Canada as Milhouse

All through this fall, as the financial system of the U.S. imploded, it seemed to be almost impossible to get good information on how, and how far, and why Canada was or wasn't different. Did we do that whole highly leveraged securitization of subprime mortgages thing? Apparently not -- who knows why. Did we have mortgages like that in the first place? I was sure I'd seen ads for such things. Now the Globe finally gets around to looking into it, and the short answer is yes, it did happen here -- but only for two years, spring 2006-2008, at which point the government beat a stumbing retreat back to its senses.

“Quite honestly I was surprised [the 40-year mortgage] was seized upon so eagerly by the Canadian banks and borrowers,” said a U.S. insurance executive who asked not to be named. “You hear all the usual excuses: ‘It's a cash-flow management tool, people will pay off their mortgage ahead of time.' But in reality it just becomes a mechanism for borrowing more than you probably should have.”

Industry officials repeatedly said in interviews that they were shocked at the frenzied escalation of risk. “It was fast and furious,” said one AIG executive. [yes, that AIG: apparently their awe-inspiring stability and prestige played a major role in gulling Canadian regulators at the time]

We have so little transparency in the mortgage system that one can't say with confidence that disaster has been avoided. But if it has been, it's clear that the reasons are what they always are around here: sheer dumb luck, or more precisely Canadian caution and inertia. It's not that anyone actually perceived the risks accurately and spoke out. It's not that Canadians are less greedy. It's certainly not that our politicians and regulators are more aggressive in defending the public good. It's just that when Americans decide to do something incredibly risky and reckless and stupid, it takes Canada ten years to make up its mind to do the same thing.