The Benefits of Being a Cheapo Canadian

Why are Canadian banks doing so well as compared to others in this economy? Colby Cosh says our banking prudence is in our cultural DNA: (read)

Both Kravis and Rowe suggest that the innermost core difference might be cultural — and, perhaps, ultimately a matter of the Scottish prudence and tight-fistedness that has survived in our banking DNA. This, of course, raises an obvious chicken-and-egg question: Has that spirit been preserved because we’re still using the same banks our great-grandparents did, or vice versa? International observers have noticed that our “principles-based” financial regulation takes a very different form from the “rules-based” style prevailing in the United States.

Down south, lenders are engaged in a constant chess game with the government. Were, the bank executives and the regulators have absorbed each other’s values to such a great degree — both taking the view that, to put it simply, the first goal of the Royal Bank is to make sure that there is still a Royal Bank 100 years from now — that internal audit procedures are tougher than any regulator would dare demand, and arguably more effective than any regime created solely by a narrow, politically shifting rule set. Plain old-school snobbery plays a role too. Only by means of a very powerful ethos of noblesse oblige can you staff a modern banking system, as we have, without dangling big short-term rewards in front of top executives and doing away with substantive board oversight.

My experience in technology sales has taught me there is a major difference between Canadian and American clients. Our own countrymen, we used to call "Cheapo Canadians." Money was always the object. I remember one time at a tech company, we introduced a consulting package to go with our software. A business could hire one of our people to implement our business model, and it was very expensive. On the floor, we were quietly skeptical that it was not going to sell. At first it wasn't. The VP of sales had us in for a strategy session. 90% of our potential customers were American. He told us to stop thinking like risk averse, penny pinching Canadians. If an American client said he couldn't afford it, don't believe him. He can get credit anywhere. Everybody down there, even with modest salaries, drive a BMW and live in a McMansion on credit. If you could sell the vision, money was no object. It was hyperbole, but he was right. It was 2004 and it ended up being a big seller down there. (Not so much in Canada.)

Property Defense a Crime?

Colby Cosh reports on the circumstances of a farmer that has Alberta talk radio on fire, in the National Post:

Brian Knight, 38, runs a farm near the hamlet of Tees, east of Lacombe; its rodeo venue is home to an annual donkey and mule show. Last Wednesday morning, Knight heard some noise and confronted three men outside his home. Two made the smart choice to hop into their truck and vamoose, but the third, hoping not to leave empty-handed, had jumped on a nearby four-wheel ATV and sped off on it. Knight got in his own truck, chased down the stranger on his ATV, and rammed it off the road. When the suspect fled, Knight fired a shotgun at him. No details of the ammunition have been provided, but buckshot or road salt would be good guesses; in any case, it amounted to distinctly less lethal force than a policeman might have used in the same circumstances. (No word on whether any staplers were found on the perpetrator.)

The lightly injured thief kept running, but was eventually rounded up by Knight's neighbours and kin. In a moment of deranged inspiration, he even tried to make off with another truck in which he was left to bleed while the cops were called. Knight now faces seven criminal charges, including assault, criminal negligence causing bodily harm and dangerous driving. The thief was taken to Edmonton, bandaged up and released by police without bail after being charged. The RCMP will not name him, but a local spokesman warned: "Don't take the law into your own hands. Contact the police as soon as possible, because all you're going to do is get yourself into trouble."

Perhaps only in Alberta do people still understand that this is nonsense -- that the police's privilege of investigating and punishing crime is derived from our primary right of self-defence, which we delegate but do not abandon, and that property is an extension of ourselves, and may be defended in the same way and for the same reasons we are allowed to defend our persons. No RCMP officer is transferred to an aboriginal community without abundant cultural-sensitivity training. Maybe something similar, perhaps involving a careful reading of John Locke's philosophy, should be done before assigning them to the Alberta countryside. (If Knight is found guilty, do you suppose he will get the benefit of a "sentencing circle" made up of other farmers from around Tees?)

I don't like the precedent. If somebody breaks into my home and I smash their head in with a baseball bat does that make me criminally reckless?

Not So Perfect Warren Buffett

I love this Colby Cosh analysis of Warren Buffett in the National Post: (read)

This is champagne-flavoured optimism at its finest. But more than in most years, one is aware that Buffett’s letter is an exercise, not only in teaching and accounting, but in selling the Warren Buffett brand. After a 12-month period in which shares in his company lost 19% of their value, even the Oracle can start to sound a little like that old hypocrite Polonius.

Even before the Dow Jones began its shocking collapse, market-watchers had noticed that Buffett’s rhetoric about derivative contracts as “weapons of mass destruction” didn’t square well with his actual portfolio. Now the chickens have come home to roost: “Derivatives are dangerous,” Buffett says in 2008, shortly before going on to explain why Berkshire is a party to no fewer than 251 derivatives contracts. “I believe each contract we own was mispriced at inception, sometimes dramatically so,” he says by way of excusing himself. In a time of economic grouchiness, one notices that as an explanation, this is little better than putting one’s hands together to make a whoopee-cushion noise. One party in a contract always thinks the other has “mispriced” the good or service being exchanged. I had understood Buffett’s endless attacks on derivatives to be founded on the premise that pricing them correctly is impossible in principle.

One notices other slightly hucksterish tendencies that might have gone overlooked in the good times. Buffett makes a big deal of endorsing mark-to-market accounting, but uses “book value” in stating the worth of many of his investments, including some of those derivatives. His big leap into insuring tax-exempt municipal and state bonds is outlined in the manner of an old-time mesmerist hypnotizing a maiden lady. Buffett loves the insurance business, in all its forms, because it’s characterized by “float” — the temporary costless use of free money from premiums — but he admits that if those bond-issuing institutions ever start defaulting, a cascade is likely to follow, and the quantitative models are pure shinola in such circumstances.