Crisis? What crisis? Most Canadians upbeat heading into 2009: Poll By Terry Pedwell, The Canadian Press
OTTAWA - A new poll suggests a significant majority of Canadians remain optimistic as they look ahead to 2009 - notwithstanding all the gloomy talk about a looming recession. The Canadian Press Harris-Decima survey found that 58% of respondents were upbeat about the coming year, and only 21% were pessimistic. Another 20% said their outlook was neither optimistic nor pessimistic.
However according to Joe Castaldo, Canadian Business magazine; We haven’t seen the worst of it yet. That’s the message from the 136 Canadian CEOs surveyed about the economy by COMPAS Inc.More than 60 % of the respondents believe the Canadian economy will become “somewhat” or “a lot” worse over the next six months, whereas 20% say it will remain about the same. Only 14% of the CEOs say the economy has already hit bottom.
· TSX +326.74pts (Reuters)
· DOW -31.62pts
· Dollar -.63c to $.82.07US.
· Oil +$2.31to $40.02US per barrel.
· Gold +$4.10 to $875.30US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
A quick skim of notable business events of 2008:
JANUARY:
KPMG reports global auto industry executives are increasingly cheerful and "profitability expectations are starting to grow."
Canadarm maker MacDonald, Dettwiler and Associates Ltd. announces a $1.3-billion sale of its space business to U.S.-based Alliant Techsystems. The deal was shot down in May by the federal government.
Manulife Finance invests $500 million in CIBC at $65.26 a share. CIBC stock ended the year under $50, while Manulife shares fall from $40 to under $20.
Congress and the Bush administration agree on a stimulus package giving most U.S. taxpayers refunds of $600 to $1,200.
Applause erupts in a Montreal courtroom as Vincent Lacroix, former head of the Norbourg investment firm, gets a 12-year prison term for bilking 9,200 investors of $115 million.
FEBRUARY:
Chrysler introduces the Challenger, a Canadian-made muscle car with a 425-horsepower V-8. General Motors reports a 2007 net loss of US$38.7 billion.
The United Nations World Food Program says many of the world's poor are going hungry because of soaring food prices caused partly by the use of crops to make biofuels.
The U.K. government nationalizes Northern Rock after the first run on a British bank in 140 years.
Nortel Networks eliminates 2,100 jobs and moves 1,000 to "higher-growth and lower-cost geographies." Its shares close Feb. 27 at $9.68, down from $35 a year earlier. By the end of 2008, Nortel is a penny stock. It closed Monday at 32.5 cents in Toronto.
MARCH:
Conrad Black reports to Coleman prison in Florida to begin a 6 1/2-year sentence for fraud and obstructing justice. Friends describe the fallen media magnate as "serene."
The Zimbabwean dollar falls to 25 million to one U.S. dollar.
American investment bank Bear Stearns fails and is taken over by JPMorgan Chase.
APRIL:
A natural gas discovery by Forest Oil Corp. prompts a flurry of interest in the St. Lawrence Lowlands of Quebec.
The federal government pays pork producers $50 million to kill 150,000 pigs to ease oversupply.
Crocs Inc. announces the closure of its Quebec City factory, ending 670 jobs as it shifts shoe production to Mexico.
Toyota becomes the world's most prolific carmaker, passing General Motors in terms of production.
Computer maker Dell announces the closure of its 2 1/2-year-old Ottawa call centre, eliminating 1,100 jobs.
Investors in $32 billion of asset-backed commercial paper, frozen since August 2007, approve a plan to restructure the notes. The restructuring drags on, now expected to be resolved in January.
MAY:
Quebec furniture maker Shermag Inc. seeks court protection from creditors.
General Motors announces it will shut its transmission plant in Windsor, Ont., in 2010, hitting 1,400 workers.
An earthquake in Sichuan province kills an estimated 69,000 people. Analysts predict only a transitory jolt to China's economy.
The Canadian Auto Workers union concludes hasty negotiations with the Detroit Three automakers, accepting a pay freeze.
Atomic Energy of Canada Ltd. cancels two new MAPLE medical-isotope reactors, blaming costs and risks.
As oil prices spiral higher, restaurants complain of thefts of cooking-oil grease for use as diesel fuel.
Statistics Canada reports that for the first time more Canadians are involved in selling products than in manufacturing them.
JUNE:
Research In Motion stock peaks at $150.30 on the TSX. It ends the year at less than one-third that price.
In a move the Canadian Auto Workers calls an illegal betrayal, General Motors says it will shut four truck plants, including one in Oshawa, Ont., that employs 2,600 people.
The Organization for Economic Co-operation and Development predicts tougher times, but in Canada "no recession is expected."
Former TV personality Ed McMahon says his Beverly Hills house is facing foreclosure.
Federal Reserve chairman Ben Bernanke says the risk of a serious recession appears to have diminished.
Shares in fertilizer maker Agrium Inc. peak at $116, before ending the year under $40. Potash Corp. hits $246, closing 2008 at one-third that level.
RCMP lay fraud charges against former Nortel CEO Frank Dunn. On the same day the Mounties charge Royal Group Technologies founder Vic De Zen in an unrelated case.
JULY:
Bombardier Inc. announces it will go ahead with the long-delayed CSeries airliner.
The U.S. government bails out mortgage giants Fannie Mae and Freddie Mac.
Crude oil peaks at US$147.27 on July 11, then begins a long, steep decline.
General Motors presents its 2010 Camaro muscle car, to be assembled in Oshawa.
AUGUST:
The House of Commons subcommittee on oil and gas and other energy prices begins probing what one MP calls "a bread and butter issue that no one can ignore."
Oil prices, mining stocks and the Canadian dollar all slide, with crude ending the month at US$115 a barrel, en route to about $40 at year-end.
Maple Leaf Foods recalls ready-to-eat meat products amid a nationwide Listeria outbreak blamed for 20 deaths.
Barbie maker Mattel Inc. wins US$100 million in a California copyright lawsuit against MGA Entertainment, maker of Bratz dolls.
SEPTEMBER:
Lehman Brothers, a 158-year-old U.S. investment bank, files for bankruptcy, triggering panic on financial markets.
Merrill Lynch, America's largest stock brokerage, is rescued in a takeover by Bank of America valued at US$50 billion.
Central banks inject hundreds of billions of dollars into credit markets to support confidence, and slash interest rates to encourage borrowing.
The Toronto Stock Exchange's main index suffers a record one-day point loss, dropping 840.93 points on Sept. 29. That record is broken Dec. 1 with a plunge of 864.41 points.
OCTOBER:
Russian oligarch Oleg Deripaska is forced to sell his 20 million shares in Canadian autoparts maker Magna International to prop up other parts of his empire.
Zimbabwe's inflation rate is reported at 231 million per cent.
The U.S. Congress approves a $700-billion financial-industry bailout.
Paul Krugman, a critic of the Bush administration (and of the financial-sector bailout) wins the Nobel prize in economics.
NOVEMBER:
Gasoline prices fall decisively under $1 a litre in much of Canada, down from summer peaks above $1.40.
Canwest Global Communications cuts 560 jobs, five% of its workforce, and writes down the value of its Canadian TV operations by $1 billion.
Bank of Canada governor Mark Carney says "recession is a possibility for Canada."
Teck Cominco Ltd. suspends dividends, slashes spending and sells assets as it staggers under US$9.8 billion in debt taken on to acquire the Fording Canadian Coal Trust in October. Teck stock, which peaked at $52.90 last spring, ends the year at about one-tenth that price.
The executives of the Detroit Three automakers fly to Washington in corporate jets to beg for a $25-billion bailout.
Canadian car dealers appeal for government aid.
BHP Billiton, the world's largest mining company, gives up on a US$68-billion hostile takeover of Rio Tinto, whose holdings include Alcan.
A 34-year-old worker at a Long Island Wal-Mart is trampled to death as the holiday shopping season opens.
DECEMBER:
Ted Rogers, founder of Canada's largest cable-TV and cellphone network operator, dies at 75.
The Detroit Three CEOs go to Washington again to appeal for aid - this time driving hybrid vehicles.
Wall Street fixture Bernard Madoff, 70, is charged with fraud in an alleged Ponzi scam said to have cost investors US$50 billion.
The proposed $52-billion takeover of BCE Inc. by an investor group led by the Ontario Teachers' Pension Plan collapses.
Merchandise worth US$100 million is stolen from the Harry Winston jewelry store in Paris.
Former Hollinger newspaper executive David Radler is released after 10 months of a 29-month prison term for fraud, secured in a plea bargain for testifying against former associate Conrad Black.
Newspaper publisher Sun Media cuts 600 jobs, 10% of its staff.
The Newfoundland and Labrador government moves to expropriate resource rights held by Abitibi Bowater after the newsprint maker says it will shut a paper mill and cut 800 workers.
The Federal Reserve cuts its key policy interest rate to a record low of between zero and 0.25 per cent
Tuesday, December 30, 2008
Monday, December 29, 2008
Financial Update
· TSX 1.36pts (Reuters) on Christmas Eve-closed Thurs and Fri
· DOW +47.07pts
· Dollar +.67cto $.82.70US. on Christmas Eve-closed Thurs/Fri
· Oil +$2.36 to $37.711US per barrel.
· Gold +$23.30 to $870.40US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
The Financial Post has been running “The Wisdom Series” in which it asks prominent Canadian business men the same series of questions about today’s economy. I found the responses of Anthony Boetckh worth sharing. Quoting from article attached “(Authorities) have plans in case of nuclear attack but there was no disaster plan for a meltdown in the financial system.”
Wisdom series: Long, slow recovery ahead for Canada, says BoeckhPresident of Boeckh Investments Inc., Anthony Boeckh,
Jacqueline Thorpe, Financial Post Published: Monday, December 22, 2008
From 1968 to 2002, he was chairman, chief executive and editor-in-chief of Montreal-based BCA Publications, publisher of, among others, the highly regarded Bank Credit Analyst, a monthly big-picture analysis of the U.S. economy and financial markets. BCA is now owned by Euromoney.
He was also chairman of Greydanus, Boeckh and Associates from 1985-99, a fixed-income investment firm which managed $2-billion in assets when it was sold to Toronto-Dominion Bank in December, 1999.
With a PhD in finance and economics from The Wharton School, University of Pennsylvania, Mr. Boeckh has taught economics at McGill University and is a founding trustee of the Fraser Institute.
He recently spoke to Financial Post economics writer Jacqueline Thorpe about what he sees as the key challenges ahead.
QWhat stage are you at now, both in life and work?
A I work with my son and his brother-in-law and my former CFO and a few others essentially managing family assets. They do all the investing. I spend all my time looking at the big picture.
QHave you ever seen the global economy in worse shape?
A No. It sounds trite but it's a very complex and very dangerous situation. I think the thing that is so frightening about it is the speed of the collapse. Nobody's had time to adjust to it. The whole system is frozen up -- it's completely paralyzed -- and people are panicking. The people in authority don't know what's happening, didn't know what was happening before we went into it.
They had no idea of the risks. They had no game plan. They have plans in case of nuclear attack but there was no disaster plan for a meltdown in the financial system. They're making up the rules as they go along and crossing their fingers and hoping it works.
QWhat is the reason for how we got here?
A The fundamental cause of this thing is the deeply flawed international monetary system. You really have to go back to Nixon and Aug. 15, 1971, when he took the U.S. off gold. At the time, it really was as clear as a bell what that signified and it really meant the U.S. was not going to submit themselves to international monetary discipline....That began the whole process of inflation. [Former U.S. Federal Reserve Governor Paul] Volcker put an end to that in the early '80s but after that the inflation really showed up in the form of credit and asset inflation. We've really been in a credit in asset inflation for 20 years.... The rise in private debt relative to GDP was a very stable relationship for a long time, they moved up very close together. Then the growth in debt just started to take off relative to GDP. Every time you'd have a recession, you'd get a little correction and then it would take off again. Then after the last recession in 2000-02 there was no correction in the debt at all. It just kept going straight up. The big flaw in the system was there was no discipline on the United States to live within their means.
QDo you think we should be back on the gold standard then?
A The gold standard was denigrated and has been for decades. People say it was a really rigid system and there were all these crises in the 19th century, but one way of looking at it is it imposed a discipline on the system and nobody's figured out a better way to impose discipline.
Even though you had crises every 10 years or so, they were never catastrophic. You took off the discipline in 1971 and we've had a debt bubble, an asset bubble building for 35 years and we're facing a crisis now much bigger than in the 19th century. The only way of preventing it from becoming a disaster is to print a whole bunch of money and have massive fiscal deficits, which nobody would argue isn't going to cause problems in the future.
QHow does this compare to other economic crises in the past, like the stagflation of the 1970s?
A That was also a pretty scary time as well. It was a totally different type of situation. It was an inflationary drama and there [were] the two oil price shocks and an actual shortage of oil because of the OPEC embargo. I was living in the U.K. at the time ... and it was really a first-hand look into the depth of this thing because the coal miners were on strike and there wasn't enough oil and the government put the economy onto a three-day work week and the stock market dropped in half and then it dropped in half again. So things just fell apart and you just had this feeling of being out of control, and I think that's the same sort of feeling now for different reasons. Nobody really has anything solid to base a view on ... [People] are just terrified their assets are going to go to zero, they can't retire, they won't have any money, they won't have a job.
QIn terms of the policy response, are we on our way to getting things fixed?
A I don't think "fixed" is the right word because it's not a question of fixing it. The whole issue is trying to contain the downside. The concern has been that ever since this started the authorities are lagging behind, they are always playing catch-up ... [Now] the Treasury and the Fed are so deep in this thing in terms of bailouts, there's no way they're going to stop. Eventually I think it's going to work. That's why I don't think we're looking at a 1930s scenario.
QIf you were running the country, what would you do?
A I think in Canada the government has been much more complacent, in part for good reason because the banking system is in much better condition. We have been big beneficiaries of commodities and a lot of companies have made a lot of money so there is a bigger cushion here but at the end of the day, Canada is extremely vulnerable if deflation gets prolonged because we're very dependent on commodity exports and, of course, they get slaughtered in an extended deflation. But also because we're a small and open economy, there's a limit to what we do and how we do it.
QAre we facing a long-haul recovery for the market now or do you see some conditions in place for a rebound?
A I think it's going to be a very long time before we really think of getting back to "normal," whatever that means, because I don't think things have been normal for a long time. It's just that it was all disguised under a bunch of debt. It's going to be a very long and slow recovery in the economy -- assuming we don't go into a disaster scenario, which is possible but not likely. The markets are very anticipatory. The cliché is they anticipate the recovery six to nine months ahead. If we are going to have a recovery ... after another year, then the markets could easily hit bottom in the next three, four or five, six months. My sense is it has come down so fast and so far, that we're probably not all that far from a bottom.
QWhat is your longer-term outlook for the global economy?
A Basically we're going through a transformation of transferring private debt into public debt. That will go on probably for years. It will allow the private sector to deleverage but will eventually lead to a fiscal crisis. We won't be aware of it until we get the next recovery. Then there will be a real problem because there will be too much government debt out there, and interest rates are going to start going up early in the cycle, and everybody's going to be afraid of that and with all the stimulus they've put in the system, there's a real risk of inflation taking off again. The really big concern is on energy because you look around the world and all the energy companies are slashing their capital budget, which means in the next recovery there is going to be an even bigger shortage of oil and gas, and you can't print oil. I think we're going to have a series of crises, and a lot of volatility, and we're not going to get back to anything we recognize as normal for a very long time. I think in the next recovery oil is going to up dramatically. Unless we have an extended depression, energy will come back for sure.
QYou are a founding trustee of the Fraser Institute, which is dedicated to free markets. Is capitalism under threat?
A Capitalism needs to be judged over very long periods of time, and if you do that and look back in history, in countries where it has taken root, it has generated sustained massive improvements in living standards everywhere. But capitalism is fraught with recurring crises because of its competitive nature [which leads to] creative destruction. Nobody has figured out how to stop that nor should they. The trouble is, it's not so great for the people in the short term which are part of the destruction. Like the domestic car industries. They are in the process of being destroyed, they will probably get bailed out but eventually they will be destroyed as they have been in the U.K. and a lot of places. It's not so great if you're one of those guys but a lot of industries are rising up all the time and it's part of the capitalist process, that innovation is constantly taking place. You've entrepreneurs out there trying to find to ways to use new technologies, to create profits, and that's what creates rising living standards.
· DOW +47.07pts
· Dollar +.67cto $.82.70US. on Christmas Eve-closed Thurs/Fri
· Oil +$2.36 to $37.711US per barrel.
· Gold +$23.30 to $870.40US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
The Financial Post has been running “The Wisdom Series” in which it asks prominent Canadian business men the same series of questions about today’s economy. I found the responses of Anthony Boetckh worth sharing. Quoting from article attached “(Authorities) have plans in case of nuclear attack but there was no disaster plan for a meltdown in the financial system.”
Wisdom series: Long, slow recovery ahead for Canada, says BoeckhPresident of Boeckh Investments Inc., Anthony Boeckh,
Jacqueline Thorpe, Financial Post Published: Monday, December 22, 2008
From 1968 to 2002, he was chairman, chief executive and editor-in-chief of Montreal-based BCA Publications, publisher of, among others, the highly regarded Bank Credit Analyst, a monthly big-picture analysis of the U.S. economy and financial markets. BCA is now owned by Euromoney.
He was also chairman of Greydanus, Boeckh and Associates from 1985-99, a fixed-income investment firm which managed $2-billion in assets when it was sold to Toronto-Dominion Bank in December, 1999.
With a PhD in finance and economics from The Wharton School, University of Pennsylvania, Mr. Boeckh has taught economics at McGill University and is a founding trustee of the Fraser Institute.
He recently spoke to Financial Post economics writer Jacqueline Thorpe about what he sees as the key challenges ahead.
QWhat stage are you at now, both in life and work?
A I work with my son and his brother-in-law and my former CFO and a few others essentially managing family assets. They do all the investing. I spend all my time looking at the big picture.
QHave you ever seen the global economy in worse shape?
A No. It sounds trite but it's a very complex and very dangerous situation. I think the thing that is so frightening about it is the speed of the collapse. Nobody's had time to adjust to it. The whole system is frozen up -- it's completely paralyzed -- and people are panicking. The people in authority don't know what's happening, didn't know what was happening before we went into it.
They had no idea of the risks. They had no game plan. They have plans in case of nuclear attack but there was no disaster plan for a meltdown in the financial system. They're making up the rules as they go along and crossing their fingers and hoping it works.
QWhat is the reason for how we got here?
A The fundamental cause of this thing is the deeply flawed international monetary system. You really have to go back to Nixon and Aug. 15, 1971, when he took the U.S. off gold. At the time, it really was as clear as a bell what that signified and it really meant the U.S. was not going to submit themselves to international monetary discipline....That began the whole process of inflation. [Former U.S. Federal Reserve Governor Paul] Volcker put an end to that in the early '80s but after that the inflation really showed up in the form of credit and asset inflation. We've really been in a credit in asset inflation for 20 years.... The rise in private debt relative to GDP was a very stable relationship for a long time, they moved up very close together. Then the growth in debt just started to take off relative to GDP. Every time you'd have a recession, you'd get a little correction and then it would take off again. Then after the last recession in 2000-02 there was no correction in the debt at all. It just kept going straight up. The big flaw in the system was there was no discipline on the United States to live within their means.
QDo you think we should be back on the gold standard then?
A The gold standard was denigrated and has been for decades. People say it was a really rigid system and there were all these crises in the 19th century, but one way of looking at it is it imposed a discipline on the system and nobody's figured out a better way to impose discipline.
Even though you had crises every 10 years or so, they were never catastrophic. You took off the discipline in 1971 and we've had a debt bubble, an asset bubble building for 35 years and we're facing a crisis now much bigger than in the 19th century. The only way of preventing it from becoming a disaster is to print a whole bunch of money and have massive fiscal deficits, which nobody would argue isn't going to cause problems in the future.
QHow does this compare to other economic crises in the past, like the stagflation of the 1970s?
A That was also a pretty scary time as well. It was a totally different type of situation. It was an inflationary drama and there [were] the two oil price shocks and an actual shortage of oil because of the OPEC embargo. I was living in the U.K. at the time ... and it was really a first-hand look into the depth of this thing because the coal miners were on strike and there wasn't enough oil and the government put the economy onto a three-day work week and the stock market dropped in half and then it dropped in half again. So things just fell apart and you just had this feeling of being out of control, and I think that's the same sort of feeling now for different reasons. Nobody really has anything solid to base a view on ... [People] are just terrified their assets are going to go to zero, they can't retire, they won't have any money, they won't have a job.
QIn terms of the policy response, are we on our way to getting things fixed?
A I don't think "fixed" is the right word because it's not a question of fixing it. The whole issue is trying to contain the downside. The concern has been that ever since this started the authorities are lagging behind, they are always playing catch-up ... [Now] the Treasury and the Fed are so deep in this thing in terms of bailouts, there's no way they're going to stop. Eventually I think it's going to work. That's why I don't think we're looking at a 1930s scenario.
QIf you were running the country, what would you do?
A I think in Canada the government has been much more complacent, in part for good reason because the banking system is in much better condition. We have been big beneficiaries of commodities and a lot of companies have made a lot of money so there is a bigger cushion here but at the end of the day, Canada is extremely vulnerable if deflation gets prolonged because we're very dependent on commodity exports and, of course, they get slaughtered in an extended deflation. But also because we're a small and open economy, there's a limit to what we do and how we do it.
QAre we facing a long-haul recovery for the market now or do you see some conditions in place for a rebound?
A I think it's going to be a very long time before we really think of getting back to "normal," whatever that means, because I don't think things have been normal for a long time. It's just that it was all disguised under a bunch of debt. It's going to be a very long and slow recovery in the economy -- assuming we don't go into a disaster scenario, which is possible but not likely. The markets are very anticipatory. The cliché is they anticipate the recovery six to nine months ahead. If we are going to have a recovery ... after another year, then the markets could easily hit bottom in the next three, four or five, six months. My sense is it has come down so fast and so far, that we're probably not all that far from a bottom.
QWhat is your longer-term outlook for the global economy?
A Basically we're going through a transformation of transferring private debt into public debt. That will go on probably for years. It will allow the private sector to deleverage but will eventually lead to a fiscal crisis. We won't be aware of it until we get the next recovery. Then there will be a real problem because there will be too much government debt out there, and interest rates are going to start going up early in the cycle, and everybody's going to be afraid of that and with all the stimulus they've put in the system, there's a real risk of inflation taking off again. The really big concern is on energy because you look around the world and all the energy companies are slashing their capital budget, which means in the next recovery there is going to be an even bigger shortage of oil and gas, and you can't print oil. I think we're going to have a series of crises, and a lot of volatility, and we're not going to get back to anything we recognize as normal for a very long time. I think in the next recovery oil is going to up dramatically. Unless we have an extended depression, energy will come back for sure.
QYou are a founding trustee of the Fraser Institute, which is dedicated to free markets. Is capitalism under threat?
A Capitalism needs to be judged over very long periods of time, and if you do that and look back in history, in countries where it has taken root, it has generated sustained massive improvements in living standards everywhere. But capitalism is fraught with recurring crises because of its competitive nature [which leads to] creative destruction. Nobody has figured out how to stop that nor should they. The trouble is, it's not so great for the people in the short term which are part of the destruction. Like the domestic car industries. They are in the process of being destroyed, they will probably get bailed out but eventually they will be destroyed as they have been in the U.K. and a lot of places. It's not so great if you're one of those guys but a lot of industries are rising up all the time and it's part of the capitalist process, that innovation is constantly taking place. You've entrepreneurs out there trying to find to ways to use new technologies, to create profits, and that's what creates rising living standards.
Tuesday, December 23, 2008
Financial Update
· TSX-302.47pts (Reuters) as analyst downgrades of energy and fertilizer companies combined with a steep drop in crude prices dragged the resource-heavy market into a broad selloff. Also Japanese auto giant Toyota Motor Corp. projected its first-ever full-year operating loss.
· DOW -59.42pts
· Dollar +.26c to $82.03US.
· Oil -$2.45 to $39.91US per barrel. While prices pose a challenge for some investors, the declines in oil prices could have a positive impact on consumers, suggested Bruce Latimer, a trader at Dundee Securities. "You're also seeing gasoline very, very cheap out there," he said. "And that's certainly going to put a few more dollars into consumers' pockets."
· Gold +$9.80 to $847.20US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Big banks face rising pressure to loosen credit
Flaherty certain to demand action when he joins Carney in meeting with financial CEOs next month Les Whittington
OTTAWA–The big banks are facing mounting pressure from Ottawa to do more to make credit available to Canadians during the current economic meltdown.
But Finance Minister Jim Flaherty's ability to convince the banks to loosen their lending practices may depend largely on his political skills.
After years of passing up opportunities to tighten regulation of bank practices, Parliament has few weapons at its disposal –other than marshalling public opinion – when it comes to a standoff with the country's biggest financial institutions.
Flaherty, who will join Bank of Canada Governor Mark Carney in a closed-door meeting with bank CEOs in January, is certain to demand action at a time when complaints about a credit squeeze are echoing through business and government right across the country.
"Access to credit is a huge issue – the minister hears about it in every pre-budget consultation he does, and it's something that we need to continue pressing on," a senior government official said yesterday.
Flaherty has made it clear he feels his extensive efforts to help the banks weather the global credit crunch aren't being reciprocated. And the official points out that these special measures by the federal government are temporary and don't have to be extended.
At issue are the Harper government's plan to purchase $75 billion in bank-held mortgages and its guarantee of up to $200 billion in bank borrowing. Both programs, which are meant to free up credit for business and consumers, expire in the spring.
Asked yesterday whether Flaherty would extend them in the current atmosphere between Ottawa and the banks, the official said pointedly, "Generally speaking, if programs are not effective, you don't continue with them."
With businesses closing and jobs disappearing as the economy plummets ever downward, the ability of companies to obtain loans has become a matter of national urgency.
Quebec Finance Minister Monique Jérôme-Forget said after a meeting of federal-provincial treasurers this week the credit crunch was the most pressing topic raised in the closed-door conference.
And Greg Selinger, Manitoba's representative, said ominously that the ministers from across the country ought to have a talk with the bank CEOs about Canada's "national interests."
When Parliament resumes in late January, the bank chiefs can expect to be called on the carpet by the House of Commons finance committee to explain their lending activities, says Dan McTeague, the Liberal consumer affairs critic.
"Members of Parliament like myself have so far received what is a very disturbing number of calls from creditworthy clients who are having a tough go of it and are prepared to take it up with MPs on the hope that we would demand some accountability from the chartered banks," said McTeague (Pickering-Scarborough East).
Previewing his meeting with senior bankers next month, Flaherty says he will expect them to show that they are making credit more widely available.
And, in an unusual move, Carney has publicly urged the banks not to tighten up lending.
Through the federal finance department, the Office of the Superintendent of Financial Institutions and other agencies, Ottawa scrutinizes the banks' operations, their solvency and their consumer-related practices. But the Bank Act gives the government very little power to tell the banks how to operate.
"There's nothing he can do other than threat," Garth Turner, the former MP and financial commentator, says of Flaherty. "He has no big stick to hold over the banks."
And Flaherty's face-to-face talks with bank chief executives promise to be confrontational. Canada's major banks say they are being unfairly singled out for blame in a credit crunch that is affecting everyone.
Nancy Hughes Anthony, head of the Canadian Bankers Association, acknowledges obtaining loans may be getting tougher for some companies.
"With the Canadian and American economies slowing, there is no question that some of Canada's major industries are going through tough times. When providing credit, sound business practices require that such changing economic conditions be taken into account by lenders," she said in a statement this week.
But the banks maintain it is other lenders – not bankers – who are clamping down on credit.
"As many observers (including Carney) have noted, financing through non-bank sources is less and less available to Canadian businesses," Hughes Anthony said.
Duff Conacher, who heads the Canadian Community Reinvestment Coalition, says successive Conservative and Liberal governments have failed to provide the tools federal regulators need to accurately assess banks' lending practices. He advocates expanding the powers of the Financial Consumer Agency of Canada and the federal Competition Bureau to enable Ottawa to audit the banks' books.
· DOW -59.42pts
· Dollar +.26c to $82.03US.
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Big banks face rising pressure to loosen credit
Flaherty certain to demand action when he joins Carney in meeting with financial CEOs next month Les Whittington
OTTAWA–The big banks are facing mounting pressure from Ottawa to do more to make credit available to Canadians during the current economic meltdown.
But Finance Minister Jim Flaherty's ability to convince the banks to loosen their lending practices may depend largely on his political skills.
After years of passing up opportunities to tighten regulation of bank practices, Parliament has few weapons at its disposal –other than marshalling public opinion – when it comes to a standoff with the country's biggest financial institutions.
Flaherty, who will join Bank of Canada Governor Mark Carney in a closed-door meeting with bank CEOs in January, is certain to demand action at a time when complaints about a credit squeeze are echoing through business and government right across the country.
"Access to credit is a huge issue – the minister hears about it in every pre-budget consultation he does, and it's something that we need to continue pressing on," a senior government official said yesterday.
Flaherty has made it clear he feels his extensive efforts to help the banks weather the global credit crunch aren't being reciprocated. And the official points out that these special measures by the federal government are temporary and don't have to be extended.
At issue are the Harper government's plan to purchase $75 billion in bank-held mortgages and its guarantee of up to $200 billion in bank borrowing. Both programs, which are meant to free up credit for business and consumers, expire in the spring.
Asked yesterday whether Flaherty would extend them in the current atmosphere between Ottawa and the banks, the official said pointedly, "Generally speaking, if programs are not effective, you don't continue with them."
With businesses closing and jobs disappearing as the economy plummets ever downward, the ability of companies to obtain loans has become a matter of national urgency.
Quebec Finance Minister Monique Jérôme-Forget said after a meeting of federal-provincial treasurers this week the credit crunch was the most pressing topic raised in the closed-door conference.
And Greg Selinger, Manitoba's representative, said ominously that the ministers from across the country ought to have a talk with the bank CEOs about Canada's "national interests."
When Parliament resumes in late January, the bank chiefs can expect to be called on the carpet by the House of Commons finance committee to explain their lending activities, says Dan McTeague, the Liberal consumer affairs critic.
"Members of Parliament like myself have so far received what is a very disturbing number of calls from creditworthy clients who are having a tough go of it and are prepared to take it up with MPs on the hope that we would demand some accountability from the chartered banks," said McTeague (Pickering-Scarborough East).
Previewing his meeting with senior bankers next month, Flaherty says he will expect them to show that they are making credit more widely available.
And, in an unusual move, Carney has publicly urged the banks not to tighten up lending.
Through the federal finance department, the Office of the Superintendent of Financial Institutions and other agencies, Ottawa scrutinizes the banks' operations, their solvency and their consumer-related practices. But the Bank Act gives the government very little power to tell the banks how to operate.
"There's nothing he can do other than threat," Garth Turner, the former MP and financial commentator, says of Flaherty. "He has no big stick to hold over the banks."
And Flaherty's face-to-face talks with bank chief executives promise to be confrontational. Canada's major banks say they are being unfairly singled out for blame in a credit crunch that is affecting everyone.
Nancy Hughes Anthony, head of the Canadian Bankers Association, acknowledges obtaining loans may be getting tougher for some companies.
"With the Canadian and American economies slowing, there is no question that some of Canada's major industries are going through tough times. When providing credit, sound business practices require that such changing economic conditions be taken into account by lenders," she said in a statement this week.
But the banks maintain it is other lenders – not bankers – who are clamping down on credit.
"As many observers (including Carney) have noted, financing through non-bank sources is less and less available to Canadian businesses," Hughes Anthony said.
Duff Conacher, who heads the Canadian Community Reinvestment Coalition, says successive Conservative and Liberal governments have failed to provide the tools federal regulators need to accurately assess banks' lending practices. He advocates expanding the powers of the Financial Consumer Agency of Canada and the federal Competition Bureau to enable Ottawa to audit the banks' books.
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