Rowan Williams, Homosexuality and Faith

In the March issue of The Atlantic Paul Elie has a balanced and thoughtful account of the struggles the archbishop of Canterbury, Rowan Williams, has both led and endured on homosexuality and particularly on the issue of gay priests. Entitled The Velvet Reformation, it tells of Williams' efforts to maintain unity within the world-wide Anglican confession while moving the church toward greater inclusiveness and acceptance.

More important, it tells the story of a man who is unwilling to embrace either rigid fundamentalism or laissez faire liberalism, but is determined instead to find a middle way that embraces, rather than shuns ambiguity and uncertainty, and that is concerned with nurturing a community of believers rather than promulgating a rigid morality whether of left or of right.

In reading it I was reminded of Jacques Ellul's argument regarding morality in The Subversion of Christianity. He begins his chapter on the subject by insisting that

God's revelation has nothing whatever to do with morality. Nothing. Absolutly nothing.

He expands on this by noting that

This is why Jesus attacks the Pharisees so severely even though they are the most moral of people, live the best lives, and are perfectly obedient and virtuous. They have progressively substituted their own morality for the living and actual Word of God that can never be fixed in commandments. In the Gospels Jesus constantly breaks religious precepts and moral rules. He gives as his own commandment "Follow me," not a list of things to do or not do. He shows fully what it means to be a free person with no morality, but simply obeying the ever-new Word of God as it flashes forth.

I was reminded too of Dostoevsky's Grand Inquisitor in The Brothers Karamazov who, encountering Christ in the streets of Seville, imprisons Him and lectures Him on why the freedom He offers is so intolerable and why, for the sake of the people, he, the inquisitor, representing the Church, must lift this intolerable burden of freedom from the people and replace it with a rigid, unbending but safe moral code.

The Church and Christianity more generally has an abundant supply of pharisees and grand inquisitors. What it seems to lack is people like Rowan Williams who are able to freely live with the uncertainty, ambiguity and conflictedness, or to use Williams' term, "contradictedness" of simply and humbly "obeying the ever-new Word of God.

Economic Illiteracy and the Crisis in Canada

One of the real frustrations of watching the current crisis from Canada is seeing the lively and informed debate taking place in the U.S. and contrasting it to the tired rehashing of threadbare ideas that so often passes for informed comment here.

A case in point is Jeffrey Simpson's column in today's Globe and Mail. The column, entitled What Obama's Bold Budget Means for Canada lays out some of the highlights of the first Obama budget, and in the case of environmental initiatives, suggests some cues Canada might follow.

So far, so good.

His argument then turns, however, into a somewhat hectoring lecture on the evils of deficit spending, where he suggests that such shortfalls are the result of mere political expediencey, and that

[t]he cash Americans need is at hand, at home, if they were willing to tax themselves more to get their country away from mounting debt, to balance the country's books, and to finance the programs and regulations most of them want (apart from the Republican right.) Such truths, apparently, are too hard to bear, even if the truths are self-evident, as Americans like to say.

Now, you might or might not agree with fiscal stimulus as a means of restoring a vital economy (and helping those in need), though it is surely harder to disagree when monetary policy has so obviously hit the 0% wall. But the whole point of fiscal stimulus, and this is what the Obama administration is pursuing, is deficit spending. This is a settled question. To offset spending with increased taxes is to go nowhere. And it is this lack of simple understanding -- of economic literacy -- that is particularly discouraging.

Thrash-Grass

Kudos to BoingBoing for letting the world know about the Electric Mountain Rotten Apple Gang, a thrash-grass band from Texas.

If the show is anything like the videos on their sight, I can't wait to see them.

Caisse de dépôt et placement du Québec

In perhaps the first real crack in the edifice of Canadian finance during this crisis, today's Globe and Mail reports that the Caisse de dépôt et placement du Québec, Canada's largest public pension fund manager, reported a loss for 2008 of almost $40 billion cdn. or -25% (against an average of -18% for Canadian pension funds).

As important as the losses themselves is where they came from -- asset backed commercial paper and currency hedging. And these in turn were the result of inadequate risk management practices.

So at least one Canadian financial institution has followed the well worn path of their American cousins.

Stay tuned.

Adam Posen on lessons from Japan

Paul Krugman quotes Adam Posen talking about lessons we should learn from Japan's efforts to recapitalize their banks during the lost decade of the 1990s. Posen underscores the risks involved when these efforts are not accompanied by equity stakes or enhanced regulation:

The result then, and the emerging result now, is that the banks’ top management simply burns through that cash, socializing the losses for the taxpayer, grabbing any rare gains for management payouts or shareholder dividends, and ending up still undercapitalized. Pretending that distressed assets are worth more than they actually are today for regulatory purposes persuades no one besides the regulators, and just gives the banks more taxpayer money to spend down, and more time to impose a credit crunch.

Indeed.

Given depressed share prices, the big five Canadian banks are currently paying historically high dividend rates. Andrew Willis of the Globe and Mail tells how BMO is paying an historically high 10.8% that will capture 80% of earnings. Why?

Child of TARP imposes terms and conditions

The Obama administration today released the terms and conditions of its Capital Assistance Plan (the successor to TARP). They are brief, and given our own less than transparent efforts to capitalize banks and improve credit markets, they are worth repeating in full here:

Terms

• Capital provided under the CAP will be in the form of a preferred security that is convertible into common equity at a 10 percent discount to the price prevailing prior to February 9th.
• CAP securities will carry a 9 percent dividend yield and would be convertible at the issuer's option (subject to the approval of their regulator).
• After 7 years, the security would automatically convert into common equity if not redeemed or converted before that date.
• The instrument is designed to give banks the incentive to replace USG-provided capital with private capital or to redeem the USG capital when conditions permit.
• With supervisory approval, banks will be able to request capital under the CAP in addition to their existing CPP preferred stock.
• With supervisory approval, banks will also be allowed to apply to exchange the existing CPP preferred stock for the new CAP instrument.

Conditions

• Recipients of capital under the CAP will be subject to the executive compensation requirements in line with the Emergency Economic Stabilization Act of 2008, as recently amended. The Treasury will shortly be releasing rules to implement these amendments.
• As part of the application process, banks must submit a plan for how they intend to use this capital to preserve and strengthen their lending capacity – specifically, to increase lending above levels relative to what would have been possible without government support. The Treasury Department will make these plans public when the bank receives the capital under the CAP.
• Taxpayers will be able to monitor the performance of banks receiving capital under the CAP. Banks receiving capital will be required to submit to Treasury monthly reports on their lending broken out by category. These will be posted on www.FinancialStability.gov.
• Recipients will also be subject to restrictions on paying quarterly common stock dividends, repurchasing shares, and pursuing cash acquisitions.

In other words, pay it back in a reasonable time or we own you. And use it to make loans and not to reward stockholders and/or managment.

Beautiful!

Group takes aim at Cardiovascular Disease in Canada

A working group called the Canadian Heart Health Strategy
and Action Plan released two reports today, Building a Heart Healthy Canada and Realizing Our Vision. With funding from the federal government, they have developed a comprehensive set of sweeping, if sometimes vague, recommendations for addressing cardiovascular disease as an issue with many dimensions including medical, have called for substantial funding ($700 million cdn.) to do this and have set goals that if achieved, would be revolutionary, including a 25% reduction in the mortality rate from CV disease.

The problem is that while the medical recommendations are well developed and specific, the non-medical ones remain more loosely defined and vague. Yet it is these non-medical issues -- mainly diet, exercise, smoking and stress that largely determine individual experience with this disease. And it is only by attacking CV disease at these roots that we will be able to meet the very ambitious targets set by the working group. In other words, this is where the bulk of the resources should be targeted and the effort focused.

In the end, CV disease is much less a medical problem than an educational, political, economic, lifestyle and family one. And learning to understand it this way will go much further toward solving it than greatly expanded medical care (and more to the point, resources) however necessary these may be.

Extraordinary Financing Framework -- Bank Bailout the Canadian Way

I have had a chance to look a little further at the Harper government's initiative to ease credit markets and it is not reassuring.

Clearly restoration of credit markets will be a prerequisite for any recovery. But there are three aspects of this that I find deeply troubling.

The first is that Finance Minister Flaherty passed this off in his budget as a fiscally neutral measure, suggesting that

The EFF is expected to generate a positive return for the Government overall and therefore has no expected fiscal cost. The Government will undertake additional borrowing to make the EFF possible; this will increase the amount of Government of Canada debt sold to financial markets (Annex 4). As this debt will be matched with sound assets, the EFF will not lead to any increase in the federal debt (accumulated deficit).

In a scathing entry on her wonderfully irreverent blog, Sen. Elaine McCoy , an independent (to say the least) Tory senator from Alberta, describes how

[t]he government has blithely asserted that it's "expected to generate a positive return for the Government overall and therefore has no expected fiscal cost." I beg your pardon? A whopping $65 billion will be borrowed this year to finance Extraordinary Financing. If, as the the budget documents state, it will be offset by interest-bearing financial assets and so cost nothing, then why buy the assets from the banks? Surely there'll be a cost in the short term, notwithstanding repayment many years later.

In other words, while the government may recover some or even most of the money eventually, it will take time and there will be costs, unanticipated and even substantial. This is therefore a fiscal issue and it should be presented, and debated, as such.

The second is the glaring moral hazard of socializing risks while profits remain private. The bulk of this program involves the purchase of pooled mortgages. Sound familiar? Even the Americans have realized the necessity of an equity position in banks that are assisted on this scale. And if these are fully performing, risk free assets, producing a reliable stream of income, why would the banks want to sell them? And how have they been valued?

Finally, given the unprecedented scope (and risk) of this initiative, why has there been so very little public debate? It is no surprise that the government and the banks have been silent. As the Financial Post noted yesterday:

Addressing this will require new extraordinary short term interventions to restore confidence as well as structural reforms to make it easier for companies to raise money through credit markets, bankers say.

Yet executives are anxious not to strike an alarmist tone or be seen to criticise Ottawa, lest they provoke a political confrontation or rattle investor confidence.

Bill Downe, chief executive of BMO, acknowledged that in order to bring about a fresh round of action to stimulate markets and the economy, "the government of Canada will need to be pressured to do it".

But he said there was a risk a process like this would conjure up the kind of apocalyptic imagery that was invoked in the United States to get a $800-billion fiscal stimulus and $700-billion bank bail out package passed by Capitol Hill.

Like it or not, putting an amount equal to a seventh of our GDP at risk on this conjures up apocalyptic imagery. So where are the other party leaders and finance critics? And why aren't the tough (and obvious) questions being asked? Surely the other parties would be anxious to hold the minister to account both for the outcome of this gamble and for the specific "investment" decisions that are made, particularly in the context of continuing economic pain and a minority parliament. Perhaps the Liberals and/or NDP have plans for this, but I have seen no indication of it.

Our political leaders have not given this the attention it deserves. We can only hope that Senator McCoy continues to pursue this issue.

Bank of Canada intervening in bond markets

The Financial Post has had a series of articles over the past couple of days on Bank of Canada support for corporate bond markets. This is part (apparently) of a much larger initiative to restore capital markets, and the figures being talked about for this are breathtaking ($200 billion), but what is even more so is the deliberately low key approach being taken by both the banks and the Government of Canada.

What about Canada, eh?

One frustration I have had following the economic crisis in Canada is any strong sense of what shape our banks are in. Clearly our banking system is fundamentally different than that of the U.S.. But if the rest of the world was beating a poorly regulated path to these toxic assets, we must have been too. So where are they? And how do they affect the balance sheets of our admittedly more risk averse banks? And what about the non-bank sector, particularly hedge funds and the like?

Is anyone blogging this here in the GWN?

Changing of the Guard?

One of the real fascinations of the past several months has been the fundamental shift in macroeconomic thought. Not only have we dusted off Keynes, but there is serious talk of bank nationalization in the U.S., a topic that would have been laughable almost anywhere just a few months ago. My guess is that this is both a testament to the depth of the crisis we face (obviously) but also to the absurdity of the distance we pushed the old consensus.