Tuesday, September 23, 2008

Im loosing some confidence here Mr. Flaherty

A deregulated US financial sector issued high risk mortgages that perpetuated a US housing bubble which increased housing starts and the price of real estate. As the price of real estate went up the financial institutions expanded their high risk investment into commercial financing ventures.

The mortgage and financing portfolios were then sold by brokers to other financial institutions, including foreign institutions along with assurance policies to counter any losses.

Then the bubble broke.

For the last six months, US, Canadian and other foreign governments have responded by propping up the financial sectors in their perspective countries by injecting money into stocks, bonds and guarantees.
With the pending defaults, the US government moved in and has either bought or allowed the disposal of the leading perpetrators of the schemes and is now proposing to clean up the balance sheets of the their remaining financial institutions that hold these over financed properties in their books.

The $700 billion corporate welfare plan will be used to buy these over valued assets and then over the next two years sell them off at expected bargain basement pricing.
Canada’s financial institutions along with other foreign institutions are now at risk as the value of assets that they will now share in ownership with the US government will be reduced in value.
Although the Federal Reserve has proposed to include foreign institutions operating in the US, the US Senate Banking Committee is balking by demanding that the foreign governments participate in the bail out to cover their own institutions.
The US has now asked the other members of the G7 to to remove illiquid assets that are destabilizing financial institutions in their countries or in other words participate in the bail out.

In commenting to the Financial Post yesterday on the G7 call our finance minister said:
“There is no secret that the U.S. would like other jurisdictions to emulate their course of conduct -- that is to remove illiquid assets that are destabilizing financial institutions in those countries where that is the case. That is not the case in Canada.
However according to another Financial Post article, Canadian institutions share between them billions of dollars in credit exposures that could be impacted by the scope of the bailout and they have been lobbying the U.S. Congress to approve the inclusion of "foreign-flagged" firms in a historic U.S. plan.
The lobbyists representing Canadian firms including TD Financial Group, Bank of Montreal, Royal Bank of Canada and Manulife Financial Corp. were part of an industry-wide effort that won the support of Henry Paulson, U.S. Treasury Secretary, over the weekend to allow foreign-headquartered institutions to sell assets to the government.

But the plan met with resistance yesterday on Capitol Hill, where members of Congress said they were reluctant to sign off on extending to foreign firms a US$700-billion bailout underwritten by U.S. taxpayers.
Somehow I think our finance minister is refusing to tell us the truth about the problem or does not have a plan to address the problem or in the worst case, is not aware that there is a problem.

Which is it Jim?

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