Toronto as Global Financial Centre

[Whoaccio]

Some of that surprised me, so I just had a quick look at some basic statistics. The proportion of the population employed in industry in Germany is 29.4%, compared with 22% in Canada and 20.6% in the United States.

Where did you get these figures? StatsCan numbers have total employment in 'manufacturing' at about 11.5% of employed Canadians, and obviously less of total population.

 

[urbanfan89]

The idea that a strong financial sector is harmful to the manufacturing sector is still ludicrous.

No one here is doubting that any economy needs a strong financial sector.

'Hot money' is not a real thing, and it has no real connection with the financial industry itself. It is Naomi Klein speak for foreign investors pilling into an economy which is perceived to offer favorable returns.

Hot money is definitely real (ask the British, or Icelanders, or Australians, or a lot of other peoplpe). It is not Naomi Klein speak for anything. It's just interest rate arbitrage.

It doesn't matter what that economy is based on. We saw it with resources, China is seeing it with manufacturing and it has effected everything from Tulip bulbs to real estate. Any economy that is marginally succesful sees 'hot money.'

This is a false dichotomy. A successful economy does not need vast inflows of investors taking advantage of interest rates and currencies, unless you count the Icelandic economiy.

The only way to avoid it is to be poor (in wish case you tend to become a victim of capital flight, 'hot money's' evil twin).

Again, false dichotomy. Capital flight *is* hot money flowing out of the country.

For the sake of argument, lets say that Bay st. becomes wildly succesful. The financial capital of the world. Things go crazy. New York trembles type scenario.

Which in turn causes the Canadian Dollar to rise up to an absurdly high level as the world's bankers need to buy C$ for financial dealings. In turn this a) turns the current account balance sharply negative, b) causes an explosion of debt in the Cdn. economy and c) makes Canada particularly vulnerable during times of financial crisis. This is exactly the problem facing the British economy.

By definition, this is good for the economy.

It sure isn't good for the British economy in the long term.

Some low value exporters would probably be hurt as a result. So what though?

There's nothing wrong with having high value exporters, which advanced economies are supposed to have.

If the Canadian economy at large grows and expands, even if manufacturing contracts, it is still good for the economy as a whole. Remember, manufacturing only accounts for 11% of Canada's employment.

Last I checked it's not only manufacturing that depends on exports. There's also tourism, agriculture, professional services, and so on, which counts for a lot more than 11% of employment.

The idea that the other 89% of the economy should suffer to support a small group of privileged exporters is odd indeed.

The idea that the majority of the economy should suffer so that the country can have massive overleveraged banks that travel the world, and which employs 5 - 10% of Canadians, is a thousand times odder.

If you want a leftish critique, the low Canadian dollar screwes poor people by lowering their purchasing power and, hence, quality of life.

But does a hopelessly overvalued Canadian Dollar (let's say 1.50 USD) help the middle class in the long run?

 

[urbanfan89]

Charlotte, North Carolina became the second largest banking centre in the United States a few years back because of just two banks. Bank of America and Wachovia became two of the largest banks in the US and both were headquartered in Charlotte. It brought a lot of money and power to the city.

That's good to hear.

There's no reason to think we couldn't do the same here.

Except for the fact that Charlotte's financial sector itself is not causing wild swings in interest rates and forex market given that the US Dollar (which is still overvalued and leveraged) is a lot, lot, lot more important than Canada's.

 

[unimaginative2]

Where did you get these figures? StatsCan numbers have total employment in 'manufacturing' at about 11.5% of employed Canadians, and obviously less of total population.

Like I said, it was just a quick search, but I can guess where the discrepancy lies: the figures I cited were for "industry," which would include natural resource processing among other things, while you're just looking at manufacturing.

 

[BUGEYEDBRIT]

Charlotte, North Carolina became the second largest banking centre in the United States a few years back because of just two banks. Bank of America and Wachovia became two of the largest banks in the US and both were headquartered in Charlotte. It brought a lot of money and power to the city.

There's no reason to think we couldn't do the same here. The five big Canadian banks are quite healthy compared to their US peers. I'd be quite surprised if they didn't make major American moves once the smoke clears. Royal Bank now has a stock market value that's double that of Citibank (once the largest bank in the world). And as they grow bigger they will create more work here.

I take it no one has been paying much attention recently then? Last I read Bank Of America was in serious trouble (due to trying to absorb Merrill Lynch, with their toxic balance sheet), and was being bailed out again, go Charlotte !!

I work on Bay Street and I can say its been a massively busy period due to the huge upheaval going on globally, we are drawing clients and companies to our banks, as generally they are seen as being more stable and in better condition than many others, both here and in Europe, I cannot say if thats a seachange in attitude or merely a sign of the times, we'll have to see.

I see Toronto being a more important player in global finance, but it would seriously have to think about overhauling its oversight regime, does any financial system with global aspirations have 13 separate securities commissions ? Thats a duplication (and then some) of effort that needs addressing, its no mistake that there aren't this many in other financial centres.

Currently I think Canadian financial institutions are being sensible in regard to buying other banks etc, as its often difficult to accurately judge the status of these institutuons - see B of A as an example...

 

[Observer Walt]

^ True, but quite a number of the US banks are going through massive changes, which makes them hard to assess. The chewing up of Merrill automatically made Bank of America hard to value, with the new potential of time bombs lurking.

In the U.S., within the next year or so the dust will settle. Toxic assets will be written down. The external auditors will be unreleting, and if the SEC and other regulators down there can get their act together, they will have a similar attitude. Moodys and other ratings agencies will be far more diligent. Last but not least is the big "L" word (litigation) which would have any top manager now quaking in his shoes thinking of class action shareholder suits.

Once the dust settles in the U.S. and the blood on the floor gets mopped up, there will be some excellent buying opportunities for Canadian banks. Watch for some major acquisitions beginning maybe a year from now. Maybe Toronto will develop into the new Charlotte. In any case Toronto is very well situated, perhaps more so than any other city on this side of the Atlantic.

 

[Whoaccio]

One very easy way to boost Canada/Toronto's financial industry would be to create a common securities regulator with the USA, and maybe even Mexico. It would be political cyanide, don't get me wrong. But that doesn't mean it is wrong. Canada would beneiftt a lot. Work that gets done in New York could get done in Toronto or Vancouver for 3/4 the cost, in the same time zone with no accent issues (though, NL might be in trouble ). In a single pen stroke, the 'domestic' market for Canadian banks would go from 30m (with 13 regulators.....) to 400-450 odd million.

 

[jks]

I rather don't like that idea, because it would open doors to American companies to buy all Canadian banks. No, thank you, I'd rather have my economic independence. Typing this on an HP laptop is enough.

 

[urbanfan89]

I wonder how many Canadian banks would be failing right now if they were supervised by the SEC, which failed to catch Bernie Madoff for years.

 

[BUGEYEDBRIT]

One very easy way to boost Canada/Toronto's financial industry would be to create a common securities regulator with the USA, and maybe even Mexico. It would be political cyanide, don't get me wrong. But that doesn't mean it is wrong. Canada would beneiftt a lot. Work that gets done in New York could get done in Toronto or Vancouver for 3/4 the cost, in the same time zone with no accent issues (though, NL might be in trouble ). In a single pen stroke, the 'domestic' market for Canadian banks would go from 30m (with 13 regulators.....) to 400-450 odd million.

This analogy is not far off what I envisioned a while back, a merged North Amercian business block in the style of Europe, with one currency the 'NAD' or North American Dollar. Of course there are huge issues to be dealt with on this, and it would take generations, but then so did Europe.

There are already many examples of businesses blurring things anyway...for instance, Banco nacional de Mexico is owned by Citibank, so you'd think that they would send a lot of the processing work to Mexico ? Think again, the major processing centre is in Florida....course this may change as citi divests itself and disappears down the plughole

 

[jks]

well, a common currency would just screw up our system. In the US, the central bank (Federal Reserve) is really a for-profit private corporation. They print money with a 10% 'interest' at all times. On the other hand, the Bank of Canada is at arm's length from the government, and the board of directors must answer to the Minister of Finance.

Also, a common currency would undeniably make Canada much more vulnerable to American takeovers (I mean companies). It would also mean that American good would be cheaper as opposed to Canadian, fully bankrupting the Canadian companies that weren't taken over.

OK, that was a bit excessive, and that was a worst-case scenario, but really, I think that the reason Canada isn't hit by the recession THAT BAD (yes it is hit, but much less than other countries) is because we have economic independence from the US. I also feel that if we, as a country had EVEN GREATER independence (economic, again), maybe this recession would not have even happened here.

 

[BUGEYEDBRIT]

I don't necessarily support such a move by the way, was just mooting a possible scenario.

I think your statement re economic independence needs refining though, as surely the US is the largest economic partner Canada has, it therefore follows that if the US hits trouble, its going to affect us regardless, you could argue that if currency exchange risk was eliminated,maybe the damage would be less,thats what these economice blocks are about, freer movement of capital to improve business efficiency, trouble is politics always get mixed in and nationalistic arguments ensue. The downside is that because you removed a barrier making it harder to move capital, companies can do exactly that, leaving you at their mercy.

Eitherway you can't just remove the currency barriers, as the other issues such as tax regime, regulatory situation, politics etc also play a major role, its taken Europe over 50 years to get to their current ( and not perfect) situation. The UK is a major economic player in Europe, but they refused to adopt the currency, and maybe up till recently you could argue that seemed like a good thing, but its biting back right now.

 

[afransen]

The US economy is heading for a brick wall, and it will hit it with its foot on the accelerator. We should not be looking to hitch our wagon to the US at this point--rather we should be doing everything in our power to access other markets.

 

[MisterF]

This analogy is not far off what I envisioned a while back, a merged North Amercian business block in the style of Europe, with one currency the 'NAD' or North American Dollar. Of course there are huge issues to be dealt with on this, and it would take generations, but then so did Europe.

There are already many examples of businesses blurring things anyway...for instance, Banco nacional de Mexico is owned by Citibank, so you'd think that they would send a lot of the processing work to Mexico ? Think again, the major processing centre is in Florida....course this may change as citi divests itself and disappears down the plughole

The EU model is irrelevant to North America. What its advocates always seem to forget is that Europe isn't dominated by a single country, it's 4 or 5 large countries and a lot of small ones. A North American union isn't comparable because it would be the United States taking over Canada in everything but name. It amazes me that there are people who want this. What amazes me even more is that certain people dismiss opposition to ideas like this as mere "politics" and "nationalistic arguments", rebuttals which seem deliberately designed to paint the very idea of Canada's independence as petty or insignificant.

If 13 regulators is a problem (and we haven't seen any evidence in this thread that it is), then the solution is reforming the regulators domestically. Harmonizing with the U.S. would be throwing the baby out with the bathwater.

This recession is all the evidence we need of why harmonizing with the U.S. is a bad idea. It would open us up to the toxic lending practices that got the United States into the mess it's in right now. We're in a relatively better position precisely we maintain our own separate financial system with its own regulations. One reason Toronto is so attractive as a financial centre is because it's not in the United States - that advantage would disappear if we adopted their financial systems. Plus Toronto is a major financial centre already, solidly in the world's top 20 and rising. We're doing just fine on our own.

 

[Whoaccio]

The EU model is irrelevant to North America. What its advocates always seem to forget is that Europe isn't dominated by a single country, it's 4 or 5 large countries and a lot of small ones. A North American union isn't comparable because it would be the United States taking over Canada in everything but name. It amazes me that there are people who want this. What amazes me even more is that certain people dismiss opposition to ideas like this as mere "politics" and "nationalistic arguments", rebuttals which seem deliberately designed to paint the very idea of Canada's independence as petty or insignificant.

What difference does the relative distribution of population make on economic integration? I'll admit that superficially it is easier for smaller countries to surrender some of their jurisdiction to an IGO if there is a more even distribution of authority, but it is just superficial. Look at NAFTA. From an economic perspective, it has worked pretty damn well for USA-Canada-Mexico. It is also arguably true that smaller countries disproportionately benefit from economic integration, Ireland being a good recent example. In the case of a possible economic union with the USA/Mexico, Canada's 'domestic' market would increase 13x while the USA's market would only increase 50%.

As to 'nationalism,' I think independence at the expense of well being is insignificant. It's not to say there aren't good reasons to be independent, social issues vis a vis the USA come to mind, but if we could agree that a given policy would be beneficial to Canadians then simply waving a Canadian flag is petty. The point of a country is to ensure the best for it's citizens, not itself. As it relates to the USA, this pettynes can become an almost crippling obsession. How much hand wringing did this country have over NAFTA? A decade later, when a possible trade pact rumored to be even more encompassing is proposed with the EU, hardly anyone says anything. Probably because deep down most people realize trade liberalization is beneficial to Canada in economic terms.