Drowned out by the federal election was the news that the Conservatives were planning to further backstop the banks by extending the initial offer to buy 25 billion in mortgages to 255 billion. In their attempt to avoid the obvious ideological contradiction of having to nationalize the Canadian banks, or the mortgage market, the expansion of the program is now being painted as a necessary evil brought about by the unintended consequences of government bail-outs in other national jurisdictions: The Flaherty explained the situation thus:
Finance Minister Jim Flaherty indicated yesterday he would be willing to offer more support for Canadian banks in order to ensure they remain on a level playing field with rivals around the world.
“In Canada, we will continue to work in a co-ordinated fashion with our G7 partners and take appropriate actions to support our financial system, including whatever steps are necessary to ensure that Canada’s financial system is not put at a competitive disadvantage,” Mr. Flaherty said in a statement following weekend meetings with other G7 finance ministers.
He added that the government is prepared to take “appropriate action to avoid unintended consequences from policy measures by other countries that would put wholesale borrowing in Canada at a competitive disadvantage.” Globe and Mail
This just increases the ideological bind for the conservatives. Here is why. At first they painted the initial 25 billion dollar partial nationalization of the mortgage market as a way to provide Canadian banks with access to liquidity. A partial nationalization in the furtherance of financial stability. Not an ideal ideological position to be in but hey these are hardly ideal times. Not to mention that the Canadian business press refused to call the plan what it was: a scheme to partially nationalize of the mortgage market.
But, and here is the important point, with bailout plan mark II (225 billion) the conservatives are justifying the plan not under the guise of liquidity but rather framing it as a necessary evil to keep Canadian Banks COMPETITIVE in the face of subsidies by other national jurisdictions. That is they are selling it under the rubric of the protection of the Canadian financial sector’s competitive advantage. In effect a direct subsidy to improve the competitiveness of Canadian Banks. Now if I am sitting in the auto sector why I am I not going to ask for help? The US auto sector just got a huge “loan” from congress why shouldn’t autos in Canada get the same help. Or, for that matter, any other sector where it can be demonstrably shown that in other national jurisdictions those same sectors are getting support.
This ideological bind is going to play itself out in this parliament. How can the cons promise 225 billion worth of support to the banking sector and not others? They are now in a damned if they do and damned if they do not bind.
Welcome to governing in tough ideological times.