This week, senior Canadian cabinet ministers fanned out across the globe to argue against the idea of a global tax on banking. Sponsored by the US, the idea is to store up cash during good times to bail out banks in times of crisis, so that governments won’t have to pile up huge debts to cover for bad corporate decisions.
From Washington to Mumbai Canada’s Conservatives cry that such a tax would unjustly punish Canada’s prudent and well-regulated bankers, who did not need to be bailed out of the 2008 meltdown. Don’t save for a rainy day, the ministers cry, just run your banks the way we do, and it will never rain.
What motivates the Conservatives to dash about the globe in such a determined way? Here’s one possibility: maybe their pants are on fire. If there is a word of truth in the Conservative claim that Canada’s banks were so secure that they weathered the financial storms on their own, it is true on the flimsiest of technicalities. If our banks weren’t bailed out, it’s only because we didn’t call it that.
On October 10, 2008, Stephen Harper announced that Canada would purchase $25 billion worth of mortgages from chartered banks. One month later, Jim Flaherty announced a further $50 billion purchase. Both Harper and his finance minister assured Canadians that this “is not a bailout”. The move cost Canadians nothing, the Conservatives asserted, because for every penny in cash we put out, we got a penny back in paper.
At the same time Flaherty made it clear that the move was intended to stabilize the banking system, stating that, “At a time of considerable uncertainty in global financial markets, this action will provide Canada’s financial institutions with significant and stable access to longer-term funding.”
There were certain obvious differences between Canada’s laudable purchase of mortgages and other countries’ unfortunate bailouts. For one thing, while the Americans hotly debated the $700 billion Troubled Assets Relief Program, both in Congress and in the media, Canada’s non-bailout happened almost without comment. There was no debate in Parliament, and a puppy-dog financial press duly reported the government’s line that it had forked over $75 billion at no real cost to the taxpayer.
When the globalist house of cards collapsed in 2008, we were all assured the cause of the crash was the failure of “sub-prime” mortgages. Banks handed out mortgages to people who couldn’t afford them, millions of people defaulted, the banks ended up on the short end of the stick, and governments rushed to their rescue.
In Canada, no such collapse has taken place, because the federal government, in the form of the Canadian Mortgage and Housing Corporation, employs all the power of the public purse to keep the machine humming along. CMHC will back mortgages the banks would not issue on their own - the definition of sub-prime, and a great deal for the banks, who rake in the profits without taking the risks.
According to David Lepoidevin, a financial adviser with National Bank Financial, “Every single US lender specializing in sub-prime has gone bankrupt. The largest sub-prime lender in the world is now the Canadian government.” Lepoidevin predicts Canada’s housing bubble will one day burst, and it will not be the banks that will suffer, since you and I, and not they, are covering all those questionable mortgages.
The Harper government is spreading misinformation about the globe, presumably because it is ideologically opposed to taxes, especially to taxes on the rich. But they are right about one thing: a bank tax wouldn’t work.
The 2008 financial crisis was caused by greed. Bankers took foolish but highly profitable risks, fueled by the knowledge that if it all went up in smoke the public purse would come to the rescue. If there had been a multi-billion dollar bank account to fall back on, the banks would have known about that, sucked it dry, and continued on their merry way, secure in the knowledge that there were still billions to be sucked out of the public exchequer.
There are currently no limits to the ongoing centralization of wealth in fewer and fewer hands. There is only the sketchiest relationship between real sustainable wealth - labour, commodities, public health, and the natural environment - and the mountains of money that flow around the globe everyday. Our financial system is still a giant pyramid scheme based on pillaging the planet as quickly as possible.
Harper is right when he says that proper regulation is the only way to protect the world economy from the runaway excesses of greedy corporations. The Pinocchio effect doesn’t kick in until he suggests that Canada already has these regulations in place.
Al Pope won the Ma Murray Award for Best Columnist in BC/Yukon in 2010 and 2002. His novel, Bad Latitudes, is available in bookstores.