Double Blind

The BC government in the previous budget is now enabling people that own homes and financially supporting somebody that is 18 years old or younger to defer their property taxes, at the rate of interest of the bank prime rate. Previously only seniors (55 and older) were able to exercise this option.

Essentially homeowners are given the option of borrowing money (the amount of their yearly property taxes) at the prime rate, and will only have to repay this amount when your property is transferred (i.e. you sell the place).

Almost everybody that is financially sophisticated that is eligible to do this should be exercising this option. Getting money at the prime rate outside a mortgage is not that easy, and at the prime rate you can very likely make an investment that would give a higher rate of return.

The trick is making the interest amount tax-deductible, and if you use the deferred property tax amount for income-generation purposes then in theory you should be able to deduct the interest.

There is an article in the UK that describes a family with 8 young children, and the husband quitting his job because the benefits they get from the government are higher. Their take-in is about £815/week which is about £42,380/year, or about CAD$65,100 using current exchange rates.

I do not know whether the numbers are correct, and I highly suspect the article is designed to be inflammatory. I also have no idea what specific social benefits are available in the United Kingdom.

However, I have pondered what somebody in Canada or British Columbia could get if their goal is to minimize work and live off the government. I can’t think of a situation implied like the above article where you effectively have an over 100% marginal tax rate for working. There are situations that come close. There are hypothetical scenarios if your job in life is to maximize government benefits. Note the majority of these use the most current up-to-date 2010 figures, but some 2009 figures may have inadvertently slipped into the following calculations:

1. Assume you have 1 child. This will qualify you for a lot of benefits. It’s also usually better, for government benefits purposes, that you are single as having a significant other making money seriously impairs your ability the claim the benefits discussed below. If you do desire a significant other, do not marry them and live in separate accommodations will maximize the ability to obtain benefits (for you and them!). Having two children will decrease the marginal benefits received compared to having one child.

2. Earn $21,816 in the year. This will qualify you for the following PROVINCIAL benefits:
– Full MSP assistance (free for those under $22,000/year, a $1,224/year annual benefit). I am also assuming no benefit with respect to Pharmacare (which has a lower deductible for lower income individuals).
– Starting July 1, 2010, the BC HST credit (for a family under $25,000/year, a $230/year annual benefit plus $230 for dependent)
– Climate Action Dividend (for a family under $35,843/year, a $105/year benefit, plus $105/year for first child)
– BC Tax reduction credit, essentially a non-refundable reduction in the income tax rate for low income individuals (for $17,354/year, $390/year benefit, reducing by 3.2% above the limit, so in this specific example, $247.22/year benefit)
– BC Child Care Subsidy; while the requirements to qualify are not specific (they do not give a monetary threshold) this would qualify for up to a $750/month ($9000/year) subsidy for early child care. I am not factoring this in to any future calculations in this post.

You will make too much money and miss out on:
– BC Sales tax credit (for a family under $18,000/year, $75/year annual benefit, reducing by 2% above the limit) – I believe this might be phased out with the BC HST credit.

3. A $21,816 income will qualify you for the following FEDERAL benefits:
– Assuming you were working at $21,816/year before having the baby, 50 weeks of Employment Insurance benefits of $230.75/week, or $11,537/year.
– The child will enable you to receive the $100/month Universal Child Care Benefit (UCCB), which is $1,200/year until the child turns 6 years old.
– Federal GST/HST credit (up to $32,506/year income, annual credit amount $631/year with the child)
– Working Income Tax Benefit (WTIB), which is complicated to explain the actual calculation in a sentence, but for a single mother of one child making $21,816/year, works out to a refundable tax credit of $751.28/year.
– Canada Child Tax Benefit and National Child Benefit Supplement and BC Earned Income Benefit – under $23,855/year income, the benefit is $3,528.84/year.
– Canada Learning Bond (CLB), which if you open up an RESP for your child (not frequently done I am sure) will result in a $525 benefit in the RESP immediately, plus $100/year providing you qualify for the National Child Benefit Supplement.

4. Live in social housing or get rental assistance. Although it was difficult to find exact numbers to work with, apparently you can get rental assistance that will net out your rental balance to 30% of your net income. This is also why it is important to keep your income relatively low if your job is to maximize government benefits. If you earn $21,816/year, this will result in an effective rental rate of $545.40/month, which is significantly under market in Vancouver. I am going to take a gross approximation and assume $1,000/mo for a 2-bedroom apartment somewhere in Greater Vancouver which would be a subsidy of approximately $455/mo or $5,460/year.

You add all of this together and get the following results:
a. Excluding EI (which you can claim a credible argument for having paid into the program by virtue of being employed), you will receive approximately $8,252.34/year of either cash payments or payments that are otherwise mandatory that you will not be required to pay; this does not include social housing benefits, and I am excluding the RESP boost since almost nobody will be taking this option.
b. With social housing, that goes up to approximately $13,712/year.

So somebody earning $21,816/year (note: this is about $10.50/hour, full-time 40 hours/week) with a child will be receiving a subsidy of about $13,712.34. This is about 63% of their existing income level. In terms of their income statement, it would be this:

Salary – $21,816
Minus: CPP – $907
Minus: EI – $377
Minus: Income taxes – $0 (none; the child vastly increases the tax credit amounts available to the parent, plus provincial taxes are reduced to zero by the BC Tax Reduction Credit)
Net cash from work: $20,532

Add all of the following:
BC HST Credit: $460
BC Climate Action: $210
UCCB: $1200
GST/HST: $631
WTIB: $751
CCTB and supplement: $3529

Net cash after benefits: $27,313

Minus rent: $6545 (30% of income, assumed to be the “salary” in this case)

Net: $20,768

This is a good sum of money after taxes and rental. Looking at my own personal budget, assuming I had the appropriate rental subsidy as #4 above, I would actually be pulling in a mild surplus. The only real difficulty is the ability to maintain work while taking care of the child at the same time (not easy!).

Now, let’s assume that you earned $35,000/year ($16.83/hour for a 40 hour/week full-time job) as a single parent. This is the most you can earn and still be eligible for social housing benefits. This is how the math would work out:

Salary – $35,000
Minus: CPP – $1559
Minus: EI – $606
Minus: Income Taxes – $1968
Net cash from work: $30,867

We now factor in the benefits:

Minus: MSP – $1224
Add: BC Climate Action – $210
Add: UCCB – $1200
Add: GST/HST – $506
Add: CCTB and supplement – $2185

Net cash after benefits: $33,744

Minus rent: $10,500 (30% of income, assumed to be the “salary” in this case)

Net: $23,244

The difference in earning $13,184 in more pre-tax income will translate into approximately $2,476 in disposable cash after housing rental payments. While the effective marginal tax rate in these circumstances is below 100%, it is quite high (81%).

The quick conclusion that I have is that there is high level of incentive to work part-time if you are in a middle-wage job if you are single and with a child. For example, if you are working in a clerical type job with a moderate amount of experience, the cost of having to stay at home one, two or even three days a week without pay is not that financially punishing because the government subsidies significantly make up the shortfall. Especially when you net this out with the cost of childcare, it is easy to see how people in BC that value their time more than their money would purposefully keep their income levels below the specified thresholds in order to maximize their government benefits.

There are heavy rumours that the USA will introduce a federal sales tax. It would be political suicide if they did so, but politicians have been rumoured to say there will be income tax reductions in conjunction with the introduction of a sales tax. There was an article that explained that once an excise tax is introduced that it will keep on going up, without a reduction in income taxation.

Canada is the only example on the planet where the sales tax has been reduced – the Harper government decreased the GST from 7% to 5%.

The USA does not currently have a federal sales tax.

What is also interesting is the table in the article is somewhat incorrect – the maximum income tax rate computed for Canada is assuming you live in Ontario – the top federal tax bracket is 29%. Provincially it ranges from 10% (Alberta) to 21% (Nova Scotia).

In the USA, the state income tax rates range from 0% (Washington State, Alaska, Florida, Nevada, South Dakota, Texas, Wyoming) to 11% in Oregon and Hawaii. Oregon, however, has no state sales tax.

If there was a credible way of removing income taxes and shifting it entirely onto excise taxes, I would be in favour of it. For one thing, people would no longer have to file their income tax returns by every April 30th, an act which I consider to be excessively burdensome and costly for the majority of the public. However, eliminating income taxation in exchange for excise taxation has practically been proven to be impossible since politicians would like to collect taxes from both sources.

Another real-life example of a failed attempt to replace income taxation with excise taxation will be BC’s “revenue-neutral carbon tax”. It claims to link carbon taxes to reductions in income taxes, but they are two independent decisions. And the moment that the BC Liberals get un-elected out of office, you can be sure the NDP will be re-allocating the tax into spending decisions, hence completely breaking the “revenue-neutral” aspect of the tax (which was a fiction to begin with).

This is why I am rather happy with the federal government’s decision to reduce the GST from 7% to 5%. While it was criticized by most economist-types for being “inefficient” (because income taxation could have been dropped instead), I can materially state that it has done just a good a job of putting money back in my pocket every time I pay for anything.

For the 2010-2011 fiscal year, the federal government is expected to raise $27.3 billion through the 5% GST. Assuming the level of tax collections maintain the same if you increased the tax (which is a very incorrect assumption) you could eliminate the federal income tax ($117 billion) with a 21.4% GST.

To make this slightly less “draconian”, the “other excise taxes/duties” column is $10.3 billion, and the customs import duties is $3.4 billion. So if you uniformly increased all of them by the same amount, you could eliminate the personal income taxes by increasing those forms of taxation by a factor of 2.85 times, which would imply a federal GST rate of about 14.3%.

It would be a very interesting result in a referendum if the Canadian public were asked “Would you support an increase of the GST, customs import duties and other excise taxes by 2.85 times, in exchange of the elimination of the personal income tax?”.

I, for one, would vote yes.

Note that first-world countries that do not have income taxes are exceedingly rare; the Cayman Islands, for example, charges a 20% import tax on nearly anything brought into the island. They can presumably enforce this by virtue of their geography. I am not sure how much smuggling would increase in the event of an increase in Canadian excise taxation – cross-border shopping will become even more in vogue than it is today if domestic sales taxes increased.

After the demise of the Starbucks Duetto card, I wrote the following:

I have since start shopping around for another credit card, and have attempted to apply for MBNA’s card which gives you 3% off on gasoline and groceries, and 1% off on everything else, in $50 increments. Assuming this is approved, I am guessing that it will amount to a substantially higher cash savings than with the Starbucks card.

About two weeks after I used the online application, MBNA sent me a functioning card with a ridiculously high credit limit. It offers the same fringe benefits as the previous VISA card (mainly the 1 year warranty extension and the “if your rental car gets ripped off you can claim up to $1,000 in expenses” protection), but the cashback bonus on groceries, gasoline and everything else will amount to a few pizzas over the course of a year.

On gasoline alone, I spent about $2,000 in 2009, so getting a 3% refund on the amount would be a $60 rebate. $60 buys a lot at the grocery store!

Once Royal Bank sends me their new card with some RBC points loaded onto it, I will be cashing those out immediately and putting the card away and likely never using it ever again.

I signed up for the Starbucks Duetto Visa card about three or four years ago since I liked to have the occasional conversation and Starbucks was generally a good venue to have it in. The card was simple – every 1% you spent on the Visa went into a “Starbucks money” account, which you can apply to anything in Starbucks. Also, if you spent more than $30 in a quarter, you would receive an extra $3.50 credit (up to $10.50/quarter) which was a nice kickback if you had a particularly high volume in a quarter.

The other good thing about the card was Starbucks was nearly everywhere and the card recently gave you a couple hours of free wireless if you needed it.

There is no way I could financially rationalize going to Starbucks, but with the Duetto card, it was one of my few ‘luxuries’ that I would indulge in once in awhile.

What was great was that the card worked with a minimum of fuss – since I racked up a certain amount of fixed expenses (e.g. cable, gasoline, ICBC, etc.) 1% back is a small kickback which I made great use of.

Much to my disappointment, I received a notice stating that Starbucks would be discontinuing the card, effective at the end of April. Royal Bank, who was the Canadian issuer of the credit card, stated they would give everybody their RBC Gold card as a replacement, and enough points to cover the purchase of a $25 Starbucks card if you decided to continue with them. Starbucks would mail you a Starbucks card for the value of of the remaining Starbucks balance on the card.

The new RBC Gold card is significantly worse than the Starbucks card in that it has a payback ratio of 0.42%, which is significantly worse than the 1% that you had with the Duetto card.

There is zero chance I’ll continue spending money with the RBC card – they have another card that will enable you get a 0.83% payout ratio by spending $35/year, but I do not believe in the concept of paying money to have a credit card.

I have no intention on keeping my RBC credit card, and whenever I receive it, I will just stick it in a filing cabinet and use it as a backup card (which I will never end up using).

I have since start shopping around for another credit card, and have attempted to apply for MBNA’s card which gives you 3% off on gasoline and groceries, and 1% off on everything else, in $50 increments. Assuming this is approved, I am guessing that it will amount to a substantially higher cash savings than with the Starbucks card.

Starbucks made this decision to consolidate their customers into their own card program, which gives a kickback of 1 free drink for every 15 visits, considerably worse than the original card. Their program also costs $25/year to enroll into, and again, I abhor the concept of paying for the right to spend money at an establishment. The only except I will make to this is Costco, which you are paying $55/year to ensure the right that you can return anything you bought for any reason, and the privilege of shopping at what has to be the cheapest place to buy bulk goods with other like-minded suburbanites.

I do not think Starbucks is making a correct business decision – they are screwing around with something that works very well. I know for sure once my Starbucks money runs out, I will likely go to alternative locations (especially non-chains establishments) since there is no way I can rationalize Starbucks without the Duetto card.

Small businesses have until March 31, 2010 to remit their annual GST collections (assuming they make less than $1,500,000 in taxable sales a year), assuming their regular year-end is December. Assuming such a corporation makes less than $500,000 in taxable income, they also have until March 31, 2010 to remit corporate income taxes and fill in form T2, which is a significantly more complicated version than the personal income tax form (T1).

Since interest rates are going to be nothing between now and March 31, 2010, I decided to spend a couple hours of my weekend and do my taxes to get it out of the way. My home-brew accounting system (essentially a sophisticated excel spreadsheet) already has a provision for making sure I properly and accurately account for holding back enough GST and income taxes so that I’ll be able to pay the government.

The largest government impact between 2008 and 2009 was the reduction of small business taxes in British Columbia, which went down from 4.5% at the beginning of 2008 to 2.5% on December 1, 2009. The weighted average rate for BC in the 2008 year was 3.9167%, while the average rate in 2009 was 2.5%. While a 1.4167% difference does not seem large, it does result in a non-trivial savings in tax. This capital I can either choose to plough back into the business, or take it out in the form of a dividend, depending on how comfortable I feel about investing my company’s capital or my own capital.

The provincial government apparently wants to reduce small business taxes down to zero, which would result in a further 2.5% savings on corporate income.

I have said this before on this site, but if you can shift your income from employment to business income, there is a significant tax benefit involved – first because you don’t have to pay CPP and EI, but secondly because your after-tax pay will be somewhat reduced – by about 3.8% in the lowest tax bracket, and about 2% in the highest tax bracket. So if you are a low income earner, you stand to alleviate yourself about 10% of taxes (3.8% income and 6.7% for CPP+EI premiums) that you otherwise would have paid as an employee.

The downside of incorporating is paperwork – at a minimum, you have to register with the government ($325), file a $45 annual report, maintain a corporate bank account, maintain accounting records, and file income taxes/GST yearly. Assuming you can do this cheaply, it is worth looking into.

This post is cross-posted with the one at Divestor.

Portfolio review, 2009

The portfolio performance in 2009 can only be described as a home run. Using a crude adjustment for withdrawals and deposits (i.e. assuming they were all made on January 1, 2009), 2009 was a +104% year. If I used a proper method (i.e. a net asset value system) this percentage would be higher.

The TSX in the same period was up 41%, while the S&P 500 was up 28% in 2009, so I suspect a lot of people that have stayed in the market in 2009 will be feeling a bit better – especially if they had made purchases in early March, they would have been up about 70% or so if they did so in March and held on until the end of the year.

What I find particularly more stunning about the portfolio is that the bulk of these gains were accumulated through fixed income transactions, which are lower risk securities than investing in equity indexes. The bulk of the portfolio gains were accrued through debt purchases between March and May.

There was little leverage employed in the portfolio – at no point in time was margin (loaned money) was ever more than 10% of the entire portfolio value. I would estimate that average margin employed was roughly 2-3%, quite a conservative figure. I distinctly recall thinking of aggressively going on margin in April, but decided against it. It makes you look really good when it works, but it also does a good job of bankrupting you the markets turn the other way. If I had cranked up my leverage up to about 20-25% margin, it would have had a disproportionate effect on my returns (I would have been able to goose up my returns to around 150% for the year) but this is complete retrospect thinking – every good trade wants to be larger.

The portfolio is ending the year with a 4% cash balance, and that will go to around 10% when my Harvest Energy debenture sale transaction finally settles (January 2010). Adjusting for this, the portfolio is roughly 25% short term debentures (maturing in less than 2.5 years), 27% long term corporate debt (maturing in approximately 20 years) and 37% equity/income trusts. My currency exposure is roughly 75% Canadian, 25% US. The current yield is slightly under 9%.

Just as an interesting side note, in 2009, I spent 44% less than what I spent in 2008 on trading commissions. In terms of percentage of assets, it is slightly above what you would pay for a cheap index fund, but leagues below your typical actively managed Canadian fund (around 2.5% when I last checked).

There is also a lot in the portfolio for the Canada Revenue Agency to be happy about – in the form of unrealized capital gains. These represent future tax liabilities, but it also gives me some flexibility to smoothing out the income for the future. Hopefully they will still be unrealized gains instead of realized losses when the time comes to sell the investments or see them mature.

Financial Outlook for 2010

I do not believe the portfolio performance of 2009 will be repeated for a long, long time. I would be delusional to think otherwise. The market, however, can remain irrational longer than anybody expects, and this is the feeling I get going into 2010. It makes proper positioning much more trickier than in 2009 where it was a very easy decision to pile into bonds.

The economic numbers for the first half of 2010 will look good, but they are being compared to against very adverse 2009 numbers. I tend to think most of the equity rally has successfully priced in the recovery, but markets rarely stop at rational valuations – they overshoot it. In some cases, like Amazon, they have likely overshot by 50% or so. It is very difficult to determine where market sentiment will take prices. On the balance of probabilities, however, the market appears to be heading higher for the early part of the year. People will see the index funds delivering very good performance on equities, compared to fixed income, so money will likely flow toward the equity portion.

Not helping the case for bonds is that yields have been compressed significantly from last year – they are not quite at 2007 levels where they were trading a few pips above government, but bond yields today are significantly less compelling. Just as an example, 6% 38-year General Electric senior bonds were trading at 48 cents on the dollar in early March. An investor at this time could have collected 12.5% annual interest payments, year after year, as long as GE did not go bankrupt. Today, that same bond is trading for 97 cents, which means you will be collecting a paltry 6.2% instead.

There are too many examples of this type in the bond market to go through in detail. Suffice to say, the huge screens that I had that prompted me that I should be investigating the purchase of the entire bond market in March of 2009 is now telling me that there are only a couple of instruments in fixed income that could be considered for purchase. They still come with higher risk.

The bonds that I picked up in 2009 will get closer to maturity and will subsequently trade closer to par if there is no credit crunch looming. I can settle for this and just collect coupon payments in the meantime. Even if I make 7% on something trading at par, it is better than nothing to keep my capital parked there while looking for superior returns elsewhere.

A theme of 2010 will be “chasing yield”. Smart investors will avoid chasing yield – it is exactly the trap that Canadian income trust investors got into during the last period of very low interest rates. Chasing yield is to be avoided at all costs – although short term cash will earn you at most 2%, it is a far better option to hold cash than it is to lose money when yields rise due to increasing uncertainty. For example, I look at something like Rio-Can – right now your yield on their trust units is 6.95%. If you had to throw your money at something, it is almost better to bite the bullet and invest in those General Electric bonds mentioned above with respect to the risk vs. reward equation – taking equity risk in Rio-Can for an extra 0.75% doesn’t seem worthwhile. What I find amazing is I can see investors bidding up Rio-Can to 6% ($23/unit from $19.85 currently). But to trade on this is pure gambling – and I would feel more comfortable gambling at a casino than the stock market.

My advice would be – if you want to park cash, park it in cash. Don’t park it in a proxy investment for an extra percent or two since it is likely not going to be worth the risk of principal. If you must, go up the seniority chain – to preferred shares if you want better tax treatment or better yet, senior bonds.

In any event, the Bank of Canada is going to likely increase interest rates in July from the basement level of 0.25%. My guess is they will use the four meetings remaining in the year to raise rates 0.25% each meeting, leading to a year-ending rate of 1.25%. While this is still lower than historical rates, it will be soon be somewhat more rewarding to hold cash.

The topic of gold comes up occasionally. At US$1090 per troy ounce, there is no compelling reason for me to look into it. If the price did correct some 30% from present as the survivalists retreat back into the woods (to roughly US$750) I might look at it, but I am always very aware that the marginal costs of extraction are below this value. Crude oil is my commodity of choice – as long as I see airplanes flying (despite terrorists trying to do otherwise) and cars driving, the black liquid will continue to be the true gold – at least you can use it, while with gold bars you just store them in a safe area. Unfortunately, others seem to share a similar opinion about crude and while I think the major Canadian oil companies are strategically in the right space, their valuations reflect this. Looking at some of the smaller players will be worthwhile.

On the balance, I do not see a compelling investment environment for equity – while I suspect the equity markets will rise in the first half, the current valuations we see are already assuming a significant recovery in earnings. One can snipe away at individual (smaller) issues and probably do well, but I will remain skeptical of the broader indexes. I also still see a low interest rate environment and do not see long term bond valuations increasing too much, nor do I see the threat of inflation coming on this year. The theme, as I see it right now, is raising cash and concerning myself with inflation-proofing later.

The situation is very fluid and continuing to watch it is the most prudent course of action. I am always vigilant to look for specific opportunities (mainly on the equity side) but I am not finding anything that screams at me. My current estimation is that I would be very lucky if my existing portfolio delivered me more than 9%. Still, this is healthily above the risk-free rate.

ING Direct raised their short term interest rates on savings from 1.05% to 1.2% on December 15th. While this is not a huge difference, it is interesting to note in light of the fact that there have been no underlying rate changes coming from the Bank of Canada.

My guess is that the competition, such as Ally (offering 2.00% on basic savings) is starting to encroach on their business. It is a trivial matter to setup an electronic funds transfer link to move short-term money to the highest savings account.

The other reason is that I suspect ING Direct is losing cash deposits from people that are starting to feel “comfortable” again in investing in other financial products, such as the stock market, gold, or real estate. The difference between 1.2% and 1.05% should make little difference to people.

I’ve personally allocated my own capital elsewhere. There are just too many superior alternatives to cash. This will change in 2010 – look out for headlines that start saying “cash is trash” and equivalent. Once you start seeing those sorts of headlines, it’ll probably be a good time to bunker down with a high bank account balance; 1.2% is better than a negative 25% return elsewhere.

I have posted on Divestor an article of “What makes Vancouver Real Estate so expensive?“. I’m sure there are some holes in my analysis, but it was interesting to write it up and go through some variables of my mental modeling of the real estate market.

One of the reasons why it is so expensive is that people don’t translate dollars into yearly income – if you gave me a stack of money today, I could translate every dollar into an income stream of 10 cents a year with a reasonable amount of risk. So when looking at your typical Greater Vancouver detached home of $749,808, one is actually giving up a future income stream of $74,981/year to purchase that home. Assuming you don’t make any other money, that would be $58,500 after taxes in 2010. If one were to rent a place for half that amount (about $2,400) and continue investing the rest of it at 10%, there is a high degree of probability that you would be up even after factoring in missed capital gains on a home purchase.

It is strange how the president of a company that stands to make money with outstanding mortgage debt is expressing concerns at mortgage leverage of ordinary people.

For consumers with 35-year amortizations, which ING sells, he advises that they accelerate their payments.

“That way if you have a $300,000 mortgage, instead of owing $280,000, maybe you only owe $200,000 when rates are higher. It prepares you for difficult times,” said Aceto.

Right now a variable rate mortgage at ING Direct is given at the prime rate. Presently that is 2.25%. If you had a decision between banking cash in a GIC (earning 1.25%) versus putting it into the mortgage, it is a superior decision to put it in the mortgage, especially when one considers that the GIC interest is taxed. A potentially superior financial option is to earn a higher return than 2.25% and then pay off the mortgage with surplus capital when rates rise.

Alternatively, one can structure their mortgage to be interest deductible – there is a ton of literature available on this topic (such as the Smith Maneuver). Doing the math on a 2.25% variable rate loan and putting it into some tax-favoured preferred shares earning 6% a year yields a compelling story.

The interests of the bank president are somewhat aligned to what he is preaching – the concern for banks should be return of capital, not return on capital. If they had all their clients paying back their mortgages, they would be in fairly good shape.