Growing Gap

As the US government continues to figure out just how much it will take to bail out financial markets, up to the tune of $1 trillion dollars, the sound of Dr. Evil's voice creeps into in my head - "Okay then. We will hold the world ransom..for One..Hundred..BILLION DOLLARS"

What's unfolding south of the border is like a crazy Hollywood action movie. Except it's not funny.

The scale of the thing eclipses any other government intervention in recent history and represents a damning indictment of the cries for a ‘free market' and ‘less government' that we've been hearing in the U.S. and in Canada for the past 20 years.

If this story was unfolding in Canada, the equivalent amount would be a $100 billion - about half the size of every other thing the federal government does.

It is the sheer size of this disaster that helps put a few things into focus.

First, and most striking: What a stupid way to spend such huge amounts of money.

Think how much further $1 trillion would have gone if even a fraction of it had been invested in creating more affordable housing options, the problem that triggered this mess in the first place.

Or imagine if it had been invested in public supports to help stretch Americans' paycheques and improve their lives. Think of the public health care and education opportunities a trillion dollar investment could have given Americans.

It's dumb economics to spend such obscene amounts of money to offset a crisis created by investors, with no clear and direct advantage to the average person on the street other than to say we kept the banks from completely fouling our nest today.

The second striking thing is how risk got shifted from the titans of Wall Street - the big players who get paid fortunes to take risks, gambling with America's future and the entire global economy - to hard-working families who could never get away with ducking the price for acting irresponsibly.

Of course, the bailouts are spun as benefiting everyone - and that's true to a point. But a nation of primarily low-paid workers is paying for a handful of loaded losers who made bad bets. In what other type of crap shoot does that happen? The CEO of Lehman's, which folded under his guidance, earned $40 million last year, including "performance" bonuses. Pardon the pun, but that's rich.

Not only are average working stiffs paying for these bad boys' mistakes, they are paying twice, if you count interest. Since the U.S. government is already in deficit, U.S. taxpayers have to borrow the money from someone who has it. Average Americans will be paying for the big risk-takers for a long time to come.

The third thing worth paying attention to is the scary amount of consolidation that these events are triggering. The credit crunch is paving the way for corporate concentration of power and market share in the U.S. and globally.

It's a world that Dr. Evil would fit right into.

The numbers of players in the financial market are shrinking, making the market share of those left standing players even bigger.

Three of the five largest investments banks in the US have disappeared in the past 6 months.

Bank of America has just "steadied" the market by buying up small fry Merrill Lynch (valued at $50 billion), making it now the world's largest brokerage with client assets of $2.5 trillion.

Last week Lloyd's of London swallowed a shaky Scottish based mortgage lender that had lost half its market value. Now Lloyds dominates about 40% of the market.

This kind of corporate concentration should be sending shivers down the global spine.

What does any of this mean to Canada? Conventional wisdom holds that Canadians needn't worry, the same things are not going to happen here.

But here's the fourth thing. It's true that the exposure of Canada's financial institutions to this contagion has not been enough to warrant bailouts. Major writedowns have led to corrections in the stock market - so the value of your RRSP may just have taken a big hit, but there's no wave of mergers, and our politicians are not on the hook for tough decisions. Yet.

But things are not looking good, as financial meltdown translates to economic slowdown, putting more jobs on the line on both sides of the border. And if lenders become more skittish about lending and hang on tighter to their money, interest rates will inch up.

All those credit card and mortgage payments that already are so hard to make at month's end may lead to record personal bankruptcies, if things continue to sour in the labour market, or if the price of borrowing goes up. Canada is not immune to widespread trouble.

So here's the fifth thing. In the middle of this fiasco, in the middle of an election, one politician has stood strong, focused and clear about the way ahead. Our Prime Minister has stated that governments don't guarantee jobs, and that "Canadian consumer spending has been a rock that has sustained the economy and we anticipate that that will continue".

That way of thinking - governments can't do anything for you, let the market decide, you're on your own - may have worked last year or even last month. But given the events of last week, the Harper line is starting to sound dated.

We're learning from south of the border that governments do have a strong and vital role in keeping the market in check. It's time Canadians start having that conversation - before the meltdown comes to a bank account near you.

-- Armine Yalnizyan

I had dinner with a friend last night.

One of those apolitical friends - the kind that notice when something big happens, like Barack Obama and the politics of hope, but doesn't monitor online news and blogs (like me) throughout the day for shocking political developments (which this election is readily providing).

My friend hadn't heard about the Conservative ad featuring a puffin pooping on the Liberal leader's shoulder. But she certainly did notice the $12,000 she lost in ‘safe' RRSP investments that are supposed to guarantee her secure retirement 20 years from now.

My friend is a single mom who has made many financial sacrifices to raise her son but always found ways to save money each year, unlike the majority of Canadians, who struggle with record levels of household debt.

Her RRSP investments represent a major sacrifice. And she's counting on them to get her through when she's old and frail. But with $12,000 disappearing into a very liquid market this summer, she is beginning to worry about her future.

Which, after checking on my own RRSP investments to make sure they're safe, got me thinking about the federal election.

We have a Prime Minister who tells the media over breakfast that he is not in politics for the ‘celebrity' but that he has a very clear vision of government.

Since his very first budget, Stephen Harper has indeed been very clear: He believes government doesn't have much of a role to play in the lives of most Canadians. Just last winter, when his government tabled its third budget, it acknowledged dark economic clouds may be on the horizon. Harper's answer to the people? Start saving, and fast.

The Harper government introduced a very expensive new tax savings vehicle, one that ostensibly allows Canadians to save up to $5,000 a year. In practice, it rewards Stephen Harper's wealthiest friends - not the majority of Canadians - because the richest taxpayers are the only ones who will find themselves with $5,000 in extra change lying around to take advantage of this tax break.

The rest of us, during hard economic times, find ourselves drawing on our personal savings (not bolstering them).

And that's if we're lucky to have savings. Canadian household savings are at an all-time low and that trend doesn't look like it's going to change in a hurry.

Oh, and here's the kicker: The program costs the public coffers $900 million over five years and is estimated to rise to $3 billion a year within a decade.

So, in practice, Harper's program does not lift a finger for middle- and low-income Canadians like my frugal friend who dined with me last night.

Instead, his program forces the majority of struggling Canadians to subsidize the savings plans of the very richest among us, further exacerbating the growing gap between the rich and the rest of us.

-- Trish Hennessy

A study released by the Canadian Centre for Policy Alternatives, with Environmental Defence, talks about yet another inconvenient truth of our time. (See this Globe and Mail story).

Canadians leave a bigger ecological footprint than the majority of nations on the planet. Within Canada, the richest 10% of households leave a substantially bigger ecological footprint -- 66% bigger than the average Canadian household.

The study, which is the first of its kind in Canada, raises uncomfortable truths about how much Canadians are contributing to climate change. We're among the worst in terms of ecological footprints.

The study also serves as a warning flag to governments seeking policy solutions to climate change: taking into account consumer behaviour and differences in greenhouse gas emissions by household income will be important to effectively tackle climate change in the future.

Inconvenient truths present themselves for a reason. It's time Canadians engage in a public debate about how we're going to reduce our ecological footprint as individuals, and collectively through government actions to protect our planet and our people.

-- Trish Hennessy