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Friday, January 02, 2009

collective self-insurance.

In an era where many western politicians seem to have an almost illogical fetish with P3s, I thought this quote regarding the banking industry was quite interesting.

"Private banks collectively cannot self-insure against a generalised run on the banks. Once the state underwrites the deposits or makes alternative funding available as lender of last resort, deposit-based banking is a license to print money. That suggests that either deposit-banking licenses should be periodically auctioned off competitively or that deposit-taking banks should be in public ownership to ensure that the taxpayer gets the rents as well as the risks. - The end of American capitalism (as we knew it) | open Democracy News Analysis
(h/t Michael Janz Online)


Steven Dollansky said...

In my view, this is yet another example of why the Canadian banking system is a model for the rest of the world. Certainly, there are areas for improvement, but we're doing fairly well.

I don't think that your comparison to the "fetish with P3s" is relevant though Dave. A proper partnership balances risks with rents, but that is a much longer and more complicated discussion I suppose.

kenchapman said...

Alberta lawyers self insure ever since 2 of our brethren scoffed a bunch of millions from clients. Nobody would carry us so voila, we self insure. P3 are crap if they are to hide debt off balance sheets...the English and some NA models.

However if they are based on real revenue streams and full cost accounting models that serve a long term social purpose as well as a business purpose they can be very innovative. Centre High is a P3 and I can give you others.

BTW the Loonie in our is just a promise by your government to make good on it…whatever that means. That means not much was even more laughable when it was redeemable in gold...which is just another fictitious metric of value.

It is all about collective confidence and mass psychology - nothing more.

Chandler Kent said...

Jesus, Ken, I thought I was cynical...

Chandler Kent said...

I'm going to argue that CDIC IS a form of self-insurance, and also a P3. first of all, CDIC is entirely funded by the banks, and administered by the government. As no insurance company is involved, I think it's self-insurance. As it is a partnership between the feds and the banks (though no bankers sit on the board) I would also call it a P3. I agree with "Six Meetings" though in wondering what P3s had to do with the credit crisis?

Anonymous said...

Ditto. Fuzzy analogy at best.

P3s are similar to financing the purchase of your home through a mortgage, if one could also finance the upkeep of the home.

You can argue if you are/are not getting the best price with a particular P3 (easily solved if you have multiple bidders), but - despite what the usual suspects (AUPE, CUPE, etc) would like you to believe - there is nothing inherently evil here. As an aside, it would be nice if AUPE/CUPE would be honest and say the reason they are against P3s is only because the maintenance is going to be done by workers which they aren't able to readily unionize. I've never noticed that AUPE/CUPE are averse to using debt to finance something... that is just a red herring when they use that line.