Loss at $25 Billion
will be February before we know how much the Canada Pension
Plan recently lost on the stock market, but a fair guess is
$25 billion disappeared between the end of the first quarter
on June 30th and October 8th. On June
30th the CPP had $127.7 billion in assets, $79.2 billion
of which was in equities. On June
30th the TSX composite index was 14,467; on October 8th
it was 10,056, a drop of 30.5%. Of course, CPP's third quarter
doesn't end until December 31st, so it will be February before
we see a report to the end of the third quarter. We can all
hope that the index is above 10,056 by then, but it could
be even lower. What is happening to the CPP is also happening
to pension plans, RRSPs, RRIPs and investment accounts. That
is why it is irresponsible for Prime Minister Harper to dismiss
the stock market as something that always goes up and down,
and to say that it probably presents good buying opportunities
today. Mr. Harper isn't showing the kind of empathy that Canadians
expect and deserve.
economists are inclined to follow the advice of John Maynard
Keynes and dismiss stock markets as glorified casinos. They
may be right, but that doesn't mean the markets are unimportant.
In addition to determining the asset value of pension plans,
they provide an important means for companies to raise money
they need for investment in real assets, plant and equipment.
Nevertheless, the damage to the stock markets is merely collateral
damage in the larger crisis.
financial disaster rooted in the U.S. subprime housing fiasco
is sweeping the world. Some of the world's largest financial
institutions gambled by making loans to people who can't repay
the loans. The immediate effect is the devaluation of assets
on the balance sheets of banks and other financial institutions.
When the values that disappear start to equal the net worth
of the institutions, bankruptcy results or what's left is
grabbed up in a takeover; that wouldn't be such a bad thing
if it weren't for the consequences for everyone else. Failing
financial institutions cause credit to dry up - no loans for
car purchases, home construction, payroll or anything else.
If you don't think that affects us in BC, read the financial
pages of any paper. The Olympic Village in Vancouver may be
in trouble over refinancing. Construction on a hotel at the
foot of Lonsdale in North Vancouver is stalled. Municipalities
are struggling over financing sewer and water projects. Alcan
has put capital plans on hold. BC is not immune from the worldwide
crisis, and the effects are not just what you see on the stock
markets. Jobs that would otherwise be created won't be, and
those that exist now may soon be threatened.
Leader Stephane Dion's solution for the crisis is to strike
a committee and consult the regulatory authorities on ideas
like extending deposit
insurance from $100,000 to $250,000. Most Canadians don't
have $100,000 in the bank, and those that do know that they
can spread their deposits around and effectively get over
$1,000,000 in deposit insurance. One of the members of Dion's
committee would probably be former Premier and Finance Minister
Paul Martin, the guy who made the Canada Pension Plan invest
most of your money in the stock market.
aren't going to be any quick fixes to the worldwide economic
crisis. The difference between now and the great depression
is that governments recognize that they have a major role
to play in rescuing financial institutions and stimulating
the economy. This crisis could force even the political right
to admit that the role of government is essential. The era
of the deregulators should be over. The challenge will be
to choose political leaders who know how to use the power
of government in such a crisis, and who know for whom that
power should be used.