As pointed out some days ago the conservatives were busy nationalizing the mortgage market so that they would not have to be seen to be nationalizing the banks. The Calgary Herald reported that that plan is now to be expanded to 225 Billion which would make the program equivalent to half of all the mortgages the Big Banks have on their books and over 25% of all outstanding mortgages in Canada. Somebody needs to ask the cons why they are not getting a better deal for the citizens of Canada. But there is another issue here: stripping banks of presumably illiquid but nonetheless performing assets to the tune of 225 billion may represent a change in the risk profile of the banks but also implies the loss of revenue down the road.
After initially putting up $25 billion of public money to buy mortgages, the Department of Finance is prepared to increase that limit as needed up to $225 billion, at which point the risk of taxpayer losses starts to rise sharply.
Moreover, while conservatives may not be nationalizing the banks they are nationalizing the mortgage market and a nationalization is a nationalization. And of course we will have to wait to see how much of the auction is subsribed to on the 16th to get a sense of much of this is simply a promise to socialize risk should the need arise.