Philosopher George Santayana was born in Spain but anglicized his name after growing up in the United States. While he wrote exclusively in English, he kept his Spanish passport all his life. Instead of being a long-winded philosopher, particular to the field, Santayana was famous for his aphorisms like “Only the dead know the end of war.” As an amateur historian, I like “Those who cannot remember the past are condemned to repeat it” although beauty as “pleasure objectified” runs a close second. It’s anniversary month, 38 years.
Highlighting the recent spate of deregulation, the Department of Labor recently declined to appeal a likely winnable case thus erasing the fiduciary standard for IRAs. It seemed the appeal was a no-brainer to me, but I was wrong. Let the record reflect of a sharp decline in the number of dubious investment products during the fiduciary standard for IRAs short lifespan. With a heavy heart, I predict a return of the bad old days when unscrupulous “advisors” impudently peddled inappropriate annuities.
Taking a worldwide view, the countries whose economies avoided the worst of the Great Recession appear to be ignoring the mistakes the United States made. Australia, Sweden, and Canada have gone on a borrowing binge and could be squeezed from rising interest rates in the United States. Banks in these three countries dodged failures, especially when compared with the United States.
Throughout financial history, after economic upheaval, borrowers become leery about repeating past mistakes and regulators institute protocols limiting risky practices. Unfortunately, not everyone gets the message especially those whose economies didn’t get hit. One reason Sweden missed the debacle was their Lehman Brothers-like experience in 1992.
All three of these nations have rapidly rising housing markets. Remember how it was back in the day up and down 30A? Canada tightened rules on banks for home loans, but borrowers have gone to outside lenders. According to a recent Wall Street Journal report, Australia may be facing a similar situation. The home price to income ratio in Australia, Sweden, and Canada now approaches levels of Spain and Ireland in 2007. We know how that worked out.
To compound matters banks in these three countries finance abroad; a practice that puts them at additional risk if global rates rise. The Bank for International Settlement recently put Australia and Canada on alert because they borrow so much from other countries. Housing markets often settle a bit before a crisis. In Stockholm, apartment prices have dropped 10 percent in the last year. While our northern neighbors have seen a more modest decline, prices in Toronto are down 7 percent over the last 10 months.
Neil Young, another philosopher who kept his original passport, reminds us there is often a warning sign on the road ahead.
Even though Buz Livingston is a fee-only certified financial planner this should not be considered personal advice. For specific recommendations visit online livingstonfinancial.net or at the office in Redfish Village, 2050 Scenic 30A, M-1 Unit 230.