Dishonesty, mismanagement and mediocre regulation in the financial sector burns Canadians to the tune of twenty billion dollars a year. So says investigative reporter Bruce Livesey in his book Thieves of Bay Street, recently made available in paperback.
Livesey’s critique reverses the rosy description of this country’s financial sector that appeared in the wake of the American meltdown. In that description, Canada’s banks and brokerages are seen to have dodged the ruinous calamity and moral disaster of the mortgage crisis and too-big-to-fail bank bailouts through better regulation and less inclination to rapaciousness and greed, because they were a sensible reflection of the country’s best qualities.
Livesey swings hard at all that. Less than ten pages in he describes Bay Street as a “…wealth destroyer, a parasitic reaper of money from the middle and working classes, transferring it to the very people who run the financial industry and Canada’s wealthiest citizens.” He works from the evidence. By the time Livesay is done, Canada’s financial players are only marginally distinguishable in terms of character and behaviour from those of the United States or Great Britain, or indeed, the Third World.
The source of pain is the small, club-like financial elite operating the industry. In turn, they are facilitated by fragmented, weak regulatory bodies whose decision-makers are usually drawn from the industry. A constitutional weakness also renders Canada virtually unique among developed countries in that regulation of high finance is not a national responsibility. Instead, it is divided amongst thirteen subnational bodies. Changing this has been on the radar of the present Tory government but is proving difficult and is seen to have encouraged international fraudsters of the worst kind to come to Canada and get busy.
Conrad Black starts the action in Thieves of Bay Street. A household name and recently released from jail in America, Black’s issues revolve around fees and fraud. Where once management handled money to advance a business and its investors they now maneuver millions while rationalizing a share for themselves at the expense of good governance and achievement through productive activity. Corporations come and go quickly and vast sums are raked off by managers like Black regardless of outcome. Notably, Black has chosen to litigate against Livesey, assuring the latter of valuable publicity.
Dozens of further examples of nasty behaviour towards corporate holdings, pensions, investors and employees unfold in this book. Names like Hollinger, Nortel, Stelco, and YBM Magnex, Edward Jones are already familiar, others less so, all representing plenty of damage to Main Street.
The positive propaganda around Bay Street post-2008 really doesn’t survive a reading of this book, which is a bestseller and has been positively reviewed even in conservative newspapers like the National Post and the Globe & Mail. Conrad Black was busted in Chicago, not Toronto. Contrast even lifestyle entrepreneur Martha Stewart’s notoriety south of the border for an insider trading deal worth about $45,000 with the case of two Toronto financial sector lawyers described in chapter fourteen. The pair scored about $10m in two quiet four-or-five year runs of insider trading, outed only after giving in to emotional instability and a series of sloppy moves described as “moronic”.
Fraud and greed on the part of individual players is one thing. Livesey reserves some of his very strongest criticism for the regulators, underwriters, lawyers, analysts, and rating agencies. This is the logistical tail of Bay Street and too frequently white collar criminals make handy use of this part of the industry. “Sometimes, these ‘enablers’ consciously assist the criminals and are intricately involved in frauds; sometimes they simply turn a blind eye in order to make a lot of money; and sometimes they screw up. Either way, their behaviour is part and parcel of the investment world’s culture, one that suggests declining morals and dearth of concern for investors’ interests,” writes Livesey.
Canadian banks were party to the sub prime mortgage horror show in the United States and sold financial products to Canadians based on toxic real estate-related debt. Not always with pretty results, either. Livesey sees Canada’s banks and brokerages as extensively integrated to a global system that courts enormous risk and encourages a growing and destructive picture of inequality in wealth. A system further seen to have extensive relationships to crime via a system of shadow banking.
Central to the positive image of the big Canadian banks after 2008 is the idea that they received nothing in the way of public-money bailouts as their American and British institutional cousins required to remain alive and not bring down their respective national economies along with themselves. This myth has proved quite persistent. Chapter eight, Bankers Behaving Badly, addresses it. Indeed, Canada’s big banks have been “bailed in” since Victorian times you might say but have been privileged to the tune of many tens of billions of dollars in response to recent global economic difficulty. Canada Mortgage and Housing Corporation helped the banks blur the impact of toxic assets. Ordinary Canadian customers also pay very high fees to banks for their basic services. The much trumpeted position of the banks is due as much to government help and ATM charges, not to mention public complacency, as fiscal prudence on the part of management.
Curiously, when we began reading this book with a review of it in mind for suburban-poverty.com two bank-related developments entered the news stream. The first that several big Canadian banks have been officially described as “systemically important” that is to say, too big to fail. The other was a report from Bloomberg about bank CEO pay for North America. Canadian bankers are among the top tier for compensation, and are also named for being overpaid in proportion to the size and performance of their banks. This is barely a month after the furor over outsourcing jobs at RBC (and later HSBC) and so we are reminded again of the huge role of Bay Street in the life of Canada, like it or not.
The more realistic our view of this complex, lucrative industry the better. After reading Livesey’s book and blog it’s hard not to be pessimistic. If Canadians are to be richer or poorer people over the coming decades a lot will depend on the money business. Recent government interest in making the reality of Bay Street as sound and sensible as the image is welcome, Livesey suggests it may be too late.
Either way, suburban-poverty.com says “read this book!”