Bailing-in Banks

March 25, 2016

MP Eleanor McMahon, Burlington, ON

GA, MP Eleanor.

I note the following paragraph in the new budget:

INTRODUCING A BANK RECAPITALIZATION “BAIL-IN” REGIME: To protect Canadian taxpayers in the unlikely event of a large bank failure, the Government is proposing to implement a bail-in regime that would reinforce that bank shareholders and creditorsare responsible for the bank’s risks—not taxpayers. This would allow authorities to convert eligible long-term debt of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating.

Please note the following:
1.  “Bailing in” bank shareholders is a very good thing.
2.  Including bank depositors with shareholders is a very bad thing.  Depositors place their funds in banks in trust, with “trust” being the operative word.    If there is any one thing a bank depositor thinks he is doing when he trusts the bank, is that his money is safe.
 
3.  The above “bail-in” wording does not make it clear that depositors’ money is not to be included in the term “creditors”.
4.  Please see that the bill as passed excludes depositors’ funds from any “bail in” provision.
 
5.  As a separate. closely related, matter, I have recommended for decades that, if a bank is “too big to fail”, it should be required to buy an insurance policy that is too big to ignore; and that such a “policy” could be in the form of a regulatory requirement for a risk-free capital reserve of, say, 25-30%.
 
I will be interested in your comments on the above.
 
Yours very truly,
 
Frank Gue, B.Sc., MBA, P.Eng.,
2252 Joyce St.,
Burlington, ON L7R 2B5
905 634 9538.
 
 
 
 
 

Guaranteed Anual Income

Date:         15 March 16
By:             Frank Gue, B.Sc., MBA, P.Eng
                   Burlington          9o05 634 9538
For:           Howard Elliott, The Spec
Re:             Guaranteed Annual Income

Dear Howard:

Your editorial notes that life expectancy in affluent neighborhoods is 21 years higher than in poor neighborhoods, and ascribes that to income differences.  You suggest that this supports the proposal for a Guaranteed Annual Income (GAI).
Close correlation between these two variables, income and life expectancy, does not prove that income affects life expectancy.  It is equally possible that both are driven by some third influence.  A very good case can be made that this third influence is educational level.  Note:
*  In a recent year, Canadian university graduates earned more than double the earnings of those with no high school, and were 22% less likely to be unemployed, according to Statistics Canada.   This suggests that educated Canadians live much better and are more secure than the uneducated, and are presumably happier.
*  Americans have found that the life expectancy at age 25 is 60 years for men with University degrees but only 44 years for men with no high school.  The same figures are not available for Canada; but our figures would be similar owing to strong similarities between our two countries’ education systems and cultures.
* 44% of Canadians in prison in 2010/2011, the latest year available, had not completed high school.
So, as mentioned above, correlation does not prove causation: but statisticians recognize that, when several correlations all point the same way, they probably do indicate causation.
So there you have it: Education is a main contributor* to a long, well paid, happy life spent out of jail!
Best,
Frank.
‘<prb.org>’

Remaining Years of Life for U.S. Adults at Age 25 by Educational Attainment, 2005

education and mortality

Source: Brian L. Rostron et al., “Education Reporting and Classification on Death Certificates in the United States,” Vital and Health Statistics Series 2, no. 151 (2010): 1-16.

Protectionism: Bad or good?

Date:              13 March 16
By:                  Frank Gue, B.Sc. MBA, P.Eng
                       Burlington, ON
For:                Gary Reid
Re:                 Protectionism:  Bad or good?

 

Bill Hughes wrote:

Protectionism of industries raises prices to 
consumers, inevitably, always.  

 

Absolutely correct!
Now, what the good Bill obviously has not thought of is that,
if he just lost his job owing to what he calls “protectionism”,
he won’t be able to afford that “cheap” product at any price
high or low.
And so, despite the disapproval implied so loudly in Bill’s
expostulation, protectionism is not “inevitably and always”
a Bad Thing; it’s just that it’s likely to be manipulated,
usually by politicians.  The operative word is “protect”.
ppp, “purchasing power parity”, which Bill apparently also disapproves
of, is an adjustment to bring the foreign “cheap” producer somewhere
close to our “costly” producers.  It’s well meant and sort of half-works.
But it also is a shell game that conceals the fact that Country “A’s”
productivity (production per manhour) is not as good as Country “B’s”.
It just spreads the inequality around and makes it less visible, which
is not a totally a bad thing except that it conceals from Country “A”
the fact that it can improve its productivity.  This is the exact way
Canada has operated since WWII.
The truth will out: one way or another, if “A” produces less per
labor hour than “B”, the citizens of “A” will have a lower standard
of living than “B”; well concealed, perhaps, but always true.
Another fact always overlooked is that the citizens of “A” may be
quite willing,  consciously or unconsciously, to accept a
standard of living that is lower than that of “B”.  Canada has
lived this way for a century or more; because, for several reasons
good and bad, we don’t want to live exactly “like the Americans”.
F.

School closures

Date:           7 March 16
By:              Frank Gue, B.Sc., MBA, P.Eng.
For:             Trustee Leah Reynolds, Halton DSB
Re:              School closures

GM, Leah.

I keep watching in vain for any mention of quality, but only hear of quantity (number of students) in all discussions of school closures.
I did a study 13 years ago of a Burlington patch of 25 schools.  Three unexpected but very clear indications, not likely to be much different today, were:
1.  “Small” schools (around 300 or less) had markedly better EQAO results than “large” schools (around 600 or more).   !,000-student schools were lowest by far.  One has to think about social problems in big schools – bullying, busing, and simply the teachers’ knowing kids’ names and similar social factors.
2.  EQAO results did, as expected, depend clearly on family income, starting rather poorly at $20,000 (2003 dollars) and levelling off at $80,000.  But  there were surprising exceptions:
(a)  A few schools in the “low family income” group did better than the best of the rest, and
(b) A few schools in the rest did worse than the poorest schools in the “low income group”.
Some schools obviously know something that others don’t.  What is it?
 3.  Some schools give better value-for-money than others.  I found this by creating a
performance measurement that combines cost per student with EQAO performance.
Divide EQAO ranking by cost per student and you have a value-per-dollar figure – a number exactly like litres per 100 km. or miles per gallon as a performance measure for a car.  That measure of performance per dollar varies a lot from school to school.  As a preliminary guess, I’d suggest that this is a direct reflection of quality of management at a school, making the brave assumption that all else (curriculum etc.) is equal.
Many educators hate comparisons, despite the fact that every improvement
in anything begins with a comparison of something with something better.  Yet we have seen senior educators to declare firmly in print, “We will not use comparisons!”,
which is to say, taken at face value, “We will not attempt improvement.”
I have bar charts that illustrate this stuff emphatically, but unfortunately this computer doesn’t speak that language any more.  If you want to see the bar charts, I can get them to you.
I think there is material in the above for you to inquire about quality as well
as quantity.  There is potential for improvement, I am sure.
Can I assist?
F.

“Education is the foundation … “ March 4

Date:           5 March 16

By:               Frank Gue, B.Sc., MBA, Burlington   905 634 9538

For:              Letters The Spec

Re:                “Education is the foundation … “ March 4

 

Dear Lee:

 

Columnist Brasseur is correct in his repeated emphasis upon improved curriculum as one of the main means of improving the quality of education in the developing nations.

 

Now we need someone to place the same repeated emphasis upon improved curriculum in our own vaunted “developed (‘Western’) world” schools.

 

Why?  Because we are surrounded by recent high school graduates many of whom speak and write poorly, cannot count, add or subtract, and know little of science; and because many commentators misplace the blame for this on high schools when the blame starts in Grade 1 or earlier.

 

Ontario’s education system leans heavily upon the “progressive” model with such elements as “discovery” learning.  In this mode, the teacher, as they say, is no longer the “sage on the stage” but is simply a coach, helping students to “discover” the content of their subjects.   This mode has been authoritatively and totally discredited by many educational professionals such as ­­­­­­Kirschner, “Why Minimal Guidance During Instruction Does Not Work: An Analysis of the Failure of Constructivist, Discovery, Problem-Based, Experiential, and Inquiry-Based Teaching”, available on the Web.

 

Why “discovery” does not work is evident if one digs a couple of layers down in the definitions.  Consulting Wiki, we find:

 

“Mathematics[edit]

 

“Textbooks … omit many standard arithmetic methods, instead relying on students to construct their own ways to compute averages, and perform multiplication and division. Teachers are directed to discourage students who may have been taught how to regroup or take a sum and divide by the number of items to compute an average.”

 

“Discourage” is certainly the right word.

 

Think about that for a minute.  Humanity took thousands of years to arrive at multiplication and division and just the concept of the zero: and we ask seven-year-olds to “construct their own ways” to do it?  There now, dear reader, kindly take a few hours and develop differential and integral calculus.  Never mind those tedious geniuses Sir Isaac Newton and Gottfried Leibnitz; just “construct your own way” to do it.

 

Small wonder Canada’s math scores continue downward.  We have diminishing numbers of dedicated teachers who give direct instruction, assign practice problems, and test their charges for mastery of math; and who can, while doing it, instill respect and liking for math, which is “the key to the universe”, as one of my teachers of long ago termed it.

 

Let’s hear it for “regressive math” rather than so-called “progressive” math.  It would turn our Ontario math scores back up.

 

Frank Gue

Interest rates less than zero

Date:       5 March 16
By:          Frank Gue, B.Sc., MBA, P.Eng.,
               2252 Joyce St.,
               Burlington, ON L7R 2B5        905 634 9538
For:         Editors, Macleans
Re:          Interest rates less than zero, March 7 edition Letters

Dear Eds:

One of the main criteria of a Marxist-communist economy is the lack of a sound price mechanism.
This is because no bureaucrat can figure out the “right” price for anything.  The “right” price for
any good or service is whatever a willing, informed buyer in a free market will pay for it.
Despite this fact, generations of the world’s central bankers, including the esteemed Mr. Poloz,
have applied pure Marxist price-fixing to one of the most important elements of our Western
free-market economies; our interest rates, the price of money.
The Chinese have been moving toward free interest rates for some time.  Perhaps, as often, the
Chinese know something we don’t: A free interest rate, appropriately regulated, would help
to smooth out the boom-busts in our largely Monopoly®-money based financial system.
Frank Gue

Engine failure immediately after takeoff.

Date:       3 March 16
By:          Frank Gue, B.Sc., MBA, P.Eng.,
               Professional Engineer,
               Burlington ON      L7R 2B5
For:        Boldmethod and all pilots
Re:         Engine failure immediately after takeoff.

Colin:

Suggestion:  What you do in the first one second after the engine failure can
save you or kill you.
In that first one second, never mind switches, flaps, or anything else:
GET THE NOSE DOWN.
 
You were climbing under full power, nose well up.  You’ll lose airspeed and stall
at once unless you get the nose down.
In that same second, check your height above ground.  Do you have enough
altitude to turn back to the runway (you did calculate your turn-back
decision height before you opened the throttle, didn’t you)?  And you did, a while
back, at altitude, check the height you lose making the three turns you need to
get lined-up on your downwind runway, didn’t you?  And you did make a
rough calc of the correction needed for the height ASL of your airfield, didn’t
you?  You did reset your altimeter, didn’t you?
We plan our flights, we don’t plan to crash.  But in the light of all the business
that goes into that first second after an engine failure, wouldn’t it be wise to
say we should
PLAN THE CRASH?
 
Frank.
On Mar 3, 2016, at 5:44 AM, Boldmethod <no-reply@boldmethod.com> wrote:
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