Saturday, December 20, 2008

Where was Harper's "social responsibility beyond the marketplace" when it came to his shafting of trust investors?

Better yet, where is Harper's proof of tax leakage upon which he based his canard of an argument to defraud income trusts investors out of $35 billion of their life savings?

GM, Chrysler Face To-Do List of Cutting Debt, Jobs

By Jeff Green and Alex Ortolani

Dec. 20 (Bloomberg) -- General Motors Corp. and Chrysler LLC, steadied by a $13.4 billion federal lifeline, face a March 31 deadline to slash debt, rework labor contracts and plan for thousands of job cuts or face government-ordered bankruptcy.

The loans announced yesterday by President George W. Bush will provide the government with warrants allowing it to profit from a successful rescue, and seniority over much of the automakers’ debt should the effort fail.

The Canadian units of both automakers will get C$4 billion ($3.3 billion) in government loans from Canada and the province of Ontario and may get more, Prime Minister Stephen Harper said today.

“I cannot rule it out,” the Prime Minister told reporters at a briefing today in Toronto when asked whether he may offer the automakers additional aid. “We have a social responsibility that goes beyond the marketplace.”

Thursday, December 18, 2008

What gives? Mark Carney promised that no tax payer money would be used to bailout ABCP

Bank of Canada didn't consider ABCP bailout-Carney

Mon Feb 18, 2008

VANCOUVER, British Columbia , Feb 18 (Reuters) - The Bank of Canada never considered using public money to bail out the country's C$35 billion ($35 billion) non-bank asset-backed commercial paper market, a corner of the money market that seized up last August, Governor Mark Carney said on Monday.

"It was absolutely clear from moment one that there was not going to be any public money put behind any of this because these are decisions of financial market participants," Carney said.

"They took them, they are sophisticated ... That is not the place to put taxpayers' dollars or the balance sheet of the Bank of Canada," he said in response to a question from a business audience in the West Coast city of Vancouver.

In some of the most detailed comments yet from a Canadian central bank official on the Bank's role in the ABCP fracas, Carney said it acted as a "light-touch" facilitator for talks between various market participants.

"We became involved in this situation in a very light-touch way because there was a huge coordination problem in August when the problems emerged between the various players -- the banks, the derivatives counterparties, the investors.

"There was a real risk of a fire-sale with very, very low recoveries to the investors," Carney said after delivering his first speech since becoming Bank of Canada Governor on Feb. 1.

Canada's ABCP market, for paper issued by groups other than the country's big banks, ground to a halt six months ago when investors suddenly stopped buying the investments on concerns they were invested in U.S. subprime mortgages.

Banks refused to provide emergency funding, taking the market to the brink of collapse until a group of the biggest investors quickly stepped in to try to halt any defaults and hammer out a restructuring plan. The repair effort is still ongoing and market participants have largely heeded a trade and margin call standstill agreement.

"Our approach was to try to squeeze out some of the mistrust so that there could be ... a proper negotiation to try to make a bad situation less bad," Carney said.

Flaherty announces Billionaires Boys Club to advise (mislead?) him

Flaherty establishing economic advisory council to give government advice

The Council members are:

* Carole Taylor (chair)
.....BC politician and Finance Minister who sent letter in support of Flaherty's income trust tax and provided no supporting rationale or quantitative justification

* Geoff Beattie.......Heads up multi billionaire Thomson Family holding company.....controls CTVGlobeMedia who constantly misreport on income trust policy and promulgate Flaherty's patently false lies about tax leakage

* Paul Desmarais, Jr......son of billionaire, successfully lobbied (even though he is not registered as a lobbyist) Harper to kill income trusts to enhance his sales of competing investment products for personal gain

* George Gosbee
......head of Calgary’s Tristone Capital who would love to sell more Calgary companies like Prime West Energy to foreigners like Abu Dhabi Energy

* Isabelle Hudon
......39 year old CEO, Board of Trade of Metropolitan Montreal. She has been on other panels set up by Flaherty

* James D. Irving......second generation billionaire

* Mike Lazaridis......RIM co-founder and self made billionaire. Likes back dating stock options for personal gain, for which he subsequently received Canada's largest ever securities violation fine

* Jack Mintz accountant and former civil servant who has a penchant for fudging the numbers and constructing false argument for income trust tax leakage

* James A. Pattison
.....self made of four members of BCE”s Strategic Oversight committee that failed to disclose Catalyst recap the end, the only deal that was viable. Oh well, not his loss....just the widows and orphans.

* Ajit Someshwar
...... C.E.O. of CSI Consulting idea who this person is

* Annette Verschuren
.......CEO of Home Depot Canada....she takes her orders from the US Head Office of Home Depot

The ABC's of Flaherty's insane ABCP bailout

A: Flaherty wants to turn Ottawa into a soup kitchen for the wealthy.
B: Compensation for professional incompetents.
C: Immunity for the brokers'and banks'pathetic sales practices

Fact: Only $400 million of the $32 billion of ABCP is owned by retail investors, all of whom represented themselves as accredited and sophisticated investors in order to qualify themselves to purchase ABCP. The remaining $31.6 billion is owned by some of the most (presumably) sophisticated investors in Canada, who were looking to boost their investment returns. They took on known risks. Now they want Canadians taxpayers to bail them out of their own professional incompetence.

As for the 1400 retail investors. If they feel that the banks and brokers who sold this paper to them did so without properly disclosing the risks, then these investors have legal recourse against the banks and brokers. This is how they can achieve recourse. meanwhile Flaherty's bailout deal is designed with the sole intent of achieving legal immunity for these banks and brokers. Who do think Purdy Crawford is actually working for? Certainly not Canadian taxpayers. of that you can be sure.

Bottom line:
This is absurd. That's why Flaherty is going for it. He has been successfully lobbied by Bay Street. Bat Street want taxpayers to clean up their mess. Flaherty is more than happy to oblige Bay Street......with your tax dollars!

Relevant Quotes:

"It is extremely important that financial market participants bear the consequences of their decisions." Bank of Canada Governor Mark Carney (in reference to any government involvement in ABCP bailout)

“The ultimate result of shielding man from the effects of folly is to people the world with fools” Herbert Spencer ( English philosopher; prominent classical liberal political theorist)

Provinces asked to chip in for ABCP rescue

John Greenwood and Paul Vieira,
Canwest News Service;
December 18, 2008

Finance Minister Jim Flaherty has formally asked Alberta, Ontario and Quebec to contribute toward a government-backed $9.5-billion standby facility that would clinch a deal in the 16-month restructuring of wonky commercial paper.

The request was made in Saskatoon, where Flaherty met yesterday with his provincial finance counterparts to discuss the coming federal budget and what should be done to deal with the global financial crisis.

The $32-billion restructuring of asset-backed commercial paper now hinges on Ottawa's ability to provide a $9.5-billion standby facility. Otherwise, the restructuring could unravel.

Meanwhile, Bank of Canada governor Mark Carney suggested the Canadian economy is strong enough to withstand the restructuring's collapse. However, Carney said that was not an outcome he was advocating.

Sources say Flaherty asked Alberta, Ontario and Quebec to contribute to the facility, given those jurisdictions have provincially-owned entities -- such as the Caisse de depot et placement du Quebec, Ontario Financing Authority and ATB Financial -- that hold ABCP.

At the conclusion of the federal-provincial meeting, Flaherty declined to say whether any progress was made on ABCP. "I can't tell you very much," Flaherty said. "I can tell you that there have been some discussions with some of the ministers here on that subject. It is being reviewed by several of the (provincial) ministers."

Flaherty added: "We all have our responsibilities to our taxpayers, to be cautious in our reviews and that is what is happening right now."

First mapped out in the fall of 2007, the rescue plan started off as a private-sector undertaking. Under the scheme, insolvent 30- to 90-day debt would be converted into new notes maturing in about eight years. The asset-backed paper hasn't traded since August 2007, when investors began to shun the debt because of concerns about ties to high-risk mortgage loans in the United States.

But in the face of unprecedented market turbulence, a committee spearheading the plan -- led by Bay Street lawyer Purdy Crawford -- came forward last week with a last-minute request to the government to supply $9.5 billion of additional funding for a backstop facility.

Until recently, Flaherty has insisted that taxpayers' money will not be used to fix what he regards as a private-sector problem. However, in the face of increasing distress in financial markets over the past few weeks, he has softened his position.

Meanwhile in Toronto,Carney was asked after delivering a speech whether the Canadian market could survive the restructuring's collapse.

"Yes," he said. While that "would not be a welcome development," he said Canada has "resilient markets" and could survive if the court-protected bankruptcy process unravels.

Later, Carney said the central bank has had discussions with the federal government about available options.

"But it is entirely the decision of the government's, so I am not going to comment further," he said.

Shrinking the GDP is more Flaherty's style, as Flaherty is a known destroyer of Canadians' wealth

GDP set to shrink, Flaherty says

Finance Minister's new forecast shows all hope of even a small 2010 surplus is gone; provincial counterparts cautiously hopeful after meeting in Saskatoon reaches consensus


With reports from Shawn McCarthy in Ottawa and Bertrand Marotte in Montreal

December 18, 2008

SASKATOON -- Finance Minister Jim Flaherty, who has been criticized in recent weeks for failing to acknowledge the depth of Canada's economic malaise, is now publishing the grim reality for all to see.

In an unusual move, Mr. Flaherty yesterday revised the government's official forecast for economic growth just three weeks after the Finance Department's traditional autumn update for Parliament.

Canada's inflation-adjusted gross domestic product will shrink 0.4 per cent in 2009, according to the Finance Department's average of 16 private-sector forecasters, which would be the first contraction on an annual basis since the early 1990s.

At the end of November, Mr. Flaherty was counting growth of 0.3 per cent next year. While meagre, the prospect of at least a little expansion left Mr. Flaherty confident enough to say a small surplus was possible in the fiscal year that ends March 31, 2010.

That hope is now gone.

"There will be a deficit," Mr. Flaherty told reporters after a meeting with his provincial and territorial counterparts. "2009 is going to be a difficult year for Canada."

Mr. Flaherty was under pressure from political opponents, especially his critics in the opposition Liberal Party, to provide a clearer picture of Canada's economic prospects amid a global recession and international credit crisis that has forced banks to record financial losses of about $1-trillion (U.S.) over the past year.

The assumptions in the federal government's fall update typically stand until Finance officials complete the budget several months later. With the global economy stuck in a downward spiral, Mr. Flaherty said he had no choice but to restate the assumptions he will be using as the basis for an economic stimulus budget set for release on Jan. 27.

Mr. Flaherty said the revision was the result of the rapid deterioration of the global economy, which institutions such as the International Monetary Fund and the World Bank say is in recession; the collapse of the U.S. housing market; and the "largest, most rapid" plunge in commodity prices in history.

The dire outlook appeared to inspire a new air of co-operation between Mr. Flaherty and the provincial ministers, who tend to bicker as often as they agree.

"It was a constructive meeting," said Quebec Finance Minister Monique Jérôme-Forget. "Everybody wanted to co-operate."

Ministers were universal in their support for new infrastructure spending, and pledged to work together to speed up the approval of projects that have potential to get billions of dollars into Canada's sputtering economy.

They also said they would look at ways to make it easier for companies to get credit, a pledge that was accompanied by accusations that the country's banks are hoarding cash and maintaining higher than necessary borrowing rates.

"There was a feeling they could be doing more to get credit to business," said Manitoba Finance Minister Gregory Selinger.

Still, the unanimity didn't yield concrete proposals and Mr. Flaherty refused to say how big his stimulus package will be.

To be effective as economic stimulus, the money governments spend on infrastructure must spend within 18 months, said Mario Iacobacci, director of the Conference Board of Canada's Centre for Transportation Infrastructure.

That gives an advantage to projects that already have been studied.

Officials should focus on these types of projects because there isn't time to analyze new proposals. Even if the cost-benefit analysis is complete, government officials still are obliged to review the proposals to ensure the spending is as effective as possible.

"You are going to be asking the policy people in the government to work a lot of overtime," Mr. Iacobacci said in an interview from Ottawa.

For some provinces, infrastructure isn't the only focus.

In Saskatoon yesterday, Alberta Finance Minister Iris Evans called on Ottawa to reverse its decision to phase out a tax break for oil sands extraction, and to extend the writeoff to upgraders.

Companies have postponed or cancelled as many as seven proposals to build upgraders - which process raw bitumen into synthetic crude oil - and have slashed capital budgets needed to expand oil sands production.

Ms. Evans said Alberta wants to see a resolution to the current disagreement between the province and the federal government on regulation of greenhouse gas emissions, and some tax breaks for the industry. On the eve of the finance ministers' meeting, Alberta Premier Ed Stelmach sent an open letter to Prime Minister Stephen Harper, urging the federal government to help improve the investment climate in the slumping oil industry.

The Quebec government said it is providing $1-billion in loans and loan guarantees to help companies get through the current credit crunch and economic slowdown.

Wednesday, December 17, 2008

Deborah Allan, spokeswoman for Teachers, was not immediately available for comment.

BCE files suit against Teachers
Simon Avery
Globe and Mail

BCE Inc. filed suit against the Ontario Teachers' Pension Plan and its partners on Wednesday, seeking a $1.2-billion break-up fee after their leveraged buyout of the telecom giant collapsed last week.

The suit, filed in the Superior Court of Quebec, also names Providence Equity Partners and Madison Dearborn Capital Partners, which together with Teachers had offered $35-billion for BCE.

The deal collapsed after auditor KPMG said the leveraged buyout would leave BCE technically insolvent, with liabilities greater than the value of its assets.

Deborah Allan, spokeswoman for Teachers, was not immediately available for comment.

More to come

© 2008 The Globe and Mail

Reality check: Why do you think they called it Asset Backed Commercial Paper, and not de facto T-Bills?

This afternoon, we have Boyd Erman of the Globe arguing in support of the government bail out of the ABCP cheque kiting scheme, in the name of the “little guy”, when in fact less than 1% of the ABCP paper was sold to "little guy" retail investors. Nice try Globe and Mail. The very paper that abandoned the “little guy” income trust investor, who was scammed by the Harper government with Flaherty’s fraudulent argument of “tax leakage”, widely promulgated by the good folks at the Globe and Mail.

Boyd Erman’s logic is no better than the ABCP scheme itself. If, as he argues, that “some very, very smart people who have been through the structure say there's a very low risk of that [$10 billion government backstop being called upon]”, then why is the backstop required? If we as taxpayers are asked to assign no risk to this backstop being drawn upon, they why are others asking for it in the first place? Obviously those parties who benefit are assigning considerable value to it. Meanwhile why is the government becoming a party to a transaction that serves to absolve the banks and brokers from selling practices that would otherwise be subject to legal action?

Meanwhile Boyd Erman is bemoaning the fact that these investors stand to lose some of their investment value. Is Boyd Erman not aware that this is occurring all around us? These ABCP investors, absent a bailout, will receive 100% of what they are entitled to, namely a lot of long dated bonds that were the assets that backed this commercial paper game of musical chairs. If these assets are no longer worth the 100 cents worth of commercial paper that was issue against them, so be it. Why are we now introducing some government “top up” that was never part of what was “bargained for” in the first place, to quote the Supreme Court of Canada in the case of the BCE bondholder dispute?

Meanwhile, the Caisse and the other pension funds have large portfolios of long dated bonds. What’s the problem with more of the same, which will be the result once this ABC Paper scam is wound up and the Caisse receives, in kind, the very assets that backed their Asset Backed Commercial Paper? After all, why do you think they called it Asset Backed Commercial Paper, and not de facto T-Bills, which these people are now desperately lobbying for?

Meanwhile what “success fees” are being paid to folks like Purdy Crawford, Steve Halperin et al, if this insane government bailout of ABCP takes place? Absent the government, these “success fees” would be zero, which is exactly what they should be if the government pursues this idiotic deal to its ultimate insane conclusion.

The ABCP Calculus: Why Ottawa should step in

Boyd Erman, today at 1:31 PM EST
Globe and Mail

Covering the asset-backed commercial paper mess for 16 months, I've tried to stay neutral on what I think is the best course of action. Like any human (and journalists are human) I do have my opinions, but I've kept them under wraps as best I could, leaving it to the players in the drama to tell the story.

But with a deal finally in sight, assuming the governments in Ottawa, Quebec City and Edmonton get together this week to provide some backstop credit, I will say this: on a cost-benefit basis, the governments should go ahead and do it. I say this as a taxpayer, whose money is potentially on the line. It's the smart call.

Let's put ideology aside and just look at the numbers. What will it cost the governments to do it? At the most, $9.5-billion, assuming they are actually called to put up the capital in a future emergency and it's a total loss. But some very, very smart people who have been through the structure (and who are not investors in ABCP who are conflicted by their desire to get the deal done) say there's a very low risk of that.

What are the costs of not doing it? Well, almost instantly, $25-billion or more of wealth will disappear from the pockets of Canadians as the paper vaporizes. Those losses will come from individual investors, and from big pension funds like the Caisse de depot et placement du Quebec, who, one must remember, are just agglomerations of little investors. They may have been badly served by the folks who run their investments, but those small investors shouldn't be punished for that.

And at a time when the federal government is looking at trying to find $15-billion to $30-billion to spend to prime the economic pump, $25-billion of lost wealth from ABCP alone could wipe out any boost to the economy from Ottawa's next budget. And the cost wouldn't stop there. Investors who lost money will pay less tax. Caisse contributors will likely have to pay more off their paychecks to make up the losses. Alberta taxpayers will bear the hit to Alberta Treasury Branch.

All of that means less money in government coffers, and less in Canadians' bank accounts. Some estimate the total cost would be more like $50-billion when you factor in lost tax revenue and all the other ancillary effects. Is that number realistic? It sure sounds reasonable.

So, yes, maybe on a philosophical level you can argue that the government should let 'em hang. Caveat emptor and all that. But an economic crisis is not the time to be doctrinaire. It's a time for pragmatism. The numbers say do the deal, Messrs. Flaherty, Stelmach and Charest. Do the deal.

Flaherty on the verge of bailing out Bay Street's latest cheque kiting scheme?

Sure why not? A $10 billion bailout of ABCP, only represents $625 for every Canadian taxpayer. What kind of precedent does this establish for government to bail out failed Bay Street structured investments? What's next...a bailout of failed Bre-X investors?


ABCP rescue talks continue: Flaherty
Globe and Mail

OTTAWA - Finance Minister Jim Flaherty said he is speaking to some of his provincial counterparts on a possible government backstop for the $32-billion asset-backed commercial paper market and that he might have a decision on whether to extend a lifeline later Wednesday.

"We have had discussions on the subject," Mr. Flaherty told reporters before joining his provincial and territorial counterparts for a meeting in Saskatoon. "That's all I can say at this point. I might have more for you later in the day."

The investors and banks trying to salvage the restructuring of the ABCP are asking governments for guarantees of as much as $10-billion to keep their plan from falling apart amid the fallout from the credit crisis.

Mr. Flaherty declined to discuss specifics. He said he is talking to "certain" governments about a rescue and that any public support would be less than $10-billion.

"Nothing that large," he said.

I am pleased to report that Michael Bryant listened to me

Michael Bryant is my MPP. I contacted his office last week by phone and by email to make the point that any bailout of Chrysler needs to be treated differently than GM or Ford, by virtue of the fact that Chrysler is owned by private equity (Cerberus)

Chrysler rescue has strings

Dec 17, 2008 04:30 AM
Toronto Star

Rescue cash for Chrysler will have strict terms to prevent the privately-owned automaker from taking advantage of Canadian taxpayers, warns Ontario's economic development minister.

"Chrysler will have to be treated differently," Michael Bryant said yesterday.

He promised the Detroit Three automakers will get the life-saving financial "CPR" they need to prevent the eventual loss of over 500,000 jobs in Ontario predicted in a new study if General Motors, Ford and Chrysler were to go bust.

But there will be strings attached, particularly with Chrysler, which has major assembly operations in Brampton and Windsor.

The company's American parent is controlled by Cerberus Capital Management LP, a New York-based firm that manages $27 billion (U.S.) in assets and has been under fire in Washington for not putting more of its own money into the faltering automaker, which is seeking $1.6 billion (Cdn.) in Canada.

Details are "yet to be determined" but could include special warrants placing restrictions on any profits taken by Chrysler at the expense of taxpayers, Bryant added.

"We are working on the assumption that ... the government is just not going to be providing (money) and kissing goodbye."

But a leading auto industry analyst said it will be "extremely difficult" to put any conditions including job guarantees on financial aid for the reeling auto companies.

"They need to shed jobs, not create them," said Dennis DesRosiers, noting none of the automakers are investing so guarantees for future spending are difficult.

"There could be long-term promises regarding intellectual capital like research and development and some broad guarantees regarding greening," he said, referring to more green friendly vehicles. "But it's impossible to get into specifics."

Cerberus, a giant private equity firm, bought most of Chrysler from Daimler in 2007 but has been trying to unload it for months as losses mount.

Discussions involving Cerberus selling Chrysler to GM in exchange for GMAC Financial Services fizzled recently. Cerberus already owns 51 per cent of GMAC.

Chrysler has indicated it could run out of money to operate plants within weeks. The Detroit Three are seeking $6.8 billion (Cdn.) from the federal and Ontario governments.

The Bush administration yesterday said it was still evaluating options and suggested any deal would require major concessions by all sides. Complicating its task, lawmakers in both parties – having failed in their efforts to push a $14 billion rescue through Congress – were pressing for an array of terms and conditions they said should be part of any alternative plan.

"We are not going to be rushed into it," said presidential press secretary Dana Perino.

While the federal and provincial governments worked on conditions for aid, Prime Minister Stephen Harper met privately with Frank Stronach, chair and founder of auto parts giant Magna International Inc., in Ottawa.

One government official said the meeting was part of pre-federal budget talks. A source close to Stronach would not say if they talked about the auto aid package.

Bryant said the aid package is not just for the auto companies but more to preserve the jobs and livelihoods of tens of thousands "in the public interest" and protecting the economy from a deep recession.

His comments came at the release of a new report disclosing that Ontario would lose 517,000 jobs by 2014 if the Detroit Three go under.

The study by the Ontario Manufacturing Council, an arm's length provincial government panel, warned 582,000 jobs would be lost nationally within five years under that scenario as the impact of lost auto, supplier and dealership jobs rippled throughout the country.

Even if domestic output were cut in half, the province would lose up to 141,000 jobs and the country as a whole 157,400.

Ontario Finance Minister Dwight Duncan acknowledged the bailout – which now hinges on the prospect of U.S. government aid that remains in limbo – will put the province deeper into the red than its forecast $500 million budget shortfall this year.

Federal Industry Minister Tony Clement last week pegged Canadian emergency aid at 20 per cent of the U.S. level, which given the $14 billion congressional assistance package means $3.4 billion from Ottawa and Ontario.

No decisions have been made on how that amount might be split between the two governments.

Ontario NDP Leader Howard Hampton said the governments must get job and product guarantees for Canadian plants before handing out any money – particularly to Chrysler.

"Because the owner of Chrysler really doesn't have a commitment to making cars, they're only committed to making money quickly and getting out the door," he said.

With files from Associated Press

"Harper's been ricocheting around like a rubber ball from, ‘Don't worry, be happy' to, ‘The sky is falling.'”

PM's pessimistic talk makes bad situation worse, critics say

Globe and Mail
December 16, 2008

OTTAWA — Prime Minister Stephen Harper was accused yesterday of exacerbating the economic downturn by spreading pessimism when he should be taking a leadership role by disbursing hope.

Mr. Harper, who said in a television interview on Monday that he has never seen such uncertainty about the future, came under fire for giving in to fear at a time when Canadians need their Prime Minister to offer a more positive outlook – both to relieve anxiety and to keep consumers spending.

“I think human behaviour drives recessions and recoveries, and confidence in the future drives human behaviour,” said Liberal MP John McCallum, a former chief economist for the Royal Bank of Canada.

“Especially during difficult times, leaders have to inject confidence and hope into their citizens and Stephen Harper has done precisely the opposite with these comments.”
Related Articles

Mr. Harper told CTV on Monday that he had “never seen such uncertainty” about the future and that he was personally “very worried” about the Canadian economy. He wouldn't rule out a depression, saying it “could be” possible, although he quickly added he believed the world had learned enough from the 1930s to avoid another one.

Peter Donolo of the Strategic Counsel polling firm said Mr. Harper may have erred in trying to demonstrate to Canadians that he feels their fear.

“Part of political leadership, national leadership, is giving people a sense of confidence and a sense of hope,” Mr. Donolo said. “My guess is he's trying to compensate for what was widely perceived to be a lack of empathy about people and their economic anxiety.”

He said Mr. Harper's message has been inconsistent.

“He's been ricocheting around like a rubber ball from, ‘Don't worry, be happy' to, ‘The sky is falling.'”

However, economists said such comments from Mr. Harper might have scared Canadians six months ago but they predicted consumers are mostly inured to dire talk after months of awful economic developments.

“Under normal conditions that could possibly send a chill into consumer and business confidence, but I would say under present circumstances it would probably land only a glancing blow because people have been so battered with bad news in recent months that there's very little one can say any more to spook consumers,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.

Robert Fairholm, director of Canadian forecasting at the Centre for Spatial Economics, said he thinks Mr. Harper is reflecting prevailing views.

“Consumer confidence has already dropped to deep recession levels – so will his comments push them further down? I suspect not,” he said. “People are already extremely worried.… I don't know if anybody is really hanging on the Prime Minister's words.”

Oct. 7: "I think there are probably some great buying opportunities emerging in the stock market as a consequence of all this panic."

Asked whether he would unequivocally rule out a deficit under his government: "Yes. ... Yesterday I think I was asked one question about whether we would run a deficit and I said, 'No.' That's my answer."

Oct. 11: "The fact of the matter is independent analysts, including the International Monetary Fund, say that Canada is not going to go into recession with the current world environment and its current set of domestic policies. We're the one country that's going to continue to show some growth."

Nov. 23: "The most recent private-sector forecasts suggest the strong possibility of a technical recession the end of this year, the beginning of next.

"I am surprised at this. I am also further surprised, more importantly, by deflationary pressure that we're seeing around the world. This is a worrying development, one of the reasons why it may well be necessary to take unprecedented fiscal stimulus."

Dec. 15: "The truth is, I've never seen such uncertainty in terms of looking forward to the future. .... I'm very worried about the Canadian economy."

Asked whether the situation could turn out to be a depression: "It could be, but I think we've learned enough about depression; we've learned enough from the 1930s to avoid some of the mistakes that caused a recession in 1929 to become a depression in the 1930s."

Tuesday, December 16, 2008

Canadians having nothing to fear, but fear monger Harper himself

He's got the title – give him the job

Globe and Mail
December 16, 2008

Upon exiting a meeting with Finance Minister Jim Flaherty yesterday, Liberal MPs Scott Brison and John McCallum described the session as “very constructive and businesslike.” That would be more encouraging if it were clear that Mr. Flaherty were actually running the Finance department.

Mr. Flaherty has spent the last three weeks being embarrassed by his own government. On Nov. 27, he rose in the House of Commons to deliver an ill-conceived fiscal update that by most accounts was dictated by the Prime Minister's Office. When the update's inadequate response to the global economic crisis and its gratuitous partisanship had disastrous consequences, Mr. Flaherty was left twisting in the wind while other cabinet ministers were dispatched to back away from its more controversial positions.

The past few days have seen the continuation of a trend that began even before the fiscal update – the Finance Minister saying one thing, and the government doing another. On Friday, Mr. Flaherty publicly preached the merits of restraint, cautioning against “panicking” and dampening expectations for a stimulus package. Hours later, Industry Minister Tony Clement announced a tentative bailout of the auto industry believed to be worth approximately $3.4-billion. By the end of the weekend, Mr. Clement was hinting at similar aid for the forestry and mining sectors. And in a television interview aired yesterday, Prime Minister Stephen Harper undermined Mr. Flaherty's call for calm – intoning that he's “never seen such uncertainty in terms of looking forward to the future” and declining to rule out a full-fledged depression.

Mr. Flaherty's disempowerment says more about his boss than it does about him. With very few exceptions, Mr. Harper has placed little faith in his ministers. They function primarily as spokespeople, with most major decisions being made centrally. The consequences of micro-managing minor portfolios have been relatively small. But the country needs economic leadership that goes beyond a few staff members in the Prime Minister's Office, as the government has ably demonstrated with its alternately inadequate and, yes, panicky response to the current fiscal turmoil.

Not every Finance minister will enjoy the clout of Paul Martin or even Don Mazankowski, and Mr. Flaherty has not yet been given a chance to prove that he merits it. But now more than ever, Canada needs a strong hand at Finance. He or she must have command of the department, the respect of cabinet, and the ability to speak to the public with authority on the government's fiscal policy. Mr. Flaherty does not seem to meet any of those criteria, because he apparently lacks the most important qualification of all: the confidence of the Prime Minister.

My fiscal stimulus plan includes taxing employee stock options gains as employment income and not capital gains

Part of any prudent and balanced fiscal stimulus plan involves not just increasing expenditures but also introducing new sources of tax revenue where possible. The taxation of employee stock option as capital gains, rather than as the employment income they actually represent, is without any economic justification and merely represents a form of unjustifiable tax relief for the wealthiest Canadians. Capital gains are taxed at HALF the rate of income, to reflect the fact that investors have capital at risk and to encourage more risk taking/investing by investors in our economy. Neither of these conditions of taking risk or making investments in our economy hold true in the case of gains from employee stock options. There is no risk taking. So why are employee stock option gains accorded advantageous tax treatment at half the rate of tax of the income from employment that they actually represent? This is a hand out to those least in need of a hand out.

Meanwhile many of the monumental abuses we have witnessed on Wall Street and the financial system at large, have been caused by compensation systems that provide undue incentives for outcomes that are often contrary to the public good. So why are these compensation systems that see executives in Canada with, for example $50 million windfall profits from stock options, paying the same rate of marginal taxation as some worker earning $15,000, as both will be paying a marginal tax rate of approximately 23%?

Makes no sense whatsoever. In this fashion, the tax system has being skewed to favour the wealthiest and is being used to encourage and incent practices in the business community that have become of questionable social value. This irrational tax carve out needs to be eliminated in the name of true tax fairness.

Which role model did Flaherty have in mind for his much vaunted single regulator?

Madoff case fuels attacks on SEC
Tue Dec 16, 2008 11:44am EST

By John Poirier - Analysis
WASHINGTON (Reuters) - The $50 billion fraud allegedly committed by broker Bernard Madoff is a major embarrassment for the U.S. Securities and Exchange Commission and adds to questions already being asked about the regulator's competence.

The SEC's inability to uncover the scandal until Madoff's sons went to authorities last week comes at a particularly bad time for the SEC and its Chairman, Christopher Cox. They have already been accused by some lawmakers and market experts of being asleep at the wheel while the credit crisis exploded on Wall Street.

The agency's future existence as a separate agency is already under threat as Washington looks at overhauling the regulation of the financial services industry.

"This will be profoundly embarrassing for the SEC," said Columbia University law school professor John Coffee, who has been critical of the agency for failing to properly regulate the failed investments banks. "Congress will predictably give them little mercy."

Madoff, a former Nasdaq Stock Market chairman, was arrested and charged last week with running a massive "Ponzi" scheme using his investment advisory firm.

A rapidly growing number of banks, investment funds, charities and wealthy individuals disclosed on Monday that they had invested in companies controlled by Madoff.

There had already been a number of red flags about the way Madoff operated his investment business going back many years, including an article in the financial newspaper Barron's in 2001 that questioned how Madoff made stunning double-digit returns year after year.

The Wall Street Journal also reported on Friday that Harry Markopolos, who years ago worked for a rival firm, researched Madoff's stock-options strategy and was convinced the results likely were not real. Markopolos pursued his accusations over the past nine years, dealing with both the New York and Boston offices of the SEC, according to documents he sent to the SEC, the newspaper said.

"I'm sure people will look closely at them (the SEC)," said Carl Loewenson, a partner in the New York law office of Morrison & Foerster, who warned against blaming the SEC too quickly.

He said the SEC may not completely be at fault for not catching Madoff's activities sooner, even if some publications questioned his investment returns.

If Madoff was able to fool sophisticated hedge funds, institutions and individuals, he probably would have been able work around regulators too.

"Those people had every incentive to do the utmost due diligence and a lot of them did and a lot of them didn't discover the fraud," he said. "The victims here are not Moms and Pops."

An SEC spokesman declined to comment on the criticism or give any details of inquiries into Madoff's activities.

House Financial Services Committee Chairman Barney Frank is likely to examine how the SEC handled the matter, which also involves a criminal investigation.
Frank's spokesman, Steven Adamske, said he would not comment on the matter until the criminal investigation was resolved, but said the committee will not ignore the matter either.
"In due time, however, we will look at what happened with the SEC and work with them to see if there was a failing of policy here," Adamske said. "If so, there will be an appropriate course of action. But it is not something we will ignore."
Frank, a Massachusetts Democrat, is a key lawmaker who could help determine how regulation of the financial services industry will be overhauled, given the failings by banking and securities regulators to reign in a bottomless appetite for risk.
He and Christopher Dodd, chairman of the Senate Banking Committee are likely to head the reform efforts in Congress.
Dodd is concerned about the people caught up in the scheme who may have been misled and also how such a massive fraud could have gone undetected, his spokeswoman, Kate Szostak, said.
"Senator Dodd is seeking more information from the SEC about this case and is determined to ensure that securities brokers and investment advisers are effectively regulated and supervised in order to protect investors and consumers," she added.
In September, the SEC's inspector general faulted the agency's oversight of big investment bank Bear Stearns for failing to adequately supervise it and limit its risks.
Even after becoming aware of numerous potential red flags prior to Bear Stearns' sale to JPMorgan Chase & Co in March, the SEC failed to limit the firm's risks, including mortgage securities, the inspector general said.
Earlier this year, the Treasury Department issued a set of recommendations to streamline regulation of the financial services industry and entities that flew under the radar of U.S. authorities such as mortgage brokers and lenders, as well as credit default swaps.
The Treasury also recommended combining the SEC with the Commodity Futures Trading Commission and merging bank regulatory agencies the Office of Thrift Supervision and Office of the Comptroller of the Currency.
Some experts do not entirely blame the SEC and instead say Congress should have given the agency more power to regulate some institutions such as hedge funds.
"Congress needs to decide what it's going to do with these gray area items like hedge funds and swaps," said John Allan James, an adjunct professor of governance and regulatory issues at Pace University's Lubin School of Business in New York.
Madoff's attorney, Ira Sorkin, declined to comment on the case, other than to say a hearing was scheduled for Friday in the SEC case against his client in a federal court in New York.

Time for Liberals to play catch up with Gord Tait, or have they abandoned income trust investors?

A wee tax change would be stimulating


Globe and Mail Update

December 16, 2008 at 6:00 AM EST

A recession can alter lives and dreams. It can also take a man's best-laid plans and destroy them with the speed of an industrial shredder. Take Jim Flaherty, fiscal hawk. “I'm not going to be the finance minister that puts our country back into deficit,” he vowed in February. Come Jan. 27, he'll be the Finance Minister who puts the country back into deficit.

Mr. Flaherty so hated the idea of subsidizing the auto companies that he got into a mud-slinging contest with the Premier of Ontario about it. “What Dalton McGuinty is doing is the short-term, ad hoc, subsidy thinking … the kind of old-fashioned thinking that's proven to be a failure of short term, Band-Aid fixes for specific companies.” Last Friday, the Conservative government promised an ad hoc, old-fashioned, Band-Aid solution for the auto industry.

And there's plenty more where that came from. This, a wise economist told me recently, is the problem with deficits: Once you've tossed aside your fealty to balanced budgets, it becomes open season on the treasury. Everybody wants a piece, and it becomes harder to say no. After all, if a $5-billion deficit is good, isn't $10-billion better? And if $10-billion, why not $15-billion? And if the auto makers get money, why not lumber companies or miners? Industry Minister Tony Clement is now hinting that those groups may get aid, too, in Mr. Flaherty's upcoming budget.

Few would argue with Mr. Clement's description of the resource sector as “under distress.” One of the largest mining companies, Teck Cominco, is strapped for cash and has begun shutting down mines. Teck has about 7,000 Canadian employees, nearly as many as Chrysler. If jobs are your yardstick, then bailing out Teck is every bit as important. (Though Mr. Flaherty warned us that “politicians aren't very good at picking business winners and losers.”)

Who wins with all of this industrial aid? Those who work in the favoured industries, sure. But – no politician wants to admit this – that's a slim percentage of the working population. Auto manufacturing employs about 110,000 in Canada. Resource companies employ another 350,000. Put together, that's about 4 per cent of private sector jobs in the country. Both provide a lot of spinoffs (in trucking, financial services, and so on), but still, they're far less important than, say, the construction business.
No, if Grim Jim is going to become Generous Jim, there are better – and fairer – ways to do it. Most Canadians will never set foot on the floor of a truck assembly plant. But all hope to retire some day. And what group could be more “under distress,” to use Mr. Clement's phrase, than investors?

The market value of all stocks on the Toronto Stock Exchange had plunged by about $800-billion this year, through November. Corporate bond values have dropped. What's now obvious is that even people who are close to retirement have plenty of exposure to both.

A Statistics Canada survey published in February found that most Canadians hold some mix of mutual funds, stocks, bonds and income trusts in their RRSPs. The surprise was this is true even of those 65 to 69 years old. Just four in 10 had stuffed all their money in GICs and short-term government bonds, where they'd have been sheltered from a market crash. Why? Presumably because the rates were too low. They needed growth, or more income, or both.

Where will they get it? Let's return for a moment to Mr. Flaherty's decision in 2006 to tax income trusts. He did it to stop large, taxable companies like Telus and EnCana from becoming trusts and to cure the tax inequity between trusts and corporations. But in the process, he made worse the double taxation of retirement savings.

An investor who gets a dividend paid to his RRSP has to pay full income tax on it when he withdraws it, not the lower rate of tax usually applied to dividends. This means the taxman gets up to 63 cents on the dollar, calculates BMO Nesbitt Burns analyst Gordon Tait – because it's taxed once in the hands of the company, and again at a higher rate in the investor's. (The same will be true of income trusts by 2011.)

That has always been absurd. But at a time when the bear market has burrowed a gaping hole into retirement accounts and pension funds, it's unconscionable. The solution is simple, Mr. Tait says. When investors take dividends (or trust distributions) out of their retirement accounts, tax them as dividends – not as income.

Yes, it would cost the treasury hundreds of millions, if not billions. But retirees could use the money they might save – there's stimulus for the economy right away – and all investors would benefit. It would lift the markets, ease the pressure on pensions, and cut the cost of capital for dividend-paying companies, like banks, which need it. Most important, Mr. Tait says, “it would be righting a wrong.” He has sent his proposal to the Finance Department. Mr. Flaherty, big spender that he is, should listen.

Monday, December 15, 2008

This is an absurd use of taxpayer dollars

Why would the Liberals use my taxpayer dollars for an institutional investor bailout that buys immunity for the Big Bank's misdeeds?

"It is extremely important that financial market participants bear the consequences of their decisions." Mark Carney (in reference to any government involvement in ABCP bailout)

“The ultimate result of shielding man from the effects of folly is to people the world with fools” Herbert Spencer ( English philosopher; prominent classical liberal political theorist)

Ottawa should weigh in to ABCP rescue, McCallum says

John Greenwood and Jim Middlemiss,
Financial Post
December 15, 2008

The federal government should put its weight behind a proposal to restructure $32-billion of seized up asset-backed commercial paper, including kicking in an additional $9.5-billion in financial guarantees that came as a last-minute request from a committee overseeing the process, said the Liberals' top economic strategist and former finance critic.

"In the national interest this could well be the right thing to do," said John McCallum. Speaking in a telephone interview, the former economist at the Royal Bank of Canada said that the consequences of not helping the restructuring would be so negative for Canadian investors and businesses that Ottawa may have little choice but to come up with the money.

With the proposed restructuring under major stress from the turmoil in financial markets, a committee headed by Toronto lawyer Purdy Crawford has been forced to go to Ottawa in a last ditch bid to find additional loan guarantees to ensure the deal can survive.

Sources said the two sides have been in discussions for about a week but the Tory government of Stephen Harper is so far showing little appetite for getting involved.

"The minister has consistently said a market-led restructuring is a preferred course of action for investors and capital markets in Canada, one that does not depend on taxpayer dollars," Chisholm Pothier, a spokesman for Finance Minister Jim Flaherty, said in an e-mail.

But in a sign that the government is softening its stance, Mr. Pothier added that, "any actions taken by the government would reflect its ongoing commitment to protecting financial stability and ensuring the health of Canada's capital markets."

Because ownership of the stranded ABCP is concentrated in just three provinces, some including Quebec have been asked to contribute to the backstop facility, according to reports.

But a spokesperson for Quebec Finance Minister Monique Jérôme-Forget said the province has not been asked to get on board.

"There have been no discussions, said Catherine Poulin.

Nor should there be any discussions, according to Mr. McCallum. He argues that the problems that led to the collapse of the ABCP market back in August 2007 were largely the fault of Canada's banking regulator, the Office of the Superintendent of Financial Institutions, which comes under the responsibility of Ottawa. Because ultimate responsibility for the market meltdown lies with the federal government, it should be the one to provide the $9.5-billion in additional financing, Mr. McCallum said.

Meanwhile, the Dec. 11, 2008 letter from a lawyer representing retail holders of frozen ABCP to Mr. Flaherty has come under fire from a couple of fronts.

Henry Juroviesky called for a seat at the table in any talks between the federal government and the Crawford committee.

The letter states that any federal financial aid should be contingent on the retail investors getting paid out in full, either from the security dealers who sold them the paper or from the fresh funds. If they don't, but the feds still back-stop the deal, he calls for the elimination of the controversial legal releases prohibiting ABCP lawsuits.

That little grenade in the negotiations, brought a tough response from Mr. Crawford.

"It would not be productive or appropriate to respond to each of the inaccurate statements in your letter or to its unreasonable requests," he wrote, going on to criticize Mr. Juroviesky's position, noting "we have spent months litigating with your support. As we have said, there is no plan without the releases." He closed his letter with a warning to "think carefully about what is in the best interests of your clients."

McCallum and Brison to Flaherty “Come clean with the numbers”

John McCallum and Scott Brison met with Jim Flaherty today to discuss their respective views on economic stimulus.

The upshot of that meeting is that McCallum and Brison are calling on Flaherty to “Come clean with the numbers”.

This is what income trusts investors have been calling for since November 1, 2006, as we have lost $35 billion in our retirement savings.

This standard of disclosure can not be selectively applied by the Liberals, simply in circumstances of political leverage to them.

We demand that Flaherty disclose the analysis and methodology that (presumably) support his argument that income trusts cause tax leakage, as many others have called upon the Government to do.

Why are we cow towing to a minority party that’s on the run? Come clean with the numbers. Prove the case or drop the tax.

Jim Flaherty's blacked out documents, make him the Bernie Madoff of Canada

How do you suppose Bernard Madoff made off with $50 billion of his clients’ money? The same way that Flaherty made off with $35 billion of Canadian investors’ money. Falsified accounts. Insufficient disclosure. Lax oversight. Bad auditors. In the case of income trust investors that bad auditor was Canada’s Auditor General who refused to investigate Flaherty’s bogus tax leakage hoax. None of this is funny folks. It is high level corruption. Where is Canada’s press? Why is the government being allowed to hide the great cost to seniors and all tax payers?

Madoff millions vanish into thin air

By Robert Plummer
Business reporter, BBC News

Wall Street denizen and alleged mega-fraudster Bernard Madoff began his financial career at the age of 22 with just $5,000.

Taking the money raised from summer holiday jobs working as a lifeguard and garden sprinkler installer in the New York borough of Queens, he set up the investment firm that bore his name in 1960.

Now, after nearly half a century of trading, his reputation is in ruins, as he faces allegations that his entire business was nothing more than a $50bn (£33bn) scheme to dupe investors.

With his alleged victims asking why US regulators failed to query what was going on, it seems that the way in which Mr Madoff operated was key to the success of his venture.

While those who knew him describe him as "affable" and "high-profile, but not in a loud way", he went to great lengths to cultivate an aura of exclusivity.

Many of his richest clients were recruited in private chats at upmarket country clubs in New York and Florida, giving them a sense of belonging to a privileged circle of those in the know.

Then he used those big names to attract other investors, until his influence extended to international banks, hedge funds and even charitable foundations.

'Money heaven'

No-one seems to know yet what exactly has happened to all that money. Mr Madoff is quoted in the US Attorney's criminal complaint against him as saying that he has "absolutely nothing".

Whether he is supposed to have squandered it, stashed it or simply lost it on the markets has yet to emerge.

In the words of hedge fund boss Douglas Kass, of Seabreeze Partners Management: "It appears that at least $15bn of wealth, much of which was concentrated in southern Florida and New York City, has gone to money heaven."

Mr Madoff's dealings were certainly pretty opaque. As well as his original company, Bernard L Madoff Investment Securities, he ran an entirely separate investment advisory business, which is the firm implicated in the alleged fraud.

He never outlined his trading methods or how he generated the healthy returns on his investors' money.

Somehow, in bad times as well as good, he was able to pay out 10% or more every year. "It's a proprietary strategy. I can't go into it in great detail," he once said.

Prosecutors now think they know all too well what Mr Madoff's "proprietary strategy" was: using money from new investors to pay off old ones, in a form of illegal investment known as a Ponzi scheme, after one of its earliest exponents.

Regulatory gap

So why did this dubious state of affairs not come to the attention of the regulators sooner?

Well, the answer probably lies in a combination of Mr Madoff's personal prestige and some carefully exploited gaps in the system.

As a former chairman of the Nasdaq stock exchange with a string of other directorships and a generous donor to charitable causes, he was a man who inspired confidence.

As for the regulators, the US Securities and Exchange Commission (SEC) regularly inspected Bernard L Madoff Investment Securities, but not the separate investment advisory business.

That firm ran a hedge fund which was not registered with the SEC until September 2006 - and, according to reports, never inspected thereafter.

Even so, details have now emerged of earlier SEC inquiries into Mr Madoff's dealings. The SEC said last week that his securities operation was investigated in 2005 and found to have violated rules requiring brokers to get the best possible price for orders.

A second SEC inquiry, in 2007, apparently uncovered no irregularities.

Jail sentence

Mr Madoff is said to have told FBI agents that there was "no innocent explanation" for the collapse of his investment scheme.

Many wealthy people appear to have been wiped out by the alleged fraud, while financial institutions around the world are counting the cost.

Saddest of all, some charities are being forced to close because of their losses.

Mr Madoff himself has been released on $10m bail. But if the charges against him are proven, he could face a jail sentence of up to 20 years and a fine of up to $5m.

ABCP bailout? There are a thousand-fold more income trust investors

....and our $35 billion loss was caused solely by the government.

ABCP investors demand their money back now

Clients shouldn't have to wait on stalled talks, lawyers tell Flaherty

December 13, 2008
David Paddon
The Canadian Press

Lawyers for 2,542 retail investors with delinquent asset-backed commercial paper investments are calling on Finance Minister Jim Flaherty to make sure their clients are repaid immediately.

The lawyers argue that unsophisticated retail investors shouldn't have been sold the risky commercial paper in the first place.

They want investment dealers and banks who distributed the notes to repay their retail clients all their money, plus interest, without delay.

Efforts to salvage $32 billion in Canadian asset-backed commercial paper, or ABCP, have been stalled for months.

Most of the ABCP is held by pension plans and corporations but retail investors' support has been a crucial part of a court-approved restructuring that has been stalled by the global credit crisis.

The lawyers representing retail investors with ABCP paper were responding to news that Ottawa is being asked to provide about $9.5 billion in guarantees to ensure the process doesn't break down.

Flaherty's office has confirmed that officials from his department met this week with representatives of a committee, headed by Purdy Crawford, that represents institutional investors.

Henry Juroviesky, representing mostly retail clients of Canaccord Capital and Credential Securities, wrote that their lawyers should have equal access discussions with finance officials.

He also called on Flaherty to make sure the retail investors don't have to wait for the restructuring effort to be completed.

Juroviesky took aim at one of the biggest sore points in the original agreement worked out in Ontario Superior Court under the federal Companies Creditors Arrangement Act – that ABCP holders give up their right to sue the businesses that sold them the paper.

"Any new plan of compromise implemented under federal government assistance cannot include any immunity to and/or release or surrender of legal claims and causes of action originating from the sale of ABCP to retail owners, except in the context of a full cash settlement for this group," Juroviesky wrote.

Under the original proposal, spearheaded by Crawford, holders of ABCP would exchange their short-term notes – which have matured and would have been repaid under normal circumstances – for longer-term notes that mature years from now.

That plan met the needs of pension managers, such as the Caisse de depot et placement du Quebec, with billions of dollars in assets and long-term investment horizons.

But it didn't satisfy individuals who had put much of their retirement savings into ABCP. They had significant voting power under the court-supervised compromise plan and many supported the deal reluctantly, after being assured they'd quickly be repaid under side deals offered by their investment dealers.

Friday, December 12, 2008

Flaherty asks for time to consult on stimulus....why? avoid another panic attack on Canadians?

Flaherty asks for time to consult on stimulus? Flaherty never consulted with Canadians for a nanosecond on his income trust tax, except with those narrow self interests who had something to gain from income trusts’ demise, people like Gwyn Morgan, Dominic D’Alessandro, Paul Desmarais Jr and Michael Sabia, as reported in the Globe on November 2, 2006:

“High-profile directors and CEOs, meanwhile, had approached Mr. Flaherty personally to express their concerns: Many felt they were being pressed into trusts because of their duty to maximize shareholder value, despite their misgivings about the structure. Paul Desmarais Jr., the well-connected chairman of Power Corp. of Canada, even railed against trusts in a conversation with Prime Minister Stephen Harper during a trip to Mexico, and told him he should act quickly to stop the raft of conversions, according to sources.
Amid this escalating tension, Mr. Sabia's phone call became a flashpoint, prompting the federal government to accelerate its crackdown on the sector”

Flaherty asks for time to consult on stimulus

Globe and Mail
December 12, 2008 at 8:52 PM EST

OTTAWA — Finance Minister Jim Flaherty is asking for a little breathing room to come up with an economic stimulus package. Canada's economy retains enough life to allow for some “thoughtful consideration” of how to proceed, said Mr. Flaherty, rejecting critics who say he is taking too long to develop an economic stimulus plan. As governments in Europe and Japan pledged upwards of $370-billion (U.S.) to fight a global recession, Mr. Flaherty told a business audience in Saint John Friday that “panicking” risked making the weakest economic growth in almost two decades even worse. “We are living in extraordinary times,” Mr. Flaherty said. “We also know that panicking and making the wrong choices would be devastating for the Canadian economy and that responding to this type of global economic turbulence requires steadiness and stability and consultation.”

Well Jim that's exactly what you did back on October 31, 2006 with you destructive income trust tax....YOU PANICKED and made the wrong choice that was devastating for the Canadian economy unleashing a rash of takeovers of devalued trusts and causing Canadians to lose $35 billion of their life savings and an essential means to provide income during retirement.

From “Golden Age” to “Financial Armageddon” in 18 short months?

Flaherty was duped by Wall Street once again.

It wasn’t 18 months ago that Henry Kravis of KKR was in Nova Scotia at a conference on private equity pronouncing that "We're in, right now, the golden age," "The private equity world is in its golden era right now," "The stars are aligned."

KKR as you know was one of the bidders to take BCE private by way of an LBO. Now comes word from the Financial Times of London that “Fear of financial “Armageddon” is starving private equity of fresh funds”

Good, as it couldn’t happen to a nicer bunch of blood sucking, tax draining, risk inducing pirrhanas. Meanwhile we have a virtual moron of a Finance Minister who actions and income trust tax policy played right into the hands of these private equity the expense of all taxpaying Canadians. And he’s in charge of our economic turnaround?

Collapse of BCE plan fuels private equity industry concern

Financial Times
By Martin Arnold in London and Henny Sender and Francesco Guerrera in New York
December 11 2008

Fear of financial “Armageddon” is starving private equity of fresh funds, one investor warned on Thursday, after the collapse of the $41bn takeover of Canada’s BCE telecoms group marked a low for the industry.

The BCE deal would have been the world’s largest leveraged buy-out when it was announced in June 2007. Its collapse underlines how severely conditions have turned against private equity in the past 18 months.

The credit crunch has prompted banks to stop providing loans for buy-outs – the lifeblood of private equity – while market turmoil has made many investors incapable or unwilling to supply the cash needed for the equity portion of buy-outs.

“As long as we are considering an Armageddon type of scenario, our hands are going to be tied for new funding in private equity,” Mark Boyle, head of private equity at the $140bn investment arm of Northwestern Mutual Life Insurance, told a conference on Thursday in London. “This environment has investment professionals so rattled they are thinking the unthinkable.”

The groups that rode the “mega buy-out” boom, such as Blackstone, Kohlberg Kravis Roberts, TPG Capital and Bain Capital are already unable to raise much debt. If they are starved of fresh investor money for new deals, their future looks even less certain.

“It is too early to talk about a buyers’ strike, but if the markets continue down, that could happen,” said the person responsible for financing buy-outs at one of the banks involved in the BCE deal.

William Gilmore, investment director of private equity at Scottish Widows, said: “I suspect there will be a shake-out in the industry and some GPs (private equity general partners) will not be able to raise new funds.”

The unwinding of the BCE deal underscores how far the economics for other players involved in the buy-out world have changed. Senior bank debt in many big buy-out deals is trading at 50 per cent discounts.

Investors are selling their interests in some private equity funds for below 50 cents in the dollar.

“October of this year was the 1929 Crash equivalent for debt markets,” said Stephen Pitts, head of leveraged finance at Deutsche Bank. “Banks, when they lend, need to see rising asset values. So we must end this deflationary spiral first.”

The failure of the BCE deal, which came after accountants at KPMG decided it would render the telecoms group insolvent, turned out to be good news for the investors in the deal, which included the private equity firms Providence Equity Partners and Madison Dearborn Partners.

None of the investors in those two firms refused to meet their iron-clad commitment to write cheques for the deal, according to people familiar with the matter.

However, many of the investors were unhappy with the prospect of having to come up with the cash at a time when they face big losses across their portfolios.

The collapse of the BCE deal is good news for the banks that had agreed to finance it. The consortium of lenders, led by Citigroup and including Deutsche Bank, Royal Bank of Scotland and Canada’s Toronto Dominion would have faced writedowns of some C$10bn (US$8.2bn) on the C$34bn financing package, said people close to the situation.

Asset Backed Caveat Emptor: Sorry, not with my tax dollars!

Why should my tax dollars be used to bail out unscrupulous brokers and elaborate cheque kiting schemes?

Taxpayers' cash no solution to ABCP crisis
Noteholders Angered

John Greenwood, with Files From Paul Vieira
Financial Post,
December 12, 2008

A proposal that the federal government provide a bailout for a restructuring of $32-billion of frozen asset-backed commercial paper has sparked anger among some holders of the frozen notes, who say that taxpayers' money should not be used to fix the problem.

"We were let down by the institutions who sold us this stuff and we were let down by the institutions who made this stuff; I don't see why they should be bailed out," said Brian Isler, a Toronto-based lawyer with $229,000 of his savings tied up in the frozen notes.

Members of the so-called Pan-Canadian Committee overseeing the massive restructuring met with Finance Department officials this week to plead for financial assistance to prevent the plan from falling apart, sources said.

The government is being asked to provide several billion dollars to cover potential margin calls on leveraged credit default swaps underlying the frozen ABCP. Failure to meet such a margin call would result in a collapse of the restructuring, which has been in limbo for nearly 16 months.

"There should be no bailout," said a senior executive at a company with more than $60-million of frozen notes. He said that instead, a clause in the restructuring taking away noteholders' ability to sue investment dealers who sold the stalled ABCP should be removed.

"They should just give us back our legal rights and we will deal with this," said the executive.

Even though the Finance Minister, Jim Flaherty, has said he would prefer a market-led solution, a spokesman for the Minister said that the federal government "takes a keen interest in maintaining financial stability and the health of our capital markets."

The spokesman added: "The role all along has been to support discussions among the parties and encourage progress."

While Mr. Flaherty may prefer to stick to his position, he can't ignore the storm in financial markets that has become so severe in recent months that, according to some insiders, the plan that was mapped out at the end of last year might not survive.

The ABCP market fell apart in August, 2007, after investors stopped buying the notes over fears that they might be linked to subprime mortgages. Under the restructuring, spearheaded by the Caisse de depot et placement du Quebec, the frozen ABCP would be converted to longer term notes.

All along one of the main stumbling blocks has been the leveraged credit default swaps that make up the largest chunk of assets underlying the ABCP. As part of the restructuring, the banks and institutions backing it agreed to put up $14-billion to cover potential margin calls on the CDSs. That was considered more than sufficient backing in the spring when the details were hammered out, but since then credit conditions have worsened so much there is concern that it won't be enough.

The spotlight is mostly on a group of foreign banks on the other side of the CDS deals. They're the ones who will make the collateral calls, and right now they are in no position to make concessions. In recent months, several have been bought or accepted government bailouts.

"Those banks would want to protect the new money that has been put into them, and to do that they would want to collect on all money that is owed to them," said Diane Urquhart, an industry expert working for some of the noteholders. "To the extent these banks have offered margin facilities; they would be examining the credit integrity of that margin facility. This is the new dynamic."

Thursday, December 11, 2008

Do you suppose Harper will employ the services of Illinois Governor Rod Blagojevich? Ebay?

Harper to fill Senate vacancies


Globe and Mail Update

December 11, 2008 at 11:22 AM EST

OTTAWA — Prime Minister Stephen Harper will fill all 18 vacancies in the Senate with Conservative appointees before year's end, sources say.

The decision appears to be at odds with the Tory Leader's promise to only appoint elected senators to the unelected chamber.

But the Conservative move is motivated in part by the worry that the alliance between the Liberals, NDP and Bloc Québécois alliance could topple Mr. Harper's minority in early 2009 and stack the Senate with their own choices, a government official said.

Failed BCE deal allows Flaherty the chance to recoup $2.6 billion in foregone tax revenue

We have a Finance Minister who can’t even read income statements or cash flow statements. Were Flaherty able to do so, he would never have attempted to justify his income trust tax back on November 1, 2006 by saying (in the Globe):

“You have to either leave it alone or fix it,” Mr. Flaherty shrugged Wednesday. “We were going to see the two largest telecommunications companies in the country not pay corporate taxes. That's a clear and present danger to fairness in the Canadian tax system. I thought we had to act.”

Not pay taxes? Wake up Finance Minister Jim Flaherty. You were being gamed by the folks who were running BCE at the time. Neither BCE nor Telus were paying taxes at the time. Can’t you even read an income statement? Do you not read these companies forward looking statements at the time before making such ridiculous statements to the Globe. BCE for example was reporting at the time that:

"Bell expects it will have no significant federal cash taxes through 2010, due to organizational simplification enabling accelerated use of Bell's R&D tax credits."

If in doubt, you could have simply made a phone call to CRA and ask them how much tax BCE was remitting to the government. They would have told you that BCE wasn’t paying a plug nickel in taxes and hadn’t for over 10 years.

Then you could have asked that boy wonder from Goldman Sachs. Mark Carney, to do an analysis of how much tax Ottawa would have collected from BCE and its owners if it had been allowed to become an income trust. Even you could have understood this very simple math: (from )

BCE Ownership:

15% foreign
35% Canadian tax deferred
50% Canadian taxable

Tax Rates:

38% blended tax on income as per Department of Finance Consultation Study dated Sept 28, 2005
19% blended tax on dividends

Distributions on 900 mm shares outstanding

Trust distribution rate: $2.55 per unit
Corporate dividend rate: $1.46 per share

Federal Taxes (including deferred taxes paid on retirement accounts):

BCE as an Income Trust: $793 million per year federal tax
BCE as a Corporation: $240 million per year federal tax

Foregone Federal taxes: $553 million per year

Foregone Taxes over BCE's 4 year corporate tax holiday: $2.2 billion

Foregone Capital Gain on Conversion to Trust: $428 million (based on $5.00/share gain)

Total Foregone BCE Taxes: $2.6 billion

Wednesday, December 10, 2008

Did Harper say he wanted an "elected" Senate or a "selected" Senate?

"You sir had a choice"

Harper to fill 18 Senate seats with Tory loyalists

Robert Fife, Ottawa Bureau Chief

OTTAWA -- Prime Minister Stephen Harper plans to fill 18 vacancies in the unelected Senate with Conservative loyalists before Christmas, CTV News has learned.

Sources said Harper is concerned the Senate committee system isn't working properly because there are only 20 Conservative senators sitting in the Liberal-dominated Red Chamber.

But according to insiders, what really drove Harper to move quickly and fill the vacant Senate seats is the possibility of losing political power in January at the hands of the Liberal-NDP coalition.

The centre-left alliance, which is supported by the separatist Bloc Quebecois, is threatening to boot the Tories out of power by voting against their budget bill in late January.

"It would be irresponsible to have this unelected coalition government stack the Senate with their supporters," said one Conservative insider.

Harper had campaigned on replacing the unelected body with elected Senators. Before the fall election, the Tories had proposed legislation to allow for their appointment in provinces that held Senate elections, and limit their terms to just eight years.

Currently, senators in the 105-seat chamber serve until the age of 75.

In a speech to his caucus almost exactly two years ago, Harper said: "Imagine that after a century and a half, democracy will finally come to the Senate of Canada."

Still, it appears Harper hasn't completely backed away from his previous policy. An insider said Harper would ask anyone he appoints to agree to step down and run in a Senate election if new legislation is ever implemented.

Stephen Harper: Grand Master.....of Checkers. Tiddlywinks?

Harper runs a wrecking crew, not a government

By: Frances Russell
Winnipeg Free Press
December 10, 2008

The fear, loathing and demagoguery unleashed on Parliament Hill last week could create a dangerous constitutional precedent and cripple a necessary evolution in Canadian parliamentary democracy.

The nationwide hysteria whipped up by that fear, loathing and demagoguery may be dampened by the prorogation of Parliament until the end of January.

But at what price? An Ipsos Reid poll found that it left 75 per cent of Canadians "truly scared" for the future of their country. And a political scientist warns it gives future prime ministers the right to escape defeat on non-confidence motions simply by shutting down Parliament and locking its doors.

"Parliamentary democracy as it has been practised in Canada has been compromised," University of Toronto political scientist Nelson Wiseman says. "The precedent established means that under no conditions will the Governor General ever deny a prorogation to sitting prime ministers, no matter what the circumstances."

The Governor General grants prorogations by precedent. But every situation is fact-specific, he says.

This time there was a fact that had never existed before but it did not bear on her decision.

"We've never been in a situation where you've had a request for a prorogation and the Governor General was informed there was an alternative government that did have support of a majority of the members. In that context, I thought that it was reasonable for her to dismiss her first minister."

Wiseman has further fears. "You've basically debased the legislative branch and its checks on the executive branch. The whole idea of responsible government is that the executive is responsible to Parliament. (The prorogation) has given the executive more arbitrary control over Parliament. The government already controls the business of Parliament. Now the government controls the very existence of a session of Parliament."

Canada is divided linguistically and regionally, with multiple political parties and a parliamentary, not a presidential system. Coalition governments are becoming the only option to avoid political instability and multiple elections. Recent history proves the point. Since 2004, Canada has had three minority governments and three elections and may now be facing a fourth election and government in the new year.

But the hysteria whipped up by the fear, loathing and demagoguery of the past week has made it all but impossible for parties to attempt working arrangements, let alone coalitions, in the foreseeable future.

While coalition governments have been rare in Canada, experience around the world -- including in other Commonwealth countries -- proves they are hardly dangerous. The British tradition of two parties hasn't existed here since the early years of the last century.

For almost 100 years, Canada has had at least three parties. Now it has five. Not only are parliamentary majorities increasingly unlikely, but a minority party trying to operate as if it has a majority is indefensible.

What's to fear from a coalition, from involving more parties and perspectives in government? The greater the participation, the greater the expansion of democracy. More Canadians might even be encouraged to vote.

Engaging the sovereigntist Bloc Québécois in supporting a federal coalition could bolster Canadian unity by re-engaging Quebec sovereigntists in Canada. "Separatist" is as inflammatory a label in Quebec as it is in English Canada, because many Québécois migrate back and forth across secessionist, nationalist and federalist lines.

Canadians do not elect a government, let alone a prime minister. They elect 308 MPs, who then choose the government and the prime minister. The government and the prime minister govern only so long as they retain the confidence of a majority of those 308 MPs. A party with a plurality of seats must negotiate and compromise with the opposition parties, not poke them in the eye with a sharp stick.

The Oct. 14 election gave the Tories 143 seats, 22 fewer than the 165 seats held by the combined opposition.

The Conservatives' deliberate demonization of the coalition as "socialists" and "separatists" as "treasonous" is the equivalent of yelling fire in a crowded theatre. It is shameful. It is also dishonest.

The public record shows that Harper as opposition leader in 2004 did exactly what the Liberals and NDP did last week with exactly the same objective.

He undertook serious negotiations with the parties he now chooses to deride as "traitors" so that he could take office should the Liberal minority government fall.

Dust off his 2000 Alberta "firewall" letter. Harper runs a wrecking crew, not a government. Parliament's well is poisoned and separatist fires in Quebec and Alberta are stoked. Harper is prepared to use anything -- lies, vicious attack ads and even mob rule (Transport Minister John Baird boasting about "going over the heads of the Governor General and Parliament to the people" -- to get his way).

Peace, order and good government are out. Rage, ideology and raw power are in.

Frances Russell is a Winnipeg-based freelance journalist and author.

Absolutely NFG: ABCP panel seeks Ottawa help

To put it mildly, this would be an absurdity and nothing worthy of taxpayers' dollars:

ABCP panel seeks Ottawa help
Globe and Mail Update

December 10, 2008 at 2:27 PM EST

The committee overseeing the $32-billion asset-backed commercial paper restructuring is meeting with the Finance Department Wednesday to plead for government assistance amid signs that the proposal to fix the frozen notes is in jeopardy.

A resolution to the 16-month old problem now appears unlikely before 2009 because some players in the restructuring are dragging their feet, and participants are growing increasingly concerned that the endless delays may lead to failure without government support.

The restructuring committee, led by lawyer Purdy Crawford, is meeting Wednesday with federal officials in Toronto, sources said. The hope is that the federal government, and potentially provincial governments that also have a stake in the success of the restructuring, will somehow provide backstops that will get the process moving again.

Sources said the issue continues to be the fact that many institutions that are crucial players in the restructuring have put the plan low on their to-do lists as they grapple with other issues thrown up by the financial crisis.

Although the plan was approved by dozens of banks, pension funds and other players months ago, sources close to the discussions said support for the rescue operation has declined following takeovers or government bailouts of many of the institutions involved.

“Clearly the issue is less significant to a lot of our stakeholders and less of a priority to stakeholders because of everything that has happened,” said one person familiar with the talks.

Until now, the federal government has taken mostly an observer role, intervening only to prod institutions to participate in the restructuring.

Finance Minister Jim Flaherty said in August that he was concerned about delays in the restructuring of the $32-billion market, but added that he thought Canada had shown the way to the rest of the world with respect to how it dealt with the situation, noting the plan did not require public funds to resolve the issue. Sources said the Wednesday meeting was not with Mr. Flaherty directly, but with some of his officials.

Finance Department officials have recently signalled that Ottawa is willing to consider a request from the committee for federal government support, said people familiar with the talks.

“The Finance Department is much more engaged,” said one person familiar with the discussions.

One solution would be for governments to put up extra collateral as part of the deal, which would take some of the risk off the shoulders of more reluctant participants and encourage them to finally sign on. While Ottawa would take the lead, some sources suggested that Alberta and Quebec, which both have major provincially-owned financial institutions caught up in the ABCP mess, could also make contributions.
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