Tuesday, February 02, 2010

Let's hear it for the strength and stability of Canada's boring banking (and healthcare) system

I was watching a PBS program about the Donner Party last night. This almost archetypal cautionary tale of American risk-taking gone wrong unfolds with all the inevitability of Greek tragedy, and like a classical tragedy, it's all about hubris and its tragic consequences. It was also a reminder that American culture has an optimistic tendency to overvalue recklessness and risk-taking for their own sake, turning them into entrepreneurial virtues. No wonder we had a banking crisis.

Canadians, like their American cousins in so many ways, seem more buttoned-down about risk. Maybe that's why some Americans mock them as boring (and the real loonies misrepresent them as socialists). Paul Krugman comments that, when it comes to banking, boring is good. Canada avoided our banking crisis because their banking system is fundamentally boring, in the sense of being more risk-averse than ours.

Given the similarities between the two countries, Canada's experience throws an interesting light on what happened here. Like the U.S., they have banks too big to fail -- there are only five major banking groups in all of Canada. And their interest rates were about as low as ours. So why didn't their banks also fail?

Mainly because they resisted turning their banking system into a giant casino. Krugman comments:
Canada’s experience does seem to support the views of people like Elizabeth Warren, the head of the Congressional panel overseeing the bank bailout, who place much of the blame for the crisis on failure to protect consumers from deceptive lending. Canada has an independent Financial Consumer Agency, and it has sharply restricted subprime-type lending.

Above all, Canada’s experience seems to support those who say that the way to keep banking safe is to keep it boring — that is, to limit the extent to which banks can take on risk. The United States used to have a boring banking system, but Reagan-era deregulation made things dangerously interesting. Canada, by contrast, has maintained a happy tedium.
Check out the rest of the column. Krugman makes some good points. His column is tightly focused on one issue. He refrains from dragging in another area in which the Canadian attitude toward risk is different from ours in the U.S. -- healthcare. I'm not as disciplined.

Canada has universal healthcare. We don't. I've often wondered why this country has failed to provide universal coverage. Is there really another, more primal reason lurking beneath the surface of all the usual arguments against universal coverage? Is there something in our cultural DNA that always erodes political support for healthcare reform?

Maybe it's just that all too many Americans are willing to gamble with their health, betting that they'll never get really sick with a serious, expensive illness, and that if they get really lucky -- hey, maybe they'll live forever. And that, like the Donner Party taking their fateful shortcut to the promised land, many of us would rather be positive thinkers than prudent planners.


Citizen Reader said...

I think you're right about something being in our American DNA. I really think we believe that if someone doesn't pull themselves up by their bootstraps and make sure to sell their soul to a company that will provide them with health insurance, then they don't DESERVE health care.

What's hilarious is that fewer companies are providing health care for their employees (and I really can't blame them--who can afford it?). I wonder if our DNA will change when enough members of the middle class lose their jobs and insurance benefits. Although we'll probably blame ourselves, because this is a great country, and if you can't get ahead, well, damn it man, you're just not trying.

Anonymous said...

Americans have a quaint, misguided belief in capitalism. They somehow equate it with self-determination. When enough sick Americans find themselves in the hands of angry (or apathetic) insurance agency, that may change.