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Bank of Montreal: Putting Shareholders Ahead of Bonuses

It would have been impolitic of B of M to increase bonuses in this year when most of Main St is feeling the recession. The G20 is out for banker blood. Cdn banks don't need to further inflame public sentiment and political pressure to regulate excessively. Due to Canada's already prudent regulation and bankers, Canada may escape the worst of the regulatory excess. Reducing bonuses this year shows the bloodthirsty public that bankers 'care', and are sharing their suffering.

Canadian Banks in the U.S.: What's Next?

After the bubble and bust the US is in a Japan-style balance sheet recession. The weakest must be allowed to fail. For the salvageable US private sector, including banks, to repair their balance sheets would take 7-15 years of devoting profits and incomes to debt paydown. If this is to work without the US suffering a Depression level collapse of GDP, the government will have to become borrower-and-spender of last resort, as Japan has done. US public debt will grow scary high.

Prieur du Plessis has linked to a talk Richard Koo gave on this subject. Koo is the only person I have seen who thoroughly understands the macroeconomics of a fiat money system and its interactions with a nation's financial system and real economy.

seekingalpha.com/artic...

How does this bode for Cdn banks in the US? Real estate has a long way to go down still so generally speaking mortgages will be losers. In a period of post-bubble balance sheet repair the credit that inflated bubbles is being paid out, and the reduced money supply cannot support the inflated asset prices, so asset prices have to come down. So far the US has been applying monetary and fiscal policy to try to reflate the bubble valuations, and they have succeeded to a great extent to quell the panic and support the banking system. But over the medium term as banks recapitalize out of profits these asset values will be allowed to come down.

There are still creditworthy borrowers and viable businesses in the US. Citi is going down and Citi serves 1 million small-medium businesses. There should be some opportunities in areas like this. I have heard lots of Americans, who say they are creditworthy, complaining that banks won't lend. Many banks are technically insolvent and are in a process of recapitalizing, deleveraging and reducing their balance sheets, so of course these banks are not interested in making new balance sheet expanding loans. Solvent bankers, both American and Cdn, should be able to fill this void.

If the US plays its cards right it could follow Japan's example and pay its way out of debt, over the course of a decade or so. The US$ would stabilize and GDP could be maintained by ongoing fiscal stimulus. There need be neither deflation nor inflation.

If the Fed and government refuse to accept a decade of no growth, and insist on supporting asset values at inflated levels in a vain effort to rekindle the overindebted economy, then ongoing QE will be necessary and the US$ will continue its decline and the US will have inflation with no growth--stagflation. If the US tries to remove the monetary and fiscal supports there will be deflation, GDP contraction, widespread private sector bankruptcies and bank failures, and a severe Depression.