The numbers don't look good. Sure the US lost a staggering 598,000 jobs in January. But, in the much smaller True North, Canada lost 129,000 jobs.
On the basis of our admittedly simplistic 10:1 comparison ratio, we'd have been keeping up with our American Joneses if we dropped 60,000. Put it the other way, the Americans would have been keeping up with us if they'd lost 1.3-million jobs.
Now a really informative comparison is far more complex than a simple numerical ratio but it sounds like, bad as the whipping America took may be, Canadian workers got flayed.
Showing posts with label Canadian recession. Show all posts
Showing posts with label Canadian recession. Show all posts
Friday, February 06, 2009
Wednesday, January 21, 2009
Pulling the Pin on Good Business
Bankers are funny types. In an economy awash in bad debts, some have an instinctive impulse to add more to the pile.
The New York Times reports on banks calling loans on companies that have perfect loan repayment records. This is what often happens when credit shrinks and banks no longer need compete for borrowers.
The article focuses on Dave Brown of Tempe, Arizona, a home builder who had been in business, successfully, for 33-years. That came to an end when his bank, panicked at his company's declining revenues, demanded additional collateral for its loans - assets Brown simply didn't have. Even though not one payment had been missed, the bank simply called its "demand loans." That left Brown unable to complete his current projects which rendered them unmarketable and which led the bank to step in and foreclose.
Banks do this and they do it here in Canada as well. Every now and then something happens and the banks go "medieval" on their borrowers (h/t Pulp Fiction). When this develops into a trend it ripples through communities and, eventually, entire societies.
Here's what I mean. In the 80's there was a recession in Canada. In Vancouver, car dealers were particularly hard hit. The lenders - banks and automaker acceptance companies - panicked. They called their notes and hired bankruptcy lawyers and trustees (oh, the gravy!).
One particular trustee seemed to get most of the many car dealers, one by one, on a particular thoroughfare. He would move in and throw the dealer's inventory on the market at firesale prices. Basically he went into competition with every other car dealer in that market and they couldn't afford to match those prices and service their own debts. Like dominoes, one by one they fell as the market got saturated with below-cost inventory.
It wasn't just car dealers who fell victim to these debt realization Berserkers. Commercial auction houses were flooded with inventories of companies that fell into receivership. It was not atypical for assets to be blown out at ten cents or less on the dollar. Out of the paltry recovery the lawyers, trustees and disposal experts would all have a fine feast. They were often creating the conditions for the next company's failure. Buzzards are supposed to eat carrion, not manufacture it.
Then the recession passed and, once the hangover cleared, the banks noticed that they had little to show for their efforts, pennies on the dollar, in large part because of their counterproductive approach to debt realization. They had been pulling the trigger but the gun had barrels pointed at their own head as well as the debtor's.
That finally ushered in the era of "work outs," recognizing when a debtor was in trouble and concentrating on how to maximize recovery which in some cases meant keeping that company in business by writing off debt or deferring repayment. The bank got more than it would by shutting down the company, the business sometimes managed to keep operating and the employees kept their jobs and paycheques and kept contributing to society.
But this is a pendulum that can swing back again. We're going into a recession. Even Harper has finally grasped the need for a stimulus plan. But the devastation the feds need to offset should be addressed by the feds and the provinces. Preventing Kamikaze debt realization ought to be explored - now. It's much harder to force banks to extend credit than it is to restrict their freedom to shrink existing credit facilities.
I think we need to look at measures to protect borrowers during this extraordinary time. There's no point blaming them and saying they ought to have known better when our banks and our government utterly failed to see what was coming. Keeping as many companies as possible in business during this recession makes good sense. It continues economic activity and it reduces unemployment and all the consequent ills that flow from that.
Let's face it, we've got billions to bail out banks but, in terms of employment, they're small change.
Now, if the interim leader of the Liberal Party wants to look progressive, there's something he can chew on.
The New York Times reports on banks calling loans on companies that have perfect loan repayment records. This is what often happens when credit shrinks and banks no longer need compete for borrowers.
The article focuses on Dave Brown of Tempe, Arizona, a home builder who had been in business, successfully, for 33-years. That came to an end when his bank, panicked at his company's declining revenues, demanded additional collateral for its loans - assets Brown simply didn't have. Even though not one payment had been missed, the bank simply called its "demand loans." That left Brown unable to complete his current projects which rendered them unmarketable and which led the bank to step in and foreclose.
Banks do this and they do it here in Canada as well. Every now and then something happens and the banks go "medieval" on their borrowers (h/t Pulp Fiction). When this develops into a trend it ripples through communities and, eventually, entire societies.
Here's what I mean. In the 80's there was a recession in Canada. In Vancouver, car dealers were particularly hard hit. The lenders - banks and automaker acceptance companies - panicked. They called their notes and hired bankruptcy lawyers and trustees (oh, the gravy!).
One particular trustee seemed to get most of the many car dealers, one by one, on a particular thoroughfare. He would move in and throw the dealer's inventory on the market at firesale prices. Basically he went into competition with every other car dealer in that market and they couldn't afford to match those prices and service their own debts. Like dominoes, one by one they fell as the market got saturated with below-cost inventory.
It wasn't just car dealers who fell victim to these debt realization Berserkers. Commercial auction houses were flooded with inventories of companies that fell into receivership. It was not atypical for assets to be blown out at ten cents or less on the dollar. Out of the paltry recovery the lawyers, trustees and disposal experts would all have a fine feast. They were often creating the conditions for the next company's failure. Buzzards are supposed to eat carrion, not manufacture it.
Then the recession passed and, once the hangover cleared, the banks noticed that they had little to show for their efforts, pennies on the dollar, in large part because of their counterproductive approach to debt realization. They had been pulling the trigger but the gun had barrels pointed at their own head as well as the debtor's.
That finally ushered in the era of "work outs," recognizing when a debtor was in trouble and concentrating on how to maximize recovery which in some cases meant keeping that company in business by writing off debt or deferring repayment. The bank got more than it would by shutting down the company, the business sometimes managed to keep operating and the employees kept their jobs and paycheques and kept contributing to society.
But this is a pendulum that can swing back again. We're going into a recession. Even Harper has finally grasped the need for a stimulus plan. But the devastation the feds need to offset should be addressed by the feds and the provinces. Preventing Kamikaze debt realization ought to be explored - now. It's much harder to force banks to extend credit than it is to restrict their freedom to shrink existing credit facilities.
I think we need to look at measures to protect borrowers during this extraordinary time. There's no point blaming them and saying they ought to have known better when our banks and our government utterly failed to see what was coming. Keeping as many companies as possible in business during this recession makes good sense. It continues economic activity and it reduces unemployment and all the consequent ills that flow from that.
Let's face it, we've got billions to bail out banks but, in terms of employment, they're small change.
Now, if the interim leader of the Liberal Party wants to look progressive, there's something he can chew on.
Sunday, December 21, 2008
Why Are Harper & Flaherty So Damned Clueless?
A lot has been written lately of the succession of astonishingly erratic and offmark economic statements we've been getting these past months from what passes for a prime minister in Canada today and his diminutive finance patsy, L'il Jimbo.
It's gotten to the point that, whenever either of them pronounces on the economy, you know that, if what they're now telling you is right, it'll be a first. Time after time after time they've weighed in and got it wrong.
So, what gives? Harper is supposedly a trained economist. Flaherty is a veteran finance minister with both federal and provincial experience. The two of them sit atop a sea of accountants and actuaries and economists and all other manner of financial wizardry.
My guess? There's a deliberate disconnect between the political side and their advisors. I think Harper and Flaherty have been discarding the forecasts and clarion calls of their staffers and, instead, shaping their public statements to conform to their political purposes. I think they've been telling us only what they wanted us to hear.
When it comes to respecting the public and treating them with candour, Steve feeds them a diet as lean on truth and rich on fantasy as he thinks he can get away with. And these days, with such complacent, even collaborative Canadian media cartels, he's pretty much got a blank cheque to lie his ass off without being called on it. And so he does. Who needs to worry about honesty when you've got CanWest Global, Bell Globemedia and SunCor curled up around your feet before the hearth?
It was obvious in what L'il Jimbo was saying yesterday that one of two things is going on with Harper/Flaherty. Either they've been getting really lousy advice or they've been getting good advice but ignoring it so they could game the forecasts for their political advantage. From Toronto Star:
"Just three weeks after saying that the federal budget was on track for modest surpluses, Flaherty admitted there will now be a deficit of at least $5 billion next year.
"It's quite clear on the basis of the forecasts and the continuing declines in the forecast that there will be a deficit," said Flaherty in Saskatoon after meeting with his provincial counterparts at a brainstorming session.
He also admitted for the first time the economy would suffer an outright contraction in 2009 – the first in 18 years. He said economic growth next year would decline by 0.4 per cent. In his November economic statement, he said the economy would show slight but positive growth of 0.3 per cent in 2009.
Come on Jimbo. Three weeks to go from "modest surplus" to billions in deficits next year? At this rate what is Harper's fiscal leprechaun going to drop on us after the new year? I'll bet we haven't heard the truth yet from Flaherty or Harpo.
It's gotten to the point that, whenever either of them pronounces on the economy, you know that, if what they're now telling you is right, it'll be a first. Time after time after time they've weighed in and got it wrong.
So, what gives? Harper is supposedly a trained economist. Flaherty is a veteran finance minister with both federal and provincial experience. The two of them sit atop a sea of accountants and actuaries and economists and all other manner of financial wizardry.
My guess? There's a deliberate disconnect between the political side and their advisors. I think Harper and Flaherty have been discarding the forecasts and clarion calls of their staffers and, instead, shaping their public statements to conform to their political purposes. I think they've been telling us only what they wanted us to hear.
When it comes to respecting the public and treating them with candour, Steve feeds them a diet as lean on truth and rich on fantasy as he thinks he can get away with. And these days, with such complacent, even collaborative Canadian media cartels, he's pretty much got a blank cheque to lie his ass off without being called on it. And so he does. Who needs to worry about honesty when you've got CanWest Global, Bell Globemedia and SunCor curled up around your feet before the hearth?
It was obvious in what L'il Jimbo was saying yesterday that one of two things is going on with Harper/Flaherty. Either they've been getting really lousy advice or they've been getting good advice but ignoring it so they could game the forecasts for their political advantage. From Toronto Star:
"Just three weeks after saying that the federal budget was on track for modest surpluses, Flaherty admitted there will now be a deficit of at least $5 billion next year.
"It's quite clear on the basis of the forecasts and the continuing declines in the forecast that there will be a deficit," said Flaherty in Saskatoon after meeting with his provincial counterparts at a brainstorming session.
He also admitted for the first time the economy would suffer an outright contraction in 2009 – the first in 18 years. He said economic growth next year would decline by 0.4 per cent. In his November economic statement, he said the economy would show slight but positive growth of 0.3 per cent in 2009.
Come on Jimbo. Three weeks to go from "modest surplus" to billions in deficits next year? At this rate what is Harper's fiscal leprechaun going to drop on us after the new year? I'll bet we haven't heard the truth yet from Flaherty or Harpo.
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