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Saturday, October 11, 2008

Canada's banking system kept high and dry by strict regulation: Flaherty

High banking standards have kept Canada's financial institutions afloat and out of the kind of trouble that has sunk many of their international peers, Finance Minister Jim Flaherty said Wednesday.

Flaherty, who will meet Friday in Washington with finance ministers from industrial countries to co-ordinate efforts to deal with the global economic crisis, said Canadian banks have been bolstered by strict government monitoring of their capital.

"We've had a couple of financial institutions in Canada that ran the risk of falling outside the capitalization requirements," he said during a news conference on Wednesday.

"We required them... to maintain the appropriate capital requirements and raise capital as necessary, which was done months ago."

He declined to say which banks were involved in shoring up capital to meet the government's standards. However, CIBC (TSX:CM) announced plans last January to raise $2.75 billion by selling its stock at a sharp discount.

Flaherty added that the government is prepared to do "whatever we have to do" to protect Canada's financial system, though he declined to outline any plans.

"I'm not going to talk about what they might be," he responded when pressed for more detail.

The Conservative government has implemented a number of changes to the Bank Act that have given more power to the Bank of Canada as the credit crisis unfolded.

Among its many recent moves, it joined other central banks Tuesday in cutting interest rates by half a percentage point in a co-ordinated effort to stimulate lending and economic growth.

Some of the fundamentals credited with keeping Canada's banks in the safe zone were put in place nearly a decade ago by the Liberal government of Jean Chretien, including a refusal to approve any Canadian bank mergers.

While Flaherty said government regulation has helped make Canada's banking industry more secure than financial sectors in the United States and many other countries, Canada has also benefited from a strong housing market and more conservative lending practices.

So-called subprime mortgages to risky borrowers, which were at the heart of the U.S. financial collapse, were only a tiny part of the Canadian mortgage industry and are non-existent today. Meanwhile, Canadian borrowers must put down at least five per cent of the cost of a home and the maximum payback period on federally insured mortgages has been reduced to 35 years from 40 years, lowering the risk of defaults.

"Some Canadian banks have experienced far more stress than others, but collectively the strong banks are carrying the less strong banks through," said Brad Smith of Blackmont Capital.

But, he said, for "domestic financial institutions to continue to outperform, you have to assume the economic environment here will continue to outperform - because if it doesn't you're going to get deterioration here as well."

Economies around the world have been battered by a banking crisis, a crumbling housing market and a credit crunch that has dried up borrowing. Canada has not been hit nearly as hard as others, Flaherty said, citing an International Monetary Fund report released Tuesday shows Canada will lead G-7 economies in 2009, with growth of 1.2 per cent, though overall global growth will slow down.

Meanwhile, the U.S. is forecast to grow only 0.1 per cent and Europe 0.2 per cent.

The finance minister said Canada is in a strong position to deal with the global crisis, with a strong banking system, a stable housing market and a federal budget surplus.

"Other countries have been increasing their deposit standards, but they're still for the most part below the high Canadian standard," he said.

"We are modest in our assumptions with respect to our budgeting and will continue to do that."

Obama: McCain ‘stoking anger, division’

Barack Obama attacked John McCain on Friday for launching a “barrage of nasty insinuations and attacks” as the stock market tumbled.

“Even as we face the most serious economic crisis of our time, even as you are worried about keeping your jobs or paying your bills or staying in your homes, my opponent’s campaign announced last week that they plan to ‘turn the page’ on the discussion about our economy so they can spend the final weeks of this election attacking me instead,” Obama said during a speech in Chillicothe, Ohio.

“So in the last couple of days, we’ve seen a barrage of nasty insinuations and attacks, and I’m sure we’ll see much more over the next 25 days. We know what’s coming. We know what they’re going to do.”

“I think that folks are looking for something different,” Obama continued. “It’s easy to rile up a crowd by stoking anger and division. But that’s not what we need right now in the United States.

“The times are too serious. The challenges are too great. The American people aren’t looking for someone who can divide this country — they’re looking for someone who will lead it. We’re in a serious crisis — now, more than ever, it is time to put country ahead of politics.”

Bank worker accused of £26million 'IRA' robbery walks free after trial collapses

The only man accused of Britain's biggest bank robbery walked free from court yesterday after the collapse of his trial.

Bank official Chris Ward, 26, was said to have provided inside information to the gang which escaped with £26.5million in December 2004.

But in dramatic scenes in Belfast Crown Court, prosecutors announced they would offer no further evidence.

Chris Ward

Police blamed the Northern Bank robbery on the Provisional IRA and yesterday's collapse means whoever carried out the heist has, in the words of one bank official, 'got clean away with it'.

Mr Ward was kept under surveillance and arrested almost a year after the raid. He may take legal action against the police.

His solicitor, Niall Murphy, said: 'The whole experience for himself and his family, who were victims of kidnapping, false imprisonment and robbery, was truly devastating.

'This has been compounded by his arrest and being put on trial for a crime he did not commit.'

It was on Sunday December 19, 2004, that three masked men arrived at the Ward family home in Poleglass, West Belfast.

Two men held the family hostage while Mr Ward was driven to the home of his supervisor Kevin McMullan, who was already being held.

Men posing as police officers had tied up Mr McMullan and his wife Kyran at gunpoint. She was taken away and held blindfold for more than 24 hours.

On the Monday morning, the two men were told by their captors to go to work and carry out their normal duties.

Acting on instructions, Mr Ward left the bank carrying a holdall containing about £1million and handed it to a man on the street, in what police believed was a dummy run.

Money was then loaded into crates and collected by a van in two loads from the bank's loading bay.

Explaining the decision not to present more evidence, prosecution counsel Gordon Kerr QC said the case had been based on circumstantial evidence which had been brought into question.

'Economists For McCain' Trash McCain's New Mortgage Plan

Many of the professional economists who formally endorsed John McCain's economic plan are expressing bewilderment with his most recent proposal to rectify the home mortgage crisis.

In interviews with the Huffington Post, roughly a dozen of McCain's economist supporters said they disagreed with the Senator's recent proposal -- for the government to buy distressed mortgages at face value from banks and renegotiate them with homeowners. Several viewed it as a gimmick, driven mostly by political circumstance. Only one pro-McCain economist spoke up in favor of the plan.

"This is just political gamesmanship," said Robert H. Heidt, a professor at the Indiana University School of Law. "The bill is wildly over-ambitious in trying to rescue home buyers from the downturn in real estate appreciation. It's costs would never end. I will end up voting for McCain but this is ridiculous."

Added George Viksnins, a retired professor of economics at Georgetown University: "Even though I support McCain I think this is an ill-considered program. This was something to get press time and face time, and that is the problem with our political system. This was done as a sound bite and without analysis."

"This is part of the larger plan to reward people who made mistakes. There is nothing in the plan to prevent people from continuing to do dumb things," remarked Don Booth, a professor of economics at Chapman University, who previously signed onto McCain's economic plan. "If we reward bad behavior, we will get more bad behavior."

One economist who backed McCain was more sympathetic to what the Arizona Republican was trying to do -- the argument being that the government, which contributed to the crisis by encouraging home loans to those in no position to afford them, now held responsibility in helping the nation out of the mess.

"I think his idea is a good one to the extent that you have to stabilize the housing market.
I think the intention is the right intention. I think the direction is the right direction," said
Professor C. Thomas Howard of the Reiman School of Finance at the University of Denver. But even Howard was left concerned with the lack of details or underlying principle in McCain's approach. "Are they going too far in trying to save everything?"

Others were simply confused and critical with McCain's proposal to pay full price on these mortgages, arguing it amounted to a taxpayer bailout for those home owners who went beyond their financial means and financial institutions that jumped in on the business of shaky loans.

Michael Connolly, an economics professor at the University of Miami, called the idea "Robin Hood economics."

"It will provide an incentive for people to default [on their loans]," he warned. "And they might get rid of their negative equity and take the subsidy and default on their next loan too."

Houston Stokes, a professor at the University of Illinois at Chicago, said he didn't agree that the government should "pay a face value" due to the moral hazard it created.

"These guys got themselves into a jam and it is now their problem," he said. "We should not overpay. We should buy these mortgages at the lowest price... I don't want to be accused of helping out the Wall Street types."

Stokes was echoed by Delaware University economics professor Burton Abrams, who said that McCain was encouraging "future bad decisions," before noting that "there are no easy solutions here and all have their costs."

The American Enterprise Institute's Glenn Biggs (another McCain economics backer) may have summarized it best: "The issue could be not just moral hazard and unfairness, in the sense that [people think]: how do I get my share of this? And maybe they stop paying on their mortgage. I don't know the plan well enough to know what design features it has. But generally, people want to qualify for a benefit when it exists."

McCain's plan, which has quietly undergone revision in recent days, was first announced during Tuesday night's presidential debate with Barack Obama.

"I would order the secretary of the Treasury to immediately buy up the bad home-loan mortgages in America and renegotiate at the new value of those homes, at the diminished value of those homes, and let people make those -- be able to make those payments and stay in their homes," McCain said, adding: "Is it expensive? Yes."

In the immediate aftermath, as pundits scratched their heads, it was unclear how much the plan would cost, whether the government would pay face value for the devalued mortgages, or even if it was legal. Eventually, the Senator ceded that it would require "new money" beyond the funds included in the recent $700 billion economic rescue package.

In the meantime, the McCain campaign has tried to present the idea as a prudent and fair measure of stabilizing the housing market and ensuring that average Americans don't lose their homes. But even for some of McCain's own endorsers, the political implications behind his most recent proposal seemed all too regrettable and clear.

"I have favored McCain's approach to the economy, since Obama's plans will, of necessity, lead to tax increases and huge spending increases," said Phil Bryson, a professor of economics at Brigham Young University. "I would have expected this kind of mortgage plan to have been proposed by Obama, since it fits well with his general approach to government action. It comes from McCain only because the declining economy has given Obama a surge in the polls and people are willing to accept anything Obama says without question."

Working Class White Voters Are Ditching McCain

The steel mills and coal mines of western Pennsylvania helped fuel the nation's economic engine. Today, old factory shells and boarded-up storefronts stand as bleak reminders of those once-prosperous times.

But the voters in working-class enclaves such as this still are a sought-after prize in presidential politics, and many are belatedly backing Democratic nominee Barack Obama.

In the Democratic primaries, working-class whites consistently supported Sen. Hillary Rodham Clinton. Later polls showed them overwhelmingly favoring Republican nominee John McCain.

Now, driven by fears that their personal finances could further deteriorate, many see Obama as the better choice _ their thinking in some cases driven more by concern about how McCain would handle the economy than any growing admiration for his rival.

"I don't know that there's anything I particularly like about him (Obama), but I dislike McCain, and I dislike the way the country is, and Republicans need to change," said lifelong Republican Ruth Ann Michel, 64, a retiree shopping in a market in Butler on a recent day. She said her vote for Obama would be her first for a Democratic presidential candidate.

While talk in these parts is mostly about the economy, a prominent _ if not unspoken subtext _ is race. A study of the impact of racial attitudes on the election conducted by The Associated Press with Yahoo News and Stanford University found that whites without a college education were much more likely to hold negative views of blacks than those with a college education.

Democratic Gov. Ed Rendell says a drowning man doesn't care what color the person is who throws him a life preserver.

"This election is going to be decided when a husband and wife sit at a kitchen table, or a single parent sits at the kitchen table, looks at their bills and figures out who is most likely to help them with their financial condition," Rendell said. "If the answer's Barack Obama, nobody's going to care whether he's black, green, orange, purple, fuchsia or whatever."

In April, Rendell backed Clinton in the primary and had to answer questions after saying some whites in his state were likely to vote against Obama because of his race.

Darryl Hendon, 50, of Beaver Falls, who is black and on disability, said he thinks some white Democrats are reluctant to back Obama because of his race.

Since early September, growing numbers of whites who have not finished college have been expressing the view that Obama cares about people like them, even as fewer say so about McCain, according to AP-GfK polling.

In early September, McCain had a 26-point advantage among white voters without a college degree who were likely to vote, according to the poll. But by late September, the advantage had dropped to 7 points, with McCain leading 46 percent to 39 percent among this group.

For Obama, that's far better than Democrats have done in recent presidential elections. President Bush carried whites who haven't finished college by 23 points in 2004 and by 17 points in 2000.

In Pennsylvania, a recent Quinnipiac University poll showed Obama with a double-digit lead over McCain, compared with a close race after the political conventions. Clay Richards, a Quinnipiac pollster, said that's because support among working-class voters in the state is growing, and he suspects many former Clinton supporters are moving to Obama's camp.

The candidates' campaign schedules make clear the importance they attach to Pennsylvania's working-class voters.

McCain and running mate Sarah Palin staged a rally Wednesday in the former steel town of Bethlehem in northeast Pennsylvania. On Friday, Palin was stopping in Pittsburgh, then heading for Johnstown in western Pennsylvania, where unemployment recently topped 7 percent. The self-described hockey mom planned to drop the ceremonial first puck when the Philadelphia Flyers open their season against the New York Rangers on Saturday.

Obama, for his part, will be in Philadelphia on Saturday. And on Sunday, his running mate, Delaware Sen. Joe Biden, will be joined in his blue-collar hometown of Scranton by Clinton and her husband, former President Clinton.

In western Pennsylvania, Republican and Democratic voters alike tend to be socially conservative, pro-gun and anti-abortion rights. Many are so-called Reagan Democrats willing to vote for a Republican because of social issues.

While some pockets in this region have recovered and flourished after hard times in the 1980s, many never did. Populations have dwindled and many of those left are elderly.

"The ones who can get a good education ... they leave, which I don't blame them because there's nothing here, really," said Georgia Lutz, 55, who was eating breakfast at a diner in Beaver Falls recently with Hendon. "The economy is absolutely horrible and we're going into a depression right now."

The working-class vote is particularly important in the battleground states of Pennsylvania, Michigan and Ohio, where the percentage of adults without a college degree ranks exceeds the national average.

They also are a key voting bloc because those personally affected by the current economic woes appear to be among the more persuadable voters, according to a recent AP-Yahoo News poll. Among them is Michelle Smith, 41, who works retail during the day at a surplus shop in Kittanning and tends bar at night. Combined, she and her husband have six kids.

"Decent working families can't survive. It's very sad," Smith said. "They raised minimum wage, but now you're paying triple in gas to get to work. It evens itself out."

A Democrat, Smith said she's leaning toward McCain. While she said she likes Obama on a personal level, she wonders if Obama has what it takes to fix the economy.

Obama's already won over Don Melochick, 58, a construction worker from Whitehall, Pa., in northeast Pennsylvania. A registered Democrat who's voted Republican in the past, Melochick said he plans to vote for Obama because he's "somewhat better" than McCain.

If McCain "hasn't changed nothing in his 30 years ... he's not going to change anything now," Melochick said, from the counter of a diner outside Philadelphia. But he adds: "I don't think Obama will either."