In one and the same week, the Toronto Dominion Bank has:
1. Issued a report [20 Oct 2010, pdf] warning that “The relentless rise in household debt in Canada, both in absolute terms and relative to personal disposable income (PDI), is a growing cause for concern.”,
and, at the same time,
2. Made changes in lending policies such that all new mortgages as of 18 Oct 2010 will essentially behave like lines of credit, making it easier for Canadians to go into more and more debt.
This is reminiscent of what our own central bank is doing, plying us with cheap money while counseling prudence.
The banks (central included) are aware that any pullback in the rate of borrowing will put the housing market at risk of serious price drops. Yet they also see that more and more borrowing will set up a more and more dire situation that will inevitably, at some point, have to reverse.
Judge them by what they are doing (keeping money cheap and loose) and not by what they are saying (be prudent).
They want the borrowing to continue; they are tolerating expanding debt loads; they hope that the inevitable reckoning happens on somebody else’s watch.
Or, like children covering their faces, they hope that the whole problem somehow magically disappears.
It won’t, but our bankers & politicians don’t seem adult enough to face the problem.
I totally agree… From the Globe and Mail…
The TD report recommended further research to explore what’s been driving debt levels, and what policy measures should be taken to cool them.
———————-
Duh! How about BOC’s emergency rates and all the lenders running over each other to extend credit to anyone with a pulse? Policy measures? Increase interest rates and tighten up underwriting standards for credit. Geez, these economists get paid too much…
From a regulatory standpoint, you want a system where people to have the freedom to take some risk and to do a little wrong. You want that risk to policed by a person’s common sense, not by a governing organization. That’s the ideal; that’ s what keeps things on pace and development speedy. Whether or not this is too much risk, or anecdotally, if people are misusing this power at the consequence of others, is debatable. Without the anecdotes, there’s not much to stand on. We can only look to the south and suggest that we’re going to suffer the same consequence. I always thought that if the entire country acted with my own prudence, there are large problems. A country of Amish-like doesn’t inspire.
That’s the ideal… but let’s face it… Canadians have all the financial self-control of a 3 year old with chocolate. Lenders and the central bank have to take away the punchbowl, when appropriate.
A lot of people down here in the States feel the same way about how it “should” work. Unfortunately, when the crisis hit the government didn’t let the losers fail, and didn’t prosecute rampant fraud. So the private market system never self-corrects. If you let the people (and banks) taking too much risk crash and burn, it will naturally recalibrate risk tolerance and wake people up. If you “extend and pretend” the lesson is never learned. Moral hazard.
If our economy is doing so bad, where are the bread lines? This article speaks to this. http://www.zerohedge.com/article/guest-post-idepression-20
“collateral charges” .. a means to shackle you to 1 bank so they can suck the life-blood out of you.
“Made changes in lending policies such that all new mortgages as of 18 Oct 2010 will essentially behave like lines of credit”
That ought to end well.
From my experience, TD’s rates aren’t that competitive compared to other banks. As far as I’m concerned their customers obviously don’t have the ability to shop around so maybe it’s Darwin at work if they slide in this bad boy at the bottom of the paperwork.
This all sounds like the compulsive gambler registering with BCLC to prevent them from draining their life savings at a casino. TD obviously can’t help being, well, a dirty money-grubbing bank and is pleading for the government to save them from themselves.