Juggling Dynamite

A sign of our times: everywhere we look today we see different payday loan shops. These shops cater to the droves of increasingly desperate people looking to cover cash flow shortfalls and agreeing to pay immoral, enslaving interest rates as a result. Unfortunately in the weakest economic recovery ever, the loan shark business is one of the truly booming sectors following the great recession of 2008. Since most countries have legal limits on the amount of interest one can charge (60% Federally in Canada), the most unscrupulous lenders have been moving off shore and offering loans on line with rates up to a mind-boggling 600% according to some reports.

In an excellent piece of investigative reporting, Bloomberg’s Zeke Faux dives into the predatory world of short term loans and finds unscrupulous promotional partners like Montel Williams and embarrassing investors like Harvard, Massachusetts Institute of Technology, the John D. and Catherine T. MacArthur Foundation and pension funds in California, Oregon and Maryland. See: Secret Network connects Harvard money to payday loans

The global economy continues to struggle under the weight of years of malinvestment encouraged by increasingly maniacal “easy money” policies out of central banks and their brethren. The trade-off has been brutal and self-defeating as it has made both institutions and households increasingly strapped for cash flow and reasonable investment alternatives in the wake of asset bubbles that reduce all yields towards nil.

The choices have been to exercise self-control in order to save more and spend less or throw all standards and reason to the wayside in order to whore after any dollar from anywhere regardless of risk, morality or longer-term health. But it matters how we make our money. Gouging pounds of flesh off the weakest, least advantaged members of our society is ultimately self-destructive and repugnant no matter how we try to justify it. Kudos to those who keep exposing the truth.

Admit, repent, reform, recover…

Martin Wolf talks about his new book ‘The Shifts and the Shocks’, what has been learned from the financial crisis, and how elites can regain credibility in the wake of the crisis. Here is a direct video link.

Despite the circus of purported ‘love’ around former BOC head Mark Carney (who wisely left for England last summer before the Canadian credit bubble could burst), a short honeymoon phase for newcomer Governor Poloz, and glowing self-endorsements of bank owned wealth manglement dealers across the nation, the Bank of Canada and its Canadian banks are today not the model of strength and stability they have been pumped up to be. Indeed far from it:

“Any strong, healthy banking system requires a central bank with a pristine balance sheet… specifically, substantial net equity as a percentage of assets.

So how strong is the balance sheet for Banque du Canada? Not very.

As it turns out, Banque du Canada is actually the most pitifully capitalized central bank in the western world. They’re in such bad shape they actually make the Fed look healthy…See: Presenting the most pitifully capitalized central bank in the west“

Canada’s realty market was recently ranked as the most highly valued in the world today with a home price to rent ratio 88%, and home prices to income 32%, above historic norms. (Although I am sure one can take comfort from the fact that the Bank of Canada, in true central bank tradition, says they see no realty bubble). In fact of all the countries who had housing booms on the global credit bubble up to 2008, Canada, Norway, Australia and New Zealand are the only countries to have not had the mean reversion phase in prices.  Yet.

But as the global downturn spreads and commodity price deflation continues for a few more years while the world works off the excesses of the 2000-2008 over-investment boom, Canadian employment will likely continue to weaken, and our hideously indebted consumers will struggle and the highly over-paid banker-leverage-magicians will finally be revealed as unworthy leaders.  Once more.   Unfortunately with bank reserves and CMHC funding all inadequate for the debts that have been under-written, Canadian savers and taxpayers are likely to be the unhappy lenders of last resort.