What could make the U.S. presidential campaign even more interesting is the anticipated (if not expected) collapse of Fannie Mae and Freddie Mac. The debt of the very strapped U.S. government backed, but privately owned, mortgage lending agencies is the equivalent of 46 per cent of the U.S. national debt. Should they be “rescued” by the Bush administration, the nationalization could lead to the failure of those U.S. regional banks that have made one-way bets, the wrong way, on the solvability of the two agencies.

U.S. politics and finance is based on some dubious propositions, none greater than the idea that risk-taking is mainly about individuals. The American entrepreneur or the heroic CEO is touted as the epitome of business success. In this myth-making world, political decisions need only to ensure risk-taking brings just rewards for the courageous and farsighted. Yet it is a stretch to think that failure punishes only the inept, and not the innocent; or, that moral cowardice and corruption are barriers to the accumulation of private wealth.

In reality most risk is faced by all of us collectively. Beginning at birth, humans face risks of bad health, no education, lack of clean water, poor recreation facilities, low wages, no income security or pension and losing savings in a financial panic, to name only a few obvious challenges.

What governments can do is insure risk collectively, through the provision of health care insurance, universal education, sewage treatment systems and safe drinking water, playgrounds and parks, minimum wages, public pensions, and close regulation of deposit taking and lending institutions.

For sheer stupidity, it is hard to outdo the idea that financial markets can be trusted to operate without public regulation; but that old, regularly discredited principle worked its way back to the forefront of U.S. thinking, with Democrats under Bill Clinton and his Wall Street backers showing the way.

Coupled with the nonsense that financial markets could look after themselves was its corollary: governments needed to balance budgets so as to create a positive atmosphere for individual risk-taking.

In fact the opposite is true. Because of their serious responsibility to help citizens meet the challenges of raising children, securing health care and education, and preparing the future in every way, as well as protecting citizens from the worst adverse consequences of losing a job, growing old, or facing infirmity, governments need to borrow today in order to invest in the future.

There is no greater collective risk today that global warming. For provincial and municipal governments to meet the needs for public transit, and retrofitting of infrastructure and private housing, and crucially, finding and implanting alternative energy sources, governments have to spend today in order to reap future green rewards. Paying as you go for the assets governments need to build a green future makes no sense. Yet that is what so-called balanced budgeting suggests governments must do.

To the contrary, governments need to borrow and then invest the money in green projects that will produce a future result of reducing global warming or else risk catastrophe for all.

Happily citizens need secure outlets for savings. The recent ABCP (Asset Backed Commercial Paper) debacle where savers lose or taxpayers pick-up the cheque for the mistakes made by banks, should remind us that Canadian government debt is more secure than private debt.

Issuing Green Bonds is one positive way for governments to bring citizens anxious to contribute to reducing global warming together with green investment projects funded by government that produce climate change returns.

By buying government issued Green Bonds citizens would get a competitive rate of interest, higher than money market funds, or GIC’s (Guaranteed Investment Certificates) and safer assets. Governments would get long term, patient money. Instead of paying yearly management expense at rates of over one per cent every year as families now pay to keep their money in a bank run money market fund, savers would pay a small one-time commission of one-quarter of one per cent to the seller of the bond.

As the mortgage debt crisis plays out in the U.S. over the future of Fannie Mae and Freddie Mac, the Canadian debate needs to turn to how best to provide for our future. We can leave it up to private markets to make the right choices out of greed and fear; or decide, through our democratic representatives, to make the important choices to invest in bringing forward a green world, and allow citizens to support those decisions through purchases of green savings bonds.

Duncan Cameron

Duncan Cameron

Born in Victoria B.C. in 1944, Duncan now lives in Vancouver. Following graduation from the University of Alberta he joined the Department of Finance (Ottawa) in 1966 and was financial advisor to the...