There’s an interesting paper by Lauren E. Willis of the U of Pennsylvania Law School titled Against Financial Literacy:
The dominant model of regulation in the United States for consumer credit, insurance, and investment products is disclosure and unfettered choice. As these products have become increasingly complex, consumers’ inability to understand them has become increasingly apparent, and the consequences of this inability more dire. In response, policymakers have embraced financial literacy education as a necessary corollary to the disclosure model of regulation. This education is widely believed to turn consumers into “responsible” and “empowered” market players, motivated and competent to make financial decisions that increase their own welfare. The vision is of educated consumers handling their own credit, insurance, and retirement planning matters by confidently navigating the bountiful unrestricted marketplace.
Although the vision is seductive, promising both a free market and increased consumer welfare, the predicate belief in the effectiveness of financial literacy education lacks empirical support. Moreover, the belief is implausible, given the velocity of change in the financial marketplace, the gulf between current consumer skills and those needed to understand today’s complex non-standardized financial products, the persistence of biases in financial decisionmaking, and the disparity between educators and financial services firms in resources with which to reach consumers.
Harboring this belief may be innocent, but it is not harmless; the pursuit of financial literacy poses costs that almost certainly swamp any benefits. For some consumers, financial education appears to increase confidence without improving ability, leading to worse decisions. When consumers find themselves in dire financial straits, the regulation through education model blames them for their plight, shaming them and deflecting calls for effective market regulation. Consumers generally do not serve as their own doctors and lawyers and for reasons of efficient division of labor alone, generally should not serve as their own financial experts. The search for effective financial literacy education should be replaced by a search for policies more conducive to good consumer financial outcomes.
I’m very pleased to learn that London, Ontario, mayor Joe Fontana has been found guilty of fraud; the charge was discussed on November 21, 2012:
Fontana testified during the trial that it was “stupid” of him to alter the document, but he insisted it was no forgery.
He admitted making seven changes – including whiting out his wife’s signature, replacing it with his own and writing the word original in quotation marks at the top – to an existing contract with the Marconi Club for his son’s 2005 wedding to reflect an event he planned for then finance minister Ralph Goodale at the same venue.
Other alterations on the contract were changing the date of the event from June 25, 2005, to Feb. 25, 2004, the word “wedding” to “reception” and the addition of a yellow sticky note saying “misc constituents reception.”
A Commons committee has recommended increased paperwork as a means of creating jobs:
The Conservative-dominated finance committee is calling for a new tax credit for businesses that hire Canadians aged 18 to 30 after a detailed study of youth unemployment.
The proposal is among the finance committee’s 23 recommendations in a report tabled this week. The report notes that youth unemployment varies considerably by age.
They’ve still got a way to go before they can create as much paperwork as the FDIC does, though:
Discover Financial Services (DFS) agreed with regulators to bolster its payment systems against money launderers. No financial penalty was imposed.
The Federal Deposit Insurance Corp. told Discover “to correct any unsafe or unsound banking practices and prevent any violations of law or regulation” cited in a Sept. 9 report by the regulator, according to a filing today. The lender consented to the order “without admitting or denying any charges” related to weaknesses in its compliance with the Bank Secrecy Act, according to the filing.
Regulators are pressing the world’s biggest lenders to verify that transactions are tied to legitimate business. They’re also scrutinizing banks that have made acquisitions to ensure controls are updated to match the new size and complexity of the combined companies. The Federal Reserve has delayed M&T Bank Corp.’s takeover of Hudson City Bancorp Inc. for almost two years while demanding stronger controls.
The telecoms have lost an lost an avenue to indulge their informing:
Anonymity is key to Canadians’ right to privacy on the Internet, and as a general rule police are not permitted to disrupt that anonymity by asking Internet companies for information on their consumers without a judge’s authorization, the Supreme Court said in a ruling Friday.
“Anonymity is an important safeguard for privacy interests online,” Justice Thomas Cromwell wrote for a unanimous court.
There are concerns regarding Ontario’s credit rating:
Kathleen Wynne’s Liberals climbed a mountain to get re-elected, with a majority no less, in Ontario’s provincial election. But that looks like a stroll in the park compared with the Everest of debt her government faces. And convincing the world’s credit-rating agencies that she can conquer it may prove tougher than it was to convince the Ontario electorate to give her the chance.
Ms. Wynne has already vowed to reintroduce the May budget that got her minority government defeated and triggered the election – a budget heavy on spending and carrying an even bigger deficit ($12.5-billion) than the previous year’s ($11.3-billion), despite her government’s repeated pledges to move its budgets toward balance.
…
Now that the budget looks likely to become reality, the big global bond-rating agencies such as Moody’s and Standard & Poor’s will certainly reconsider whether Ontario still warrants its current high-quality ratings on its debts – which are closing in on an alarming $300-billion and climbing, posing a growing risk to Ontario’s lenders and a threat to its long-term economic health.Moody’s has already expressed doubts. In an update published shortly after the May budget announcement, it called the budget “a credit negative,” and warned that “the path back to balanced budgets presents more risk than previously assessed.” (The note didn’t constitute a formal reassessment of Ontario’s debt ratings, but that would be the next logical step.)
Correlation is not causation, so we can argue a bit about the timing of this:
DBRS notes that Toronto Hydro Corporation (THC; rated A (high), Stable trend), has increased the limit of its commercial paper (CP) program to CAD 500 million from CAD 400 million, effective June 13, 2014. THC’s current CP rating of R-1 (low), with a Stable trend, remains unchanged. THC continues to maintain adequate liquidity to manage the refinancing risk associated with the CP program
There’s been an outbreak of common sense in the US:
Goldman Sachs Group Inc. (GS) won dismissal of a suit over $450 million in residential mortgage-backed securities, with a New York judge saying that the firms that bought the bonds should have done more research beforehand.
State Supreme Court Justice Charles Ramos dismissed the claims against Goldman Sachs today, saying the investors only reviewed data presented in offering documents for the securities and never asked to review files for the underlying loans.
“The true nature of the risk being assumed could, admittedly, have been ascertained from reviewing these loan files and plaintiffs never asked for them,” Ramos wrote.
Who wants to make a bet? I’ve got a nickel that says they received the offering documents as a matter of routine and didn’t even read those as a matter of routine.
And the Civil Service Superannuation Scheme has a new messenger boy:
The government has chosen Jeremy Rudin, a former economics professor who worked at the department of finance during the financial crisis, as the new head of Canada’s banking and insurance regulator.
Finance Minister Joe Oliver announced late Friday that Mr. Rudin will begin a seven-year term as Superintendent of Financial Institutions effective June 29. He replaces Julie Dickson, who announced last year that she planned to retire at the end of her term.
Mr. Rudin, who is currently the assistant deputy minister of the financial sector policy branch of the department of finance, was one of two contenders whose names were widely rumoured in financial circles over the past couple of months.
The regulators are pricing themselves (and their buddies) out of the market:
The rise of off-exchange trading in the U.S. stock market continues unabated even as regulators question the wisdom of allowing the shift to continue.
Shares changing hands in private venues such as dark pools accounted for 40.4 percent of total share volume on June 10, according to data compiled by Bloomberg. That’s the most since 41.7 percent took place off-exchange on June 22, 2012. The three biggest exchange companies each matched about 20 percent of trading on June 10.
…
“Its been clearly demonstrated that the less volatile markets are, the more people trade away from exchanges,” Justin Schack, partner and managing director for market structure analysis at Rosenblatt Securities Inc., said in a phone interview. “Brokers also have an incentive to avoid exchanges and their fees, and with overall volumes low, the pressure to avoid costs is quite high.”
It was another mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 6bp and both FixedResets and DeemedRetractibles off 4bp. Volatility was minimal, but what there was of it was comprised exclusively of FixedReset losers. Volume was extremely low.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2102 % | 2,486.5 |
| FixedFloater | 4.54 % | 3.79 % | 27,926 | 17.80 | 1 | 0.0478 % | 3,782.9 |
| Floater | 2.95 % | 3.06 % | 45,271 | 19.59 | 4 | -0.2102 % | 2,684.8 |
| OpRet | 4.39 % | -10.55 % | 24,415 | 0.08 | 2 | -0.1946 % | 2,706.3 |
| SplitShare | 4.81 % | 4.29 % | 56,582 | 4.13 | 5 | -0.2223 % | 3,113.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1946 % | 2,474.7 |
| Perpetual-Premium | 5.52 % | 1.02 % | 82,829 | 0.08 | 17 | 0.0254 % | 2,401.8 |
| Perpetual-Discount | 5.27 % | 5.29 % | 109,863 | 14.93 | 20 | 0.0644 % | 2,546.5 |
| FixedReset | 4.50 % | 3.73 % | 215,494 | 8.64 | 79 | -0.0364 % | 2,532.8 |
| Deemed-Retractible | 5.00 % | 0.67 % | 146,354 | 0.13 | 43 | -0.0418 % | 2,531.4 |
| FloatingReset | 2.66 % | 2.45 % | 128,236 | 3.97 | 6 | 0.1322 % | 2,491.8 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| CIU.PR.C | FixedReset | -2.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-13 Maturity Price : 20.71 Evaluated at bid price : 20.71 Bid-YTW : 3.68 % |
| MFC.PR.K | FixedReset | -1.43 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.75 Bid-YTW : 3.93 % |
| BAM.PF.A | FixedReset | -1.02 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 4.16 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| CM.PR.O | FixedReset | 405,125 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-13 Maturity Price : 23.17 Evaluated at bid price : 25.04 Bid-YTW : 3.79 % |
| TD.PR.I | FixedReset | 154,900 | TD crossed 150,000 at 25.33. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.36 Bid-YTW : 1.05 % |
| BMO.PR.T | FixedReset | 68,245 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-13 Maturity Price : 23.16 Evaluated at bid price : 25.03 Bid-YTW : 3.73 % |
| TD.PR.R | Deemed-Retractible | 67,984 | RBC crossed 55,400 at 26.62. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-13 Maturity Price : 25.75 Evaluated at bid price : 26.43 Bid-YTW : -17.58 % |
| RY.PR.I | FixedReset | 56,870 | TD crossed 53,900 at 25.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.20 Bid-YTW : 3.39 % |
| BAM.PF.F | FixedReset | 36,095 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-13 Maturity Price : 23.20 Evaluated at bid price : 25.18 Bid-YTW : 4.33 % |
| There were 16 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BNA.PR.E | SplitShare | Quote: 25.71 – 26.71 Spot Rate : 1.0000 Average : 0.5626 YTW SCENARIO |
| W.PR.H | Perpetual-Premium | Quote: 25.16 – 26.16 Spot Rate : 1.0000 Average : 0.5675 YTW SCENARIO |
| MFC.PR.A | OpRet | Quote: 25.41 – 26.24 Spot Rate : 0.8300 Average : 0.4727 YTW SCENARIO |
| MFC.PR.C | Deemed-Retractible | Quote: 22.45 – 23.00 Spot Rate : 0.5500 Average : 0.3449 YTW SCENARIO |
| MFC.PR.K | FixedReset | Quote: 24.75 – 25.20 Spot Rate : 0.4500 Average : 0.2894 YTW SCENARIO |
| BAM.PF.A | FixedReset | Quote: 25.30 – 25.69 Spot Rate : 0.3900 Average : 0.2663 YTW SCENARIO |