If a Tsunami Was Coming Our Government Would Warn us Right?

Last month the Australian Broadcasting Corporation released the findings of the International Monetary Fund's study of house prices in developed nations.

They were ranked by affordability based on income. The worst three countries were Belgium, Canada and Australia.

Australia is specifically mentioned by the IMF's deputy managing director Min Zhu - along with Belgium, Canada, Norway and Sweden - as one of the countries where house prices are out of whack with where history suggests they should be.

When countries are ranked on how they are moving in the right direction, Canada is 26th.

We all know what the housing bubble did to the United States, so we should take heed:

The IMF says boom-bust house price patterns have preceded more than two-thirds of the 50 most recent systemic banking crises. And when you have a banking crisis in a modern, debt-fuelled capitalist economy it is almost impossible to escape a recession.

The ABC suggests that Australia faired better during the 2008 economic crisis because none of their banks failed, primarily because of a government bailout. In Canada our banks also survived because of a 114 billion dollar bailout; one that our government kept hidden, to make themselves look good.

The U.S. also engaged in massive bailouts, but faired poorly because of sub-prime mortgages. This brings us to another Canadian government "secret"; the fact they have also infected our once sound mortgage industry with these high risk transactions.

From a special Globe and Mail investigation, How high-risk mortgages crept north.

New mortgage borrowers signed up for an estimated $56-billion of risky 40-year mortgages, more than half of the total new mortgages approved by banks, trust companies and other lenders during that time, according to banking and insurance sources. Those sources estimated that 10 per cent of the mortgages, worth about $10-billion, were taken out with no money down.

The mushrooming of a Canadian version of subprime mortgages has gone largely unnoticed. The Conservative government finally banned the practice last summer, after repeated warnings from frustrated senior officials and bankers that the country's financial system was being exposed to far too much risk as the housing market weakened.

Canadians continue to lead in household debt and while house prices continue to rise, and borrowing on equity escalates, we could be heading toward a financial tsunami.

Stephen Harper, with the help of a complacent media, and millions of dollars in tax-payer funded ads; has painted himself as a strong economic steward, but it's all smoke and mirrors.

Instead of bogus feel good ads and cautious reports, we need to have a serious conversation about the true state of our economy.

With rumours of an early election, are the Conservatives hoping to get it over with before the you know what hits the fan? Remember during the 2008 campaign, Harper claimed that there would be no economic crisis, despite knowing full well that one was imminent.

In fact, he even went so far as to suggest that there would only be a recession if the Liberals won the election.

How much longer can he mislead Canadians? I guess he's hoping at least as long as another election campaign.

Will the Flaherty-Harper Ticking Time Bomb be Detonated?

In Jim Flaherty's first budget, he announced that his government was opening up the housing market to  private insurers.  “These changes will result in greater choice and innovation in the market for mortgage insurance, benefiting consumers and promoting home ownership."

Loosely translated, the sub-prime mortgage industry was heading north, and so was AIG.

On May 2, 2006, in his first budget, Mr. Flaherty announced that not only would Ottawa guarantee the business of U.S. insurers, it was doubling the guarantee to $200-billion.

And despite repeated warnings that Canada's financial system was being exposed to far too much risk, Flaherty locked arms with his boss and said "bring it on".

Tick, tick, tick.

If you remember, AIG was one of the early victims of the Wall Street induced economic crisis, and in fact their "innovation" helped to create the collapse, when with the help of Goldman Sachs, they backed too many risky mortgages.

Of course that was the game all along as what are known as "derivatives" became a popular form of investing.  The way it works is that people who wouldn't normally qualify for a mortgage, suddenly became home owners.  This brought more competition into the housing market creating a bubble. 

The investor then took out an insurance policy on the risky mortgages, knowing that they would fail, and when the housing bubble collapsed, they cashed in and AIG cashed out.  Matt Tabbi called it the "swoop and squat".

Yet again, knowing how risky derivatives are to a nation's economy, Jim Flaherty hired a Goldman Sachs employee to help him get the Canadian taxpayer into the game, even investing some of our Canada Pension Plan funds.

Tick, tick, tick.

When the economic crisis hit, Flaherty knew he was in trouble.  The banks after repeated warnings, let him know that they were not going to shoulder the burden of his mismanagement, so he was forced to buy back all the high-risk debt that he had saddled them with.

Unlike the bank bailouts south of the border, where the banks had to pay the government back, this was an outright transfer of rotten paper, in exchange for $125 billion in cold hard cash.  Our cash, now backed by what could very well be worthless junk.  And since we didn't actually have $125 billion sitting around in a safe, we had to borrow the money, adding to our national debt.

Tick, tick, tick.

The International Monetary Fund is now warning that Canada could be facing the collapse of our housing bubble, something that the government was warned about two years ago.

Canada’s average home price is about 10 per cent higher than models suggest it should be, posing a “vulnerability” to the country’s economic outlook, the International Monetary Fund warns in a new report.  A drop in prices would be a blow to already highly indebted consumers. With household debt at record levels of about 150 per cent of disposable income, the domestic spending boom that helped Canada weather the financial crisis already is at its limits.

When Flaherty bailed out our banks, he said that it was to "free up funds", that could be lent to consumers so that they would spend, and help keep up the illusion of his sound fiscal management.  Now Goldman Sach's Mark Carney, head of the Bank of Canada, is blaming consumers for their personal debt, the result of spending that they no doubt would have curbed, had they known just how shaky our economy really was.

Tick, tick .... TOCK?!

The IMF is now investigating CMHC.  Where were they in 2006?

Even Canadian Bankers are Hoping that the "Occupy" Movement is a Success

The Organization for Economic Co-operation and Development (OECD) released a report yesterday, showing that Canada's income disparity is growing faster even than that of the U.S.  Low paying jobs and a diminishing middle class, are partly to blame, but also deregulation, that allowed the wealthy to become even wealthier, is a huge factor.

Jim Flaherty was on the defensive in the House yesterday, suggesting that his government has been creating good jobs, but all they created was a marketing strategy:  The Economic Action Plan.  They had no real economic plan, other than to move lobbyists and Goldman Sachs into their offices on Parliament Hill.

Do we really expect that lobbyists have our best interests at heart?  Or Goldman Sachs?

Do you know what Goldman Sachs employee Mark Carney did before being named to head up up the Bank of Canada?  He advised Russian oligarchs during the period of mass privatization, after the collapse of the Soviet Union.

According to Wikipedia:

During the 1990s, once Boris Yeltsin took office, the oligarchs emerged as well-connected entrepreneurs who started from nearly nothing and got rich through participation in the market via connections to the corrupt, but democratically elected, government of Russia during the state's transition to a market-based economy.  The oligarchs became extremely unpopular with the Russian public, and are commonly thought to be the cause of much of the turmoil that plagued the country following the collapse of the Soviet Union.  The Guardian described the oligarchs as "about as popular with your average Russian as a man idly burning bundles of £50s outside an orphanage".

Historian Daniel W. Michaels suggests that the Russian people were better off under Communism, as the word "corrupt" has replaced "authoritarian".  You would think that capitalists would want to make their system more palpable, in order for it to survive, but instead they have only exposed the ugliness.

Bankers on the side of the "Occupy" Movement?

In October, TD Bank CEO Ed Clark, spoke of the imminent threat to Canada's economy, citing several root causes. 

Consumer and employer confidence, demographic forces that are causing demands for government services to grow faster than revenues, and globalization that has produced massive increases in income around the world, but its benefits have been unevenly distributed.

Clark's speech combines the economic with the social, something that is missed under neoconservatism.  As Margaret Thatcher once said, "There is no such thing as society".  Neocons believe that if you allow the rich to get richer, the benefits will "trickle down", but that isn't happening.  It didn't work for George Bush and it won't work for Stephen Harper.

However, Clark presents another cause of our economic woes:  "divisive politics", and he urged business leaders and politicians to "stand against divisiveness and political extremes."

Even with a majority, Harper continues to play political games instead of focusing on the needs of Canadians, and engages in Nixonian politics, instead of governing.

During the 2006 election campaign the media asked Paul Martin how much he thinks about strategy.  He replied "seldom".  They asked Stephen Harper the same question, and he replied "24/7".  Nixon's response to the same question was 6 days out of 7, and that was after he won the election.  It's politics all the time, and the constant game playing is hurting everyone.

At a time when all elected officials should be putting their heads together to sort out this mess, the Conservatives prefer to go it alone, suggesting that only they can save us.

Only they can bail out our banks and then lie about it.

Only they can spend $18 million more on gazebos for Tony Clement's riding, than infrastructure in Attawapiskat.

Only they can expand our prisons when Canada's crime rate is the lowest in history.

Only they can buy planes without engines and contemplate the purchase of nuclear submarines, while Canadian citizens are suffering.

Only they can bloat their cabinet and enlarge their executive with Parliamentary secretaries, meaning fewer elected MPs working for anyone other than the Conservative Party of Canada.

Ed Clark also offers some advise to the Occupy movement:

Asked by the Toronto Star what he would tell the protesters, he said: "My main advice is stick to your guns. When people say, 'You don’t have a solution,' say, 'Of course we don't. If there was a solution, don't you think people would be doing it?' To ask the people who occupy Wall Street or Bay Street to have a full answer is absurd. They're doing their job which is to say, 'If you think this [system] is working for everyone, it's not.'"

Globalization isn't working. Neoconservatism isn't working. Partisan politics are not working. 

This government is failing us so we need to build on this "Occupy" movement.  We need more government revenue, not less, but instead of hitting workers, as Flaherty has done, we must go after corporations and our wealthiest citizens, demanding that they start paying their share.

We've propped them up long enough.

Swindlers Revisited: Why Canada's Occupy Wall (Bay) Steet Movement is Important

A friend left a comment on my blog yesterday, reminding me of a book I had read several months ago, Swindlers.  She was just in the process of reading it herself.  Timely, given the current protests against Wall Street greed.

Anyone questioning why citizens have taken to the streets, need to read this book.

In it, the Rosens (father and son), tell us of how Jim Flaherty and Stephen Harper have signed Canada on to a new set of rules governing corporations.

Thanks to our self-regulated auditors, Canada will soon adopt [Came into effect on January 1, 2011]  new accounting and auditing standards called International Financial Reporting Standards (IFRS). Under IFRS, corporate managers will have even more freedom to distort and manipulate their financial reports to make themselves look better than they really are. Despite the devastating impact it will have on investors and the utility of financial statements in general, auditors succeeded in pushing through the change because of complete disinterest from lawmakers and a lack of recognition by investors that auditors have no interest in upholding their needs. Canadians simply assume that a self-regulatory body like the auditors would look after public interests, not just their self-interests. (Swindlers: Cons and Cheats and How to Protect Your Investments From Them, By Al Rosen and Mark Rosen, Madison Commerce, 2010, ISBN: 978-1-897330-76-0)

They are now legally allowed to lie on their financial statements to lure potential investors.  When I wrote of this before, I received an email asking why it mattered.  After all, it was just rich people cheating other rich people.

However, this affects all of us, because it could mean company pension plans, RRSPs, mutual funds ... things we don't think about every day but they could have a serious affect on our future financial well being.  More from the book:

Judging from the stories that run in the newspaper, you probably think that Canada is a pretty safe place to invest your money. After all, we just survived one of the worst economic downturns since the Great Depression. Some of the biggest names in the world of banking and finance have disappeared, but not a single Canadian bank collapsed. Canada must be doing something right, right?

If you believe that, we have some bad news. The risks you take by investing in Canada have never been greater. And the so-called protection that Canadians think they receive from regulators, lawmakers, and auditors has never been weaker. (ibid)

Good PR (propaganda) at taxpayers expense, has led us to believe that we are financially sound.  We're not.  Since coming to office, the "Harper government" has been on a deregulation drunk.

During one binge, they flooded the market with sub-prime mortgages and the next day found themselves in bed with AIG.  Some morning after.

Another weekend of partying and they bailed out our banks to the tune of $125 billion.  The drunkenomic hangover.

More from the Rosens:

Corporate lobbying power and the absence of an organized investor voice in Canada means that most regulatory actions favour corporate interests. Canada is the only major country in the world that allows the same people who audit public companies to financially control the process that sets the auditing rules. This basic and fundamental conflict of interest means that auditors can set rules that cater to their paying corporate clients over the needs of investors.

There's a lot of money involved in these financial cons. Based on our extensive experience with auditor negligence and executive dishonesty, we estimate that investors have lost hundreds of billions of dollars to scams in Canadian financial markets. Even if you haven't invested a penny in the stock market yourself, these losses affect you. Anyone who collects a pension, saves for his children's education, or simply pays her taxes like an honest citizen suffers from the disinterest of our regulators and lawmakers in prosecuting dishonest corporate executives, aided by acquiescent auditors.

If power is intoxicating, unchecked power is inebriating. 

A few more brown-bagged calamities:

A former Goldman-Sachs employee is running the bank of Canada and has brought along a colleague to act as his assistant.  The same Goldman-Sachs who helped to create the last economic crisis, and the same Goldman-Sachs who warned their clients not to invest in Canada.

Another Goldman-Sachs employee has been signed on to handle Canada's foray into derivatives.  Investor Warren buffet calls derivatives "weapons of mass destruction", but that won't stop Flaherty.  He's even putting some of our Canada pension funds into this risky venture.

Stephen Harper's chief of staff came right off Bay Street to secure the purchase of the F-35s for one of his clients.

And yet Flaherty claims that Canadians have little to protest.

Chantel Hebert is suggesting that instead of protesting Canadians should vote.  Maybe if the media kept us better informed, we would.  Every time they refer to this government as "Tories", they are putting another nail in our coffin.

A Queens University political science professor was asked recently why people are protesting.  She said that the question should not be "why?" but what took them so long.

Jim Flaherty and Goldman Sachs: The "Cooling Off" period

This is the next in my series on Jim Flaherty's Canadian financial crisis, and how we got there. Since it's not registering that Canada had a massive bank bailout and we are now the proud owners of $125 billion worth of rotten paper, I went back to the beginning, so you can see how we got here from there.

Stephen Harper has always supported bank deregulation and often chided the Liberal government for being too cautious. It's a good thing they were. As Trish Hennessey says in her piece: The Quiet Erosion of Canada’s Regulation System

Canada’s economy was shel­tered from the worst of the 2008 global economic meltdown because our bank regulations are tougher than they are in competing jurisdictions like the U.S. Fol­lowing our own high standards paid off, and protected Canadians from the eco­nomic devastation that brought entire nations such as Iceland and the U.S. to the brink of ruin.

Yet our federal government continues to quietly deregulate Canada. Our own Prime Minister, Stephen Harper, is warn­ing against strong regulatory practices. In a speech to the G20 in January 20102, Harper warned other nations against ‘ex­cessive’ financial regulations — a coun­terintuitive message, given strong regulations saved Canadians from the economic devastation our American counterparts are experiencing today.

Given that deregulation in the United States paved the way for Goldman Sachs to almost destroy the global economy, we might want to ask why our finance minister has made a Goldman Sachs employee, the Governor of the Bank of Canada, who has become a cheerleader for Harper's policies.

And he's brought along another Goldman Sachs employee to act as an advisor. We simply aren't tearing down our safety net fast enough. And this new Goldman Sachs employee, Timothy Hodgson, will be handling derivatives, like the ones that help to bring on the economic crisis?

Matt Taibbi wrote for the Rolling Stone, a piece called, Wall Street's Bailout Hustle, as he reveals the con game played by Wall Street and Goldman Sachs. He calls the current period the "Cool off", which in the grifter world is the calming down period. Get your mark to trust you again.

But given that Wall Street, bailed out by the taxpayer, is again engaging in reckless behaviour, he believes that we are heading toward another meltdown.

The bottom line is that banks like Goldman have learned absolutely nothing from the global economic meltdown. In fact, they're back conniving and playing speculative long shots in force — only this time with the full financial support of the U.S. government. In the process, they're rapidly re-creating the conditions for another crash, with the same actors once again playing the same crazy games of financial chicken with the same toxic assets as before. (2)

Only this time Canada's safety net is full of big gaping holes and Wall Street has paved it's way to Parliament Hill.

Stephen Harper, Jim Flaherty and Their Cooling Off Period

The first "cool off" for Steve and Jim came in the fall of 2008, when they announced with much fanfare that they were closing the door on 40-year, no down payment mortgages. What they didn't mention was that the only reason Canada had mortgages like that was because Steve and Jim allowed AIG, Goldman Sachs and other American gamblers to bring them to Canada.

But economists and bankers were sounding the alarm, sending letter after letter to the federal finance department, asking them to quit. But it was only after news began spreading over the sub-prime meltdown south of the border, that these two decided they'd better cool it for a bit.

AIG didn't lose a dime, because Flaherty had already put up $200 billion Canadian tax dollars to make sure they didn't. But CMHC cried foul, our banks just cried, and Jimbo came to the rescue, buying the junk back so they could get them off the books before the mainstream media caught on. Too late though.

The cat was out of the bag.

So Steve and Jim went public, with "we're going to put a stop to this" and most in the media hailed them as heroes. Kinda like a bank robbery when one criminal helps to apprehend the others but still manages to make off with the dough.

And when they bought this junk back they tried to say it wasn't a "bank bailout", but that was, well ... a lie:

Harper called the recent CMHC deal "simply a market intervention ... to ensure our credit markets are functioning strongly." But Grinspun [York University political economist Ricardo] dismisses that interpretation: "Taxpayers are assuming risky assets and giving away safe ones." The problem, says Grinspun, is Harper and Flaherty haven't addressed the issues that exacerbated the crisis, including lack of transparency, greater deregulation and a philosophy the markets know best. (3)

A few people made a lot of money off our mini housing boom, and the only ones left with nothing but garbage, were the Canadian taxpayers. And can we withstand another meltdown with this toxic debt still on our books?

The new "cool off" of calming down the marks (us) is being helped along with millions of tax dollars going to sell us on the myth that this government piloted us through the recession. Unfortunately the ship is the Titanic and the iceberg may be just up ahead.

Previous:

1. It's Time to Have a Serious Conversation About Jim Flaherty and Goldman Sachs

2. Jim Flaherty, Goldman Sachs and the Foxes in the Henhouse

3. Jim Flaherty, Goldman Sachs and "The Swoop and Squat"

4. Jim Flaherty, Goldman Sachs and AIG Comes Calling

Sources:

1. Disaster in the Making: The Quiet Erosion of Canada’s Regulation System, By Trish Hennessy, Canadian Centre for Policy Alternatives, February 22, 2011

2. Wall Street's Bailout Hustle, By Matt Taibbi, Rolling Stone, February 17, 2010

3. Deficit not 'dirty' word experts warn Tories, By Linda Liebel, Toronto Star, October 27, 2008

Jim Flaherty, Goldman Sachs and AIG Comes Calling

This is the 4th in my series on the relationship between Jim Flaherty and Goldman Sachs, and why it matters to Canadians. We have been lied to and this lie is a whopper.

Many of us have been sounding the alarm over our sub-prime mortgages and the massive Canadian bank bailout, but since the mainstream media just keeps playing along to get along, it has gone largely unnoticed. And any economists who bring up the issue are immediately vilified.

It is now common knowledge that Wall Street created the economic crisis, and that the two main players were AIG and Goldman Sachs. But what is not as evident is the fact that these same two players came knocking on Canada's door, when the heat over what amounted to a huge insurance fraud, was threatening to bring it to an abrupt end.

In early 2005, there were warnings by many, including financial expert and Yale University professor Robert Shiller, that the housing bubble might lead to a worldwide recession, given the massive amounts of mortgage-backed securities and other risky investments, that Wall Street was now up to their necks in.

In September of 2005, The Mortgage Insurance Companies of America sent a letter to the Federal Reserve, warning about 'risky lending practices' in US real estate and by the fall the housing market boom halted abruptly, and prices began to fall nationwide.

In May of 2006, subprime lender Ameriquest announced that it would cut 3,800 jobs and closed its 229 retail branches. Merit Financial Inc, based in Kirkland, Washington, filed for bankruptcy and closed its doors, firing all but 80 of its 410 employees.

Mark Carney, Stephen Harper and Jim Flaherty all held onto the myth that no one saw this economic crisis coming, despite the fact that almost everyone did. They just didn't know what to do to stop it, because by the time the first rumblings of despair were heard, it was already too late.

With the American subprime industry drying up, Goldman Sachs needed fresh markets, and where better than Canada. They had a Republican and corporate friendly government in place, and no doubt knew of Flaherty's appetite for shady deals.

Goldman Sachs employee, Mark Carney, was the deputy finance minister who no doubt arranged all the necessary meetings, given his contact list, and he had already made a killing off Canadian taxpayers with his Income Trust fraud.

So on May 1, 2006, AIG registered as a lobbyist and the next day, Flaherty included in his first budget, a little gem. He announced that his government was opening up the market to more private insurers.

“These changes will result in greater choice and innovation in the market for mortgage insurance, benefiting consumers and promoting home ownership,” Mr. Flaherty said. The new rules encouraged the entry of such U.S. players as American International Group (AIG) ..."

The story of how the U.S. housing crisis spread to Canada is a tale of carefully orchestrated U.S. corporate lobbying, failed public-policy promises and government inaction to numerous private and public warnings about reckless mortgage practices.

Flaherty was willing to risk $200 billion of taxpayers money to get in the game.

And we have to remember that the crash in the United States was not the accident of reckless behaviour, it was reckless behaviour engineered so as to cause the accident. That was the only way that Goldman Sachs could clean up on the insurance, bankrupting AIG.

Jim Flaherty and Stephen Harper knew that what they were doing was risky, and intentionally ignored expert advice. That's the way this game works. The sub-prime mortgages created a boom in our house prices and a handful of people got filthy rich. Or filthier richer.

They knew this was a gamble but it was one they were willing to take, because after all, the only losers would be the Canadian taxpayers and the unsuspecting pawns who bought homes they couldn't afford.

And with Canada's household debt the highest of the G-20, bankruptcies on the rise and small business defaults at a record high, we have yet to bear the brunt of this government's foolishness.

I suspect they will try to get an election over with before they have to face the music. They may even pull a Mike Harris and shorten the length of time for the campaign, which will work in their favour. We have to make sure that doesn't happen.

With a Harper majority we will have no place to go but down.

Previous:

1. It's Time to Have a Serious Conversation About Jim Flaherty and Goldman Sachs

2. Jim Flaherty, Goldman Sachs and the Foxes in the Henhouse

3. Jim Flaherty, Goldman Sachs and "The Swoop and Squat"

Jim Flaherty and Goldman Sachs on Film Part II

More to come.

Jim Flaherty, Goldman Sachs and "The Swoop and Squat"

The way that Goldman Sachs set up the American people, and eventually Canadians, was both clever and sinister. Matt Taibbi likened the scheme to the popular insurance scam known as the "swoop and squat". This is where there is a "mark" driver cut off by one perpetrator, while a second crashes into him. Then both of them collect on the insurance.

By now, most people who have followed the financial crisis know that the bailout of AIG was actually a bailout of AIG's "counterparties" — the big banks like Goldman to whom the insurance giant owed billions when it went belly up. What is less understood is that the bailout of AIG counter-parties like Goldman and Société Générale, a French bank, actually began before the collapse of AIG, before the Federal Reserve paid them so much as a dollar. Nor is it understood that these counterparties actually accelerated the wreck of AIG in what was, ironically, something very like the old insurance scam known as "Swoop and Squat," in which a target car is trapped between two perpetrator vehicles and wrecked, with the mark in the game being the target's insurance company — in this case, the government. (1)

At the height of the housing boom, Goldman Sachs was selling billions in bundled mortgage-backed securities, while also betting against those same securities. In other words they were going to have their cake and eat it too. Cashing in on one end and cashing out on the another, under a deregulation gold mine called the credit default swap.

The video below explains them better than I could, but basically what they were doing was buying insurance on your car and then hoping that you had an accident.

Goldman often "insured" some of this garbage with AIG, using a virtually unregulated form of pseudo-insurance called credit-default swaps. Thanks in large part to deregulation pushed by Bob Rubin, former chairman of Goldman, and Treasury secretary under Bill Clinton, AIG wasn't required to actually have the capital to pay off the deals. As a result, banks like Goldman bought more than $440 billion worth of this bogus insurance from AIG, a huge blind bet that the taxpayer ended up having to eat. Thus, when the housing bubble went crazy, Goldman made money coming and going. They made money selling the crap mortgages, and they made money by collecting on the bogus insurance from AIG when the crap mortgages flopped. (1)

But Goldman and others were losing patience. There just weren't enough accidents, so they needed to find a way to accelerate the demise of the unsuspecting victims of a head on crash. Enter John Paulson:

Paulson had been looking for an opportunity to bet that the housing bubble would burst. There was enough information around about the shoddy nature of many of the subprime mortgage deals—with clients who had little in the way of assets, income, or employment—that a number of close observers realized a lot of homeowners" would soon be in dire straits, unable to meet their monthly payments. In the betting parlours of Wall Street, this represented a chance to make some serious money.The best vehicle for betting against the housing market,as Paulson and a few other Wall Streeters had figured out, was to take out "insurance" on packages of mortgages that had been bundled together and sold as a stock.

.... This "insurance"—known as a credit default swap (CDS)—was simply a bet. One frustration for Paulson was that there just weren't enough of these stocks, known as collateral debt obligations (CDO), to bet against. So he decided to become proactive. He approached a number of investment banks with the request that they create more CDOs to sell to clients, so that he could then take out insurance betting these would fail. The arrangement Paulson had in mind was rife with potential conflicts of interest. He clearly wanted to help pick the mortgages that would make up the new CDOs. And he would obviously favour particularly risky subprime mortgages, thereby increasing the likelihood that the CDOs would become worthless and he would be able to collect on the "insurance" he had taken out.

Bear Stearns, the giant investment bank where Paulson had once served as managing director, said no to his scheme. But Goldman Sachs agreed to the arrangement, providing Paulson with his dream opportunity: a chance to bet on toxic CDOs worth about $5 billion. (2)

In other words, Paulson was driving one of the perp cars, while Goldman Sachs steered the other into the path of the victim vehicle, AIG. You can see it coming, can't you?

So what does this have to do with us?

Well when they were trying to create a tidy bundle of toxic paper, they came knocking on our door, and we were ripe for the picking. Jim Flaherty was now our minister of finance and his deputy minister was Goldman Sachs employee, Mark Carney.

In the first half of this year [2008], as the sub-prime mortgage crisis was exploding in the United States, a contagion of U.S.-style lending practices quietly crossed the border and infected Canada's previously prudent mortgage regime. New mortgage borrowers signed up for an estimated $56-billion of risky 40-year mortgages, more than half of the total new mortgages approved by banks, trust companies and other lenders during that time ....

The doors had been opened wide two years before, when on May 1, 2006, AIG registered as a lobbyist and:

On May 2, 2006, in his first budget, Mr. Flaherty announced that not only would Ottawa guarantee the business of U.S. insurers, it was doubling the guarantee to $200-billion.

$200 billion dollars ripe for the picking and backed by the Canadian taxpayer. And not long after, Jim Flaherty allowed derivatives (credit default swaps) to infiltrate our sound financial system, starting with our Canada Pension Plan.

... the announcement this week that the CPP Investment Board, the team that manages Canadian Pension Plan investments, has been freed from restrictions that limited its use of derivatives gives us pause. The rule that has been repealed required that the board use derivatives only for purposes of hedging risk and that it hold other assets to back any derivative investment.

Warren Buffet, whose remarkable record as an investor made him the world's second-richest man and earned him the moniker Oracle of Omaha, once described derivatives as time bombs and "financial weapons of mass destruction."

"Ticking time bombs" and "financial weapons of mass destruction".

Can you see it coming? The Canadian taxpayer driving merrily along, with Mark Carney and Goldman Sachs in the car behind, and Jim Flaherty with AIG ready to cut us off?

This is the third in a series of how Jim Flaherty and Goldman Sachs have all but destroyed our banking system. Only taxpayer funded advertising is keeping Canadians in the dark, as they are led to believe that this government has had a steady hand on the wheel.

What they don't tell you is that the hand is on the wheel of the car about to crash into us.

Stay tuned and fasten your seat belts.

Previous:

1. It's Time to Have a Serious Conversation About Jim Flaherty and Goldman Sachs

2. Jim Flaherty, Goldman Sachs and the Foxes in the Henhouse

Sources:

1. Wall Street's Bailout Hustle, By Matt Taibbi, Rolling Stone, February 17, 2010

2. The Trouble With Billionaires, By Linda McQuaig and Neil Brooks, Viking Canada, 2010, ISBN: 978-670-06419-9, Pg. 93-99

3. Special investigation: How high-risk mortgages crept north, By Jacquie McNish and Greg MacArthur, Globe and Mail, December 12, 2008

Jim Flaherty, Goldman Sachs and the Foxes in the Henhouse

When the Conservatives won the election in 2006 and Jim Flaherty was named the minister of finance, his choice for deputy minister raised a few eyebrows. Mark Carney was a high ranking executive from Goldman Sachs who was making millions of dollars a year. Why would he accept a position that paid a fraction of what he was used to making?

But at the time our attention was drawn to the undemocratic floor crossing of David Emerson and the subsequent drama on the hill.

As a result, the media barely gave it a passing glance. But this should have made headlines, and if not then, then at least now, in light of the mess that Goldman Sachs has made of the global economy. What was their interest in Canada?

Progressive journalists and bloggers have been sounding the alarm on Jim Flaherty's sub-prime mortgage fiasco, but no one in government or the MSM are touching it. I mentioned reading Matt Taibi's two articles in the Rolling Stone on Saturday, and it really put Canada's situation into perspective. I sat up half the night with open books scattered everywhere, and came to the conclusion that this is not simply about the gamble of high-risk mortgages. This is much deeper.

This is about Wall Street taking over this country's finances and setting us on a dangerous course. And as Linda McQuaig and Neil Brooks reveal in their book: The Trouble With Billionaires, once they move in you never get them out.

... by the early 1990s, prodigies of Wall Street had effectively taken over government by being appointed to its top economic management positions. A virtual revolving door now connects the power corridors of Wall Street and Washington, with Goldman Sachs practically serving as a training school for those running the U.S. Treasury. Robert Rubin spent twenty-six years at Goldman Sachs, rising to co-chairman of the firm before becoming Treasury secretary under Bill Clinton; Henry Paulson, a one-time Goldman CEO, became George W. Bush's Treasury Secretary. (1)

And the result has been massive deregulation, allowing Wall Street to become the Las Vegas strip. And any attempt to reverse this has proven to be impossible.

This extraordinary political clout has enabled the wealthy few to effectively disable government when it comes to regulating financial markets. So when Brooksley Born, head of the U.S. Commodity Futures Trading Commission, tried in the late 1990s to bring greater oversight to the wildly gyrating derivatives market, she was stopped in her tracks. It was almost a foregone conclusion that her efforts would be defeated, since she was opposed by the three most powerful government officials in the financial domain: Treasury Secretary Robert E. Rubin, Securities and Exchange Commission Chairman Arthur Levitt Jr., and Federal Reserve Chairman Alan Greenspan. Significantly, these men had all earned their wealth via Wall Street and all were dedicated to the Wall Street creed of deregulation. (1)

Jim Flaherty and Stephen Harper appear to have a very unhealthy infatuation with banks. I wonder if as part of role playing, they make their wives dress up as banks or bankers. But then I try not to wonder about things like that and turn my attention to pleasanter thoughts. Like a multi-car pile up.

But you can't escape this "good banks" phenomenon. It's everywhere. Canadian banks didn't fail because they were sound and regulated. But turns out this was only smoke and mirrors, because what Mark Carney has been doing, is deregulating Canada's financial sector.

We know that this new security perimeter deal is only for the benefit of multinational corporations, as globalization seeks to create a flat earth, with nothing in it's path. But Canada was a stumbling block because we had one of the safest banking systems in the world.

That's about to change. With a Wall Street guru now head of the Bank of Canada, our safeguards are being incrementally removed, that were once a barrier to foreign interests getting rich off the Canadian taxpayer.

Mark Carney started with taxing income trusts, that destroyed the life savings of many Canadian seniors, but netted $35 billion for Goldman Sachs' clients. He also removed the 15% tax on foreign investors, clearing the way for more takeover of Canadian assets. (2) In the 2010 budget, more tariffs were removed, costing taxpayers another $300 million a year, that will have to be absorbed by the working class.

The tariff elimination was by far the biggest move for corporate Canada ... [and] Despite the fiscal crunch, in which more than $160-billion will be added to the national debt by mid-decade, the federal government committed to follow through on cuts to corporate tax rates, to 15% by 2012. It would also establish a panel of MPs and businesspeople to look at repealing layers of red tape that might be adding unnecessary costs for companies. (3)

Translation for "repealing layers of red tape" - the removal of environmental protections.

Welcome to Wall Street.

The taxpayer funded ads about our economy are only creating a facade. Because behind the scenes, the boys are busy creating the perfect storm. A deregulated banking industry and an enormous amount of high-risk mortgages, now owned by us.

None of this was by accident, nor was it just a fleeting and dangerous whim. And I can prove it.

This is one in a series of articles on Jim Flaherty, his relationship with Goldman Sachs and why it might be too late to change the course they have put us on.

Sources:

1. The Trouble With Billionaires, By Linda McQuaig and Neil Brooks, Viking Canada, 2010, ISBN: 978-670-06419-9, Pg. 65-66

2. Ottawa moves to eliminate tariffs, By Paul Vieira , Financial Post, March 4, 2010

3. Taxes and Avoiding Them on Everyone's Tongue, Toronto Sun, November 11, 2007

The Story of AIG and the Canadian Government

The Canadian Press has awarded Jim Flaherty the Business Newsmaker of the Year honours for his handling of the economy. "With Flaherty at the helm, Canada's economy outperformed most others last year."

But in a case of what you don't know won't hurt you, I would say that if Canadians really knew what was behind the appearance of a strong recovery in Canada, they might want to make Flaherty the most high-profile Canadian prisoner of the year, because his actions since taking over in 2006, have been criminal.

He's been lauded for keeping a cool head, but there is a big difference between a cool head and not giving a damn. Flaherty falls into the last category. I think when he's finally out of office it will be worse than when he left the Ontario cabinet, and an enormous deficit was found under his desk.

Because what Flaherty has been doing, even when our economy was strong and his government inherited a 13 billion dollar surplus, was to gamble away our future. We've had incompetent governments before, but this is the first to systematically tear down decades of financial infrastructure, put in place to protect our ability to take care of our citizens.

I've already mentioned the sub-prime mortgage mess that he's gotten us into. You can read about it here, here, here and here. But what he's done is actually worse, if that's possible. But first a bit of history.

The Story of AIG

The American International Group, Inc., or AIG, has been in business for almost nine decades, and rose to the top under the leadership of Maurice R. "Hank" Greenberg, "who shifted its focus from personal insurance to high-margin corporate coverage. [Greenberg also] focused on "selling insurance through independent brokers, rather than agents, to eliminate agent salaries." (1)

And the company prospered by following government regulations and maintaining a cautious approach to investing. But while deregulation of the industry began before George W. Bush, his administration virtually turned Wall Street into the Las Vegas strip and AIG took the bait.

Deregulation mania raged .... liberating every corner of the American financial industry from what were patently sensible regulations aimed at protecting the public from reckless bankers, speculators, hucksters, and just the blind stupid greed of the herd on a rampage. Deregulation can't simply be chalked up to the alleged imperatives of globalization or the existence of freer financial markets offshore.

There were international efforts to rein in the financial anarchy, but instead of joining them—even taking a leadership role—the U.S. government actively resisted attempts to bring order and caution to the markets. When the European Union tried to bring the foreign operations of Americas five big investment banks under stricter European regulations in 2004, the Bush administration helped ward off such interference, siding with the banks' request to be left alone to decide how best to regulate their own risky behaviour. (2)

And that risky behaviour resulted in the worst economic crisis since the Great Depression. Some gamblers made a lot of money betting on the crash, but AIG self-destructed.

The American Taxpayer to the Rescue

After telling the government that AIG was too big to fail, the federal reserve began bleeding money to beleaguered corporation. A total of 170 billion dollars. The largest bailout in American history.

You might think that given the generosity of the American taxpayer, that AIG would be grateful and try to show their appreciation by doing a better job of managing their company. Not on your life. They continued to operate as if nothing had happened. They were "victims" who needed rewards.

- The week following the September bailout, AIG employees and distributors participated in a California retreat which cost $444,000 and featured spa treatments, banquets, and golf outings.

- A month after the first bailout, AIG executives spent $86,000 on an English hunting trip. The company responded by saying, "We regret that this event was not canceled."

- And yet on November 10, 2008, just a few days before renegotiating another bailout with the US Government for $40 billion, ABC News reported that AIG spent $343,000 on a trip to a lavish resort in Phoenix, Arizona.

The American taxpayer is suffering, in part because they had to clean up AIG's mess, and the company is flaunting a lavish lifestyle, financed by the suffering American taxpayer. But it doesn't end there.

In March 2009, AIG announced that they were paying out $165 million in executive bonuses. Total bonuses for the financial unit could reach $450 million and bonuses for the entire company could reach $1.2 billion. President Barack Obama, who voted for the AIG bailout as a Senator responded to the planned payments by saying "It's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?" (1)

Good question. And yet they do. This new culture of greed and entitlement, while a nation suffers as the result of their "risky behaviour" is frightening. What have we created?

Jim Flaherty and AIG

When Jim Flaherty threw the doors open to high-risk mortgages in Canada, with his first budget in 2006, he allowed the American high-risk industry to get a foot hold.

“In the U.S., they are still responding to the fallout of the subprime mortgage mess. In Canada, we acted early over the past year,” Mr. Harper said in a speech to the Empire Club in Toronto. He didn't say that, not only did his own government open the sheltered Canadian mortgage market to U.S. insurers, but it also doubled to $200-billion the pool of federal money it would commit to guarantee their business. The foreigners unleashed what one U.S. insurance executive described as a fierce “dogfight for market share” that prompted rivals, including the giant federal agency Canada Mortgage and Housing Corporation, to aggressively push such risky U.S.-style lending. (3)

And one of those companies that Flaherty and Harper aggressively wooed, was AIG.

On May 2, 2006, in his first budget, Mr. Flaherty announced that not only would Ottawa guarantee the business of U.S. insurers, it was doubling the guarantee to $200-billion. Twenty-four hours before Mr. Flaherty's announcement, AIG's mortgage subsidiary first registered with Canada's lobbyist commissioner, according to a federal registry. At the time, companies who spent more than 20 per cent of their time lobbying the government for changes in policy were required, by law, to register. It is not known how much time AIG spent promoting its cause to the government.

... Banking and insurance officials were so concerned about the alarming rush to 40-year mortgages at the beginning of 2008 that one bank executive warned the Bank of Canada's chief financial stability officer, Mark Zelmer, in a meeting that “the government has got to put an end to this.” (3).

And just so we're clear. AIG and other American firms, can insure questionable mortgages in Canada with absolutely NO risk to themselves. The only ones assuming the risks are the Canadian taxpayers.

And when news of the crisis first hit, Flaherty simply transferred all of the high-risk mortgages from the banks' books, to ours. We now own them and if they default, guess who's left holding the bag? The Canadian taxpayer. Now comrades of the American taxpayers, who have transferred enormous amounts of money to AIG, but got only a bunch of rotten paper in exchange.

And make no mistake. Forclosures in this country, while harder to track, are on the rise. And there are vultures circling hoping to cash in.

AIG and the Bank of Montreal

Another controversy arising in the U.S. over the AIG bailout, is that they paid off their bankers first, before compensating shareholders or the American public. And one of those bankers who had given AIG money to help create the sub-prime tsunami, was the Bank of Montreal, who received 200 million dollars of American taxpayer money.

And guess who recently purchased a portion of AIG in Canada? You guessed it. The Bank of Montreal. We got their garbage and AIG got our money. Good job Mr. Flaherty.

$200 billion to feed our finance minister's gambling habit. And what does our media do? Give him an award. It's much easier than doing their homework, I suppose.

Some might wonder why the opposition is not having more to say about this impending disaster. But when a Globe and Mail reporter asked then Liberal finance critic, John McCallum about it, he said that no one wanted to be responsible for the crash of the housing market.

So, instead, everyone has to go along with the charade. Absolutely frightening.

Sources:

1. Wikipedia

2. The Trouble With Billionaires, By Linda McQuaig and Neil Brooks, Viking Canada, 2010, ISBN: 978-670-06419-9, Pg. 64

3. Special investigation: How high-risk mortgages crept north, By Jacquie McNish and Greg MacArthur, Globe and Mail, December 12, 2008

Is the Flaherty/Harper Bubble About to Burst?

In October of last year the Tyee published an article Why Canada's Housing Bubble Will Burst:

What do the mid-recession housing boom and the Harper Conservatives' rise in the polls have in common? Answer: the Canada Mortgage and Housing Corporation's massive sub-prime mortgage scheme that is keeping up the appearance of an economic recovery. Reading the newspapers these days, you have to wonder whether Canada was on another planet when the global credit crisis hit. House prices have actually increased in some provinces and now there is a shortage of houses for sale in southern Ontario. Credit is flowing everywhere.

But what few Canadians realize is that the housing market has avoided collapse (prices are down 32 per cent in the U.S.) because the Harper Conservatives directed the CMHC to change the mortgage rules to effectively make the Canadian government the biggest sub-prime lender in the world. What's almost as alarming as this reckless policy is that no one in the financial media is talking about it, even though everyone knows the facts.

And while the Harper government basked in the glow of their cunningness, a storm was brewing. Canadians were given a false sense of security, spending lavishly, which helped the economy in the short term, but borrowing heavily to do so.

As a result Canadian households have one of the highest debt to income ratios in the world.

And the largest chunk of that debt is in housing. Many who couldn't afford to own a home, or would under normal circumstances fail to qualify for a mortgage, were now entering the market, while others bought houses well above their means. And houses became more expensive as a result of more competition in the market.

... let’s say you have the average Canadian family making the average income – about $70,000. You dwell in the average house, have average kids (1.2 of them), and pay average taxes. That means you have $54,000 left to live on for a year. Sadly, your house eats 48.9% of your pre-tax income, which equals $34,320 – which also means you have about $19,600 left. That’s $1,600 a month for food, clothes, car, vacations, school fees, insurance and your online connection to this pathetic site. Notice I did not include ‘savings and investments’ because, of course, there’s no money left.

And you think this is bad? Try living in a high-cost city like Toronto or Vancouver, where a house eats more than 50% and 65% of pre-tax family income respectively. This is what happens when real estate speculation meets dumbass public policy, driving the cost of shelter absurdly higher. It’s a massive hidden tax on the middle class, sucking off billions which should be finding its way into a better life or a nest egg for the future. Instead, real estate now means sacrifice and debt. And danger.

And of course the scandal is not just "dumbass public policy" but a media that failed to warn Canadians of this danger. Instead they allow the Harper government to thump their chests and sing hallelujah over their handling of the economy.

The Globe did run an in depth early on, when Flaherty allowed AIG to infiltrate our financial sector. The same AIG that helped to destroy the American economy.

And Chris Gallant from Forbes magazine also covered our rosy economic myth:

For all the recent bravado claiming that Canada's supposedly boring yet prudent financial regulations have steered it permanently clear of housing bubble territory, the simple truth is that key causes of the U.S. housing bubble have been sufficiently replicated in Canada.

CMHC: Fannie and Freddie's Canadian Cousin - For example, while it is technically true that Canada does not have its own publicly-traded GSEs such as Fannie Mae .. and Freddie Mac .. to artificially inflate its housing market, it has the next best thing. The Canadian Mortgage and Housing Corporation (CMHC) is Canada's national housing agency used to provide mortgage insurance, which is fully integrated by the federal government ....

(Uh) Oh, Canada! - Since 2007, when the first effects of the credit crunch began to be felt, the Canadian government postponed the housing bubble's burst by dramatically loosening lending standards, allowing CMHC to insure mortgages with 40-year amortizations and 0% down-payments for the first time in history. This of course flooded the market with new, high-risk borrowers, propping up already historically high prices with unsustainable, artificial demand.

From 2007 to early 2009, the total dollar value of CMHC's outstanding MBSs grew from $138 billion to $265 billion, an increase of 92%. During this same time, the total mortgage credit outstanding on the collective books of Canadian banks increased by only 1% to $447 billion. In other words, all the market demand that has been propping up Canadian house prices can be attributed to Canada's version of subprime loans that the free market was not willing to bear the risk of.

And we are now about to wear this fiasco as indeed the housing bubble appears ready to burst.

Even RBC now says there are “red flags” over the Vancouver market. “While the Vancouver market is clearly vulnerable to a price correction, this does not imply that a collapse is imminent because supply (both in the existing and new home sides of the market) is well contained at this point.” What does that mean? If listings rise, of course, it means there will be “a collapse.”

In the GTA: “The deteriorating trend in Toronto’s housing affordability continued.” And the bank cautions that a “wild downswing” in prices was kept at bay only because vendors retreated. Which begs the question of how long that will last. As I’ve told you before, I expect this correction to be followed by a multi-year melt, as interest rates normalize and then those oxygen-sucking, walker-wheeling Boomers start trading houses for income.

And with our high rate of both unemployment and underemployment, we could see a lot of houses come on the market.

And what is our exalted one doing about this? Nothing. Instead he and his Mike Harris sidekick Flaherty, are continuing with the facade of having a steady hand on the economy, while instilling fear of a coalition. Same old, same old.

John Ivison is Dead Wrong ... Again!

John Ivison's recent column: Ignatieff’s gains mean little if economy sours, is rather interesting, and to put it mildly, the most convoluted piece of nonsense that I've read in a very long time. (He even has to quote a May poll to get the right spin)

At the height of the recession, the economy was named as the most important issue by more than 50% of Canadians but that figure has since dipped below 20%, superceded by health care. That may be about to change, if the news on the economic front continues to sour. As the government keeps telling us, the Canadian economy has performed well in comparison to its competitors — we have a sounder mortgage market, relatively full employment, smaller deficits and exposure to developing world resource demand.

I agree so far. But then Ivison's thinking goes south.

Canadians may think Mr. Harper is arrogant and uncaring but twice as many of them trust him, when ranked against Mr. Ignatieff, when it comes to managing the economy. They appear to give credit to Mr. Harper and his finance minister, Jim Flaherty, for acting decisively on the Friday afternoon in October 2008, when it appeared that some international banks might not open on Monday morning, and for subsequently steering the ship through troubled economic waters.

Ha ha ha ha ha ha ha ha. Maybe Ivison can make it on the Reformer's next gong show.

Canadians trust Mr. Harper's handling of the economy, because we thought he was actually handling the economy. But the Canada Action Plan was nothing more than an expensive PR campaign engineered by Guy Giorno, and our bank bailout, is about to bite Harper and Flaherty on the butt, after they bought up, in our name, 125 billion dollars worth of rotten paper.

Canada may be facing a housing bubble. The same housing bubble that Murray Dobbin warned us about months ago.

What do the mid-recession housing boom and the Harper Conservatives’ rise in the polls have in common? Answer: the Canada Mortgage and Housing Corporation’s massive sub-prime mortgage scheme that is keeping up the appearance of an economic recovery. Reading the newspapers these days you have to wonder whether Canada was on another planet when the global credit crisis hit. House prices have actually increased in some provinces and now there is a shortage of houses for sale in southern Ontario. Credit is flowing
everywhere.

But what few Canadians realize is that the housing market has avoided collapse (prices are down 32 per cent in the U.S.) because the Harper Conservatives directed the CMHC to change the mortgage rules to effectively make the Canadian government the biggest sub-prime lender in the world. What’s almost as alarming as this reckless policy is that no one in the financial media is talking about it, even
though everyone knows the facts ... At the peak of the U.S. housing bubble, just before it burst, house prices were five times the average American income; in Canada today that ratio is 7.4:1 almost 50 per cent higher.

But even if Flaherty and Harper didn't have our economy hanging on for dear life, how has he convinced Canadians recently that he knows what he's doing?

The largest tax increases in recent history to pay for their mistakes.

130 million dollar gift to a company suing us, instead of first determining whether or not they had a legitimate claim.

16 billion dollars for fighter jets and a bogus Russian threat to sell them.

Billions for new prisons when Canada's crime rate is the lowest in our history.

The most expensive photo-ops known to man.

Lay Offs when we need jobs.

A "Fake Lake"

1.3 billion dollars to have Canadians beat up.

900 million for Olympic security, many times what was budgeted.

5 million dollars for self-promotion ads during Olympics.

Giving the contract to build the Canadian pavilion to an American firm, when Canadians need jobs.

21% increase in his own office budget.

$400.00 haircuts charged to taxpayers.

Full-time image consultant, billed to taxpayers.

Fox News North - Taxpayers picked up the travel tab.

And all this spending when Canada is sitting on the largest deficit in our history.

Stop me anytime Ivison.

I would not want to be the Harper government going into an election, trying to convince Canadians that they are the best to handle the economy. The smoke is clearing and the mirrors are cracking. This has been the most expensive, cost ineffective government in this country's history. And that's saying something, when you look at Brian Mulroney.

I did love Ivisons parting shot though. "Aside from adding a few pounds to his [Ignatieff's] waistline ... "

Please let's not compare waistlines, OK.

Canadians Could be the Last of the G-20 to Experience Economic Recovery

Despite the chest thumping by Flaherty and the boys, Canadians could be the last to enjoy any kind of economic recovery, according to Paul Krugman of the New York Times.

Canada escaped relatively unscathed, through a combination of good luck and sound, conservative regulation of banking and consumer debt in which “it is not so easy to use your house as an ATM,” Mr. Krugman told the Canadian Bar Association.

“Canada is an example of the virtues of a relatively traditional approach, a country that did not get caught up in the euphoria of banking innovation,” he said in a speech to hundreds of lawyers.

Now this is where Krugman is wrong. Jim Flaherty did get us caught up in the "euphoria of banking innovation". The only problem is, he didn't bother to tell us that he was doing it, and the few in the media who reported on it, were pretty much ignored.

According to the Globe and Mail

In the first half of this year, as the subprime mortgage crisis was exploding in the United States, a contagion of U.S.-style lending practices quietly crossed the border and infected Canada's previously prudent mortgage regime. New mortgage borrowers signed up for an estimated $56-billion of risky 40-year mortgages, more than half of the total new mortgages approved by banks, trust companies and other lenders during that time, according to banking and insurance sources. Those sources estimated that 10 per cent of the mortgages, worth about $10-billion, were taken out with no money down.

The mushrooming of a Canadian version of subprime mortgages has gone largely unnoticed. The Conservative government finally banned the practice last summer, after repeated warnings from frustrated senior officials and bankers that the country's financial system was being exposed to far too much risk as the housing market weakened.

And when the economic crisis hit, Flaherty secretly bought up 125 billion dollars of what is being called "rotten paper". We still own them, and yet the media is more worried about what plays Stephen Harper is watching than the fact that he has us in deep water.

Here's the inevitable other side of the story. The banks were actually "bailed out" to the tune of $125 billion just before and after the 2008 election -- in the form of a massive purchase of questionable mortgages and other "rotten paper," in the words of one economist, held by them. This was done through the Canada Mortgage and Housing Corporation, a federal agency. The taxpayer is now on the hook for these mortgages, 40 per cent of which are considered at risk, with more to come if interest rates rise and the economy dips again.

But the kicker is this: Hardly anybody noticed. It wasn't an issue in the election, and the financial press said nothing. A few tried, and are still trying, to raise the alarm. Michel Chossudovsky, a retired University of Ottawa economist and head of the Montreal-based Centre for Research on Globalization, pointed out that Finance Minister Jim Flaherty had announced a $2.3-billion surplus in the offing before the election, then quickly changed it to a $64-billion deficit. He argues that the entire deficit was for the first installments of the bailout, which the prime minister described as "not a bailout" but a "market transaction."

And with more people losing their jobs and our unemployment situation the worst since 1938, we need to start paying attention.

There's something else that's interesting from Krugman's comments:

However, he warned that Canadians’ lavish spending habits, stubbornly high unemployment, and rising housing costs are potential trouble spots that could potentially turn a good news story into a bad one. “There are a few aspects of Canada that are not scary but a little disturbing,” warned Mr. Krugman, a Princeton University professor.

“Canada is by no means insulated. It’s by no means a sure thing that everything is going to be OK.” Despite better banking regulation, Canadians tend to “spend and borrow and awful lot like Americans,” Mr. Krugman said in his speech.

And even Frank Lutz, the Republican pollster and buddy of Stephen Harper's blamed the economic meltdown on:

"Government policies caused the bubble and its ultimate crash. Fannie Mae, Freddie Mac, the Federal Reserve, and the Community Reinvestment Act all had a role in the catastrophe. The government inflated economic bubbles with easy credit policies. Interest rates were kept intentionally low. Low-income families were encouraged to become homeowners despite the knowledge that many would never be able to pay them back. Government bought and backed these subprime loans, essentially encouraging brokers to find more subprime clients – risk be damned."

Fake Lakes, Fake Prime Ministers and Fake Economic Statements

With everything about these summits being fake, one thing that is real is the cost to taxpayers.

Louise Elliot also reveals the hidden costs of having a fake fiasco.

Many people are arguing that the current price tag for the summit is misleading. That's because it doesn't factor in the massive economic cost of effectively shutting down downtown Toronto. The tricky part is, it's almost impossible to put a dollar figure on lost revenue in advance of the event. I took a trip down to the Toronto's downtown core, where the summit will be held, to assess the situation.

It's the uncertainty that's keeping business owners like Hugh Mansfield up at night."So it would be fairly easy for somebody to get in here, if somebody was up here now. Again, just the added expense of what's going to happen if there's ten people in that freight elevator with a baseball bat..."Mansfield is busy these days trying to secure all the rickety old entrances to this warehouse which houses his communications and marketing firm.

"This leads to a fire escape but it's all under alarm system right now, but you know, it's not rocket science to get onto this fire escape from outside..." Mansfield's warehouse -- smack in the middle of Toronto's entertainment district -- is just two blocks north of the summit's northern perimeter-- right where the waves of protesters are expected to wash against a 10 foot fence and then rebound, venting their fury in the surrounding streets. Mansfield says his decision to close the office for all of next week was a no-brainer. "Watching helicopters flying in formation over your office is a little daunting. As well as seeing dress rehearsals of various people in various combat gear on a daily basis." Mansfield believes the business closures will come at a significant cost not just to his business, but to the Canadian economy at a whole.

I think we should just cancel them. Roll up our fake lake and forget the whole thing.

Harper Wetting Himself Over Fear of Election But NDP Say "Bring it on"

As Harper is drowning in fake lake and Canadians are drowning in the 125 billion dollar bank bailout, Stephen Harper is terrified of having to face the electorate.

His best hope is that there will not be an election. He wants to focus on the economy. (ha, ha, ha, ha, ha, ha, ha, ha)

Did I mention the 125 billion dollars in worthless paper that the Canadian taxpayers now own?

Mr. Harper told Reuters that “notwithstanding what was largely a dysfunctional session,” the government managed to push through important measures such as a budget law, refugee reforms and a Canada-Colombia free-trade pact. “People want this government to focus on the economy and that's what we're going to continue doing. So I'm not looking to have an election in the fall and I don't think that's what Canadians are expecting us to do either,” he said in a wide-ranging interview.

Did I hear that he gave an interview and no one was beat up? Couldn't be.

But the NDP say they are ready for an election and so bloody hell am I.

“An election in the fall is in the cards and we are preparing for it,” says a senior Layton official. “We never know when Ignatieff and the Liberals will have had enough of supporting the Conservatives’ confidence votes after confidence votes. Who would have thought the Liberals would prop up Harper a hundred times (and counting!)?”

I guess Layton forgot that it was his government that voted to keep Harper in power.

No matter. An election, the sooner the better.