After all his blustering about bank lending, Jim Flaherty has now seen the light - tight borrowing conditions in Canada are not due to reluctant banks, but rather tightness in other segments of the credit market - particularly commercial paper. Corporate paper spreads are still too high (see figure to the right), even for quality borrowers, and buyers of securitized commercial paper have lost their appetite for asset-backed products.Until credit markets return to normal and investors have regained confidence in the quality and transparency of securitized products, the only real option for alleviating short-term funding costs may be for the Bank of Canada to begin buying commercial paper. Marc Carney seems willing to get creative so I'd hope to see this happen sooner rather than later.
Now, I'm not very political and so please don't read it that way, but why has it taken so long for the Finance Minister to figure all of this out? Moreover, it seems that he has been consistently behind the curve on economic issues. First there was the disastrous and totally out-of-touch economic update which was followed by a rapid about-face on deficit spending and then he goes and picks a wrongheaded fight (that he rightfully lost) with Canadian banks. Perhaps it is time for a cabinet shuffle?
3 comments:
There's a lot of ill-informed populist prejudice towards banks (it's not new, but is especially strong at the moment). Perhaps Flaherty had to be seen to pander to that prejudice. It does give him (and the banks) more credibility when he belatedly finds them innocent.
But I'm just guessing.
Nick - you're not saying that a politician would pander to the populace? Such cynicism.
Is Nick Rowe alluding to the variation of the "non-response response", for which gifted finance minister letter drafters are known. I'm referring, of course, to the sophisticated "issue then, non-issue now" switcheroo.
I'm still wonder though what might have prompted Carney to use Flaherty's talking points. He doesn't need to worry about creditability with the unwashed. Maybe finance is simply recycling their old ministerial briefing books over to the Bank as part of a green effort.
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