May 17, 2009

Jim Flaherty on the Economy and Financial Literacy

If meetings could solve the economic crisis, it would be over by now. --- Jim Flaherty on the many international meetings he's been attending

Finance Minister Jim Flaherty addressed CALU for the third consecutive year, earlier this month. He spoke the day after his boss, Prime Minister Stephen Harper. Flaherty spoke off script, which made him more interesting. His triplets are already 18 months old. Sometimes strangers call his boys "three twins". 

Flaherty reminded us that a year ago there was concern that oil would reach $200 a barrel. The world is now in the midst of its first synchronized global recession, which Canada joined in the fourth quarter of 2008. We hate getting left out!

Canadian Differences
Since Canada still has a strong financial sector, other countries are looking at emulating the "boring" Canadian model. What sets us apart? Flaherty said:
  1. effective implementation of regulations (regulations without monitoring mean little)
  2. reasonable risk-taking
  3. regulation of investment banks (which were acquired by commercial banks, which The Office of the Superintendent of Financial Institutions (OSFI) regulates); in the United States, investment banks faced less scrutiny and contributed to Dumb Money
  4. no housing crisis (mortgages are not tax-deductible as they are in the United States); also mortgages are insured when borrowing 80% or more of the value of the property; the government purchased about $56 billion worth of mortgages to help banks stay liquid
Internationally, fixing the banks is crucial. In Canada, Flaherty sees access to credit as the main issue. The situation is improving and banks can still raise equity here. The government is spending to improve infrastructure as the Prime Minister described. The government has an increased appetite for risk. The Business Development Bank of Canada (BDC) and Export Development Canada (EDC) are lending accordingly. 

We lack a national securities regulator. Flaherty called this an international embarassment. Why does a country of 35 million people have 13 regulators? 

Other Good News
Politicians like to remind us of the good they've done. Flaherty remains proud of the Tax-Free Savings Account, which he still considers the centerpoint of his previous budget. The TFSA has been well received and benefits from what Warren Buffett calls the miracle of compound interest. 

Financial Literacy
What if you don't understand compound interest or other basics? Flaherty wants  to increase basic financial literacy. For example, what happens if you only pay the monthly minimum balance on your credit card? He asked CALU for help. At an evening reception, I spoke to Flaherty about this initiative, gave him my business card and volunteered to participate.

I talked to fellow blogger Canadian Capitalist over dinner. We both felt that anyone who wants to learn already can. Financial bloggers already help freely and would be willing to do more. The new Canadian Money Forum is a great resource started by CC and Million Dollar Journey. You can ask your questions and get thoughtful answers at no charge from a friendly community that cares. 

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