Compelling, yet flawed, look at financial services

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This article was published 21/04/2012 (4926 days ago), so information in it may no longer be current.

THE only thing more provocative than the title of this book is its subtitle, reminiscent of a Marxist screed.

Otherwise, this is a compelling, yet flawed, take on Canada’s financial-services industry.

Toronto-based Bruce Livesey is a veteran investigative journalist who’s done stints with CBC-TV’s The National and The Fifth Estate. This is his first book.

His targets are many and varied: banks, brokers, securities regulators, financial planners, lawyers, stock markets and hedge funds.

And most of the stories he relates are torn from headlines of the last few years: the rise and fall of Nortel; the dismantling of Hamilton steelmaker Stelco; Conrad Black’s pillaging of the assets of Hollinger International; CIBC’s role in the Enron debacle; Montreal financial planner Earl Jones’s three-decade-long Ponzi scheme.

There’s a lot of righteous — and frequently justified — indignation about fraud, chicanery and market manipulation spilling off these pages.

But sometimes you wish Livesey had toned down the rhetoric. A more credible critique would have hewed closer to the facts alone.

And though his marshalling of facts to buttress his arguments is often impressive, he’s not above making major gaffes.

In late 2011 the Supreme Court of Canada ruled the Harper government’s proposed new law to create a national securities regulator, to replace existing provincial and territorial securities commissions, was unconstitutional.

But Livesey gets it backwards. He wrongly says the court found it constitutional, and therefore lawful.

Conspiratorial

He’s also prone to conspiratorial allegations, unsupported by much evidence.

He maintains provincial securities commissions often don’t rigorously enforce securities laws, or prosecute breaches, because they’re cosy with local investment industry nabobs. “Captive to Bay Street” is how he collectively describes them.

But their defaults and omissions have more to do with the balkanized, patchwork system we have in Canada — born of having no less than 13 provincial and territorial commissions — than any high-level connivance between regulators and the industry.

Livesey’s take on markets and the financial-services sector brooks no compromise. From the get-go, he stakes an absolutist position:

“The financial industry has drifted far from its original purpose, which had been — and which most of us presume remains — to raise money to help companies grow and to enrich investors willing to risk money in those businesses,” he writes.

“Instead, it has morphed into a wealth destroyer, a parasitic reaper of money from the middle and working classes, transferring it to the very people who run the financial industry and Canada’s wealthiest citizens.”

Livesey scores many perceptive points.

And his writing is punchy and persuasive, fuelled by intelligence and an almost geeky fervour.

He also nicely interweaves statistics, public-policy arguments and analysis, and explanations of how the markets work (or don’t work as they’re classically supposed to) with individual horror stories of financial planning and investing gone awry.

But he frequently gets carried away. Not every penny earned in the financial-services sector is dirty money.

The 2008 financial meltdown has caused a lot of deep thinkers to criticize the manipulative role investment banks, brokerages and credit-rating agencies play in equity markets.

It has also caused prominent American legal and economic theorists like Richard Posner to question their allegiance to Milton Friedman’s economic gospel of the self-regulating and self-correcting marketplace.

But few have levelled the kind of broad indictments Livesey too cavalierly tosses around.

 

Douglas J. Johnston is a Winnipeg lawyer and writer.