Summer Reading II

by Jerry O’Driscoll  

Summer reading is eclectic and before getting to my second installment of notes on This Time is Different, I want to recommend a non-economics book. A Chance in Hell by Jim Michaels is a riveting account of how the military and political situation turned in Anbar province in Western Iraq. It is first and foremost an account of courage: that of a minor Sunni Sheik, Abdul Sattar Bezia, who led an uprising against al-Qaeda, and the American officers, led by Col. Sean MacFarland, who backed him.

 Together they snatched victory from defeat in the battle for Ramadi. The much-discussed troop “surge” came only one year later, and Ramadi was already largely won.  It is questionable whether the elements that made for that victory can be replicated in Afghanistan.  But reading this book is the best way to understand what did happen.   

On to financial crisis. Continue reading

Canada Beats the U.S.

by Jerry O’Driscoll

No, I’m not offering up a delayed report on the Olympics.  But I am following up on earlier post on why Canada avoided a banking crisis. 

In today’s (March 19) Wall Street Journal, AEIs Alex Pollock provides an important piece of the puzzle.  Canada avoided a housing crisis, the progenitor of the U.S. banking crisis. It did so by having sounder banking and housing policies. Above all, it had no Fannie Mae & Freddie Mac.  

Canada isn’t a free-market paradise.  But it beats the U.S. in banking and housing policies. I commend Alex’s article to you.

Canada’s Great Escape

by Jerry O’Driscoll

There has been an earlier discussion of why Canada didn’t suffer a banking crisis.  The Financial Times asked the same question in its January 30/31 issue. The answers provided by the FT may not satisfy all, but here they are:  Old-fashioned prudential regulation is singled out: capital requirements, quality of capital and leverage ratios. Other major Western countries, particularly the US, were all relaxing them while Canada was tightening them. The regulators worked in tandem and there were no regulatory gaps to exploit.  

Additionally, bank regulation in Canada is principles-based, rather than rules-based.  That obviates legalistic circumvention of safety-and-soundness regulations.  “The message in the US is it’s your responsibility to meet our rules.  In Canada, the responsibility is to run the institution right.”  

Finally, there were no trendy innovations in the mortgage market, and securitization was much less common.  

In other words, banking and supervision done the old-fashioned way: safety first.