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Not to try to take things in too different of a direction I found an interesting speech recently by Bill Rice head of the Alberta Securities Commission recently made on his opinions of the causes of the financial crisis. I admit to reading between the lines a little bit but basically he was critical of both the SEC and Sarbanes Oxley and seemed to imply the current Obama regulatory plan was a piece of junk done to keep the populists quiet. He also seemed to imply that the ASC feels no obligation to comply with any G20 agreement the federal government(I actually think this govt will make sure anything they sign applies only to chartered banks under federal jurisdiction although I am not sure the Obama's and Sarkozy's will quite understand the difference) makes on hedge funds, derivatives, commodities speculation or executive compensation as Alberta considers all of these issues to be under provincial jurisdiction. The Alberta government also seems to believe that keeping a pro business regulatory enviornment in light of changes elsewhere will help to make Calgary a major financial center in Canada and North America.

Interesting. I believe Flaherty is planning to present draft legislation to the Supreme Court for a constitutionality opinion sometime this spring. I've read in various places that their might be an opt out clause to make sure it passes muster.

That raises the interesting scenario: say AB opts out, regulates lightly (or not at all), Calgary's financial sector booms, but at some point a financial crisis results that threatens the Canadian economy. Will Albertans pay to clean-up the mess? Or what if the crisis is localized like much of the S&L blow-up? Will AB get a bailout from the RoC?

Trivial nitpicking:

"Sir Stanford (he has a knighthood)"

It could be Sir Robert or it could be Sir Allen (as he preferred) but a knighthood is always title then first name, not title then surname.

Peerages work the other way, title (Lord, Baron, Viscount, the Earls and above are title "of") name. So William Legge, who I worked with, is William, Earl of Dartmouth.

Except when the peerage is a courtesy title for the younger son of a Marquis or Duke, "Lord David Somerset" for example being the (possibly mythical) younger son of the Duke of Somerset.

Feudalism, ain't it great?

I would love to see Prof Van Norden become a regular contrinutor. Everything I've read of regulation has been British or American.

Tim:

"The Alberta government also seems to believe that keeping a pro business regulatory enviornment in light of changes elsewhere will help to make Calgary a major financial center in Canada and North America."

There's no shortage of poor places, statelets and islands with "pro business regulatory environments"; SGC structured its deals with Stanford International Bank in Antigua in part to take advantage of Antigua's favourable regulations. The question is why anyone would think that Alberta has a competitive advantage in that kind of a race to the bottom.

I think junky regulatory plans designed to keep populists quiet come in all shapes and sizes.

Patrick:

Actually, the RoC did bail out failing Alberta financial institutions in 1985, when the Northland Bank of Canada and the Canadian Commercial Bank failed. (Check out http://bankofcanada.ca/en/dingle_book/bank.pdf for a blow-by-blow account from the Bank of Canada.)

Tim Worstall:

What can I say? I was educated in BC public schools, and sometimes it shows!

And clearly not *that* sort of "public school", either! ;-)

The link by Julie Dixon is indeed a very good read, and your post, Simon, shows why what she's talking about is so important. But my guess is that economists have little to contribute to the sort of things she is talking about. Which is perhaps why we instead put too much emphasis on the rules. ("If all you have is a hammer, everything looks like a nail")

Why is it that when personal responsibility and private savings is discussed as the solution to demographic problems or a recipe for macro success, the problem of moral hazard is so rarely discussed?

Private investment for retirement essentially consists of saying "here, take this $300,000 (or $900,000 or $1.5m or whatever) and give it back to me in 20 years time."

Bit of a risky proposition?

Frances: true. But you might make the same argument about public retirement plans, which are dependent on the choices of future voters, and on government solvency.

I expect the only real alternative is to invest in real assets (houses, land, your own business, consumer durables), but these too have their own problems. I think my grandparents' generation tended to invest in houses, and rent them out for retirement income. UK rent controls (pre-Thatcher) made sure that worked badly for my grandma.

Meanwhile, Julie Dickson, Canada's Superintendent of Financial Institutions, is arguing that the debate about what rules are required overlooks the important role of supervision in banking.

You could take it a step further and argue that it is an issue of corporate governance - starting at the top (board of directors). The thought came to mind when you were describing the movement back and forth of key people from regulator to regulated and/or vice versa.

Donald H. Thain, Professor Emeritus, Richard Ivey School of Business has written a lot about corporate governance. This journal article, written in 2004, precedes the final collapse of Nortel by a few years but highlights, at a higher level, similar issues identified by Julie Dixon.

Nick wrote: "But you might make the same argument about public retirement plans"

Absolutely, an excellent reason to be highly skeptical about solving "the demographic crisis" through fully funded government pension plans. Anyone who thinks that the billions of dollars sitting in the Canada Pension Plan account are immune to political influence is simply naive.

There is only one kind of magic bullet that can completely eliminate the risk of suffering in old age. I don't think Canada is prepared to legalize euthanasia for humans - again I find myself envying the access to quality health care that my dog enjoys.

On a less morbid note: we could all move some place warm and sunny where labour is cheap and outsource the nursing care for our senile years.

(I was going to suggest hoping that your children would care for you in your old age, but this struck me as hopelessly naive as well).

To be fair to Alberta I don't think its securities regulator is any worse than the other provinces in Canada look at Earl Jones in Montreal. I think though it is perhaps interesting proof of the theoretical argument that economic crisis are caused by poor monetary and banking policy(in Canada under the firm control of the federal govt) than fraud or other problems in the securities markets(under the control of the provinces). In many ways one could argue Canada still has the same type of regulatory structure the US had prior to 1933(when securities where regulated by the states) that has been completely discredited in the US yet Canada has come through this crisis far better than the US.

The securities regulations are actually fairly harmonized are across Canada but don't tend to cover areas like derivatives or commodities trading which tend to be either competely unregulated or covered by regulation developed solely by a single province. I think interesting real life issue in Alberta could be energy trading/speculation. All of the major Wall Street banks plus the Big Six Canadian banks have energy trading/speculation operations in downtown Calgary that the Alberta Securities Commission has essentially choosen not to regulate. Obama in the US wants to regulate similar types of operations because many his party feel they are pushing energy prices through excessive speculation to unreasonable levels. On the otherhand the Alberta govt has a perversely opposite interest in allowing speculators to push oil prices as high as possible thus increasing economic activity in the province and provincial energy royalties. To be fair other provincial securities commissions have the same perverse incentive on a smaller scale for commodities such as timber, uranium, potash, metals, even Quebec and Manitoba hydro exports indexed to Natural Gas prices.

Frances

There is only one kind of magic bullet that can completely eliminate the risk of suffering in old age. I don't think Canada is prepared to legalize euthanasia for humans ....

That's not a magic bullet....that's an ordinary bullet.

Soylent Green is people!

What a cheery bunch. Dismal science indeed.

Just a crazy thought you can do with as you please: in the past when there has been a persistent failure by the US government to intervene with known criminal operations, there has often been some government entanglement in the operations. There's the documented history of CIA involvement in drug running, the mafia's stalemating of J. Edgar Hoover and the Kennedys, and the CIA again with the Bank of Credit and Commerce International, among other examples. I wonder whether there was any covert ops money circulating in SGC?

Is supervision a nice concise way of saying monitoring and enforcement?

In the US financial sector I see monitoring but insufficient enforcement.

Our world is littered with laws and regulations that are rarely if ever or only timidly enforced. For examples, how about tenured profs working for crown-financed universities who smoke tobacco in their offices? Or how about all the materially comfortable, well-educated people that drink alcohol, drive and even sometimes brag about it?

Most municipal by-laws are rarely enforced. Laws against minor toxic environmental spills are rarely enforced.

Paedophilia is another. We have known that Roman Catholic priests have been abusing children for decades.

The nuclear proliferation treaty is another example. Canada, France and the USA seem content that Israel, India and Pakistan all possess nuclear weapons and the vectors to deliver them.

So why are some laws and regulations (financial or otherwise) enforced in some circumstances and not enforced in others?

Well, I can't speak to the other issues, but I'd imagine that Canada, France and the USA don't have much to say Israel, India and Pakistan's nuclear weapons and the nuclear NON-proliferation treaty (the "NPT"), because none of Israel, India or Pakistan are signatories to the NPT and therefore aren't bound by it.

Bob Smith: Obviously the NPT isn't very important given how super-power #1 is only paying the treaty occasional lip service.

Perhaps we need to be open-minded about this? The more nations that possess nuclear weapons, the safer the world is. Maybe that is the thinking that is driving western policy?

I look forward to Congress attacking the Proliferation Treaty (sic) after the next regional nuclear war. It promises to be an exciting debate.

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