Mark Carney’s conflict of interest

Mark Carney is the Governor of the Bank of Canada. He was Jim Flaherty’s choice, not the Board’s.

Mark Carney’s pension is provided by the Public Sector Pension Plan.

The Public Sector Pension Plan is faced with a near $ 1 billion loss on Asset Backed Commercial Paper (ABCP).

Now we learn that the Bank of Canada, at Mark Carney’s request, has been granted greater freedoms by Jim Flaherty to assume riskier assets to back loans made by the Bank of Canada.

One of the reasons cited for this relaxation in the quality of collateral is to deal with credit market deterioration.

The article below cites that this will permit the Bank of Canada to extend loans against ABCP.

This creates a conflict insofar as the Public Sector Pension Plan is concerned. They should be required to sit on their ABCP and learn the errors of their ways. Lest they repeat them. The others as well.

The highly predictable and inevitable ABCP mess should not be subsidized in any way by Canadian taxpayers, either directly or indirectly. This change below, will lead to an indirect subsidy to holders of ABCP by Canadian taxpayers. It will lead to the assumption of risk by Canadian taxpayers. For what purpose and for whose purpose?

The Bank of Canada should not be made into a CONDUIT to bridge the gap between the short term nature of ABCP investors and the long term nature of the underlying assets that they acquired. This whole problem began with the formation of conduits. Why is the Bank of Canada now becoming a conduit itself?

To bail out Mark Carney’s pension plan? And that of 370,000 federal civil servants?


Central bank to take riskier assets as collateral

KEVIN CARMICHAEL
Saturday, July 26, 2008
OTTAWA — The Bank of Canada says it is prepared to accept some of the riskiest assets on the market, giving it more power to fight the credit crisis.

For the first time, the central bank will accept as collateral for emergency loans asset-backed securities of the type at the heart of the crisis of confidence that has seized financial markets for the past year.

Governor Mark Carney revealed yesterday in the Canada Gazette how he intends to use new powers granted him by Finance Minister Jim Flaherty in legislation that cleared Parliament in June. It was left up to Mr. Carney to decide which assets would be acceptable to the central bank.

The change aligns the Bank of Canada with other major central banks, including the U.S. Federal Reserve and the European Central Bank, and clears the way for Mr. Carney to more forcefully attack a problem that he says has subsided in Canada for now.

"This is a positive development as it brings the Bank of Canada's powers more in line with that of its peers, and it reduces the risk of further credit market problems in Canada," said Eric Lascalles, an economist at Toronto-Dominion Bank.

Mr. Carney indicated frustration during parliamentary testimony earlier this year as the Fed and others took extraordinary steps to inject liquidity into frozen credit markets, accepting a wide range of assets as collateral in return for billions of dollars worth of short-term loans. Canada's central bankers were left to fight the fire with what amounted to a garden hose by comparison.

That's because Canadian law forbade the central bank from accepting anything but the safest of assets in return for emergency loans. In his testimony to Parliamentary committees, Mr. Carney indicated the credit crisis was worse than it needed to be as a result of the limits on the central bank's discretion. The heads of Canada's biggest banks felt the same, and lobbied Ottawa to expand the Bank of Canada's powers.

At emergency auctions for short-term loans, the central bank said it will now accept collateral commercial paper, including asset-backed commercial paper, with a term of maturity of no more than 365 days, and other Canadian-dollar, asset-backed securities. The central bank also will accept securities issued or guaranteed by the federal government; provincial governments; the U.S. government; and any state in the Organization for Economic Co-operation and Development.

The list of assets also includes Canadian-dollar corporate and municipal bonds, Canadian-dollar bankers' acceptances with maturities of no more than 365 days and Canadian-dollar promissory notes with a term to maturity of no more than 365 days.