Selling on the lows

I used to be a trader many years ago, so I can't resist commenting on the story today from the CBC:

The federal government is considering the sale of some of Crown assets as a way of balancing its budget and avoiding a deficit, Canada's finance minister said Thursday.

I thought Mr. Flaherty was smarter than that! World asset prices have just collapsed and now he wants to sell?!?!

I further suspect that selling assets to avoid a budget deficit is only a bookkeeping trick to take advantage of certain assets being valued on the books at very old, below-market values. Perhaps he wants to hide behind the economic crisis while he pursues his real agenda of downsizing the federal government. Or, perhaps we had better quickly set up the "sweetheart deal" detector.

Minister Flaherty, let's compromise. How about if you get some expert disinterested parties to independently value the federal government assets whose book value seems way too low. Then you mark to market, and presto, you get to avoid a deficit without having to sell for real into the worst market in decades.

Listening to the markets is not fear-mongering

The Conservatives have been accusing Stephane Dion of "fear-mongering around the economy for his own gain". I used to work in the financial markets and one of the fundamental things you have to know there is that market prices contain information. Nobody has to "fear-monger". Prices in the stock and bond markets make it clear that there is a serious risk of global recession.

Almost everybody is used to following the stock markets, but almost nobody follows something called the interbank offered rate (e.g. LIBOR, the rate set in London). This is the rate that banks use as a benchmark to charge each other for loans. LIBOR is also a reference rate for businesses and consumers borrowing money and is a critical number in the international money markets. What is unprecedented is that difference between ('risky') LIBOR and the interest rate on ('riskless') US treasury securities has exploded and halted a lot of financing of business activity around the world. The stock market drop is nothing compared to what is going on in LIBOR. Do not think that this stock market decline is the same as any other you've seen in your lifetime.

Canada is not the master of its own fate as to the question of whether or not there is a recession. All of that depends mostly on the U.S. economy. Our choice on October 14th is whether or not to acknowledge the possibility of a serious recession, how ready we want to be for it and for protecting our most vulnerable fellow Canadians.

Conservatives have been saying that there is no serious financial crisis amongst Canadian banks. That may be true. But even if the world's financial problems do not impact the Canadian financial system, the slowdown in the world's (especially the U.S.'s) economies will impact (or already have impacted) Canada's economy - and that means job losses. We should be getting ready to take care of each other.

Doing nothing is the risky option. Not admitting the real possibility of a painful recession makes it worse. The choice between a Conservative government and a Liberal government is even clearer.