Canada has so far escaped serious fallout from the financial crisis in the U.S., but the good fortune of Canadian financial institutions may not last for long, according to a web survey of 122 Canadian CEOs polled by COMPAS Inc.
September has been a chaotic month for Wall Street. Plans for a US$700-billion bailout are in the works. The federal government took control of mortgage lenders Fannie Mae and Freddie Mac, the Federal Reserve loaned US$85 billion to insurer American International Group to prevent its demise, Lehman Bros. went bankrupt, and Merrill Lynch sold itself to Bank of America.
Most of the CEOs polled in the COMPAS survey foresee at least some negative impact on Canadian financial institutions in the near future because of the problems in the U.S., but a majority also say the current situation is not as serious as that which led to the Great Depression.
The respondents are generally opposed to government bailouts, believing they only encourage corporations to take greater risks without fear of consequences. But the panel made a special case for AIG. Most of the CEOs support the U.S. government’s decision to loan the insurer billions of dollars because its failure would have had a domino effect and caused other bankruptcies.
“I believe the government did the right thing to save AIG as it would have created chaos for millions of policyholders and the integrity of the entire insurance industry,” wrote one respondent.
“To dogmatically refuse to bail out a company that is a key underpinning of the financial market is tantamount to suicide,” wrote another. “Far better to stabilize the company, look at why it failed, and put in place appropriate regulation to prevent it from ever happening again.”
One CEO questioned the logic of denying a loan to Lehman Bros. and allowing it to collapse. “It does nothing to instill confidence when they assist Fannie Mae and Freddie Mac and AIG, but deny Lehman,” wrote the respondent. “How is the public and business supposed to interpret this inconsistency?”
Many of the respondents expressed anger at the lack of any real consequences for the senior executives who helped to create the mess. “The sad part is that too many executives walk away with pockets full of money for screwing up,” according to one panelist. “It was clear fora long time that there would be a piper to pay.”