The Agenda with Steve Paikin (Audio) - Did The Great Financial Crisis Ever Really End?

Episode Date: June 13, 2025

Housing affordability and lagging productivity in Canada. The economic rise of China and the global south. The surge of the tech economy in the U.S. According to our panel, the beginnings of all of these can be traced back to the Great Financial Crisis of 2008. There's an argument to be made that the world is still living in the shadow of that bank-led global financial meltdown. See omnystudio.com/listener for privacy information.

Housing affordability and lagging productivity in Canada, the economic rise of China and the global south, the surge of the tech economy in the US. Our guests tonight will argue these can be traced back to the great financial crisis of 2008, a topic we covered at the time and throughout our 19 seasons on the agenda. There's an argument to be made that the world is still living in the shadow of that bank led global financial meltdown. To explore this further, we are joined by in Vancouver, British Columbia, Jim Stanford, economist and director of the Center for Future Work. In the nation's capital, Angela McEwen, senior economist with the Canadian Union of Public Employees.

And here in our studio, Randall Germain, professor of political science at Carleton University. Welcome to those who are joining online. And thank you, Randall, for joining us in studio. Jim, I'm actually gonna come to you first. I want you to take us back to the early 2007s, around the time where the US banks started announcing losses related to the subprime mortgage market. Tell us, what was the Canadian economy

performing? What was happening here? Well we weren't doing too badly. We had our stresses and strains in Canada at that time. One of the important things that was happening was our Canadian dollar was really strong at that point in time. too strong, trading over par with the US dollar for a while. That was related to the oil boom that was happening out in Alberta, particularly the expansion, the big expansion of bitumen projects and oil exports. That high dollar was causing some problems in our manufacturing sector even before the global financial crisis hit. We weren't in recession, we were growing, we were trying to grapple with some of those

challenges and our financial system in Canada was pretty strong. The banks, of course, are very powerful, very concentrated in Canada and that has its negative aspects but the positive aspect is that the banks were very strong. So until all this mess erupted south of the border, really, we weren't in bad shape in Canada. All right, Angela, I'll get you to add on that as well. What was that picture like for Canada in the early 2007s? Sure.

Well, I was actually still doing my masters in economics at that point in time. And so it was a really interesting time to be studying economics and watching what was happening in the United States and thinking about what the impact would be in Canada because we had some of the same trends with super low interest rates and increasing financialization in the housing market that were driving up housing prices. But we had the more stable banking system, so there was a lot of nervousness and anxiety, I think, about the impact of the global recession and how that would impact Canada. That was kind of more the concern that we were seeing in Canada, that this was going to impact the world. And then how would that affect our ability to trade and our ability to, you

know, kind of make money off of the things that we sell to the rest of the world if they're all going through this crisis. All right. Randall, speaking of trends, what trends were driving the global economy at that time? I mean, I think the main trend from the early 1990s right through to September 2008 was the liberalization of financial markets and of economies, the opening up of the economy, of economies, the word is globalization. It really was a powerful pressure that was reverberating around the world.

And alongside that pressure, there was, you know, it was a kind of a new era. Those of us who were studying that back in the time, it was a kind of a new era those of us were studying that back in the time it was a new era of international cooperation and collaboration if you were looking at the way in which financial systems were evolving there was increasing an increasing amount of cooperation a lot of attention being paid to addressing the systemic issues that did arise in the late 1990s with a kind of a currency crisis in parts of Asia. But the big story really was globalization and economic integration. And along with that, really the first powerful emergence of non-OECD markets.

And so China was really beginning, India, Brazil, the term BRICS, which became very popular after 2000. It was coined by Goldman Sachs in 2004. This was the overriding pressure. But at the same time, I think this became really obvious after the financial crisis, was a kind of a decentering of the American economy. It had begun, so you saw this globalization,

and it was at the point in time when the United States became less central to the way that the global economy was functioning, not for Canada, it was still tied in, locked up with the United States, it's a problem, it's an issue that we have to deal with. But globally, it really wasn't opening up. Okay. All right.

We know that Canada, whether the crisis, used to look at it on this side, much better than advanced economies. I want to show a interview clip with former Prime Minister Paul Martin in 2011 on this program where he explained some of the reasons why. Have a look. We in Canada actually have handled that very very well. We did it when we basically improved bank regulation at a time when other countries were weakening theirs, when New York and London were competing and we didn't. We did it when we did not allow the banks to merge and our banks are very well managed. So that part of the crisis we've taken care of, the

Bank of Canada have shown exactly the same thing. Without a doubt the worst financial crises are those that stem from bank crises because it's a failure of confidence and trust and the economy depends on confidence. Why did Canadian banks and regulators have such a different view of risk and governance compared to those institutions in the US and Europe? Well, some of it comes from Canadian nationalism, to tell you the truth. We've had fairly strong regulations limiting the role of foreign banks in Canada's economy and in a way protecting the big Canadian banks that we have. And again, as I mentioned, there's a plus side and a negative side to this.

The negative side, of course, is, you know, the industry is dominated by a few small large players. The plus side is those large players are relatively stable and they're protected by regulation. And again, as a former prime minister, Martin just mentioned, our banking regulations were a little bit tighter, Still not tight enough, frankly. You know, you could still have a crisis of confidence and a collapse if depositors and the interbank lending system froze up.

You know, remember the banks take every dollar of capital in their reserves and they lend it out 20 or 30 times in Canada. So you can still have a bank run as we used to call it, but in America, they were lending it out 50 or 30 times in Canada. So you can still have a bank run as we used to call it But in America they were lending it out 50 or 75 times so it was much more precarious there in part because The industry was more fragmented and more competitive and less regulated So, you know to some extent the fact that we were a separate country we were determined to have you know, our own rules and regulations on this system and support and give a bit of protection to Canadian institutions in the financial

system. Rather than going full hog, the global idea that, well, we'll just be part of a global system, we actually did try to protect a bit of a Canadian identity in banking. That helped us big time when the crisis hit. Speaking of nationalism, Angela, I'm curious, did other nations envy Canada and how we handle this situation? Yes, I remember a few years after the great financial crisis, when I was working at the Canadian Labor Congress and we were still seeing globally a

really slow recovery from it. And other countries were recommending to Canada that we increase our public spending, that we increase the amount of investment we made in the economy, because we were in a position to be able to do so. And that that investment that Canada was making could help kind of kickstart growth globally. There were countries who were asking, you were asking those who could step up and replace some of that gap in business investment that we saw after the financial crisis that we should do that. And we could build things that we needed for the long term and we would have

been better off if we had done that. And it also would have helped get stuff circulating in the global economy potentially. The OECD, the IMF, other international agencies were asking Canada to do that. Europe was asking us to step up and make those injections into the economy, but the government at the time, it was really a hard sell. They weren't going as far as we would have liked them to. Alright, Randall, I'm curious. It seems like we were in a better situation, but a lot of that, I'm curious to know if it had to do with what was happening in the 90s. As Minister of Finance in the 1990s, Martin was also known for getting Canada's spending and deficit under control. I'm curious, how did Canada's improved balance sheet contribute to its ability to weather the financial crisis better than the other nations?

Well, I mean, part of it was because precisely, as Jim was saying earlier, it's very highly concentrated but it's not an oligopoly. You have to think back to when the two largest banks in Canada were proposing to merge in the late 1990s and that was ruled out. Canada has always been an interesting model. So one of the interesting aspects about coming out of that financial crisis in 2008, 2009 was that the model that Canada projects was examined.

It was looked at. And it seemed to have struck a better balance than others, for example, in the United States, but in Britain, in Ireland, in Iceland, in many European countries. A lot of European banks were even more leverage than American financial institutions. And so there was a balance that was struck. And I mean, it's interesting because it plays into a long,

a much longer view of Canada punching really above its weight in terms of participating in the international aspect of financial regulation. Martin himself was an important mover in the emergence of the first G20 and the Financial Stability Forum that was a product of the late 1990s. So Canada has always been at the forefront of collaborative efforts, leading that way, even though, as we saw coming out of the 2008 crisis,

to the extent that it was resolved and met, it was really with national responses. There was very little that it was international about that. Countries were acting on their own. The United States acted on its own. Britain acted on its own, on and on, and so on and so forth. But Canada has always, they think they've struck a better, slightly better balance

in the regulation and innovation component. And one other thing I would add to the point that Jim made earlier about the pluses and minuses of it, one of the pluses of having a concentrated banking system is that they're actually very profitable. So they were able to put away money and have slightly better buffers than many, many other banks. And there's a little bit less leverage.

They're less innovative also than their global peers. And sometimes this is a downside, but in periods of acute crisis, this actually is a positive. All right. Let's talk about the banks. One of the remedies to the crisis in advanced economies was lowering of interest rates. Here's a chart showing Canada's rate moves from left to right.

You can see they dropped sharply in 2008 to 1% or less and stayed in that range for years. Angela, I'm curious, what were the biggest consequences to the Canadian economy to having such a low interest rates for so long? So one of the things we saw is that households took on increasing amounts of debt. The housing market prices increased dramatically over this period. In other countries, there was a correction in the housing market after the 2008 crisis. In Canada, we didn't see that correction.

We saw housing prices continue to increase. We saw the amount of debt that households took on, whether it was auto loans for mortgages or for student loans, there was more and more debt. We saw the average debt-to-income ratio for households just kept climbing because it was really cheap to take on that debt. It was a way to make up a gap in other areas if you had less income, if your household wages weren't keeping pace with the costs of living and what you needed to buy, you added more debt to your household. So by the time COVID hits and we have that spike in inflation and the spike in interest rates, households had a huge amount of debt that they had taken

on when interest rates were really low and faced now huge costs that they were not accustomed to in terms of having to service that debt. So that kind of created a big shock for households. All right. I want to show another chart. This one, an index of Canadian home prices, and you can see focusing sort of on the left side of the screen, a sharp increase in values

during the time rates were low between 2008 and 2018. Jim, why did the housing market become so important to the Canadian economy over this time? Well, the housing market has always been important. It's a big part of our spending and a big part of our activity, construction and so on. What happened was it became overvalued. It didn't necessarily become more important as a share of total GDP or total employment.

It's just prices became too expensive. And as Angela was saying, it is the flip side of the coin of low interest rates. We needed those low interest rates at the time of the crisis. But generally, when interest rates fall, home prices rise for the simple reason that the debt service charges of taking on a mortgage are reduced.

So people feel, and they're encouraged by the banks to feel this way, they feel they can take on more debt. And that credit creation bubble drives up the price of housing. So it's an unfortunate side effect of having low interest rates. Now I think that the real problem was not that interest rates were cut during the peak times of the crisis, that was quite appropriate, but that they ended up staying so low through most of the 2010s. Normally you would have expected a recovery in interest rates back to sort of normal levels,

but that didn't happen in Canada and around the world because the general recovery from the global crisis, but especially in Europe, was very, very weak. So central banks were reluctant to increase interest rates after the immediate crisis had passed. So it was that sustained period of low interest rates mostly reflecting the general weakness of the recovery in some parts of the world that then allowed housing prices just to rise and rise and rise and rise. And that set the stage obviously for the problems of unaffordability in housing that Canadians are experiencing today. Angela, did you want to add on to that? Yeah, I just wanted to add that government policy at the time kind of exacerbated the crisis. We

had a period of time where you were able to put less money down and get a mortgage and they were able to be extended over a longer period of time, which actually also encouraged households to take on larger amounts of debt and to not necessarily always be aware of what the consequences would be when it, five years later, interest rates were higher. So, we had large amounts of debt over long periods of time without a lot large down payments, which was introduced in order to allow people to get into the housing market when it was so expensive,

but it had the consequence of continuing to drive up prices. One thing I think it shows, the whole experience shows that the reliance on sort of private market decisions to govern our whole housing system can be quite risky. So you've got the banks pushing credit when interest rates are low, and then the government responding to that by saying, well, we better help Canadians try to offset the impacts of the debt load that results from that and I think this whole decade really of housing price bubble revealed the weakness of relying solely on private market for housing and the fact that in the 90s unfortunately unfortunately, under that same finance minister, Paul Martin, Canada got right out of the kind of public or affordable housing area and

instead put everything over into private markets. All right, I want to get Randall on that. Yeah, and part of that continues. I mean, that's still the focus is on making it easier for new homeowners to buy houses and take on that result. But I would also add to that, I'm not like an economist with only three or four hands here, but this was a global phenomenon.

I mean, house prices around the world, they did correct, most importantly, the United States. But there was a huge run up in house prices in Europe and elsewhere. And the part of the problem for the maintenance of low interest rates was there was a gigantic debt crisis in Europe, a sovereign debt crisis that really took hold two or three years after the financial crisis and really in some respects hasn't totally been resolved. So this is a kind of a global phenomenon.

And you add, and it's not just about the housing. This is the interesting thing. And debt levels ballooned after the financial crisis. And then they ballooned again during the pandemic, partly because of quantitative easing, because it's not just that central banks were lowering interest rates, but they were actually advancing money into the general economy and to their governments in ways that were, in certain respects, unprecedented.

And this is absolutely one way to address an economic challenge. It would be nice if there was not just a monetary response, but also a fiscal response and certain other things. But really, the choice was made for a variety of political reasons to do with an avoidance of governments on obviously taking on more debt. They would allow it to be done by central banks.

But really, debt loads have gone. Now, there's no, I think, this is a very contentious issue in the economics and the political economy fields of study about what is the maximum debt load one can't, you know, I personally think that in the case of the United States government there is no maximum. But nevertheless, for other countries, and I would conclude out of there, they don't have a global reserve currency, they do actually have limits. And so we're kind of dealing with that as well. So we now have a world in which there is an abundance of capital floating around. So we have asset inflation, not just housing inflation, we have financial asset inflation of all kinds, which really,

I think, is a part of the shadow and the overhang of the financial crisis. All right, Randall, I'm actually going to stick with you because you mentioned the US and I want to talk about sort of the current trade tensions with the US and the push for Canada to diversify its international trading partners. Looking back now, should Canada have used this period to forge stronger trade ties with places like Asia or Europe. I know that those take a while to get to put together, but was that an opportunity, a missed opportunity? It's been a missed opportunity for over half a century, right? I mean, there are so many obvious reasons why the vast bulk of Canada,

the stuff that Canada produces goes to the United States. It's obvious. But yes, there's a vulnerability there. And that vulnerability, I mean, we also, you go back to the early 2000s. I mean, Canada's recovery from, you know, in the 1990s and early 2000s, especially, the recovery from a very severe, I would say, recession at the beginning of that period was really on the back of a less expensive dollar and Huge amount of exports including we had an auto industry a much more robust autos and an oil over that period

so For Canada. Yes, you know, it's a it's a it's a vulnerability, but in a world of growing trade, you know there are ways you can you can justify that trade-off. But one of the biggest, I think, after effects of the financial crisis has been a slowing of globalization. So international trade levels are actually not nearly, they haven't risen like they would have. So in fact, international trade, there is less of it.

And in that kind of world, Canada has to fight even harder. And it's much more sharp now. I want to get Angela's take on that as well in terms of a missed opportunity when we talk about other key trading partners. Sure. So we did try to negotiate trade agreements with Europe. We did negotiate the Canadian-European Economic Trade Agreement, CETA, which finally, I think, was signed in 2017, but it takes a long time, especially when there are multiple partners that you're negotiating with. We also negotiated

the Trans-Pacific Partnership that the United States ended up pulling out of with a whole bunch of partners. Now, I would argue that international trade deals aren't, that what we did was the wrong approach because an international trade deal is really setting global rules for trade. It's setting this kind of like international consensus, which doesn't necessarily help us increase trade. What matters to increase trade relationships is relationships, is knowing what types of things Europe might want to buy from Canada, what could we produce for them. We know and understand the United States market very well, right? They're very similar to us, they're very close to us, and so it absolutely makes sense that

businesses would be kind of targeting that market and trying to reach that market and that it takes a much longer path to be able to target a market that is geographically farther away, that is culturally more different from us. And so there needs to be a lot of work helping to build those relationships and to think strategically about what industries we might support, what linkages we might build between industries that would be advantageous for us and strategic for us to trade on the international market with.

Jim, I'm curious, one of the things that we touched on just briefly was about innovation. And I wanna get your take on sort of innovation in the tech industry. What's the connection between the rise of the financial innovation in the US, say Bitcoin and other cryptocurrencies and the financial crisis? Well, Bitcoin came after the GFC, but certainly the general process of financial innovation. And I should put scare quotes

around innovation there because it isn't really the kind of innovation we want. These are people sitting in desks in financial centers figuring out new ways to make money buying one piece of paper and selling it two seconds later for a fraction higher, but if you do that often enough, you can make a killing. So that's the kind of financial innovation

that created the groundwork for the financial crisis. What we really need in the economy is real innovation, investment in capital and technology and skills and and new industry so that we can produce value-added stuff for those world markets. That's another thing that's held back our trade performance not just since the GFC but over a longer period of time as well. The fact that Canada's underdeveloped in terms of those high value technology intensive industries. One after shock from the global financial crisis that we shouldn't forget was the huge impact on the auto industry in Canada. It is one of the only sectors where Canada has punched above its weight in terms of value-added

manufacturing, obviously very export-oriented, very dependent on the US economy. Remember during the worst days of the crisis, you had two of the three major North American automakers, so General Motors and at the time Chrysler, have to file for bankruptcy protection and restructuring. So we had a big drama on both sides of the border where the US government and the Canadians, both the federal government and the Ontario government, really, really came to the table with some very important and massive supports to help GM and Chrysler through. Eventually Ford got some of the savings and other restructuring, even though they didn't go through bankruptcy protection.

So that was a very dramatic moment where the future of Canadian manufacturing really was at stake. And luckily, interesting, even though we had a conservative federal government at the time, and then a liberal government in Ontario, they kind of put aside the politics, if you like. And there was Prime Minister Stephen Harper at the time. What a surprise. Putting tens of billions of dollars of money into help keep the auto industry going.

And it was very important. So we still have an auto industry today because of those actions. But it was a very, very painful and risky moment. All right. We've got one minute left and we've got one question that I'm hoping I can split between Angela and Randall here. Randall you get the first try at it. Prime Minister Carney was once Bank of Canada governor. How did his leadership through that crisis help prepare him to run the country now? Yeah that's an intriguing question. I mean I would say

that that so when you're the Bank of Canada, you're heading the Bank of Canada and the Bank of England, it's not simply an economic position or a technocratic position. He's got to negotiate. But he negotiates, you know, from a very interesting position. It's a position of judicial and statutory independence. He has a lot of resources at his beck and call. And some might say that even though he's negotiating with others and trying to convince them to go in the particular financially prudent way that is the central bankerers default mode of acting. It's not really I think it's not really a background that prepares you for the cut and thrust of

modern democratic politics and in point of fact I cannot myself and I should have done this research before before today I cannot remember or recall a successful central banker becoming a successful a leader later on in their career. Because you're dealing with a different set of cut and thrust. But having said that, the man has the kind of knowledge skills that I think are purpose-built for today's moment. And like everyone else, I wish him well. But I do, today's moment. And I, you know, like everyone else, I wish him well. But I do think he's gonna have to, the learning curve is relatively steep.

All right, Angela, you got 15 seconds. Sorry, Angela. No worries. Hey, I think maybe I can summarize that and put that in maybe a bit more blunt language. He's very technocratic, he's very intelligent, he understands how the system works very well. But I think his impulse is going to want to do things very quickly. We've seen this with the two bills he's put before parliament that he's trying to push through before it having any kind of parliamentary committee oversight.

And that just isn't how democracies work. I don't think that's how we come up with resilient solutions and approaches. I think the best answer is not always the technocratic answer. The best answer that works in a democracy actually is something that's sorted out through difficult conversations and through negotiating kind of compromises between different points of view. Whereas he's the smartest guy in the room and is usually able to convince those to negotiate in a way to convince those that his approach is best. That's not, that's not the way democracies work. And so that I agree the learning curve might be quite high.

All right. We are going to leave it there. Angela, Jim, Randall, thank you so much for joining us in Sudan. Thank you for your insights. Appreciate it. Thank you.