Inquiring minds are interested in a comparison between the state of California and Ontario, a province of Canada. "Firefiend" Writes:



Ontario's Record Debt Level

Ontario Finance Minister Dwight Duncan Unveils 8-Year Plan

Unrealistic and Irresponsible

Ontario's Anemic Effort To Clamp Down On Wages

What are they freezing?

Unions angry over Ontario budget plans

Ontario's Plan To Eliminate The Deficit

California Fiscal Outlook

Will California Default?

Total Debt Comparison

Canadian Banks vs. US Banks Comparison

Baseline Scenario

Please consider Ontario’s Record Debt Level May Pressure Spreads Inquiring minds are investigating Ontario's 8-Year Deficit Reduction Plan Minister Dwight Duncan called the budget 'realistic and responsible'.Cower in fear when you hear talk like that from any politician. The savings total is $6.324 billion. A mere $750 million comes from wage "freezes".On the investment side notice how Duncan does not put a cost on energy tax credits or the introduction of full-day kindergarten for four and five-year-olds. I guess those services pay for themselves.Duncan does itemize $0.259 billion in other investments.Thus Duncan proposes to plug a $21 billion shortfall with a net total of about $6 billion in savings. He has the gall to call this 'realistic and responsible'.Public unions are clearly a huge problem in Canada as in the US. Please consider Will cities freeze wages as well? Good question.The answer is something like 1/10th of a portion of a portion of something, effective years from now, much like a budget freeze in US Congress.Nonetheless union parasites in Canada are upset.Inquiring minds note that union parasites in Canada are every bit the problem in Canada as in the US. Please consider Unions angry over Ontario budget plans Please consider this graph from 2010 Ontario's Economic Outlook and Fiscal Plan Forgive me for being skeptical but does anyone in Canada believe that?In addition to controls on spending (which are clearly anemic as noted above), deficit reduction is dependent on job growth, more specifically non-parasitic, non-public union job growth.That in turn begs the question, does anyone believe this?For comparison purposes please consider these Fantasyland projections from The 2010-11 Budget: California's Fiscal Outlook What are these people smoking?There are many interesting charts in the above link. Please give it a look.Inquiring minds are reading California Watch: Will California Default on Bond Debt in 2010? Ontario's net debt is C$220 billion ($216 billion). California has $83.5 billion in long-term bond debt. Of course we probably need to factor in California's share of US national debt and the same for Ontario.Regardless of how you slice it, both California and Ontario are fiscal disasters. A case can be made that Ontario is much worse than California. So when you hear all this talk about how much worse California is than Greece, just remember, so is Ontario.I continually hear a lot of hot air, mainly from hyperinflationists, about how safe Canada is, how sound its currency is, etc. For the best written rebuttal to date of such talk, please consider The Canadian Banking Fallacy on theblog.

Despite supposedly tougher regulation and similar leverage limits on paper, Canadian banks were actually significantly more leveraged – and therefore more risky – than well-run American commercial banks. For example JP Morgan was 13 times leveraged at the end of 2008, and Wells Fargo was 11 times leveraged. Canada’s five largest banks averaged 19 times leveraged, with the largest bank, Royal Bank of Canada, 23 times leveraged. It is a similar story for tier one capital (with a higher number being safer): JP Morgan had 10.9% percent at end 2008 while Royal Bank of Canada had just 9% percent. JP Morgan and other US banks also typically had more tangible common equity – another measure of the buffer against losses – than did Canadian Banks.

If Canadian banks were more leveraged and less capitalized, did something else make their assets safer? The answer is yes – guarantees provided by the government of Canada. Today over half of Canadian mortgages are effectively guaranteed by the government, with banks paying a low price to insure the mortgages. Virtually all mortgages where the loan to value ratio is greater than 80% are guaranteed indirectly or directly by the Canadian Mortgage and Housing Corporation (i.e., the government takes the risk of the riskiest assets – nice deal if you can get it). The system works well for banks; they originate mortgages, then pass on the risk to government agencies. The US, of course, had Fannie Mae and Freddie Mac, but lending standards slipped and those agencies could not resist a plunge into assets more risky than prime mortgages. Let’s see how long Canada resists that temptation.

The other systemic strength of the Canadian system is camaraderie between the regulators, the Bank of Canada, and the individual banks. This oligopoly means banks can make profits in rough times – they can charge higher prices to customers and can raise funds more cheaply, in part due to the knowledge that no politician would dare bankrupt them. During the height of the crisis in February 2009, the CEO of Toronto Dominion Bank brazenly pitched investors: “Maybe not explicitly, but what are the chances that TD Bank is not going to be bailed out if it did something stupid?” In other words: don’t bother looking at how dumb or smart we are, the Canadian government is there to make sure creditors never lose a cent. With such ready access to taxpayer bailouts, Canadian banks need little capital, they naturally make large profit margins, and they can raise money even if they act badly.