Monday, February 1, 2010

Memo to Krugman: Canada Had a Bank Bailout

I did a double take when I read Paul Krugman's latest column.

Krugman calls upon America's financial institutions to adopt Canada's banking regulatory system. In fact, he praises Congress for taking steps in that direction:

Actually, the financial reform bill that the House of Representatives passed in December would significantly Canadianize the U.S. system. It would create an independent Consumer Financial Protection Agency, it would establish limits on leverage, and it would limit securitization by requiring that lenders hold on to some of their loans.

Yet Canada's Conservative government did exactly the opposite. No, they didn't inject the banks with taxpayer funds. But they did allow banks to move billions of dollars of assets in mortgages off their balance sheets. Mark McQueen, President & CEO of Wellington Financial LP based in Toronto, puts it in an interesting way:

There is only a subtle distinction between injecting capital into a bank and relieving it of assets so that it can avoid a capital injection. Kind of like your Dad temporarily buying your bike from you when you ran out on money in University, and then selling it back to you six months later when you were flush from a summer job.

With President Obama proposing a budget with a record setting deficit is the U.S. Treasury in a position to be buying bicycles?

1 comment:

H Mastersen said...

I dig your blog and think you'll enjoy several anti-Krugman posts re:deficits here