Saturday, 18 April 2009

Advice from the North: Make Banking Boring Eh?

I know that Canada, our frostbitten neighbor to the north, gets its share of ribbing. It's seen as a big, bland place with agreeable people who seem to belong on the set of a James Stewart movie. If Latinos are fiery red, Canadians are a dull and cool shade of blue.

And they are apparently the perfect teachers for wayward U.S. bankers. This article I found wonderfully refreshing. It shows the Canadian banking system as a resounding triumph of common sense (and, it also seems, executives have a sense of decency and modesty, unlike Wall Street where swaggering arrogance rules).

Check out the quote below. Can you imagine, say, Dick Fuld saying this without a smirk?
Ed Clark is a plainspoken, polite and prudent Canadian bank CEO with a few simple rules: "We should never do things for our customers and clients that we don't actually understand. If you wouldn't put your mother-in-law in this, don't put our clients in it."
It was clear to Clark that the explosion in subprime lending would end badly. And as for Wall Street's mortgage origami -- creating securities out of scores of different risky home loans -- he basically says that when you see a product wrapped in mind-numbing complexity, you should stay the hell away:
"Our U.S. subsidiaries did not do any subprime lending. Nothing. Zero," Clark said. "We just said, 'Stay away from this stuff. We know where this is going.'"

Another villain in the financial crisis were toxic mortgage-backed securities - risky loans that were chopped up and resold in countless different ways. Many banks gobbled up the now virtually worthless investments. Ed Clark got out 4 years ago saying they were just too complex.

Clark: "As soon as you see that complexity, you say, 'How can I possibly think I actually can guess whether this will work or not?' And as soon as I hear that, I say, 'Get out of it.'"
Which makes you wonder: Here's a humble guy, not a rocket scientist intellect, but a veteran banker who saw how badly the expansion of subprime lending would end. Why did so few on Wall Street figure this out? Were they really and honestly that blind? Or did they kind of know what was going on, and decide they'd just vigorously milk the cow anyway until it ceased producing and keeled over, at which point they'd scuttle away with their big bonuses well in pocket?