I feel a nagging sense of urgency. Our government and other powerful figures are making hasty decisions amid this global financial crisis. They're being forced to respond quickly, without taking the time to gather information, ask experts, or perform proper analysis. Mistakes are being made, but the rug of confusion looms so large that the mess can be swept under it.
In the elevator at work, the news monitor caught my eye with one particular headline:
BOC says Canada needs stimulus NOW!!!
Okay, maybe it wasn't written exactly like that, but that’s how I read it. Here's what Pierre Duguay, Deputy governer at the Bank of Canada, had to say:
“I agree there is a sense of urgency. Very clearly we will be hit by a string of bad news in the coming months,” Mr. Duguay said.
“When consumers are nervous about employment prospects they stop spending and at that point it doesn't matter much whether credit is available or not, they prefer not to go into debt.”
You can read more about it here. Apparently those power hungry Liberals are holding up the parliamentary passing of this package. The nerve. And do you know what they're holding out for? Transparency. This is urgent! The government doesn’t have time to go into detail about who’s supposed to get this money! All details can be found under the rug.
I’m not politically affiliated in any way. I’m a fan of politicians who admit that this global financial crisis is too large and complicated to understand. This is reality. Our economy is largely dependent on the US, and all we know is that things in the US are really bad. We won’t be able to quantify the impact of US decline until it happens; there’s a lag.
But does our Prime Minister really have to parade around Wolf Blitzer’s situation room talking about how awesome Canada is? Near the end of this clip, he appears to take credit for well-established Canadian banking regulations. He mentions in passing some "small market transactions" that the Canadian government executed in order to create liquidity in the banks, and how it “wasn’t a bailout.” Those small market transactions totaled $25 billion worth of money that the government gave to Canadian banks in exchange for mortgages. That’s approximately 2% of Canada’s GDP. To put this in perspective, the US financial bailout was initially said to be $800 billion, which is about 6% of the US GDP.
But relax: it wasn’t a bailout. A bailout is trying to save financial institutions in need. This was more like purchasing a single gigantic mortgaged back security from our banks. In other words, the Canadian government (on our behalf) locked up $25 billion into the mortgage business. Flaherty said that the government might even make money on this deal. But who cares? We have $25 billion less available to us for our spending package. We will need to borrow that money, making the cost of the package higher for all of us. Not surprisingly, the move didn’t create any liquidity or loosen up lending in Canada.
It’s been well documented how our banks are being tight with money, which is speeding up our slide into this recession. But just as the US is learning, when you hand money over to banks without legislating its specific use, the banks will just do whatever they want.
Milton Friedman wrote his paper on the corporation's social responsibility almost 50 years ago. To paraphrase, he said the corporation has no obligation or duty to anyone in society except to its shareholders. From this, it follows that the corporation's sole responsibility is to increase share value. But he wasn't saying this is how our world should be, he was telling us that this is how things will be. He pointed to the lawmakers as the only ones who can take care of society's needs. If society feels corporations are not acting appropriately, it's up to the lawmakers to change the laws and regulations, forcing corporations to do the right thing. Don't just sit back and expect them to do the right thing, because that's not how they're designed.
I know if Milton was still with us, and if I had a chance to speak with him about the $25 billion not-a-bailout in Canada, or even the $800+ billion bailout in the US, he would respond quite simply:
What did you expect them to do with the money? Did you expect them to save jobs or homes? Did you expect them to stimulate the economy? You should expect corporations to do whatever actions yield the highest profit. Oh - and by the way, Umar, that paper you wrote in third year defending my ideas was money!
I’m not politically affiliated in any way. I’m a fan of politicians who admit that this global financial crisis is too large and complicated to understand. This is reality. Our economy is largely dependent on the US, and all we know is that things in the US are really bad. We won’t be able to quantify the impact of US decline until it happens; there’s a lag.
But does our Prime Minister really have to parade around Wolf Blitzer’s situation room talking about how awesome Canada is? Near the end of this clip, he appears to take credit for well-established Canadian banking regulations. He mentions in passing some "small market transactions" that the Canadian government executed in order to create liquidity in the banks, and how it “wasn’t a bailout.” Those small market transactions totaled $25 billion worth of money that the government gave to Canadian banks in exchange for mortgages. That’s approximately 2% of Canada’s GDP. To put this in perspective, the US financial bailout was initially said to be $800 billion, which is about 6% of the US GDP.
But relax: it wasn’t a bailout. A bailout is trying to save financial institutions in need. This was more like purchasing a single gigantic mortgaged back security from our banks. In other words, the Canadian government (on our behalf) locked up $25 billion into the mortgage business. Flaherty said that the government might even make money on this deal. But who cares? We have $25 billion less available to us for our spending package. We will need to borrow that money, making the cost of the package higher for all of us. Not surprisingly, the move didn’t create any liquidity or loosen up lending in Canada.
It’s been well documented how our banks are being tight with money, which is speeding up our slide into this recession. But just as the US is learning, when you hand money over to banks without legislating its specific use, the banks will just do whatever they want.
Milton Friedman wrote his paper on the corporation's social responsibility almost 50 years ago. To paraphrase, he said the corporation has no obligation or duty to anyone in society except to its shareholders. From this, it follows that the corporation's sole responsibility is to increase share value. But he wasn't saying this is how our world should be, he was telling us that this is how things will be. He pointed to the lawmakers as the only ones who can take care of society's needs. If society feels corporations are not acting appropriately, it's up to the lawmakers to change the laws and regulations, forcing corporations to do the right thing. Don't just sit back and expect them to do the right thing, because that's not how they're designed.
I know if Milton was still with us, and if I had a chance to speak with him about the $25 billion not-a-bailout in Canada, or even the $800+ billion bailout in the US, he would respond quite simply:
What did you expect them to do with the money? Did you expect them to save jobs or homes? Did you expect them to stimulate the economy? You should expect corporations to do whatever actions yield the highest profit. Oh - and by the way, Umar, that paper you wrote in third year defending my ideas was money!
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