Anyone in Canada’s sleepy capital who had better things to do this morning–e.g., changing the oil in their snowmobile, cleaning the Québec forest-fire fly ash out of the A/C filter, or helping the neighbour uncap his septic tank–might have missed the Ottawa Citizen‘s headline proclaiming a Canuckistani victory in the jihad against the “global bank tax”.
The flagship of the newly re-minted canada.com wire service recycling fleet and winner of umpteen Canadian Newspaper Award© honours for the umpteenth week running got off to a roaring head-start on its local competition, the, uh, oh yeah, Suncor’s Ottawa Sun when it broke the story about Canadian Prime Minister Stephen Harper’s latest coup de gras against over-regulation and creeping socialism.
Turns out that while the Times of London and New York Times and Washington Post, the DeFuniak Springs Herald, and even the stodgy Globe and Mail (sorry, no fair, they don’t publish on the sabbath) may have skipped this earth-shattering scoop, those news snoops at the Citizen who man the automated page composition software on the night-shift were all over this one.
So in the grand tradition of famous headline gaffes like the paper that ran “Dewey Defeats Truman”, LOON joins in as a Johnny-come-hardly-at-all and provides this ex post “sidebar” or “backgrounder” to the all-important main story that we were too busy ignoring last week to pay our “Propers”.
WTF is the “global bank tax” and WTF should I care about it?
Last year in the aftermath of the Wall Street melt-down and the multi-gazillion dollar bailout of Goldman Sachs and GM, the Obama administration decided to invoke the “never again (and this time, we’re not kidding around!)” credo and proposed to introduce an international bank tax on all world financial institutions to offset the hit on the public purse that resulted from the wholesale shoveling of taxpayers’ money into the “rescue” of greedy, self-interested and thoroughly mismanaged faltering banks.
The collected tithe–amounting to (Carl Sagan intonation, please) billions and billions in revenues–would then be redistributed into a special fund that would act sort of like a fiscal water tower in the event of any future financial disaster like the one that nearly burned down Wall Street and took out the rest of the block with it in 2008.
Back in April of this year the then PM of Britain Gordon Brown–or “dead man walking” as he was known by some within his Labour caucus–was a big booster of the American scheme believing like Obama that if the “big guns” in the G8 nations could agree on imposing such a “levy” (not a flood barrier, at least, a different kind of flood barrier) it would fly like an eagle, er, popinjay.
The idea was that Obama having planted the seed would let “Brownie” (as he is known according to the G8 official head-of-state-nickname-registry) do some elbow-twisting with German chancellor Angela Merkel (whose official nickname is “Angela Merkel”) so that yet another economic powerhouse would be lined up for the expected vote at the G20 summit scheduled for June in Muskoka, Ontario.
With a tad more PR savvy than her Amerikaner and Britisher counterparts (listen, she survived being groped by Dubya) the plucky Merkel started calling it a “global responsibility levy” and pretty soon it was close to being one of those annoying Eurovision© ditties that you can’t stop humming as you tool down the Autobahn in your Volkswagen Beetle (punchbuggy, no punchbacks!).
Brown-out of “global responsibility levy”
Then it was just a matter of approaching debonair French president Nicolai Sarkozy on the right afternoon–mais jamais during the traditional five-hour French ‘lunch hour’ when he is likely to be in dispose with sa blonde–and certainnement pas without a respectable bottle of Château Margaux ’78. Et voilà–the vote in favour of the tax would be carried and billions of bank customers and subprime mortgagors around the world could sleep peacefully.
But as the not-so-quiet campaign against what was touted as the regulatory equivalent of a leg-trap for global financiers gained ground, the “big guns” made a serious misstep. They opted to let “Brownie” do most of the heavy lifting in selling the plan just when the Greek credit crisis was reaching its Euripidean climax.
The thinking was that the British leader–who was already wide open to the charge of being a “pinko” because of his affiliation with “Labour“–would take the hit instead of Obama and Merkel for being anti-capitalist and anti-corruption in the financial sector. Obama was then still in the political ICU recovering from the internal hemorrhaging his party sustained during the protracted battle to secure passage of his watered down health care reforms in the U.S. congress.
The German leader meanwhile had problems of her own that made her a definite nicht nicht for front-line selling duties on the bank tax: her government’s popular approval rate had fallen to 30 per cent, her coalition government’s alleged mishandling of the Greek aid issue, and the even more unsightly backlash in May against the German chancellor’s move to prohibit “short selling” by stock traders.
And so it was the soon to be jettisoned senior Brit statesman who found himself walking the anti-corporate plank wearing a cheesecloth blindfold as he dutifully read his prepared soft-soap lines from memory.
“The relationship between banks and society has to change,” Brown muttered as his tousled, thinning hair disappeared below the fast-moving current of the River Thames beside Big Ben and the houses of parliament.
The rest, as we say often here at LOON, is ‘history, no mystery.’
Stephen Harper flies into inaction
The clarion call for Stephen Harper came with Brown’s electoral defeat on May 6th, 2010 when his Labour party lost 91 seats in Parliament and his good friend Harry Potter author J.K. Rowling stopped returning his calls.
Incensed to the point of visible dyspepsia by news of the fleeting opportunity to “kill the bill” and strike another blow for taxpayer freedom, Harper literally flew into inaction this week. Earlier this weekend, the PM jetted off to South Korea to, according to canada.com, “review progress on a string of initiatives aimed at making the financial system safer in the wake of the last year’s global collapse.”
What that really meant was that the Canadian PM was there to put the final few boots–Goodfellas-style–to the flaccid, unshielded underbelly of the moribund “bank levy” proposal and then claim it as a victory for fiscal conservatism across the planet. The difficulty for Harper was that his new British counterpart David something-bland-sounding was slightly less than tepid in his enthusiasm for Harper’s overtures. So joining Harper in the orgy of anti-taxation piling-on were the suits from Japan and Brazil.
Interestingly, the financial experts at canada.com who furnished the padding for today’s puff piece headline story in the Ottawa Citizen and the rest of the chain provided the following gloss on the Harper-led coalition against the bank tax:
However, attempts to introduce the global levy were finally scrapped this weekend after opposition continued to come from Canada, Japan and Brazil - countries whose banks needed no public bailout during the worst financial crisis since the 1930s. [emphasis added for embarrassment]
In fact, it is a less digestible but nevertheless truer statement to say that while Brazil was able to barely survive the 2008 global fiscal meltdown precipitated on Wall Street, it has not, at least according to the U.S. state department’s Februray 2010 background paper “escaped the crisis unscathed.”
According to the American state department, Brazil’s gross domestic product fell by more than four percent from the last quarter of 2008 to the first of 2009, and far from ignoring the cries of home-grown financiers, its incumbent president Luiz Inácio Lula da Silva (or “Lula” as he is known on his Twitter page) followed the lead of many of his counterparts in sinking more than $100 billion of public money into shoring up the Brazilian economy and cutting taxes in the manufacturing sector and reducing the central bank rate.
Read their lips: “No public bailout”
How canada.com‘s financial gurus can characterize the wholesale slaughter of public revenue streams by executive fiat as “no public bailout” is perhaps a more appropriate subject for an investigative reporting essay. LOON will consider printing any such submissions but cannot guarantee a National Newspaper Award nomination will ensue.
As far as Japan is concerned, the only reason its government did not have to dole out 10-digit bailout cheques to Japanese banks in 2008 and after was because the country’s financial sector had already gone through a state-sponsored bailout ten years earlier.
As the New York Times reported way back, er, barely two years ago:”The 1980s bubble economy collapsed in the 1990s because banks were burdened with real estate-related bad loans, not unlike those that Washington is moving to have the American government take over from banks.” Said the Times financial report:
In Japan, it took a “lost decade” to work through those debts. The Japanese became very cautious after the bitter experience of the cleanup. One result was that they seem to have largely avoided the risky subprime loans that set off the current crisis. According to the International Monetary Fund, subprime-related losses at Japanese financial companies have totaled just $8 billion, out of global subprime-related losses that some say could total $1 trillion.
At the same time, Japan’s central bank did play an activist role in 2008 when it poured U.S. $14.2 billion into money markets within days of the U.S. treasury’s bailout of the failed Lehmann Brothers ‘financial services firm’ in September 2008. In the six days following the Lehmann Brothers intervention by the U.S. government, Japan’s central bank injected a total of 14 trillion yen–or U.S. $152.2 billion–after joining with five other central banks to try to avert a global liquidity crisis.
No More “No More Taxes”, please, we’re not British
All in all Stephen Harper’s much ballyhooed “victory” posturing reveals more about his deep-seated ideological aversion to taxation than it does about his minority government’s fiscal prowess or solidarity with Canadian taxpayers.
Which is why Harper’s finance minister Gentleman Jim Flaherty was on hand in South Korea yesterday to bathe in the after-glow of the best makeup intercourse that the Canadian conservatives have had with their global Tory confederates since John Diefenbaker took Dwight Eisenhower fishing in 1958.
After being blown off earlier in the itinerary by British stop-gap PM David er….Campbell?…. we know it starts with a “c”…who snubbed Harper’s overtures about ganging up on the bank levy, it was the most political hay they could make out of an otherwise lacklustre sortie.
Apart from giving Harper the old tried and tested opportunity to make like a real world leader and leave his own domestic troubles at home, it also allowed the PM to score domestic points by painting himself as a champion of the “no more taxes” brigade on the home front.
Even before leaving for Korea, Harper made a big show of saying that–in the words of his canada.com cheering section, at least–”regardless of the outcome on the bank-tax debate…(his) main goal was to ensure that taxpayers, in Canada or elsewhere, will never be on the hook to bail out big banks.”
Econo-clast Chossudovsky: taxpayers already bailed out the banks
If there was less of the unquestioning faith of major Canadian news media in conservative fiscal policy, Canadians might not have gotten left in the fog like players in the 1962 Grey Cup “Fog Bowl”–trying to see where the punts landed. And as long as we’re misapplying hackneyed sports metaphors, Canada’s news establishment has really fumbled the puck on the “global bank tax”.
According to Université d’Ottawa economist and director of the Centre for Research on Globalization (CRG), Michel Chossudovsky, the Canadian media misapprehension began in October 2009.
Way back then on the eve of the last federal election, er, eighteen months ago, the Canadian news media failed to bat an eye or otherwise utter a peep at the announcement by the Harper government that his minority government (the first one) was budgeting a $72 million dollar deficit. As Chossudovsky pointed out in January 2009:
In a press statement by Harper on October 10 , the Canadian “bank bailout was casually presented as a commitment by the Federal government to purchase an initial $25 billion in ‘secure’ bank mortgages from the Canadian chartered banks…implemented through Canada Mortgage and Housing Corporation..to maintain the availability of longer-term credit in Canada.”
In his Chossudovsky’s reckoning, Harper’s announcement–which was accompanied almost instantaneously by personal avowals from Harper that it was “not a bailout similar to recent moves made in the United States and other Western countries”–was implemented “two days following the federal elections…[when]…the first mortgage purchase took place leading to an initial cash injection of 5 billion into the coffers of the chartered banks.”
Then, as Chossudovsky suggested on his website, “barely a month following the federal election, on November 12 2008, another $50 billion allocation was announced” although both then and since, “it received no news coverage” and “opposition party leaders did not analyze the official statement of the Ministry of Finance.”
What burns Chossudovsky (and others, including the more conservative, apolitical bean counters here at LOON’s AccurateFiscalPrognostications©) is that although Harper and the Conservatives campaigned in the last election on the flat assertion that “this is not a bailout” and “will cost the government nothing,” in reality the cost of the manoeuvre was passed along to Canadian taxpayers in a big way.
That’s because to raise the initial $25 billion the CMHC had to, according to Flaherty’s own press statement, “ask the banks and other financial institutions to ascertain how much debt they would like to sell to the agency, using a process known as a reverse auction.” So in the final result, as Chossudovsky argues:
Flaherty said the action would “make loans and mortgages more available and more affordable for ordinary Canadians and businesses. The official Ministry of Finance statement confirms that the operation will be financed by the Treasury. Prime Minister Harper claims that “it will cost the government nothing” because the net public debt from an accounting point of view remains the same. While the operation is casually described as a transfer of assets from the banks to the CMHC, what we dealing with is a cash injection equivalent to 4.6% of Canada’s Gross Domestic Product (GDP), which is financed through a massive public debt operation. The necessary funds (requiring the issuing of government debt in the form of T-Bills and government bonds) are transferred to the CHMC, which in turn upon completion of the mortgage purchases, channels the funds to the chartered banks…The total is a staggering $75 billion handout to the chartered banks.
“Stand down, repeat, stand down…it’s not a North Korean sub, it’s a snorkeler…”
If all of that wasn’t nauseating enough, in addition to what we will objectively refer to as the “hidden costs” of the “no bailout” approach to bank non-regulation being not implemented by the non-interventionist Harper regime, Canadian taxpayers just got more bad news concerning the upcoming G20 conference on June 25th.
When the leaders of the free world arrive at Muskoka’s fly-infested Deerhurst Resort (former haunt of Northern Ontario mega-diva Shania Twain), they will be secure both physically and emotionally in the knowledge that that old reliable, non-excitable sap, the Canadian taxpayer, will be eating the estimated $930 million it will cost to protecting the visiting states-persons and our own leadership entourage from mosquitoes, protesters, and the occasional errant duffer on the nearby 18-hole world-class miniputt.
Oh, well, it’s summertime, Canada! Let’s forget about all this for now and get out and enjoy the next three weeks of warm weather.