Theory has it that Canadian banks are in far better shape than their US counterparts. If so, it's primarily because the Canadian Central Bank (Bank of Canada) has assumed nearly all the default risk on Canada's massive property bubble.
Is that supposed to make everyone stand up and salute the Loonie?
One key point that has recently come into the spotlight is Canadian citizens are not in better shape than their US counterparts. All those going "rah rah" over the Loonie, might be advised to consider some of the following articles.
Canadians warned to rein in borrowing on cheap money before it's too late
Bank of Canada governor Mark Carney issued a staunch warning to Canadians about the perils of cheap borrowing Monday, just as fresh data suggested household debt-to-income ratios have jumped to record highs.
"Household debt levels are at unprecedented levels relative to income — the level of vulnerability of households remains high," Carney told a news conference after a speech in Toronto.
Statistics Canada said Monday the ratio of debt to disposable income rose to 148.1 per cent in Canada in the third quarter — a close to five point jump — slightly ahead of the U.S. ratio of 147.2 per cent.
TD Bank chief economist Craig Alexander said it was natural that the government would explore ways to constrain borrowing, but said he also does not believe the situation has reached a crisis.
Apparently TD Bank chief economist Craig Alexander thinks it's best to wait until there is a crisis to do anything about it.
No doubt Alexander is a big believer in the Greenspan methodology of dealing with bubbles after they burst even though we have already seen the disastrous results of such complaisance.
Here's another good one from up North: Consumers warned: 'brutal reckoning' ahead
Bank of Canada governor Mark Carney issued another stern warning Monday on Canadians' appetite to take on record levels of household debt, which some analysts took as a signal he is set to raise interest rates as soon as the economy improves.
"Cheap money is not a long-term growth strategy," Carney said. "Low rates today do not necessarily mean low rates tomorrow. Risk reversals when they happen can be fierce: the greater the complacency, the more brutal the reckoning."
In Ottawa, Finance Minister Jim Flaherty said his government could tighten mortgage eligibility rules for a third time, if required, to keep credit growth in check.
Based on conversations he's had with banking executives, "there is no reason for extreme concern right now," Flaherty said. "But there is a reason for concern. So if it is necessary, we will toughen up the mortgage rules some more."
What's with this "no reason for extreme concern right now" nonsense? The Canadian property bubble is of epic proportion.
Flaherty too, appears to be a proponent of the Greenspan theory that bubbles can only be recognized in hindsight.
Blue Ribbon Complacency Awards
The blue ribbon for complacency goes to the Bank of Montreal for Debt picture not so bleak
Statistics Canada released data Monday showing that Canadian household debt has risen to 148 per cent of disposable income. The eye-popping figure is all the more alarming considering it's the first time since the 1990s that Canada's ratio has been higher than that of the U.S.
Alarm bells rang everywhere from the Bank of Canada to the Finance Department on Monday, and Canadians were urged to tighten their belts and prepare for a time of austerity.
But a closer look at the numbers indicates the picture might not be so bleak.
"The continued laser-like focus on debt overshadows the other half of the balance sheet," BMO chief economist Doug Porter said Monday.
Namely, Canadians are borrowing. But they're also saving, and they're worth more than they used to be.
Balance Sheet Theory Madness
Porter's statements are exactly the same kind of silliness we heard in the US regarding the central belief "massive debt is OK because it's supported by rising asset prices".
It was bad enough that anyone believed such nonsense a few years ago before the US property bubble blew sky high. That such beliefs still have proponents at the highest level of Canadian banks now seems rather amazing.
It just goes to show just how firm the belief "It's different here" is in Canada.
When housing prices crash, and especially if the stock market goes with it, what's left of Porter's "Balance Sheet Theory" will look something like a moldy slice of 3-year-old Swiss cheese.
Banks Won' Lead The Way
Toronto-Dominion Bank chief executive officer Ed Clark says Banks won't lead way on fixing debt problem.
If policy makers want Canadians to stop borrowing too much, it’s up to Ottawa, not financial institutions, to force a change in behaviour, says one of Bay Street’s longest-serving senior bankers.
Toronto-Dominion Bank chief executive officer Ed Clark acknowledged Canadians’ alarming debt levels, but said the issue is a matter of public policy and would be best resolved by a tighter government rules on residential mortgages.
In an interview with The Globe and Mail, Mr. Clark said that no bank wants to be the first to impose stricter requirements on borrowers out of fear that it will suffer a major loss of customers to rivals. Personal banking “is a highly competitive industry,” Mr. Clark said. “If we said ‘Look, we’re going to be heroes and save Canada from itself, and we’ll impose a whole new [mortgage] regime on everyone else,’ the other four [large] banks would say ‘Let’s carve them up.’ ”
Mr. Clark said it is impossible to expect any bank to crack the whip on borrowers because “market share loss is perceived as a strategic loss, not just a numerical or dollar loss.”
Dance Until The Music Stops
Clark sounds like he's a big believer in the Chuck Price Music Theory best described in retrospect as "Keep dancing until you dance out the door".
Flashback July 10, 2007: Quotes of the Day / Top Call
Chuck Prince - Citigroup CEO
No End Soon to Buyout Boom: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing".
If ever there was market arrogance, the statements by Chuck Prince says it all.
In an interview with the newspaper, Prince said the boom will eventually end, but will continue for now because markets have plenty of liquidity, despite turmoil in the U.S. subprime mortgage market. He denied Citigroup was pulling back, the newspaper said. "When the music stops, in terms of liquidity, things will be complicated," he said. "But as long as the music is playing, you've got to get up and dance. We're still dancing.
Prince added: "The depth of the pools of liquidity is so much larger than it used to be that a disruptive event now needs to be much more disruptive than it used to be. At some point, the disruptive event will be so significant that, instead of liquidity filling in, the liquidity will go the other way. I don't think we're at that point.
My comment at the time was "I leave it to you to decide whether or not this is the 'last dance'".
Flashback November 02, 2007: Music Stops for Chuck Prince
The party is over and the music has stopped for Chuck Prince. His last dance is a two-step out the door. Citi's Prince Plans to Resign.
Moral-Hazard Position of Bank of Canada
Toronto-Dominion's CEO does not give a damn about fundamentals, about acting on their clients' interests, or for that matter acting on shareholder interests. Clark's only concern is in not losing market share to the other Canadian banks until the whole mess blows sky high.
Canada's banks clearly don't care what happens as long as they can pass the trash to the Bank of Canada, the Canadian equivalent of Fannie Mae.
Clark's statements, as well as statements made by the chief economists of BMO and Toronto-Dominion, put a spotlight on the decidedly stupid moral-hazard mess the Bank of Canada has gotten itself into by backstopping mortgages of Canadian borrowers.
But hey, look on the bright side. The music is still playing. In memory of Chuck Prince, Keep on Dancin'
I said Bank of Canada in a couple of places where I should have said CMHC.
Here are a couple of corrections from Canadian readers.
"RP" Writes ....
Quick corrections here Mish. Mortgages in Canada are guaranteed by the CMHC, which is a crown corporation equivalent to Fannie Mae. Anything less than 20% down requires this insurance, so that's the source of the Canadian banks' "health". The loose lending standards were set by the current "Conservative" government, a few months after they came in office. We had 0 down, 40 year mortgages insured by the government for a couple of years. Now it's officially 5% down and 35 years, but every bank will lend you the downpayment. The government also insures mortgages for rental properties.
Similarly, "MS" writes ....
One inaccuracy that should be corrected. It's the CMHC (Canada Mortgage and Housing Corporation) that serves as the equivalent to Fannie and Freddie, not the BoC. The CMHC insures mortgages for below market rates, and the major banks pass along their loans to them.
The Conservative government ordered the CMHC (a crown corporation) to insure some $300 Billion in additional mortgages during the crisis - nearly double their previous holdings. It is this that has buoyed the Canadian R/E market since then. Banks don't worry about credit worthiness, because the CMHC will take it anyway in order to meet their quota.
"Moi" Writes ....
Mish you are one of the few Americans that seem to "Get It". So many of the other US financial writers talk glowingly about how sound Canada is financially and how the Canadian banks did not take part in the risky lending practices that the US banks have taken part in. This is complete and utter BS!! The Canadian banks are doing the same sort of zero down or variable rate mortgages it's just they have none of the risk to worry about. 600 Billion dollars worth of that mortgage risk is held by the government of Canada thanks to the Canada Mortgage and Housing Corporation (CMHC). There are cash back mortgages every where in this country. In other words come up with your measly 5% down payment and the bank will give you 5% back. So here in Canada we proudly brag about how we do not have zero down mortgages, we just call them by a different name. Also, if you do not have 5% to put down no problem. All of the banks will loan you money to by an RRSP (IRA), you can than cash that RRSP to be paid back later and use that as your 5% down payment. Voila, zero down mortgages.
The Canadian Association of Accredited Mortgage Professionals came out last month with their "Good News" annual report last month. Just like the Real Estate Industry, all news is good news. Take a look at the numbers. At these absolutely rock bottom interest rates:
100,000 mortgage holders would be in trouble with any rate move.
350,000 mortgage holders would be in trouble if rates only go up less than 1 percent.
250,000 mortgage holders would be in trouble if rates went up between 1 and 1.5 percent.
So, if interest rates which are at Century lows went up a measly 1.5 percent, 700,000 mortgage holders in Canada would be in trouble. What if they went up 2 or 3%? It would be mortgage Armageddon in Canada. This is how precarious our housing market. The following link gives you just one tiny example of why Canadian housing is a house of cards that could topple at the slightest touch.
5% or more cash back mortgage:
Mike "Mish" Shedlock
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"Being good in business is the most fascinating kind of art," Andy Warhol famously said. "Making money is art and working is art and good business is the best art." Having gotten his start as an immensely successful commercial artist selling product illustrations to advertisers and department stores, Warhol bent the American consumerist system to artistic ends throughout his career -- embracing capitalism at a time when many in the creative sphere viewed it skeptically, if not with outright hostility. Now a new exhibition at the Indianapolis Museum of Art called "Andy Warhol Enterprises" has seized upon a recent resurgence of interest in the artist's work to closely examine just how Warhol treated business, commerce, and, above all, money in his art and life.
At an economic moment when the art market is booming -- with a Warhol painting selling for $63.4 million at Phillips de Pury last month -- as the rest of the country struggles through a grueling recession, wealthy businessmen have been demonstrating extraordinary confidence in art as a liquid financial asset. Warhol, it could be said, took the opposite approach -- he saw business as a dependable artistic asset. To discuss the ways in which the Pop artist approached this sweeping subject, ARTINFO executive editor Andrew M. Goldstein spoke to the exhibition's co-curator Sarah Urist Green, who organized the show with art critic Allison Unruh.
Andy Warhol for Sony Beta cassette tapes, 1981 / © The Andy Warhol Foundation for the Visual Arts, Inc.
One of the interesting things about your exhibition is that it is sponsored by PNC Bank, which is in itself a commentary of a kind on the relationship between business and art.
When I got a call from Max Anderson, our director, asking if I would be interested in curating a show in conjunction with PNC bank and the Warhol Museum, my first reaction was a little bit hesitant. But I thought, "Warhol certainly wouldn't mind having a show sponsored by a bank. He would probably have really liked it." And I love the fact that Warhol had the corporation Andy Warhol Enterprises -- it has always stood out to me as a really fine example of Warhol as an entrepreneur -- and Andy loved money. So I though lets do a show about Andy loving money, but in a critical, engaged way.
Did they have any part in coming up with the show's conceit?
No, this is something that we pitched to them. And they loved it. I especially thought it was hilarious that for once we would be able to even flaunt a sponsor's name and logo in conjunction with the exhibition. Whenever we were creating collateral for the show I was able to say "don't forget the logo" and "make the logo bigger."
The exhibition catalogue shows Warhol as a shameless self-promoter, even appearing on Japanese film ads like the cliché of Bill Murray's character going to sell Japanese whiskey in "Lost in Translation."
That's perfect, right? But he was doing that from the beginning. Something we didn't have an image of in the catalogue but that was always in my mind in developing the show was the classified ad he put in the Village Voice in 1966 that said, "I will endorse with my name any of the following" and then it was just a list of all of the things he was happy to endorse, which included "anything." So he was a bit of a whore, as it were, from the beginning. One of the ideas that we have really tried to work against in this exhibition is that there was a turning point in Warhol's career -- this idea that before he was shot there was a certain integrity to his work and after a turning point it all dissipated and he became a servant to celebrities and society members. I don't believe that that is true. He even said later in his career, "I was always a commercial artist."
That is so interesting because that recent biography of him, Pop: The Genius of Andy Warhol, ends when he was shot in 1968, essentially condensing the last two decades of his career into a few paragraphs, largely dismissing it as commercial work.
I know. It's a great book, it's excellently researched, has great material, but it just ends! He was shot in 1968 but he didn't die until 1987. It is really incredible that that perception persists -- I mean, it is really prevalent, especially, of that generation. This exhibition is one of several in the past few years that is re-examining his later work including the "Last Decade" show and "Pop Life." These other exhibitions are looking at his later work in a fresh light. But I feel sometimes that the members of Warhol's own generation, or the people who were there, were sometimes clouded in their judgment and unable to see the irony of his later work.
I think it is so interesting your catalogue opens with a picture of Warhol sitting behind a desk. I can't think of another artist, like that, sitting behind a desk. Even Jeff Koons or Damien Hirst wouldn't take that picture.
Oh, no. You have seen pictures of them at their desk in their studios, maybe sitting with desks or papers or tables behind them, or maybe at a computer, but not this -- in such an officious role! I love that photo. It hasn't been published very much, and it was really important to us to include it. There is actually another version of this photo that is backed up a little more and it shows that, to the right of the telephone, there is a TV facing him.
The essays in the catalogue present Warhol as this businessman sitting behind a desk, running Warhol Enterprises, concocting a new moneymaking scheme every day, wearing a tie, and flying by Concorde. And it certainly worked: the final valuation of his estate was $228 million.
That's correct, though I'm not sure exactly how the Warhol Museum came to that figure. I am pretty sure that it is the valuation of his work at the time of his death plus all of the other art work he collected, because he had quite a collection of decorative art and some work by other artists, as well. Also, it includes his real estate holdings.
So, just like any other CEO.
Exactly. In the exhibition we have a portfolio that says "Andrew Warhol Enterprises Inc." on the front and it sort of goes through the value of his estate in 1965, and lists artworks that he owned -- some small Rauschenberg works and other items. But he did amass quite a bit of wealth in his days. Even in the 50s, in the first decade of his career, he did amazingly well as a commercial artist. So he was very well off even before he became famous.
What was he like as a boss?
[Laughs] As a boss? Well, we interviewed Vincent Fremont in the catalog and that is one account of many accounts, but at a certain point in my research it became unhelpful to read the accounts of everyone who worked for him. The people who were very close to him seemed to love him, like Pat Hackett [Warhol's secretary]. While they had not an uncomplicated relationship with Warhol, they certainly had extreme fondness for him. But then you read accounts like Bob Colacello's "Holy Terror" and you see a different side but one that is cited often, the flip side of Andy Warhol, where while he could be incredibly encouraging to other people, to other employees, other artists, he was also pretty cruel in certain regards as well.
What fascinates me is that while he presents this image as a business man -- "the business artist" -- his own management of his affairs was much more like an artist. He hardly paid anyone except with drugs, or parties, or the occasional lunch money.
Part of Warhol's brilliance at an early age was getting people to help him for free. In the 50s he would have these coloring parties where he would invite his friends to Serendipity 3 to help him hand-color his blotted line drawings, and he had his mother help him as well. He certainly had paid assistants, too. All of his films made it look like people in the factory were just sitting around, but he was certainly very good at getting people to work for him for free, and I'm sure it was mutually beneficial. It turned from the "Factory" into the "Office", and his staff members grew as his life progressed. But he certainly did know how to run a business and get the most out of his employees.
Did they have health care? Or anything like that?
I don't know, but there is a great Warhol quote: "Employees made the best dates. You don't have to pick them up and they are always tax deductible."
It is funny to think about how much of a chaotic mess his workplace was.
Well, you see the time capsules, and you get a small glimpse of his business life because the time capsules were basically his sweeping off his desk every so often and putting it in a box. And if you go to the Warhol Museum archives and you take a peek in those time capsules, it is really astounding the amount of stuff that almost anyone would throw away that Warhol kept.
What stands out in your memory?
Ticket stubs, taxi receipts, small notes about his finances. If you look in his diaries, you will see that the "Andy Warhol Diaries" actually originated because his accountant wanted him to track his daily expenses, and then it expanded from there. But it will say "taxi, 3 dollars" and so on. That is in the "Andy Warhol Diaries" that Pat edited. He would call her in the mornings and she would transcribe his day-to-day activities for many years. And some of them... I mean, it's funny, but pretty tedious at a certain point. He will say who he went out with the night before, who was at Studio 54, et cetera. They also found in the time capsules over a thousand dollars in cash that he just stuck in one of the boxes. I tried to get that for the show, actually, but I think they gave it to the Warhol Foundation.
Visit "The Business Artist: How Andy Warhol Turned a Love of Money Into a $228 Million Art Career" on ARTINFO for the rest of Andrew Goldstein's interview with IMA curator Sarah Urist Green about the themes in her probing exhibition, including a discussion of Warhol's role as Factory foreman, his money paintings, and his vulgarity, and to see a slide show of Andy Warhol's most famous money-making works.
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