"Worthwhile Canadian initiative"

Witterings From Whitney has drawn my attention to this article in Newsweek. It's all pleasantly dull stuff, but well worth reading - a few highlights...

Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts, or government intervention, in the financial or mortgage sectors? Yup, it's Canada. In 2008, the World Economic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th. Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn't grown in size; the others have all shrunk.

So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1—compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada's more risk-averse business culture, but it is also a product of old-fashioned rules on banking.

That's all simple enough. Those strict rules on capital adequacy/leverage are there for a good reason. The UK government is doing its best to 'blame it all on the Yanks and the banks', but they have in fact been turning a wilfully blind eye to the burgeoning credit bubble ever since about 2001 or 2002. Further ...

Canada has also been shielded from the worst aspects of this crisis because its housing prices have not fluctuated as wildly as those in the United States. Home prices are down 25 percent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for over-consumption that the U.S. code does: interest on your mortgage isn't deductible up north. In addition, home loans in the United States are "non-recourse," which basically means that if you go belly up on a bad mortgage, it's mostly the bank's problem. In Canada, it's yours.

Ah, but you've heard American politicians wax eloquent on the need for these expensive programs—interest deductibility alone costs the federal government $100 billion a year—because they allow the average Joe to fulfill the American Dream of owning a home. Sixty-eight percent of Americans own their own homes.

And the rate of Canadian homeownership? It's 68.4 percent.

That's another thing that winds me up, and the Tories are especially guilty of this, is the idea that the taxpayer should 'help' first time buyers via whatever tax break. First time buyer are competing with other first time buyers. If you give them grants, or tax breaks then that increases the budget of all first time buyers equally without reducing the competition, so all that happens is that house prices go up accordingly, exactly like interest rate cuts.

And, to the extent that we have redistribution at all, surely it should transfer wealth from the very top to the very bottom, rather than transferring it from the middle to the middle, as did MIRAS? Like I always say, taxes on land values are the least bad taxes; so subsidies to property ownership are the very worst subsidies, they never achieve what they are officially supposed to do.