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What is Canada’s infrastructure bank for?

Pierre Poilievre on the risk of loan guarantees as part of Canada’s new infrastructure bank’s operations


 
Spectators watch as workers place a new section of the deck for the Angus L. Macdonald Bridge spanning the harbour in Halifax on Saturday, October 31, 2015. The project is called The Big Lift and involves replacement of the suspended spans of the structure. Commuters have faced nightly and weekend closures and delays travelling between Halifax and Dartmouth. (Andrew Vaughan/CP)

Spectators watch as workers place a new section of the deck for the Angus L. Macdonald Bridge spanning the harbour in Halifax on Saturday, October 31, 2015. The project is called The Big Lift and involves replacement of the suspended spans of the structure. Commuters have faced nightly and weekend closures and delays travelling between Halifax and Dartmouth. (Andrew Vaughan/CP)

If your banker asked for $1,000, you would probably reply: “what for?”

The Liberal government is asking taxpayers for $35 billion—which roughly equals $1,000 per Canadian—to start a new “infrastructure bank.”

So it’s fair for us to ask: “what for?” Let us go through the possible reasons until we find the real one.

The most obvious reason is to fund infrastructure. But there is nothing preventing private sector banks, capital markets, pension funds, and private equity enterprises from investing in infrastructure. In fact, they already bankroll trillions of dollars of construction projects—to the tune of $2 trillion worldwide, according to estimates in the government’s Fall Economic Update. With so much private money, the last thing we should need is a government bank to provide more. So that can’t be the reason.

Perhaps we need the new bank to bridge those private dollars into public projects, like mass transit? Yet, here again, the government’s Fall Economic Statement boasts that such investments are already happening. It cited the $2 billion Canada Line that moves over 120,000 passengers daily between Vancouver’s downtown, suburbs, and airport, with investment from SNC-Lavalin and Quebec’s Caisse de dépôt pension plan. Quebec pensioners helped build mass transit for British Columbians, whose transit fares help fund Quebec pensions.

But just as with the privatizations of the 407 toll highway in Toronto and the Canadian National Railway, there was no need for a government bank to attract private infrastructure dollars.

So what is the bank for?

MORE: Infrastructure minister Amarjeet Sohi responds to this piece

The answer appears to have been given by the Canadian Electricity Association, in its submission to the House of Commons transport committee on how the bank should work: “Also important is the inclusion of de-risking mechanisms such as loan guarantees….” Bingo. In one sentence, the power companies explained the real purpose of this bank: taxpayer-funded guarantees that protect investors from losses. Indeed, the government bill that creates the infrastructure bank uses the term “loan guarantee” 14 times. So the power companies are onto something.

Their submission uses the term “de-risking,” “de-risk,” or “reduce risk” about five times. The prefix “de-” implies the bank can delete risk, like a magician making a grenade disappear before it can detonate in his lap. In reality, a government “loan guarantee” merely moves the grenade to Mr. Taxpayer’s lap.

Years ago, institutional investors could get taxpayer-funded returns from sleepy government bonds. But interest rates have been so low for so long that the only way to make real money is to invest in riskier ventures, like building power plants. A JP Morgan Asset Management report indicated that merchant power generation offers potential returns of 14 to 20 per cent, but its risk level is “high.” Cost overruns, revenue shortfalls, construction delays, or labour disputes could cause major losses—unless a new government bank offers loan guarantees to protect against loss.

Currently, governments force builders to cover cost-overruns through fixed-price contracts and to buy bankruptcy insurance to keep the project on budget if the contractor goes under.

Not with the infrastructure bank. Testifying before the Commons’ transport committee, the top public servant responsible for the bank described it as a tool for “underwriting sophisticated, highly complex projects.” The word “underwriting” comes from the 17th century London insurers who would literally write their names under a list of cargo on board a shipping vessel. If the ship sank, so did the underwriter’s money. Taxpayers could sink billions of dollars by underwriting infrastructure projects.

It is easy to imagine why the investor would want such a deal. But why would a government, elected by taxpayers, agree? At closed-door meetings in Davos, New York, and Toronto and in direct talks with officials, the most powerful financial interests on earth have given their two cents to the government on how the bank should work. It is the golden rule: those with the gold make the rules. Their rules are simple: they get the rewards and taxpayers get the risk. Now that we know what (and who) the bank is for, those who will pay the price must fight to stop it.

Pierre Poilievre is the Conservative MP for Carleton.


 

What is Canada’s infrastructure bank for?

  1. I know it’s a word no one wants to utter, but we would be better off increasing our national debt than borrowing private money. In other words print money, The one caveat here would be to keep the loan separate from the national debt and all revenues derived from infrastructure development goes to pay down the loan.

    • John Kennedy tried that. Note how the banksters handled the economic adventurism of that US President.

      Yes, one could borrow directly from the Bank of Canada, and dedicate revenue streams from tolls, user fees, or taxes to pay it back. By the global 1%’ers and global banksters will not allow this. They must be between the central bank and the government and/or the people to siphon off their cut of the money flow to and from the Central Bank.

      Before societies were too indebted, it was enough for the elites to capture a part of this flow from the Central Bank to the society. But since society is massively indebted, they have to capture the streams going from society to the Central Bank also now, which is why global elites have suddenly become enamored with infrastructure everywhere. The nearest proximity to Central Bank money is no longer enough. They have to capture “taxation” like streams, rentier streams flowing back.

  2. A new ruling class can pack the federal burocracy and Parliament with its own supporters, and can thereby kill any Quebeckocentric Crown Corporation.

    The titanic forces of world history are the masters of rational political and economic order, and their motor is the struggle between superior and inferior ruling classes.

    • Washington is therefore the maker of rational political and economic order in the Western World: The Federal Infrastructure Bank will therefore serve the interests of American finance, commerce and industry in Canada.

      The Laurentian ruling class is withering away.

  3. Governments spend money on infrastructure; not only do they do it but we expect them to do it. We all understand that near monopoly in certain areas such as roads, sewers, electricity distribution, schools, hospitals, etc is a good thing. Privatization, like the 407, makes most Canadians break out in a rash. The notion that we can recruit private enterprise to support public venture isn’t new: the building of the CPR being a good early example.
    It does seem odd that a member of a party that spent an average $24B a year underwriting oil and gas industry profits would be opposed to the basic idea.

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