Seamanship Quotation

“In political activity, then, men sail a boundless and bottomless sea; there is neither harbour for shelter nor floor for anchorage, neither starting-place nor appointed destination.”
— from Michael Oakeshott's
Political Education” (1951)

Friday, April 6, 2012

A banker’s puppy love of China

There is a problem living in a country blessed with the most respected commercial bankers in the world.

It’s too easy for us to assume that when they speak about the future they’re trying their best to imagine what’s best for Canada as a whole.

Unfortunately, that complex business—for a Canadian banker—invariably boils down to the wonderful business of financing mega-projects—of being a banker on one side or the other of a gigantic, bankable idea, one that's usually in a sector that looks hot or has generated billions in earnings before. 

China has money, mega projects, and a cadre of decision-makers who presently have the knack of making big decisions. Also, Canadian bankers are human and naturally attracted to new relationships. Consequently, Harper’s Alberta–British Columbia oil pipeline endorsement and the potential $134-billion oil sands investment shift to China has easily won their hearts.

Adam Waterous vice-chairman and head of Scotiabank Global Investment Banking offered the following gleeful endorsement after Obama’s delay of the Keystone XL pipeline project.

“Perhaps sensing his foolishness, Mr. Obama recently welcomed TransCanada’s proposal to build the southern leg of Keystone XL. Unfortunately, his actions may be too little, too late. Even with the likely eventual approval of Keystone XL in 2013, Mr. Obama will be closing the barn door after the horses are gone. He has clearly given Canada (and China) a wonderful gift.”

Being backed by a banker, however, doesn’t necessarily make you prudent.

Waterous’s thesis that the US has become an “unreliable customer” for Western Canadian oil products may help ScotiaBank secure a seat at the table with Chinese negotiators. Still, it’s a specious assertion about Canada’s neighbor.

Obama’s decision to delay the regulatory approval of a contentious new pipeline should in no way undermine Canadian government or commercial confidence in American commercial relations or respect the rule of law in the United States generally.

As a risk manager as well as a banker, Waterous should be more concerned about explaining to Canadians how Canada can be made safer by diversifying away from a super-power democracy to a super-power one-party state—a new buyer that explicitly does not accept that commercial courts or the rule of law should stand independent of government and is free to protect commercial contracts and individual rights.

He complains about temporary bottlenecks in US oil market infrastructure that have led to temporary lower prices for crude oil importers. However, he does not provide any basis to conclude that those bottlenecks will not be addressed or even imply that the United State’s commitment to unregulated global oil pricing would ever be less certain than China’s.

Waterous, however, extravagantly asserts that Canada has somehow made a positive strategic decision—a barn door has closed—and has received a wonderful gift because of Obama’s slight on the Keystone Project.  

Bizarre. Short-term corporate hustle confused as nation-building.

Diversifying the sale of 10 or even 20% of future unprocessed crude oil sales isn’t going to transform Alberta or Canada. It isn’t going to diminish the underlying risks of being a seller in commodity markets. It isn’t going to shrink the overwhelming importance of a healthy open US economy to every region of Canada and the urgency of diversifying Canada’s economy—not just its sales force—for individuals and for professionals who do not work for mega projects or the banks that cheer them on.

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