Any doubt about veteran journalist Bruce Livesey’s regard for the Canadian financial industry is immediately dispelled by the title of his new book. Released by Random House late last month, Thieves of Bay Street: How Banks, Brokerages, And The Wealthy Steal Billions From Canadians, unapologetically chronicles the worst moments in the industry’s recent history.
From rogue brokers and corrupt company executives to major banks that knowingly promote dangerous investment products, Livesey paints a picture of a broken system propelled by perverse incentives and a lack of regulation.
It’s a premise he acknowledges could ruffle some feathers -- which, as he told The Huffington Post, is very much his intention.
“The reason I wrote the book is [that] people had this naive belief that the Canadian banking industry was somehow different from Wall Street, that we were better, when in fact, in many ways, we’re much worse,” he said. “People have to have their illusions dashed that they can actually trust these guys.”
HuffPost: You don’t have a lot of love for the financial industry or the people who operate within it, whom you refer to as thieves, crooks and even liken to bloodsucking vampires at one point. Where does your disdain come from, and when did it begin?
Livesey: When I started doing business writing back in the ’80s I really steered clear of the financial industry because it seemed really boring and very arcane. But I began looking at it in 2008 because I could see that the credit crisis was beginning to metastasize.
I actually really had just your basic understanding of what these guys do, so I was really looking at it [as] an outsider.
Because the laws are so weak, they can steal, they can misrepresent themselves, they can [promote] an investment product when in fact they know it’s going to go bad, and they don’t go to jail. They don’t get charged. That’s what I began to find, and it was just very new to me.
HuffPost: You note that despite warnings, “Canada’s banks eagerly waded into the U.S. subprime mortgage market,” explaining how banks like CIBC got involved in toxic investment products. But as you point out, TD decided to stay away from Asset Backed Commercial Paper (ABCP). In your view, do any of Canada’s banks live up to the reputation you are trying to dispel -- that they are sound, ethical institutions?
Livesey: I think TD probably comes closest. They seem to be a more ethical bank. They seem to really keep their nose clean and be a much better corporate citizen.
But when I was working at CBC on this first story on the credit crisis, I had a whole section on the ABCP fiasco. The one [Canadian] bank that had said, “We’re not going to get involved in this stuff,” was TD. So I called them up and said, “Look, will you guys do an interview with us about the fact that you saw years ago that this stuff could go bad? It makes you look good.” They said, “No. We just don’t want to say that.”
Even when you want to give an opportunity to one of the banks to say, “We had the foresight and our competitors didn’t care,” they wouldn’t take us up on the offer. The banking community is such a strong oligopoly and you just don’t criticize each other.
One of the things that is very clear is that it’s not a competitive industry in Canada.
HuffPost: When it comes to the victims of financial fraud, you say that embarrassment is one of the biggest barriers preventing people from coming forward and holding those responsible to account.
Livesey: Yes. It’s sort of astonishing. There [are] a few organizations or investors’ groups which have been banging the drum as best they can over these issues for years, and when I've asked if they can produce a victim for me to talk to, it’s always a struggle. Because people are enormously embarrassed that they’ve lost all their money.
Most of them, especially if they’ve accrued a good amount of savings, chances are they’re middle class, they’re college educated, they’re professionals, and they’re shocked that they somehow managed to lose their money. They feel like they should have somehow prevented it from happening.
But it’s like going to your doctor and you presume that your doctor has a degree and knows what he’s doing. The same thing happens to people dealing with financial advisers. People assume they know what they’re doing, and unfortunately, that’s not true.
HuffPost: That seems like one of your primary messages.
Livesey: Huge-time, because it’s not your fault.
I remember asking one of the guys who used to work at [an investment firm], which was one of the main sellers of ABCP. I said, “If you’re an average investor, could you have found out that ABCP had U.S. subprime mortgage debt attached to it?” And he said, “No. You could not have found out. The only people who knew were the top people in the industry, and they sure as shit weren’t saying anything.”
There [are] certain investment products that you can’t actually find out what the debt is wrapped up in because it’s in another country, it’s obscure, it’s hidden, they’re not telling you. So no, you’re rarely to blame if they lose your money.
HuffPost: But is that always the case? Don’t some investors share the same motivation as financial fraudsters -- the desire to get rich quick?
Livesey: The mantra -- if you talk to people in the investment industry -- is that the investors just want to make too much money, and they’re blinded by greed. I don’t doubt that that happens, but what I’ve seen a lot of is, as it’s become more difficult for your average person to make ends meet, and especially when you deal with seniors who are no longer earning a salary, they need to make money from their investments, and it becomes an incentive to do stupid things.
The industry knows that, and they’ve taken advantage of that desperation.
That’s been a big source of a lot of the tragedies in recent years. Seniors have been sinking their money into stuff they shouldn’t be in the desperate hope of some return just to keep the lights on.
HuffPost: Are there any emerging areas of financial fraud in Canada that you are worried about?
Livesey: China is a huge issue. They’re getting their companies listed on our capital markets to raise money, as we’ve seen with Sino-Forest, and we’re seeing now with a number of these Chinese companies. We have no clue whether those companies really are what they say they are. It’s really hard to check because China is a really long way from us.
Billions were lost last year because people were realizing that these Chinese companies they were investing in might just be Potemkin villages. That’s sort of the next huge potential area of stock market scams.
HuffPost: What would it take to clean up Canada’s financial industry?
Livesey: The regulatory issue is huge. If you removed the police force from Toronto, you would see a lot of shit happen. The same thing basically exists in the financial industry, where you don’t have a police force, so they do a lot of evil as a result. In Canada, we have one of the most, if not the most, abysmal regulatory system in the developed world.
We need a national securities regulator. That’s long overdue. We should have tougher penalties on investment fraud, we should be sending more people to jail and make it more of a criminal thing. Because in Canada we have this tendency -- we hit people with securities violations, which are clearly cases of fraud, but we don’t criminally prosecute them.
A huge thing would be splitting the brokerage houses off from the banks. This was one of the wise things that came out of the Great Depression, separating the banking industry from the trading industry. That led to 50 years of stability, if not more. I was when they allowed banks to get into the brokerage industry that its really gone down the crapper.
[Editor’s note: The U.S. is about to implement legislation, known as the Volcker Rule, to do exactly this. Canada’s financial sector and Finance Ministry have been among the most vocal critics of the plan.]
HuffPost: In the book, you say that the chances of sweeping regulatory changes are slim. So what advice would you give to Canadians? Should we put our money under our mattresses?
Livesey: Well I don’t put my money in the markets, that’s for sure.
Between now and whenever the industry is reformed, can you trust the industry? The answer is no, but that doesn’t mean that you can’t invest wisely and find people who can invest your money wisely. But it’s hard because the whole system is incentive-based, [it’s] designed to keep your money in play in the markets, and as the market tanks, so be it. The system is not designed to help you and make you money. That sort of happens almost by accident.
My mother is now in a nursing home and we have been dealing with her finances, and we’ve just been really diligent about asking all sorts of questions and that’s helped enormously, not only in our own understanding but in terms of keeping the financial adviser on her toes. She knows not to screw with us because we are actually being very critical of any advice she gives.
I think that’s really the best you can do -- ask the right questions and if you don’t understand it, don’t put your money in it.