QuickNews, Tuesday, Oct. 27.
CARNEY READS RIOT ACT TO BANKS, UNVEILS NEW GLOBAL REGULATORY ORDER.
* BoC governor rips bankers as guilty of "hubris" in lavish bonuses and denialism about causing crisis.
* Intolerable legacy of bailouts: "We are awash in moral hazard" - the bankers' belief that governments will rescue banks deemed "too big to fail." That's an incentive for banks to embark on acquisition sprees to make themselves even bigger and more disaster-prone. Think again, says Bank of Canada governor. Brunt of future failures will be borne by executives and shareholders, not taxpayer.
* World governments to impose higher reserve requirements and lower leverage ratios on global banks. To prepare for that, banks shouldn't be squandering windfall profits from bailouts and low interest rates on lavish bonuses, but bulking up their reserves.
* Banks will be forced to adopt "living wills," so troubled banks are quickly dismantled, isolating solid operations from troubled ones that threaten entire bank and the financial system.
* Risky derivatives should be openly traded, just like stocks and bonds. Drag these "weapons of mass wealth destruction," as Buffett calls them, out of the shadow economy where they can be accurately priced and subjected to the same transparency as other bank assets and liabilities.
* Carney deflates bankers' self-importance, saying they must return to being "servant of the real economy."
Carney's blueprint for sweeping reform, unveiled yesterday in Montreal speech, echoes concerns of heads of state and regulators worldwide. Much if not most of it will be adopted by world economies over the next year or so, with many of the final touches applied at next G-20 summit in Muskoka next year. Carney says reformed global system will, in some key respects, adopt long-standing Canadian regulatory practices that resulted in our status as a rare major economy that didn't need a state rescue of its banks.
EUROPE ALREADY FORCING BANK BREAK-UPS | Prefers "too-small-to-worry-about" model. Dutch giant ING (above), among few remaining bancassurance colossi, stuns market yesterday saying it will shed insurance ops, become a pure retail bank. EU regulators are pushing for asset sales at other bailout recipients, including RBS, Lloyds, Barclays. This will amount to shedding 30% to 50% of total assets. New era of incredibly shrinking bank has arrived in Europe. U.S. not yet convinced banks need to shrink. Could happen, though, given multitude of U.S. regulators and economists also wary of "systemic risk" posed by over-sized financial institutions.
TORIES REFORM 1 | Ottawa to toughen parole rules for while-collar and other non-violent criminals. Fraudsters to serve longer stretches before parole eligibility. Response to spate of high-profile fraud cases, notably in Montreal and B.C.
TORIES REFORM 2 | Flaherty vows "comprehensive reform" on pensions soon. Will affect federally regulated firms, such as banks, transport sector, telecommunications. Meanwhile, Quebec moves to backstop pension guarantees for 3,000+ Nortel retirees in province. Leaves no excuse for QP not to follow suit.
BIG HURT | Fiscal basket case Toronto preparing across-the-board 5% cut in budget outlays. "Everything is on the table," official says - social services, rec centres, snow clearance...
THAT DIDN'T TAKE LONG | New U.S. ambassdor to Canada makes early stop in Alberta. Talks oil with premier and conservationists, following in Cheney's footsteps. U.S. administrations come and go. But Athabasca, world's second-largest oil reserves after Saudi, will forever be regarded stateside as integral to U.S. energy security.
HUH? | John Kerry describes Hamid Karzai as a "patriot." Massachusetts U.S. senator, close to WH, either is delusional about corrupt Afghan president (left) or is setting the table for a Karzai role in negotiated settlement with Taliban. Bet on the latter. Obama repeats he won't be rushed in his rethink of current, failing counterinsurgency mission. Contrast with LBJ, who believed his generals' sanguine reports of Vietnam "progress" to the end.
HUGE U.S HEALTHCARE BREAKTHROUGH | Senate bill will include new government insurer. So-called "public option" had met stiffest opposition in senate. So in conference with pro-public option House to forge a final bill for president's signature, Canadian-style single payer element likely to survive, with provision permitting states to opt out. Just weeks ago public option was given up for dead, by me, among others.
WASTE RAMPANT IN U.S. HEALTHCARE | Tab is put at staggering $700-billion-plus (U.S.) a year. "That's one-third of the nation's healthcare bill," official at Thomson Reuters, author of report, says. "The good news is that by attacking waste we can reduce healthcare costs without adversely affecting the quality of care or access to care." Obama has been widely dismissed in asserting that the cost of covering the uninsured can be defrayed by cutting waste.
NEWSPAPER CIRCULATION PLUNGE CONTINUES | Papers cutting "unprofitable" circulation. Slumping ad revenues no longer support free copies distributed at hotels and the like by USA Today, LA Times, et al. Also ttrimming distribution to suburbs in effort to reduce newsprint, printing costs. Papers claim readership numbers are holding up - more people reading each copy. Still, hardly what you'd call a sign of health.
UNEXPECTED HEALTH BOOST FOR ICELAND | McDonald's quits the insolvent country. Cites 80% plunge in local currency. Watch for reheated McNuggets imported from Norway to become Reykjavik dorm delicacy.
CRASH TEST DUMMY | Director Paul Haggis quits Scientology on discovering it's homophobic. Director missed the memoes all these years.
THE COST OF A WELL EDUCATED BABY | Getting that toddler through university will cost $137,013. So start investing now. This assumes no scholarships, no student grant assistance, no student summer jobs. True, tuition and related costs have soared. But you have to wonder about the self-interest in this report from TD Financial - which, BTW, is emphatic that a cape-and-gown is essential to your kids' future. Obviously, TD has a strong interest in selling mutual funds and other fee-laden savings products.
QUOTE OF THE DAY | "Let's face it, the most important innovation in banking for most people in the last 20 years is the automatic teller machine." -Paul Volcker, former chairman of the U.S. Federal Reserve Board, in an interview with Rotman Magazine, the U of T business school publication, on the bankers' current fear of over-regulation that might restrain them in "innovating" new products to replace past hits like subprime mortgages, collateralized debt obligations and credit-default swaps. And don't we miss those already?
Courtesy The New Yorker, Oct. 12 edition.