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An intriguing secret overhangs the federal election. Our Prime Minister appeared to have everything in the bag, so utterly was his control of information. He knew exactly what had brought on the financial bust of the late 1980s, and how the banks had been bailed out by enabling them to quadruple their holdings of federal government bonds by being able to acquire them without putting up any of their own money. The statutory reserves - were some 8% to 10% of the deposits the banks received in their chequing accounts that had to be redeposited on an interest-free basis with the Bank of Canada. Such reserves had been abolished in a bill sneaked through parliament in 1991 without debate or press release.
When critics dug up the facts of that bailout, the banks cried indignantly: "It was an unjust tax on the banks!" But it was no tax at all. From a "lender of the last resort", the government had simply moved into the position of "the donor of the first resort". Throughout the 1980s it had bailed out bankrupt banks. And since the government of Canada is the sole shareholder of the Bank of Canada when it switched its borrowing from its own bank the Bank of Canada to the distressed banks, they lent back to the government some of the money it had bestowed on them as a gift. That was the secret of secrets, the dead rat beneath our floor boards that poisoned the very air politicians breathe. Yet Canadians who pay, ultimately pay the shot in the GST every time they go into a store. They were the ones who really bailed out our banks. The details have been withheld from the public, but the total picture is revealed to them whenever they do a bit of shopping or drive over the potholes in our roads, or suffer from the crumbling of our infrastructure.
Even more scandalous, after being bailed out so sumptuously, the banks were further deregulated and allowed to take over stock market brokerages in Canada and abroad, and underwriting and merchant banking establishments, derivative boutiques - such a jumble of businesses incompatible with banking that the mighty banks could not begin to keep track of the clashing relationships that resulted. Thus as part of the world-wide bail-out of banks in trouble, the Bank for International Settlements, had declared the debt of developed countries to be risk-free , hence requiring no further capital for banks to acquire. But at the same time governments throughout the world had put an end to the statutory reserves, that had served as an alternative to higher interest rates to lick perceived "inflation". But if you raise interest rates, the huge bond hoard with lower coupons held by the banks fall below market value. And the banks thus lose much of their remaining capital from their very rescue package. In short the right hand of Mr. Martin and his colleagues in charge of our money supply in Canada and abroad, lost rack of what their left hands was up to. That led to a major financial crisis in Mexico that would have brought down the entire financial system had the Clinton government in Washington not at the last moment patched together a $50 billion plus standby program.
And meanwhile Mr. Martin as Finance Minister during the Chretien government was beating his own drum as a financial expert who merited ten years in power as PM.
As further proof of his "fiscal responsibility", he stashed away government revenue to "hide against a rainy day". It was in fact the part cost of keeping the sun shining on our banks' excursions into the US financial wild west. Not only were these incompatible with their banking activities, but not particularly successful. They have already cost them a small fortune.
But that was not enough, Mr. Martin got himself into an awful row behind closed doors with the Auditor-General of that day, Denis Desautels, on the government's practice of ignoring double entry bookkeeping. When it built a bridge, a school, or a penitentiary, it wrote off the spending in a single year while keeping the debt incurred on its books as a liability. After weeks of wrangling a compromise was reached in which this accrual accountancy (also known as `capital budgeting') would be introduced with respect only to the aboriginal peoples' accounts and the environment. That resulted in the discovery of an unrecognized surplus, that he wore like a Purple Heart Cross. Yet under the terms of his settlement with the Auditor-General, the final balance sheets of the government would be subject to approval by the Auditor-General. Until that approval is forthcoming, Mr. Martin is as much in the dark about the government's balance-sheets as the general public. Accordingly it falls to the electorate to decide whether he really has been a prudent administrator, or has just bullied his auditor.. In the US intimidating or bribing a company's auditor has earned high executives jail sentences. Could it be that in Canada we reward them with 10-year runs as head of state? . That was the grand illusion of Mr. Martin's career. The time has come to prove him wrong.
But surely, all these things are far too complicated for the ordinary elector to understand. Hence how did the public pierce the mystery and grasp the essential fact that Mr. Martin has been up to no great good. For that is the view that has taken over.
Thus Roy MacGregor (The Globe & Mail 7/06/04 ) sums up the situation.:" With voters putting the boots to Martin so early, it means the public attention span has ample time to wander over to those who might take his place. Two weeks ago the election was Paul Martin's to lose, and it appears he lost it almost instantly; today, it is Stephen Harper's to lose."
This adds up to a crisis of our democratic system. The need for proportional representation, so that minority groups at present unrepresented in parliament will be able to demand vital information that is at present denied the major parties, or who simply fail to fight for it. Being a mjoar party involves a massive dependence on major finances for TV ads, the attaches major parties to our banks with nose-rings.
How then did Mr. Martin's secret get through to them despite its complexity that left Mr. Martin himself confused?
The answer is simple. There has been a massive redistribution of the national income , and with the increasing break-down of or our infrastructure and the ongoing voracity of our banks, it continues, day and night. Heather Scoffield ( The Tories' $90-billion question" Globe and Mail 7/06) sums it up : "Both Tim O'Neill, chief economist of the Bank of Montreal and Dale Orr, managing director at Global Insight (Canada) recognize a scenario such as Conservatives as a viable option, as long as spending is frozen. On the other hand, most economists agree that keeping spending in check will involve cuts to some programs."
That is the great secret that Mr. Martin could only add to, but not hide.
The last bailout of our banks was no one-shot affair, but an ongoing entitlement. When two of our major banks have had fines imposed on them by the regulatory authorities in the US $80 million - quite apart from likely class actions for which they are setting aside reserves - that comes out of the hides of Canadian taxpayers or consumers.
Vital information about Mr. Martin's fiscal prudence comes to voters whenever they go into a store and pay the GST that Mr. Martin as Liberal Finance Minister was supposed to do away with. You can fool the public three times with tales of self-aggrandizement, but the fourth time is a toughie these days.
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