Canadians shouldn’t paint the current domestic economic situation with the same brush that’s been dipped in the devastation south of the border, says a local commercial expert.

“We visit a lot of customers and they say the media is just killing the economy up here and it’s really not that bad. But the reports get into the psyche and people are retrenching,” says Roger Still, vice president and manager of the Central Ontario TD Commercial Banking Group.

The massive government bailout President Bush recently got approved to mitigate the wide-scale disaster caused by poor investment decisions, stabilize the stock market, and help banks get back to work simply isn’t necessary here, says Still.

“In the U.S., they’re not doing loans. Here at TD, however, the bank decided not to get involved in sub-prime loans, asset-backed commercial papers or even securitized unorthodox products,” he explains.

In fact, except for some relatively minor issues at the CIBC, compared to their problem-ridden U.S. counterparts, Canadian banks are “strong, safe and open for business.”

In the recently released 2008-2009 Global Competitive Report, Canada’s banking system was rated the soundest worldwide by more than 12,000 business leaders in 134 countries. The extensive survey, conducted annually by the World Economic Forum, asked executives to score each country between 1.0 (insolvent) and 7.0 (healthy and sound).

Canadian banks received a score of 6.8, narrowly beating out Sweden, Luxembourg, Australia and Denmark, which all tied with a score of 6.7.

The United States placed 40th behind Germany, Estonia and the southern African country of Namibia.

In the wake of the dot-com debacle of the early 2000s which had banks investing heavily in new high-tech companies that were highly overvalued, Canadian banks changed strategies.

TD Canada Trust, the visionary bank that backed Ted Rogers’ ventures, was forced to write off about $2 billion in bad loans during that time. The model of the day was to rely on investment banking for more than half the bank’s revenue.

“It was lucrative, but risky,” reports Still. When new bank president and chief executive officer Ed Clark was appointed in December, 2002, he changed the model.

“He wanted to de-risk the bank,” Still recalls. “His mandate was to put more emphasis on domestic retail and now we have 90 per cent of our income coming from the retail bank – that’s very high.”

Because retail banking pays a small amount per transaction as compared to commercial banking, the bank began a large marketing campaign to attract new customers – those individuals doing their daily banking.

“It’s low-risk, service-oriented, stick-to-your-knitting kind of strategy,” says Still. “It goes across a half-million people, instead of thousands of high-risk investments. You’re not making much on each one, but there’s a lot more of them.”

Consequently, the bank invested instead in building additional banking centres across the country.

“It’s an expensive service model, but if it translates to a bigger market share, it’s worth it,” adds Still. “Now, other Canadian banks are following that same strategy.”

According to current bank statistics, one in three Canadians now banks with TD Canada Trust. And that is why Canadians didn’t have the exposure to the same problems the U.S banks opened themselves up to.

The attractive high-yield potential being offered by companies selling off re-packaged investments was simply too high-risk and unconventional for Canadian banks still stinging from the high-tech meltdown of the recent past.

“We’re not after the quick buck, the high-risk buck,” explains Still, who says domestic banks have learned their lesson. “We’ll grind it out, do it with the nickels and dimes instead of the 100s and 1,000s, but doing it over a lot more transactions.”

In the U.S. and elsewhere across the globe, greed was the underlying factor of the recent collapse of investment banks and the insurance companies that backed them.

“It was all U.S. mortgages, but that toxic asset base got bought and sold all over the world,” he says.

In a nutshell, Still says high-interest rate mortgages were provided to high-risk people with poor credit – referred to as sub-prime borrowers. To improve the credit rating of the mortgages for the banks who were looking to sell the loans, these mortgages were packaged with better-quality mortgages to benefit from their credit standing and the entire bundle would be stamped with a triple-A rating (the highest possible) by a bond agency.

Now those original sub-prime high-risk mortgages could be sold off at a premium interest rate, with the banks pocketing the difference. The packaging and selling of any investment for cash-flow purposes is called securitization.

“That’s what the investment banks do: engineer securitizations of these packages so they can package them up in different ways,” comments Still. “It’s really making silk purses out of sows’ ears. That’s exactly what they were doing.

“You can package it up and sell it off, but what happens when it starts to go bad? It was reckless.”

The insurance companies backing the banks with default insurance, most notably AIG – one of the largest insurance companies in the world – also passed on the loans to smaller insurance companies everywhere, so when the bottom fell out after a decade of healthy profits, there was a domino effect as the liquidity of each institution in turn got squeezed dry.

“I guess they were thinking, if there is someone willing to buy it, stupid enough, why not? I get to make money off it,” shrugs Still.

On the afternoon of October 3, in an unprecedented move by the U.S. government, President Bush signed into law a $700-billion authorization to bail out his country’s financial system.

The move followed two weeks of debate and one failed vote, during which Bush pleaded with Congress to get on board with the plan.

“I’m a strong believer in free enterprise, so my natural instinct is to oppose government intervention,” he said in a televised speech prior to the most significant intervention since the Great Depression. But “these are not normal circumstances. The market is not functioning properly. There has been a widespread loss of confidence.”

The initial plan was quickly defeated.

“People were rightly seeing the proposal as unpalatable,” says Still. “They were looking at bank executives who were taking home seven and eight figures every year, and now the taxpayer has to pay for their mistakes. The second go-around did have a lot more in there for small business and the average consumer.”

Afterward, a relieved Federal Reserve Chairman commented on the importance of the funding to infuse necessary capital into the system.

“This legislation is a critical step toward stabilizing our financial markets and ensuring an uninterrupted flow of credit to households and businesses,” said Ben Bernanke.

Some opposing the plan say it’s not going to be an immediate solution.

“It’s probably not going to be enough,” says Still, who sees the market not stabilizing from the news since the announcement. “The instability has gone beyond the U.S. There have been banks in Europe that have gone under.”

Fortis, formerly the biggest Belgian financial-services company, had stopped trading as it recently began to liquidate; but an infusion of $19.7 billion from sales of banking and insurance assets to the Belgian and Dutch governments has it resuming activity. The post-rescue company will be left with its international insurance operations and a stake in its structured credit portfolio.

But in Canada, it’s business as usual. Our banks are liquid and continue to look for solid companies to invest in.

“Of course we’re concerned about the economy, so we’re going to be selective and prudent about whom we lend money to,” says Still. “But I met a business client this morning looking for $40 million, which I expect will be approved. I don’t think they’d get that in the U.S.”

The trouble centred in the U.S. has, oddly enough, according to Still, garnered support for the U.S. dollar resulting in its rising value. Consequently, the value of the Canadian dollar is dropping by comparison making the economic climate potentially favourable for Canadian exporters as long as U.S. customers have the money to buy.

Since 74 per cent of Canada’s exports head directly south, this outcome will be economically significant at home.

And, despite ongoing grim economic reports, Statistics Canada reported record highs for new employment in a single month with 107,000 new jobs being created across the country in September.

The new jobs, mostly part-time positions for young people or in the health-care sector, are being seen as signs of economic recovery.

Dale Orr, chief economist for Global Insight Canada was recently quoted in the Globe and Mail newspaper saying the domestic forecast is much more optimistic than that of the U.S.

“‘You could say the worst is over (for the Canadian economy), but don’t get too excited,’” he told the newspaper, projecting a slow growth over the next year. In the United States, however, his firm predicts a shrinking economy this quarter and next, “and recovery a long way off.”

Despite the safety from the large-scale panic gripping the U.S., Still says Canadian bank stock prices continue to be impacted by a number of factors beyond their control.

“Even though TD avoided the sub-prime business, we aren’t immune to the shifts that are being seen in the market,” he says. “There continues to be wide speculation about a U.S. recession.”

Still’s colleague at TD Waterhouse’s Private Investment Advice group has been busy since the collapse of the U.S. housing market put the markets into a tailspin.

“Global stock markets continue to struggle under the weight of the deepening liquidity crunch and concerns over slowing global economic growth,” says Mark Lyon, Senior Vice President and Branch Manager at TD’s new business centre on Barrie’s Collier Street.

“The events of the past three months are unprecedented in terms of volatility, the magnitude of the credit debacle and the historic changes in the landscape of the U.S. banking environment.

“We expect the uncertainty and volatility to continue until there is evidence of an easing in the liquidity and credit constraints. The U.S. economy remains on fragile ground while the signs of slower growth are just beginning for Europe and Canada.”

He believes it’ll take empirical data before the markets stabilize.

“This market is not based on fundamentals, it’s based on fear and greed,” he says, and it will take time and evidence before it transitions back. “But in the meantime, it’s very unnerving to people.”

But selling off equities at this time will be counterproductive, he says. It will fuel the problem in the markets and pay a reduced return.

“Many of my advisors had been moving their clients over into treasury bills or other short-term, easily accessible, low-risk markets in the last six months, just because there had been a good strong run and it was starting to show some volatility,” Lyon reports.

“But for those who remained in the market, I don’t believe they should sell their equities at these levels unless they were planning to anyway.”

He advises caution, discipline and restraint. Historically, the markets are up more than they are down and it’s just a matter of time before they recover, he says.

“Don’t get caught up with the nay-saying pundits that are coming out the woodwork right now,” he advises, urging people look at a balanced perspective. “I’d like to see (media reports) that caution people not to jump out of the window. I also want to see suggestions on how to live through it or how to profit from it.”

Although he realizes tougher times mean investing may not be an option for everyone, he points to the billionaire called the Oracle of Omaha. Recently, at the height of the U.S. crisis, American investor Warren Buffett spent $3 billion to buy into General Electric, helping the iconic mainstay weather stormy financial days.

Buffett, who gives much of his money to charity, made the move to take advantage of the market expecting things to turn around and reap the long-term benefits of the investment.

“GE is the symbol of American business to the world,” Buffett said in a statement. “They have strong global brands and business…I am confident that GE will continue to be successful in the years to come.”

Buffett realizes although the stock has fallen 42 per cent in the last year, it’s not a never-ending decline. He’s made a fortune looking on the bright side.

Lyon says the dramatic front pages of late haven’t been incorrect, just not balanced, and that can make news of recession self-fulfilling.

“When the consumer feels confident their jobs are safe and their houses are safe, that is when then the economy is strong,” he says simply.