Hey there, time traveller!
This article was published 22/6/2010 (3497 days ago), so information in it may no longer be current.
That $57,000 Muskoka "lake" in the $1.9 million "Experience Canada" media centre isn't all that's fake about Canada's image as host country for the G8 and G20 summits.
The real charade is Canada's preaching to the world about the strengths of Canada's banking system — and using that "strength" to lead the opposition to an international bank tax — while giving Canada's banks a massive bailout.
The financial media have virtually ignored Ottawa's $200-billion low-interest line of credit to help Canada's banks weather the recession and the Canada Mortgage and Housing Corp.'s $125-billion purchase of questionable mortgages and other rotten paper held by the banks when the crash came in the fall of 2008.
Both were part of the 2009 federal budget.
Neither has stopped Prime Minister Stephen Harper and Finance Minister Jim Flaherty from touring world capitals to boast that Canada, alone, never had to loan or guarantee one red cent for its banks and would mount the barricades to protect Canada's solid and prudent financial institutions from being gouged to save the "reckless" banking systems and taxpayers of other countries.
Now it appears Canadian taxpayers could need the same protection as taxpayers worldwide. They are on the hook for the line of credit and for the mortgages, 40 per cent of which are considered at risk. And the risk can only increase if interest rates go up and the economy nosedives again.
Already, some economists are fearful the liquidity the government infused into Canada's banking system may have led to a housing and credit bubble which could have burst last month. Housing values suddenly dropped 10 per cent in May, perhaps signalling the end of the so-called "recovery."
Michel Choussudovsky, a retired University of Ottawa economist and head of the Montreal-based Centre for Research on Globalization, says Canadians can track Canada's bank bailouts by looking at the federal deficit. Just prior to the 2008 election, Flaherty announced a $2.3 billion surplus. Right after, that $2.3 billion surplus suddenly changed to a $64 billion deficit. In an interview with the Halifax Chronicle Herald last Saturday, Choussudovsky said that entire deficit went to the first installments of the bailout, which Harper described as "not a bailout" but "a market transaction."
A second Canadian economist, the Canadian Auto Workers' Jim Stanford, has also blown the whistle on Canada's bank bailouts, drawing attention to the $200 billion line of credit Ottawa extended to the chartered banks to help them weather the recession.
"Since 2005, before-tax profits in Canada's financial sector have averaged $50 billion per year. Amidst the global carnage of 2009, they fell to a mere $44 billion," Stanford says. "The financial sector, which employs just six per cent of Canadian workers, has been sucking up over one-quarter of all business profits. Incredibly, during a wicked recession that was centred in finance, that share actually rose last year."
The European debt crisis has been widely misinterpreted, Stanford says. "Pundits blame the Greeks' lack of fiscal discipline. But it's actually bond speculators, not Greek politicians, that precipitated this crisis: using credit default swaps and other derivatives to exploit perceived uncertainty and attack the bonds of Greece and other countries, driving up interest rates on sovereign debt to 10 per cent or higher. This is just a variant of the same herd behaviour that brought down Lehman Brothers and it could potentially spark a global double dip."
Nevertheless, the Canadian government is riding to the rescue of Canada's banks, not just fighting against an international bank tax, but continuing to cut corporate taxes to the point Canada will have the lowest rates in the G8 by 2012.
This bonanza gives the banks a $200 million gift per quarter at present profit rates. In each of the last two quarters, Canada's six largest banks have made some $5 billion. In 2009, they gave their top executives over $8 billion in bonuses and have already put away another $5 billion for the same purpose this year.
Yet here was the finance minister speaking to a Bay Street crowd in early May. Denouncing the idea of "excessive, arbitrary and punitive" taxes on Canadian banks, Flaherty pledged: "We're not going to punish our banks for the fact they have acted responsibly."
There's a final fakery. What strength Canada's banking sector has is no thanks to the Conservatives. In opposition, they repeatedly denounced the Liberal government for opposing U.S.-style bank deregulation, foreign takeovers and mergers.
Frances Russell is a Winnipeg author and journalist.