You know how wonderful Canadian banks are. They didn't fail when others did, and didn't need to be bailed out. We are standing tall among nations in that regard, and the Harper government can stick out its chest and preach the Canadian model of prudence and caution to a profligate world. Even the Americans are agog at our fiscal virtue.
Plus, our economy has been recovering from recession faster than others just in time for the G20 meeting in Toronto. It's wonderful, fake lake and all.
Does this sound too cute? Here's the inevitable other side of the story. The banks were actually "bailed out" to the tune of $125 billion just before and after the 2008 election -- in the form of a massive purchase of questionable mortgages and other "rotten paper," in the words of one economist, held by them. This was done through the Canada Mortgage and Housing Corporation, a federal agency. The taxpayer is now on the hook for these mortgages, 40 per cent of which are considered at risk, with more to come if interest rates rise and the economy dips again.
But the kicker is this: Hardly anybody noticed. It wasn't an issue in the election, and the financial press said nothing. A few tried, and are still trying, to raise the alarm. Michel Chossudovsky, a retired University of Ottawa economist and head of the Montreal-based Centre for Research on Globalization, pointed out that Finance Minister Jim Flaherty had announced a $2.3-billion surplus in the offing before the election, then quickly changed it to a $64-billion deficit. He argues that the entire deficit was for the first installments of the bailout, which the prime minister described as "not a bailout" but a "market transaction."
Some other economists give the government more leeway, saying it was doing what others were doing -- injecting "liquidity" into the banking system at a time when credit was threatening to seize up. But the sheer scale of the amount, plus the continuation of the banks' excessive lending practices (despite their image of prudence relative to the Americans), have led to something else. Remember that government money was supposed to stimulate infrastructure projects. What we got instead looks like a housing and consumer credit bubble - and the illusion of economic growth while other countries faltered.
Alarmed, last winter the government and the banks clamped down on lending with new rules. The May figures show a nearly 10 per cent drop in housing values across Canada. Did they move too late and pop the bubble -- and the "recovery" with it? Just in time for the G20?
That's the economics, and we'll wait and see on that. What's more disturbing is the politics -- this business of nobody noticing. Here's a related story for you. Laugh or cry, as you wish.
It's apparently just dawning, but in the 2007 budget, Parliament unwittingly gave away its right to oversee government borrowing. That's right, it didn't know. For 140 years, government had to bring borrowing bills before Parliament. Now it doesn't have to. "Shame on us" for not catching it, says Senator Lowell Murray, who has introduced two private member's bills to reverse this to no avail. Tough luck, says the government. Parliament voted and that's that.
The fact that the Harper government has taken to presenting budgets in huge U.S.-style omnibus bills with everything but the kitchen sink in them, and daring the muddled opposition to vote them down and trigger an election, is considered the trick that led to the oversight. I have another theory. Opposition and media are so addled by scandals and other shenanigans - Mulroney/Schreiber, Guergis/Jaffer, Maxime Bernier and the biker lady etc. -- that everything crucial is passing them by. Stephen Harper loves this.
As for the banks, here's the rest of the story. Bank profits have boomed after the "not a bailout." The Big Six have made some $5 billion in each of the last two quarters. Last year, the banks gave their top dudes over $8 billion in bonuses. This year, they've put away $5 billion so far for this exercise in legalized theft. Meanwhile, the Harper tax cuts -- which will have Canada with the lowest corporate tax rates in the G7 by 2012 -- is giving the banks a gift of some $200 million per quarter at present rates of profit.
Voices in the wilderness call for banks to be regulated like a public utility, which is what they are, in order to stop this "wealth by stealth" operation. Others call on the federal government to resume borrowing, on its own behalf and that of the provinces and municipalities, from the Bank of Canada, bypassing commercial rates -- as it did before 1974. With Harper in power and nobody noticing anything, good luck with that.
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