cyprus has turned to long-time ally Russia for help, and Finance Minister Michalis Sarris was in Moscow on Wednesday to discuss a range of aid options and vowed to remain there until he secured a pledge of support. “We will be here until some kind of agreement is reached,” Sarris said.

Nearly a third of the total amount of deposits in Cyprus’ banks is believed to be held by Russians. The idea that authorities could dip directly into people’s bank accounts had outraged Cypriots and Russians alike.

A Cypriot government official said the new proposal still includes some tax on deposits, but at a percentage far lower than those originally proposed. The official said the EU had given Cyprus until Monday to come up with an alternative, so speed was of the essence.

The European Union and Germany in particular, have long argued that they should not have to ask their own taxpayers to contribute to bailing out a country when it was Russian oligarchs who would benefit.

While the economy of Cyprus is tiny — a mere 0.2 per cent of the eurozone — its exit from the shared currency could raise speculation that other, larger countries could leave, roiling global financial markets.

Cypriot political leaders held emergency meetings throughout the day Wednesday to try to find an alternative plan and seemed inclined to rely on Russia to help them out.

Russia is a longtime ally and also has skin in the game — Russians own about a third of the 68 billion euros in deposits with Cypriot banks. It was unclear however, how much it would help and the Russians appeared to be balking at pouring any more money into the country.

Russia could extend a 2.5 billion euro loan that it gave Cyprus in 2011 and lower repayment rates. It could also provide a fresh loan, have one of its banks take over one of Cyprus’ ailing lenders, or demand an interest in natural gas fields that Cyprus has discovered in the Mediterranean.

Russian Prime Minister Dmitry Medvedev criticized the eurozone and Cypriot officials for their plan to seize deposits, comparing them to Soviet-style autocrats.

“So far, the actions of the European Union, the European Commission and the government of Cyprus have resembled that of an elephant in a china shop,” Medvedev said in remarks carried Wednesday by the Interfax news agency.

Scrambling to avert a financial meltdown, Cypriot President Nicos Anastasiades held talks Wednesday with European and IMF officials. The eurozone and IMF must sign off on any Plan B the Cypriots come up with if it is to be approved as part of the bailout.

Some sort of deal must be approved within days because Cyprus is running on borrowed time — literally.

The European Central Bank is keeping the Cypriot banks alive by allowing them to draw on emergency support from the local central bank. But the ECB has said it would cut off that aid if there was no bailout deal soon and it became clear the banks had no hope of becoming solvent again.

In Nicosia, residents waited anxiously to see what lay in store for them.

Avetis Bahcecian has been running his Armenian restaurant in Nicosia for years. Now, with the uncertainty swirling around Cyprus, he’s worried about his business.

“Whatever they do, they have to do it quickly because this uncertainty is hurting business,” the 41-year-old said as he kneaded dough to make lahmacun, a traditional Armenian pizza-style food. “Our business is down by 40 per cent in the last couple days.”

ATMs have been dispensing cash and debit and credit cards have been working, so Cypriots have not faced any immediate cash shortage for day-to-day living.

Tensions remained high as Cypriots wondered whether the country’s final rescue deal would include the hated bank deposit seizures.

Under the initial bailout plan conceived in Brussels last weekend, Cyprus was to have funded its part of the bailout by seizing 6.75 per cent of all deposits up to 100,000 euros and 9.9 per cent of those above that threshold. That caused outrage, leading the government to propose an amended version that would have spared deposits up to 20,000 euros. That plan was rejected by lawmakers on Tuesday.

As uncertainty grew over the country’s future, even the country’s influential Orthodox church offered to help.

Its head, Archbishop Chrysostomos II, said the church was willing to mortgage its assets to invest in government bonds. The church has considerable wealth, including property, stakes in a bank and a brewery.

“The wealth of the church is at the disposal of the country,” Chrysostomos said.

U.S. Treasury sells remaining 234.2 million shares of insurance giant AIG

By Martin Crutsinger - Tuesday, December 11, 2012 at 8:17 AM - 0 Comments

WASHINGTON – The Treasury Department said Tuesday that it has sold all of its remaining shares of American International Group Inc., moving to wrap up the government’s biggest bailout of the 2008 financial crisis.

Treasury said it received $32.50 per share for its 234.2 million remaining shares, which represented a 16 per cent ownership stake in the giant insurance company.

With this sale, Treasury said the government has received $22.7 billion more than the $182 billion bailout it provided to support AIG during the height of the financial crisis.

It was the largest government bailout package, including both loans and federal guarantees. Continue…

Flaherty says he won’t ‘stand by’ if shock pushes Canada into recession

By The Canadian Press - Wednesday, November 7, 2012 at 11:51 PM - 0 Comments

OTTAWA – Canada’s top financial policy-makers say they are prepared to once again come to the rescue of the economy if a looming fiscal crisis in the United States triggers a recession.

Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney both pledged Wednesday to take action to support the economy if a shock from the U.S., or Europe, threatened to once again plunge the country into recession.

“We are a pragmatic, sensible government. If our economy goes into recession because of an external shock from the United States or the eurozone, or both, we will take steps to stimulate the economy,” Flaherty told the Commons finance committee in an evening session.

“What we have done before we will do again. We will not do exactly the same thing again…but we are not going to stand by and have the Canadian economy slip deep into a recession with high unemployment.”

Earlier, Carney said in a CBC interview that both the bank and the government will “react if necessary, but we’re not going to react to a hypothetical.”

The impetus of the statements was the split outcome of the U.S. presidential election that brought back Democratic President Barack Obama and a Republican lower house, elevating fears the U.S. may be heading for the so-called “fiscal cliff” in January.

Economists fear that unless the two sides co-operate on a new budget arrangement soon, about $600 billion in tax cuts and spending will end abruptly, robbing the U.S. economy of about four per centage points in growth.

That would push the U.S. into recession “quite quickly, and the Canadian economy would follow shortly thereafter,” said Flaherty.

He added all his colleagues at the G20 meeting of leading economic powers last weekend in Mexico expressed concern about how U.S. policy-makers would deal with the threat.

North American markets also seemed to take the risk of failure seriously. The Dow Jones Industrials plunged more than 300 points at one point before recovering slightly. There as also a significant, but more modest, sell-off in Toronto.

Economists view avoiding the fiscal cliff as a no-brainer since its repercussions are so severe, but both sides have been unwilling to move off core positions — Democrats insist on tax hikes for the rich, which the Republicans have so far refused to consider.

Both Obama and the Congress need to be “more realistic,” said Flaherty.

TD Bank deputy chief economist Derek Burleton said if policy-makers don’t reach a compromise, Canada would likely be impacted through reduced exports to an America back in recession, and a loss of confidence that would likely depress business investment.

While Canada is broadening its exports markets, about 70 per cent of shipments still head south of the border.

“The risks that the U.S. economy will fall off the looming fiscal cliff and fall back into recession is one of the top risks facing Canada’s economy as we head into 2013,” Burleton said.

NDP and Liberal party leaders echoed the concerns, agreeing that Canada and the world would be negatively impacted by a sharp contraction in the U.S., still the world’s largest economy.

Flaherty gave few details of what measures he might bring in to stimulate the economy, but he said he’s learned a few lessons from the 2009-10 stimulus packages — one being that moving fast is good.

“One example that did work very well was colleges and universities…they have a lots of pent-up infrastructure to do,” he explained. “It employs people and it employs people quickly and it doesn’t take a long tendering process.

“At a time of economic crisis … the quicker a project can go the better.”

Flaherty said avoiding the crisis won’t be easy, but said he had some hope both sides would be forced to put water in their wine by the enormity of risk.

Commodity traders: the next Lehman Brothers?

By Andrew Hepburn - Friday, October 12, 2012 at 1:42 PM - 0 Comments

(Michael Buholzer/Files/Reuters)

Ever since the 2008 meltdown, financial market observers and regulators have been scouring the horizon for where the next bout of instability could come from. And increasingly, it seems, their watchful gaze is scrutinizing the commodities markets and commodities trading houses in particular, a group of players as opaque as they are colossal.

Now, there are a number of ways to sell, buy and bet on commodities. There are markets so-called spot markets, where buyers take immediate delivery of the goods purchased. Then there are futures and forward markets, where delivery can happen at a later date at set prices. Some markets operate through formal exchanges; others are “over the counter,” meaning that trading takes places between two parties.

The major buyers and sellers tend to be either producers or consumers of the commodity in question, or speculators seeking to profit by betting on the direction of future prices. So, for instance, a farmer may decide to sell forward next year’s wheat crop in order to lock in favourable prices, and a speculator may take the other side of the trade, agreeing to purchase the grain, believing that prices will move higher in the interim.

But buyers, sellers and speculators are not the only players. As in many other markets, the commodity markets are populated with intermediaries who both buy and sell, who hold inventories and who ship metals, grains and energy across the world.

In a speech before the CFA Society of Calgary on Sept. 25, Deputy Bank of Canada Governor Timothy Lane noted that the nature of these intermediaries—essentially the biggest commodity traders—has changed since the financial crisis. Banks used to play a key role, but they have since retrenched and commodity trading houses, also known as commodity merchants, have further expanded to occupy that void.

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The REAL Canadian bank bailout

By Ben Rabidoux - Thursday, May 24, 2012 at 1:21 PM - 0 Comments

Woodleywonderworks/Flickr

Ben Rabidoux is is an analyst at M Hanson Advisors, a market research firm, where he focuses on Canadian mortgage and credit trends and their implications for the broader economy.

The Canadian Centre for Policy Alternatives made quite a stir a few weeks ago when they released a report detailing a “secret” Canadian bank bailout. The report focused on three programs the government used to support Canadian banks during the financial crisis–primarily the $69 billion Insured Mortgage Purchase Program initiated by Ottawa as a means to ensure that banks would be able to keep funding consumer mortgages. The report labeled the IMPP a “bailout,”but banks were quick to point out that this program presented a zero net increase in taxpayer liabilities as these mortgages were already insured by Canada Mortgage and Housing Corporation.

However, the 2011 CMHC annual report reveals clear evidence that taxpayers did in fact take on significant risk in propping up the mortgage market during the financial crisis and Ottawa owes Canadians some answers on exactly why this was allowed to happen.

First, though, some background. In Canada, bank-originated mortgages with less than a 20 per cent down payment must carry mortgage insurance, which is typically paid for by the borrower. CMHC is the primary provider of such insurance in Canada. However, banks also have the ability to purchase insurance on pools of low-ratio mortgages (i.e. where the borrowers have made a down payment of more than 20 per cent of the value of the house) if they choose. This is commonly known as “bulk portfolio insurance.”

As the table below shows, CMHC bulk portfolio insurance for low ratio mortgages ballooned in 2008 and 2009, at the height of the financial crisis, and then again in late 2011. CMHC recently announced that it is going to start heavily rationing bulk portfolio insurance as it rapidly approached its $600 billion parliamentary-approved mortgage insurance cap–which Ottawa, as I have written before, isn’t likely to raise as CMHC insurance represents a direct liability of the Canadian government (i.e. taxpayers) and stood at only $250 billion in 2003.

2011 CMHC Annual Report, p. 92

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The latest in world-needs-more-Canada news (Nordic dep’t)

By Colby Cosh - Sunday, December 11, 2011 at 1:46 AM - 0 Comments

I learn from a sister publication that a handful of economists in Iceland is recommending that the volcanic statelet adopt the Canadian dollar. News from Iceland is always of special interest in Canada, where the Icelandic diaspora has given us legitimate world-historical notables like William Stephenson and, er, the other William Stephenson. The inherent vulnerability of Iceland’s own currency, the króna, has had Icelanders looking at the euro as a refuge, but that option has been yanked off the table for the time being, and may be permanently unavailable within weeks.

One of Canada’s contributions to humanity, as it happens, is the theory of optimum currency areas. The loonie-ization advocates argue that the Canadian dollar is a good choice because Iceland is dependent upon commodity exports and thus has a business cycle more or less in sync with Canada’s. Iceland is also part of the EFTA, with which Canada has a rudimentary free-trade agreement. But that agreement doesn’t cover services and credentials. Mundell’s test for optimality would require free movement of labour between the countries, a common language, and, ideally, some fiscal-transfer mechanism to smooth out the differential effects of the single exchange rate. There is a strong presumption that a currency area should actually be a contiguous area, or very nearly one. Continue…

Carney rules

By Erica Alini - Friday, November 4, 2011 at 6:03 PM - 9 Comments

Bank of Canada governor Mark Carney was named chairman of the Financial Stability Board on Friday, a global banking watchdog in charge of preventing the repeat of another 2008-style financial meltdown. He’s now one the highest-profile voices on global finance. The world will stop to listen when he speaks. How did he get there?

Mark Carney.

Profile: Carney has it all. With a doctorate in economics from Oxford, 13 years spent working as an investment banker for Goldman Sachs, and a brilliant record in government—not just at the Bank of Canada but at the Department of Finance as well—Carney brings to the table a mix of academic credentials, Wall Street credibility and public sector expertise few central bankers can match.

It’s at the helm of the Bank of Canada that Carney started turning heads among policy makers the world over. In March 2008, only a month into his new job as the bank’s governor and well before the collapse of Lehman Brothers, he slashed interest rates, demonstrating an early grasp of the true depth of the turmoil brewing in the financial markets. In 2009 he raised eyebrows again by taking the unprecedented step of promising to keep rates low for 15 months in order to see the weak Canadian economy through rough times. Two years later, Fed chairman Ben Bernanke borrowed a page from Carney’s book by promising near-zero interest rates in the U.S. through 2013.

Carney is also a true believer. The Financial Stability Board “needs a person who really believes in the need for the Financial Stability Board,” says Chris Ragan, a professor of economics at McGill University and a former special advisor at the Bank of Canada. Our central banker is known as a staunch supporter of new and tougher rules for the financial markets. “If some institutions feel pressure today,” he said little over a month ago in Washington, “it is because they have done too little for too long, rather than because they are being asked to do too much, too soon.”

According to Thomas Bernes, executive director at the Centre for International Governance Innovation, the top three items on Carney’s agenda as he takes the reins of the world’s banking watchdog are likely to be:

1.    New regulations on the $60 trillion so-called shadow banking system, which includes non-bank financial entities such as insurance companies and money market funds. Though these institutions perform many bank-like activities, they are not properly “banks,” and are not–for now–subject to the same strict requirements and oversight as banks.

2.    More supervision of the opaque global derivatives market. Financial instruments called over-the-counter derivatives are widely blamed for spreading risk throughout the markets in ways that are difficult to track and predict. A breakdown in the derivatives market dragged down the entire financial system when Lehman Brothers collapsed 2008.

3.    Tighter rules and scrutiny of institutions judged “too big to fail,”—those whose demise poses a significant threat to the entire financial system. Among them are U.S. banks such as Carney’s former employer Goldman Sachs, and JPMorgan Chase.

Good to Know: Don’t mess with Mark. A former Wall Streeter himself, Carney has no problems locking horns with the titans of global finance. When JPMorgan chief Jamie Dimon attacked Carney during a private meeting in Washington two months ago, Canada’s central banker retorted with a vibrant public speech in defence of tougher capital requirements for institutions like JPMorgan. Dimon later called Carney to apologize.

Fun Fact: He was a hockey goalie at Harvard in the 1980s.

Used cars, new prices

By Richard Warnica - Tuesday, August 23, 2011 at 10:15 AM - 0 Comments

When the American housing market collapsed in 2008, another sector of the economy took off: used cars. In the three years since the financial crisis hit, the average price of a late-model used vehicle in the U.S. has grown by over 50 per cent, from US$15,000 in 2008 to over US$23,000 this past July, according to the Kelley Blue Book, an industry indicator.

Even as the economic recovery slowed this year, used cars continued to boom. Sale volumes and dealer profitability both climbed in the first half of 2011, say analysts at Manheim, an auction house. The company’s Used Vehicle Value Index hit a record high over that stretch. Prices haven’t soared for all models, though. Among older vehicles—those between five and 10 years old—there are still bargains to be found, says Dennis DesRosiers, an auto sector analyst. But “once you get into the Mercedes and the BMWs, the prices are just outrageous.” Because of the better financing often available for new cars, some consumers are actually paying more every month today for a high-end used vehicle than they would for a similar new one, DesRosiers says.

The biggest reason for the boom: supply and demand. When the financial crisis hit, credit dried up and new car sales collapsed. Between 2005 and 2007, the U.S. averaged about 15 million new cars sold every year. By 2009, that number had fallen to about 10.5 million. At the same time, many banks stopped offering lease support. Fewer new cars sold three years ago means fewer used cars available today. And with so little supply, “it’s getting harder and harder to find a bargain,” says Alec Gutierrez, the manager of vehicle valuation for the Kelley Blue Book.

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Google graph too small to show S&P/TSX tumble this morning

By Erica Alini - Monday, August 8, 2011 at 12:09 PM - 33 Comments

The Canadian stock market took such a dive this morning it went–literally–through the bottom of a Google Graph of the S&P/TSX Composite, the Canuck benchmark index (see this screenshot we took at 10.14 AM). The drop was largely attributed to Standard and Poor’s downgrading of the US’s long-term creditworthiness from AAA to AA plus on Friday.  The S&P/TSX Composite tumbled over 3 per cent in early morning trading before rebounding slightly.

Fannie, I wish I'd never seen your face

By Colby Cosh - Friday, May 27, 2011 at 7:16 AM - 67 Comments

This transcript of a public-radio interview with New York Times finance writer Gretchen Morgenson is long. I would have everyone read it anyway. Like the Great Depression before it, the Great Recession has put free markets on the defensive. It’s not quite clear to me how fair this is. It is surely fair at least to some trivial degree, in the sense that markets are ultimately made up of regrettably fallible humans, prone to superstitions and herd behaviour and poor judgments of risk. But everyone seems to have managed to take the lesson that is most convenient for himself from the crisis; for those on the left it has been “markets fail”, and for those in the muddled mixed-economy middle it has been “regulators fail to smack those nasty markets back into line”.

What I see when I look at the origins of the financial pandemic is the story “government-sponsored enterprises that subsidize crazy lending practices and puppetize legislators fail.” Mortgage-writing institutions did things throughout the late 1990s and early oh-ohs that weren’t just likely to turn out badly; they made enormous amounts of loans that were practically certain to go bust in the short-to-medium term, loans that your mother could have told you would go sour. It wasn’t a “free” market that relaxed mortgage underwriting standards to the point of annihilation; it wasn’t a “free” market that put unskilled workers in million-dollar homes in the Sand States, or that spent too long ignoring the rising default rates that resulted. Continue…

Easy money men

By Chris Sorensen - Wednesday, January 12, 2011 at 10:00 AM - 43 Comments

Carney (below) slashed interest rates and kept Canadians spending—but helped fuel debt—while Flaherty tightened mortgage rules | Chung Sung-Jun/Getty Images

When Mark Carney took over as governor of the Bank of Canada in early 2008, he had relatively little central banking experience under his belt. As fate would have it, the former Goldman Sachs managing director got plenty of opportunity to test his mettle later that year when the U.S. financial crisis erupted. He responded, perhaps predictably, by slashing already low interest rates until, by April 2009, they stood near zero. But he also took the unusual step of telling Canadians that rates would likely stay there until mid-2010.

It was a departure from the style of central banking popularized by former U.S. Federal Reserve chairman Alan Greenspan, who was once dubbed “maestro” for his seeming ability to orchestrate economic growth (critics would say “bubbles”) through the 1990s and early 2000s. Greenspan’s speeches and statements were often masterworks of ambiguity, forcing investors to parse their true meaning and lending the man behind them an Oz-like aura.

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Investing: the fear factor

By Julia Belluz - Wednesday, December 1, 2010 at 10:00 AM - 1 Comment

Finbarr O'Reilly/Reuters

Julie Tyios was already a savvy investor by her mid-20s, when the Great Recession hit. “I had played the markets before, and watched my parents live off their stock portfolios,” she says. But the small-business owner wasn’t prepared for seeing half of her portfolio wiped out in 2008, an experience that was, to say the least, “very upsetting.” Since then, Tyios has avoided the stock market altogether. The fear of losing so much again overshadows the possible joy she may glean from a gain. “As much as I would love to invest, the recession did a lot of damage to the market.” And, more than that, it did a lot of damage to the psychology of today’s investors.

In these fragile economic times, Tyios is not alone in her fear. Colin Camerer, a behavioural economist and professor at the California Institute of Technology, says, “During the worst part of the crisis, everybody—from the average investor up to the chairman of the Federal Reserve—was simply afraid.” That fear continues to linger, even with the worst of the recession now a full two years behind us. “My hunch is that the effective memory window, for which fear will impact people’s behaviour, is about three years,” he adds.

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Jet set on the cheap

By Colin Campbell - Thursday, November 18, 2010 at 1:40 PM - 1 Comment

JetSuite

The discount airline model has transformed the air travel industry. Now can it do the same for the private jet business? A California company called JetSuite is offering use of charter jets for one-way, low-cost (relatively speaking) fares. For instance, for US$999, passengers can travel from Van Nuys, Calif., to Las Vegas. And that doesn’t just buy a seat, it gets you the entire plane.

To keep costs down, JetSuite flies four-seat, fuel-efficient Embraer jets. And it keeps routes short (fares go up based on hours in the air). The airline is one of several moving to offer lower cost private jet services. Lufthansa Private Jet recently offered 30 per cent discounts for Canadian travellers.

During the financial crisis, executives were sharply criticized for their use of private jets, which became symbols of Wall Street excess. Steep discounts may be the surest way to revive, and rehabilitate, the industry.

A savings safety net

By Peter Shawn Taylor, Jullia Belluz - Thursday, November 18, 2010 at 12:40 PM - 11 Comments

Hernandez has put 15 years' worth of savings into his new Toronto restaurant. Most people aim for a retirement income of 60 per cent of their working-life income. | Jessica Darmanin / Pawel Dwulit/GetStock

Carlπos Hernandez understands the restaurant business. The retirement business, on the other hand, is a bit of a mystery.

After a career spent working in other people’s kitchens, Hernandez, a native of El Salvador, is on the verge of opening his own restaurant. Inigo, in downtown Toronto, will offer takeout Portuguese churrasqueira-inspired fare—oven-roasted chicken, salads and brown rice. At 48, Hernandez felt it was time he became his own boss. So he’s sunk 15 years of savings into his venture.

While most financial advisers would argue against putting a lifetime of savings into a single, risky asset, the chef figures he knows his way around a kitchen counter much better than a stock portfolio. If the restaurant flops, however, he’ll be left with nothing.

“This is a gamble,” Hernandez admits of his foray into the notoriously fickle restaurant industry. “But it’s all I know. I’m not thinking in terms of a retirement plan.”

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Amid the chaos, a few kind words for the Tea Party

By macleans.ca - Wednesday, November 10, 2010 at 9:00 AM - 2 Comments

Win McNamee/Getty Images

From a call for hope in 2008 to a cry of anger in 2010. The politics of the United States is nothing if not malleable.

After Barack Obama’s historic and hope-filled ascension to the presidency two years ago, the American electoral scene has been swamped by disillusionment over the policy direction of the federal government, massive increases in public spending, persistent unemployment and a sense of unfulfilled national promise. The surprising success in this week’s mid-term elections of the Tea Party movement, a loosely organized group of mostly Republican voters, has revealed a legitimate and deep-seated anger among American voters. It may be flawed, but the Tea Party cannot be ignored.

Inspired by an on-air rant in February 2009 by CNBC business editor Rick Santelli, the Tea Party has quickly grown into a political movement with very specific interests. Its supporters are hyper-focused on limiting the powers of the federal government, lowering taxes and bending Washington’s ear to these demands. Critics contend, with some justification, that such simplicity ignores the complexities of the real world. And a few high profile Tea Party candidates are clearly not ready for prime time. But simplicity sells. Grassroots populist movements such as the Tea Party have a long and respectable history in North America because of their ability to express popular sentiment. And anger seems a perfectly understandable emotion for Americans to be feeling in 2010.

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Watching Wall Street squirm

By Brian D. Johnson - Monday, October 25, 2010 at 9:20 AM - 0 Comments

U.S. Treasury Secretary Timothy Geithner at a hearing in Washington in 2009 | Joshua Roberts/Bloomberg News/Getty Images

The surging popularity of documentaries in recent years can be personified by two ungainly, cartoon-like personalities: Michael Moore and the emperor penguin. Moore has directed four of the 10 top-grossing documentaries during the past decade, including Farenheit 9/11, which holds the No. 1 position. Right behind it, March of the Penguins leads a host of nature and environmental films that occupy another five spots. This year has produced a remarkable crop of hard-hitting documentaries, films about big issues designed to sound an alarm and make us angry. But they have a more sobering style; they’re not personality-driven. There’s no Moore or Bill Maher or Al Gore performing for the camera as a hectoring tour guide. These are movies that pummel us with pure fact.

Lucy Walker’s Countdown to Zero marshals indisputable data to show that the world is closer to the brink of nuclear catastrophe than at any time since the Cold War. With Waiting for “Superman”, David Guggenheim, the director of An Inconvenient Truth, charts the dire crisis of America’s school system. And now, in a devastating documentary called Inside Job, Charles Ferguson unravels the causes of the 2008 financial meltdown, laying blame with the tenacity of a criminal prosecutor.

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Killing the 'vampire squid'

By Chris Sorensen - Thursday, October 14, 2010 at 8:40 AM - 0 Comments

Jim Young/Reuters/ Jonathan Fickies/Bloomberg/Getty Images

Goldman Sachs has an image problem. Unlike the rest of America, the legendary Wall Street firm emerged from the financial crisis a big winner, paying huge bonuses to its employees after shrewdly betting against the same mortgaged-backed securities it helped create, and which were blamed for the financial meltdown that followed.

Memorably dubbed by Rolling Stone as a “great vampire squid wrapped around the face of humanity,” Goldman is now trying to remake its image into that of a valuable financial partner, as opposed to a ruthless carpetbagger. It has taken out ads in several newspapers that feature the windmills of an unnamed green-energy client, suggesting its financial dealings are good for the country. The problem? Some are concerned the billions currently being poured into green industries will result in another bubble. And Goldman, judging by the ads, once again appears to be in the thick of the action.

Which way is up?

By Chris Sorensen - Thursday, September 30, 2010 at 10:40 AM - 0 Comments

Getty Images

The world’s central bankers and politicians were praised for their coordinated response to the 2008 financial crisis. But as the global economy limps along, it turns out that managing the so-called recovery may prove to be the biggest challenge yet. Unlike the credit crunch, which was fixed by throwing massive amounts of money at it, there’s no longer a clear path forward for the economy now that interest rates are near zero and billions worth of stimulus have failed to produce the desired effect.

With the key U.S. economy sputtering along with the rest of the world’s, the debate continues to rage about whether even more stimulus is needed to avoid another downturn. Last week, a group of some 300 economists signed a letter calling for the U.S. government to keep the spending taps open in an effort to juice an economy that continues to shed jobs. “History suggests that a tenuous recovery is no time to practise austerity,” said the group, organized by the left-leaning Campaign for America’s Future. On the other hand, there are concerns about further inflating the deficit—already forecast to be US$1.3 trillion this fiscal year—lest the country’s ballooning debt drag it into the abyss.

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Why America turned on Obama

By Luiza Ch. Savage - Tuesday, July 27, 2010 at 5:20 PM - 0 Comments

Brooks Kraft/CORBIS/ Jonathan Ernst/Reuters/ Alex Brandon/AP

This month, President Barack Obama signed into law a financial reform bill aimed at preventing another financial crisis. It cost him financial backers on Wall Street, but gave consumers new protections and government more regulatory oversight powers. The financial reform bill came on the heels of the hard-fought health-care reform law, which for the first time provides insurance coverage for all Americans. That in turn followed the successful rescue of the U.S. automotive sector and a massive stimulus bill full of Democratic policy victories, like a huge expansion of federal support for environmentally friendly energy technologies. In his first year and a half in office, Obama put the first Latina on the Supreme Court and is on track to have three women on the top court for the first time in U.S. history. He reached an arms control deal with the Russians and picked up a Nobel Peace Prize. It’s been decades since any president has accomplished so much so quickly—and all this without headlines about West Wing interns.

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News flash: no free lunch after all

By Andrew Coyne - Wednesday, March 24, 2010 at 10:05 AM - 116 Comments

Fraser Institute study confirms what was already plain as day: fiscal “stimulus” had nothing to do with the recovery. Using Statistics Canada data, they find:

Of the 1.1 percentage point improvement in economic growth between the second and third quarter, government consumption and government investment each contributed only 0.1 percentage points. Business investment contributed 0.8 percentage points and was the driving force behind the improvement in economic growth.

Of the 1.0 percentage point improvement in economic growth between the third and fourth quarter, government consumption and government investment contributed nothing. Over this period, increased net exports were the primary reason for the improvement in economic growth.

This, as I say, was obvious enough already. The recovery began at the end of Q2, long before any shovels hit the ground. Fiscal stimulus, besides ineffective, was unnecessary: the extraordinary infusion of monetary stimulus by the Bank of Canada was bound to trigger a revival in total spending. With inflation expectations knocked flat, it was to be expected that this would translate into gains in real output in the short term (though with inflation already showing signs of life, the Bank will need to be quick to withdraw the liquidity it injected).

Fiscal policy’s chief impact is on the composition of demand. It does not ultimately expand it. As was more or less the consensus in the economics profession, before the “policy panic” of 2008.

So all we got for all that federal spending was a $160-billion increase in the national debt, a pile of dubious make-work projects and a fistful of photo-ops for grinning Tory MPs. Which, after all, was always the point.

Lost decade

By Andrew Coyne - Wednesday, December 2, 2009 at 6:31 PM - 17 Comments

The good news is the TSX is now at its highest level since Sept. 26 of last year.

The bad news? It’s only lately that it retook the peak it first reached on Sept. 1, 2000.

Inside the meeting that saved the world

By Andrew Coyne - Tuesday, October 13, 2009 at 1:45 PM - 30 Comments

The meeting was not going well.

On Friday, Oct. 10, 2008, finance ministers and central bankers from the Group of Seven leading industrial economies had gathered in Washington for their regular fall meeting. The circumstances, of course, were anything but routine. Four weeks after the collapse of Lehman Brothers, the 158-year-old Wall Street institution, the financial world was in a state of escalating panic. With banks toppling one after the other, stock markets in a death spiral, credit markets all but disabled, the meeting had taken on crucial significance.

Around the world, investors were looking to governments for salvation—only they could provide the kind of rock-solid assurances that might put a floor under the markets. A strong, united statement from the G7, and there was some hope of restoring sanity to the situation. A weak statement, or worse, a failure to agree, and the entire world financial system might well tip over the edge. Continue…

You, Sir, are nothing but a banker

By Jonathon Gatehouse - Friday, March 20, 2009 at 8:00 AM - 1 Comment

Forget the black hats; these days the bad guys wear pinstriped suits. At soccer games in Ireland, crowds are reacting to bad calls by labelling the ref “a banker,” instead of the rhyming w-word. The nefarious King Rat was a foreclosing moneylender in the British pantomimes this past Christmas. In the recent thriller The International—tag line “Everybody Pays”—Clive Owen’s cop was on the trail of murderous, arms-dealing financiers. And a sequel to Wall Street, with a recently paroled Gordon Gekko still manipulating markets through a protege, is being rushed into production.

But absolute proof that the global economic meltdown has defined the villains of our age will be available next fall, when an unnamed ABC sitcom, featuring Kelsey Grammer as a fiscal titan whose shrinking circumstances force him to become a househusband, makes its debut. After all, no one plays a pompous ass quite like the former Dr. Frasier Crane.

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