Who says Canada does not have a sub-prime mortgage situation? The Globe and Mail reports major American mortgage insurers are calling for the federal government to under-write all of their risks in the Jan. 27 budget. Their risks are already 90 per cent covered, but that is not enough. Leading the charge is the infamous AIG, now owned by the U.S. Treasury, after its search for profits led not just itself, but the world banking system towards the abyss.
In 2006 Finance Minister Flaherty called for more competition in mortgage lending, and his first budget led to five American mortgage insurers setting up in Canada. Two remain. With them came the zero down mortgage, and the 40 year amortization mortgage. In the first half of 2008 more than half of new mortgages had 40 year terms, and 10 per cent were zero down according to the Globe.
In October of 2008, the Finance Minister revealed he was ready to help out mortgage lenders – that would be our banks – by purchasing $75 billion worth of mortgages. The Bank of Canada would sell bonds so that the Government of Canada could provide the money to the banks over six months.
The Bank of Canada was set up following the depression of the 1930s. Provincial governments on the prairies had gone bankrupt. One of the reasons the Bank of Canada was established was to lend to the provinces. Now it is backstopping the banking system, rolling over their debts, and providing cash on demand to what TB Bank chairman Ed Clark, has aptly called the "money-making machines" that are our big five banks.
When the premiers met with the prime minister last week, they should have insisted that the Bank of Canada lend to the provinces. The Bank of Canada rate has been 1.5 per cent, and is going lower. The federal government should be underwriting Bank of Canada loans at less than two per cent to the provinces. At least the provinces will spend the money, creating jobs, while the banks force Canadians to cut household spending in order to pay excessive interest rates, furthering the economic slump.
This is the time to invest in the future. Instead the Harper government is buying mortgage bonds from the banks which ignore the Bank of Canada rate cuts, and maintain high interest on loans.
Banks make super profits on the spread between the low cost of borrowing from the Bank of Canada (below two per cent), and the rate they charge Canadians on loans (over six percent).
Quebec premier Jean Charest did point out that the Harper government had broken its promises on transfer payments, but the provincial premiers do not seem to get that while Harper may say he is going to spend on infrastructure, that does not mean they will see the money, quickly, or at all.
Ask the RCMP what it means to sign an agreement with the Harper government. The Mounties (barred by law from being unionized) signed a three-year wage agreement, accepting increases of 3.4 per cent, and 3.5 per cent in years two and three. Without notice the government decided to give the RCMP only 1.5 per cent in the last two years of the contract.
The industry minister wants the CAW to agree to rollback its wages in order to make the Canadian auto industry more competitive. As CAW president Ken Lewneza has pointed out, the men and women of the CAW could work for nothing, and it would not sell one car. The Harper Conservatives simply want to continue the war against labour. They want us to believe that lower wages lead to economic prosperity.
CUPE has detailed where the money went since the recession of 1991: business profits soared, governments accumulated surpluses and workers wages remained flat.
Household indebtedness has grown sharply, and coupled with diminished family purchasing power, poses a serious threat to any economic recovery. So, naturally the Conservatives attack wage and salary earners, while preparing to underwrite the risks of American mortgage insurers.
Duncan Cameron writes from Quebec City.
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