Jim Flaherty saves us from ourselves

The Finance Minister plays mortgage broker


In having his office intervene yesterday with Manulife’s mortgage rate, the Finance Minister managed the neat trick of earning the disagreement of all of Thomas Mulcair (“It’s Banana Republic behaviour”), Bob Rae (“That’s ridiculous”) and, now, Maxime Bernier.

“Me, personally, I would not dictate to businesses what prices to decide,” he says. “It’s the market. It’s supply and demand that decides the prices. It is the case for interest rates, it is the case for other products too.”

In Toronto to pick up some new shoes, the Finance Minister explains himself.

“Our concern, my concern, for a number of years with very low interest rates is to ensure that people can afford their mortgages when interest rates go up,” said Mr. Flaherty Wednesday in Toronto, where he toured a Roots factory and tried on a new pair of shoes as part of a long-standing pre-budget tradition.

“That’s the concern. It’s a concern for the Canadian people that they’re careful and that they don’t assume that very low interest rates like we have now will continue indefinitely, because they won’t. Inevitably, interest rates will go up, so that’s the concern,” he said.

It is probably good that this happened after the Manning conference.


Jim Flaherty saves us from ourselves

  1. “Our concern, my concern, for a number of years with very low interest rates is to ensure that people can afford their mortgages when interest rates go up”.

    So the Conservative government’s presumption is the banks are either careless in or incapable of stress-testing mortgage applications to ensure they can withstand interest rate hikes. Which is ridiculous. And reeks of borderline statism, where the government sets the price of a mortgage rather than the market.

    CPC apologists on this board, have at me.

    • Can’t do it. Flaherty has no business intervening like this.

      WTF is this world coming to that I have to side with Mulcair & Rae over Flaherty on any issue. If anyone needs me I’ll be at home hiding under the covers.

      • Don’t be so hasty in drawing conclusions.

        Could it not be a good thing that personal overspending is being discussed once again? Have you never parented by pretending not to be parenting?

        • The government is not your mother.

          • No, it’s not. But what to do when adult citizens act like children?

          • Hang on. You are asking how the government can best intervene when adults act like children?

            You are supposed to be one of the conservatives here? Really???

          • Not a conservative, a supporter of the CPC. There is a wide – and ever widening – gap between the two.

          • what would you do if you were the government and you were dealing with so many of the citizens acting as children, knowing that you, as government, would risk the economic well being of the nation if many of those citizens would keep behaving as children?

            what would you do?

            me? i would keep trying to let them have a good look at themselves – those citizens acting as children that is.

          • How are they acting like children? Your comment suggests that taking out a mortgage is solely on the homebuyer.

            Fact: a homebuyer cannot get a mortgage unless a bank approves it.
            Fact: a bank will not approve a mortgage unless they deem the homebuyer to be creditworthy.
            Fact: banks do analyses on a homebuyer’s income, expenses, etc. to ensure they are creditworthy. This analysis results in what you are preapproved for, as well as the rate the bank offers you.

            Flaherty’s actions suggest that the banks are either incapable or careless in carrying out those credit checks and stress tests, and that the government knows best who is creditworthy and who isn’t.

            That’s what the issue is. Conservative statism.

          • Citizens act like children if they don’t understand that high debt loads can lead to a tumbling economy. And citizens act like children when they will blame the government for any of that predicted economic tumbling to occur when it does occur. And citizens act like children when they aren’t prepared to take personal responsibility.

            That is what Flaherty is warning us about: personal responsibility, including responsibility taken by lending institutions (which are run by individual dicision making also).

            It’s not that the government knows best; it’s that a man like Flaherty can read the writing on the wall. and citizens acting like children cannot.

          • Except the issue isn’t high debt loads. It’s low interest rates. Before approving a mortgage, a bank will analyze and ensure you can afford your mortgage. If you can’t, the bank won’t approve it. Or only approve you for a lower amount. Or a higher interest rate.
            Flaherty’s actions are to suggest the banks are incapable or careless in doing that. Which is patently ridiculous. The banks have far more to lose from a bad loan than the government, it goes without saying. It’s in their best interest to only approve mortgages they are confident won’t be defaulted on.
            I read your post, and the only thing I get out of it is that you feel the government does know best, and should intervene where necesary. That’s the exact definition of statism. Conservative statism.

          • No, the government does not know best. But in this case I must admit that many adults only pretend to be adults when in fact many of them have a limited and childlike understanding of the facts.

            You are saying that banks have far more to lose from bad loans than the government? And will you be one of the protesters screaming that the government has no ‘right’ to bail out the banks? Last time around or the next time around? It doesn’t matter to me when people protest about bailing out banks. It’s just sad that such protesters not understand that the personal loan debts and overspending are a big part of the problem.

            But why don’t we talk again next time the governments the world over are being accused of bailing out the bank with ‘our’ money. Or should that be ‘your’ money?

          • Not sure why you’re off on a tangent about protesters in a country other than Canada, let’s bring this back to the question.

            If the government should intervene in mortgage rates, why stop there? Why not intervene with vehicle financing? Stop all the 0% financing deals, car buyers are too extended, and the dealership doesn’t know any better! What about credit cards? Consumers don’t know any better, nor do the credit card companies, we better hike credit card interest rates and cap credit limits!

          • Why is it considered being off on a tangent when saying that protesters cry about banks bail-outs while so many citizens aren’t responsible financial managers?

            And as to your other questions? Yeah, why stop him? Perhaps interest rates on credit cards should be higher since so many Canadians are irresponsible uploaders of visa cards.

          • Again, the only thing I keep hearing from you is that you believe the government knows better than private citizens do what they can and can’t afford. Rich, as I don’t think a government that created a $56 billion deficit has any authority to tell people what they can afford.

            No dyed-in-the-wool conservative would ever believe what you’re saying. But Conservatives do.

            I’ll definitely remember what you’ve told me here. Will be interesting to contrast to what you say most days.

          • Please let me know when you’ve found that contrast within my postings. Be glad to hear about them.

            I have said that government does not know better. It is neither here nor there who knows better. The fact is that many adults pretend to be adults. However those pretend adults act as children when claiming the banks should be free to do whatever and then complain when the banks need bail-outs because supposedly they could do whatever. It is as much the inconsistency coming from citizens as it is about the inconsistency coming from lenders and politicians. All can be inconsistent and all can be acting like children.

          • So you disapprove of statism in all of its forms generally, or just this particular instance of “Conservative statism”?

          • My use of the term “Conservatve statism” is a bit hyperbolic, in response to Francien’s less-than-subtle attempt to spin this into oblivion rather than address the issue head on.

            Also as I’m entertained by being able to use the words “Conservative” and “statism” side by side and have some merit behind it.

            I think if you’ve read other comments of mine on these boards, you’d see I generally lean right, fiscally speaking. (Well, aside from those that pick on yourself and EmilyOne)

            I’ll put the question plain to you: do you believe Flaherty was in the right or wrong?

          • I don’t have a strong opinion about it one way or the other, to be honest. I think there are all kinds of very well informed economists who could legitimately disagree about this one. But I did have a lot of time for the piece that was written about this in the Report On Business yesterday — two key points: we don’t have anything like a “free market” in this sector to begin with, so this “tampering with the free market” schtick is a bit much; secondly, and related to the first, there’s the huge role that CMHC plays in this, in the form of mortgage insurance, which is guaranteed by the GOVERNMENT. So Flaherty has every right to play a role, it’s his government (and the taxpayers that fundit) that is backstopping the banks when the banks issue mortgages. Fact is, the banks wouldn’t be issuing nearly as many mortgages as they do if it weren’t for CMHC. The presence of CMHC alone means we don’t have anything resembling a pure free market in mortgages or residential real esate in this country. Government plays a huge role in the market, and has for many years.

          • “there’s the huge role that CMHC plays in this, in the form of mortgage insurance, which is guaranteed by the GOVERNMENT. So Flaherty has every right to play a role, it’s his government (and the taxpayers that fundit).

            Except you’re wrong there. CMHC mortgage insurance is not funded by government revenues, but by the premiums CMHC charges homeowners (as well as substantial interest income, but not government revenues). If there’s higher risk of default in the market generally, CMHC would surely hike their premium rates so as to discourage high-ratio mortgages.

            “The presence of CMHC alone means we don’t have anything resembling a pure free market in mortgages or residential real esate in this country.”

            True enough, except if high-debt loads are the concern, why not raise the minimum down payment for an CMHC-insured mortgage from 5 to 10%? Across the board, same rules for everyone. It’s at least a freer market when the rules are set for all banks and then they can run their mortgage business as they wish. Why call the odd bank on an ad hoc basis and tell them their rates are too low?

          • My apologies for the mistake. What I meant to refer to was the federal government’s 100% guarantee of those CMHC insured mortgages. But I think my general point stands — as guarantor and backstopper of those multi-billions in obligations, the government has a direct and legitimate interest in the sector, as does the taxpayer. I can tell you as a taxpayer I’m plenty concerned, and you should be too.

          • I really dislike the argument where you say the government is already involved in a sector so that is reason for them to involve themselves more. So once the government has a foothold, there is no limit, by that reasoning (in which case, there is no such thing as a free market in any industry in Canada, because government is involved at least a but in every single industry).

            There is no private finanical industry because of CMHC, EDC, Atlantic Opportunities Agency, etc
            There is no private health sector because of Medicare.
            There is no private transportation industry because of Via Rail.
            There is no private housing industry because of CMHC.
            There is no private education industry because universities are largely government funded.
            There is no private export industry because of EDC.
            There is no private food industry because of CFIA.
            There is no private energy industry because of Hydro Quebec, Ontario Hydro, AECL.

            etc etc etc

            Flaherty might as well be dictating the price of everything by your argument.

          • You have to bear in mind I don’t have a strong favourable or unfavourable view of what Flaherty did. I was just making the point that the government is already heavily involved — balls deep, as the saying goes — in our real estate, mortgage and banking markets. So it’s not like he suddenly stepped in and sullied some previously pristine free market. That was my only point. Whether what Flaherty did in this instance is right or wrong, I would leave that to far finer and more educated minds than mine, as well as the judgment of history. I agree his move was probably unprecedented, but there’s also a lot of potential danger lurking in our collective exposure to the vagaries of the real estate market and general individual indebtedness.

          • For me there are several important principles at play:
            1. Unless there is a compelling and clear reason for government to get involved, they shouldn’t. In this case there is no direct and compelling evidence to say that a 2.89% mortgage is bad and a 3% mortgage is not. Flaherty is worried about loans but he needs more than intuition and guesswork to justify his actions. Governments don’t know better than citizens, governments should only put policies in place and let citizens make their own decisions based on their own circumstances.

            2. equal protection of the laws: If flaherty thinks mortgage rates are low, he should craft a law or a policy that applies to everyone. Singling out one business for a phone call violates equal protection. No law or policy should be crafted to target a specific individual or business.

            3. Prime rates are set by the central bank. Bank rates are relative to the prime rate. So Flaherty should be talking to the central bank. But there are clear principles involved with respect to central bank independence (http://www2.macleans.ca/2013/01/28/mark-carney-and-the-liberals-have-not-cleared-the-air/ ). So it’s clear Flaherty has chosen to take and end-run around this principle by talking to banks directly. And in effect what he is doing is saying that spreads from the prime rate (ie profits) should be going to the bank and not the customer. He has no business dicating where the profits should land. And he also has no business dictating monetary policy, which is the business of the central bank, not the government.

          • You make some good points there that I don’t really have any issue with. I agree that it probably would have been better if Flaherty had used another route to pursue his concern.

          • I’m not used to someone agreeing with me on this site :-)

          • I’d seek to pass legislation or regulation that limits the damage people cause themselves.

            I wouldn’t go personally calling up individual businesses and demanding they make changes to their individual policies.

          • You wouldn’t go personally calling up individual businesses and demanding they make changes to their individual policies. Neither would I. And neither did I think it a good idea for Flaherty to have done it. And I have said so on this board earlier today. Just so you know now and not later.

          • Actually, you did say you thought it was a good thing, because doing so highlighted the issue of overspending.

          • Actually you are wrong. Look up my comment and you shall see. (If you care enough.)

          • Who ya’ gonna’ call? Nanny Franny!! ;)

          • I dunno, don’t you think those American idiots who went and signed up for NINJA mortgages and then blew up later could have used a bit of mothering?

          • Yes. From their actual mothers.

            Flaherty expressed concern about reckless borrowing and what happened in the States. But what happened in the States wasn’t low interest rates; it was giving $800,000 interest-only mortgages to people who made $30,000/year and were horrible credit risks. That’s not what was happening here.

            Look, obviously the government has a role to play in regulating the
            financial markets. But that role ends long before telling an individual
            financial institution what rate they can charge for a mortgage and assuming that the financial institution will not do due diligence on the applicants.
            Otherwise, Original Matlock has it right. Where does it end? With the
            nationalization of the entire financial system?

    • This really is BS from Flaherty and it’s something he does every so often, and I hate it. He needs to stop acting like a nanny-stater. It’s not price controls but it’s certainly a step in the wrong direction. He has no business getting in between a bank and its customers.

  2. Max has for years now, been the one Conservative with an unwavering commitment to fiscal restraint and individual rights. I don’t share all his views, but I find his intellectual integrity refreshing. Yet within the CPC, and by many of its supporters he is viewed as an entertaining side-show.

    Meanwhile the PMO & Minister Flaherty run the current government with rules on foreign ownership, rights of citizens, funding of the military, our relationship to China & US, training for the workforce etc all made up on the fly to make some specific outcome turn out in a politically expedient way. They would resemble the former Soviet approach (with 5 year plans that change each week) if they were only a little more consistent.

    • What nonesense. Max doesn’t have to keep all things tied together; Minister Flaherty and PM Harper however must.

      Max’s job is nowhere near as complicated as is Flaherty’s or Harper’s job.

      And the average Canadian citizen? Well, I wouldn’t say that most of them are that responsible in outlook.

      • Was Flaherty right to intervene?

        • If you read my posted opinion in response to this article, you will find the answer to that. Be careful, you may be surprised. I hope your heart can handle it……………. :)

  3. Indeed, a finance minister should not interfere in the market by phoning up lenders. He could have issued a release outlining his thoughts for all lenders to read. Nothing wrong with that.

    But………….now that the cat of personal overspending has jumped out of the bag and has jumped into the media headlines, will mean that the chances for the average Canadians to read about this have increased considerably.

    For that I do thank Minister Flaherty (and the news media, of course.)

    • Had you been in an isolation chamber up until this morning?

      P.S. I’d like to thank Mr. Flaherty for introducing me to the concept of shoes. My feet have been so cold for so long.

      • Oh, I know what you’re thinking. That I think this subject of personal overspending hasn’t been in the news before.

        I know it has been in the news before. But here is the difference:

        This time around, all of them CPC haters (the Flaherty haters and Harper haters all in one) will now come out to attack Flaherty’s recent remarks on the subject. They will go on and on about how wrong Flaherty was for having phoned the lenders. All the while, the subject of personal overspending will be highlighted likewise and that is a bonus, me thinks. I think Flaherty thinks so too.

        • If Mr. Harper were a principled Conservative, or even a real Economist, he would fire Mr. Flaherty for that idiotic stunt and he would assure the markets that he will never allow any member of his government to act so stupid again. But he’s not the former, or the latter and I don’t even think he has the capacity to be embarrassed any more with his recent run of screw-ups and bad associations. .After all, if breaking election laws, demanding bribes of suppliers and resigning in disgrace makes you “the best candidate” the CPC can find then you’ve got worse problems then a finance minister who doesn’t understand finance.

          • You may prefer candidates who have borrowed for a leadership campaign and have not paid back such a loan after 7 years.

            Or do you just prefer an Elections Canada office not looking into unpaid loans? Perhaps Elections Canada should decide on our finances: you are accused of over spending because you have (CPC member). and you are not accused of overspending because you have (Liberal member).

            Oh, how we all make choices.

          • Were those loans forgiven? No they were not. They remain outstanding and – unless there is a bankruptcy involved – they must be repaid. Anything else would make them illegal campaign contributions of the same type as the ones that Harper’s favourite Labradorian accepted.

            We all do make choices, Francien, I choose to hold all politicians to the same standard and you choose to repeat idiotic and dishonest talking points about Elections Canada. Perhaps you didn’t know they were dishonest talking points, but certainly you had to have known they were idiotic. It’s so easy to check the facts on the internet, and yet so few people bother.

          • The loans are not forgiven ,,,,,,yet. But what is your point? My point is that Elections Canada’s rules state that such loans should be repaid within two years. Why were they not repaid and why has EC not insisted the member broke the law? And furthermore, why are you not concerned that EC had not applied the law?

            I am not so interested in why you try and blame me for telling the truth. If you don’t like hearing the truth , just say so and I won’t tell you the truth any longer.

          • How interesting. Are you suggesting that the Liberals woild like to discuss the leadership loans in the open?

            Let’s find out what MHF had to say:

            “Ms. Hall Findlay, who spent $450,000 on her campaign, said it is the
            Elections Act donation limit that is causing her problems, not the
            legacy of a costly campaign.

            “It’s not like we were spendthrift, it’s not like we were wasting money, it was that we were caught under this rule,” she said.

          • Or would you rather comment on this one:

            “Chief Electoral Officer Marc Mayrand initially gave the contenders an
            extension to their original deadline for repaying the loans, and a judge
            of Ontario Superior Court granted them a second extension.”

            How many stories are there in regards to Liberals and special favors from EC? As many as you want to find.

          • “If the loans are not repaid by the end of this year, it will be up to a
            court to extend the deadlines again or not, said Elections Canada
            spokesperson Diane Benson. Ms. Benson said if the Dec. 31 deadline is
            not extended, and the loans are still outstanding, it may be referred to
            Elections Commissioner William Corbett, as is the case with outstanding
            claims owed by candidates or political parties.”

        • Basically, those that have equity and can afford pay off a 5 year mortgage are being “rewarded” by having to pay more money to do so.

          So, according to you, stimulating the economy through personal investment is not a “good” thing.

          You really need to pull that head out…

        • Please, why do critics of government policy have to be considered “CPC haters?” Surely citizens and media and opposition parties have not only a right, but a responsiblity, to make fair comment on policy. If you don’t believe Canadians even deserve freedom of speech and the ability to criticize, then you don’t want to live in a democracy!

  4. If Flaherty is genuinely concerned that people can afford their mortgages when interest rates go up, perhaps he could do a little more to stop the erosion of middle class income that’s being so enthusiastically endorsed by his ilk through euphemistically-labeled “right to work” legislation, the importation of cheaper migrant labour, attempts to kneecap unions at every opportunity, and other threats to the earning capacity of average Canadians.

    • If we just forced everyone to join a union, we would all be instantly way, way wealthier. This is a very simple solution to all of our problems.

      • Tiresome and inane, as usual. Isn’t there some children’s comment board to which you could contribute?

        • And if you did not dream up idiotic, Greek-like solutions to the world`s problems, them I`m sure Mr. Bean would not feel it necessary to make fun of your simple-mindedness.

          • I gather you’d rather see the little leprechaun meddle in the free market to deny Canadian homebuyers a genuinely competitive environment in which to negotiate mortgages, rather than craft economic policies designed to actually protect middle-class incomes. Such policies have nothing to do with Greece whatsoever. Stop with the idiotic, half-baked hysteria, already.

            It’s oddly ironic that Flaherty interferes on the presumption that he knows what’s best for Canadian homebuyers and yet people like you complain the loudest about the “socialist” nanny state. Go figger.

            As for Bean, all he seems capable of contributing to these boards are facile, predictable, half-witted sarcastic comments that add nothing to the conversation (but are sometimes closer to the truth than he probably recognizes or intends).

          • What’s facile is thinking that union membership is some sort of magic panacea for our economic challenges. Homeless? Join a union! Unemployed? Join a union! No skills because you dropped out of high school and never got any post-secondary education? Never mind, join a union! Not to mention all of the people in the workforce who are ineligible to join a union because of statutory or other restrictions, or who have no hope of being unionized because our entire labour relations system leaves it up to essentially market forces to determine whether a particular sector or workplace happens to be unionized — so guess what, it just happens to be the case that monopoly service providers (government, old airlines, utilities) tend to be unionized while all kinds of other sectors are not unionized. It’s a lousy, capricious system that perhaps made sense in the 1930s when our industrial base and economy were much different than they are today. But today, promoting unionization as any kind of a meaningful answer to addressing our economic challenges completely misses the mark.

          • Hmmmm, if these are the best objections the right can muster, I can kind of see the benefits of increased unionization.

          • These are not just “objections of the right”. Go read the writings of Professor David Beatty, who taught labour law at U of T Law school. He was as partisan a left-winger as you can imagine, a dyed-in-the-wool NDP supporter, but these were essentially his critiques of our labour relations system. Why should we leave it up to randomness and bargaining power to determine who gets to join a union or not? What’s fair and equitable about that? Shouldn’t everyone be entitled to the same protections in the workplace, regardless of whether they’re fortunate enough to belong to a union or not?

          • Not only are you challenged to to make thoughtful comments, you’re apparently bereft of reading comprehension skills. Wherever did I say “union membership is some sort of magic panacea for our economic challenges”?

            If you need to distort another’s opinion, merely to use it as a platform for a misinformed rant about the evils of organized labour, maybe you should just go back to your usual puerile sarcasm. At least it contains an occasional kernel of ironic truth.

          • I didn’t say organized labour was evil, I said our labour relations system stinks for all kinds of reasons, including the fact that union representation is arbitary, capricious and unavailable to vast swaths of our workforce. If you can’t comprehend that distinction, then you’re the one who’s bereft of reading comprehension skills.

          • You clearly imputed “thinking that union membership is some sort of magic panacea for our economic challenges” to me. Read your own post.

            As for your assessment of the role and structure of organized labour in Canada, you evidently don’t wish facts to intrude on your world view so I don’t see much point in trying to impart any.

  5. Interfering in financial markets = BAD !

    Interfering in labour markets = well, that’s all right,then.

  6. My take away from this is: If competition starts to make things (especially big ticket things) less expensive for ordinary Canadians, and potentially cut into the profit margin of the big banks, this government will step in and stop you. If a complete lack of competition and eerily similar rates and promotions are gouging ordinary Canadians with exhorbitant interest rates (credit cards) and allowing financial institutions to make off like bandits while doing so, carry on.

  7. Some people seem to be forgetting the Manulife begged the government for regulatory forbearance during the financial crisis, when it neglected to hedge its stock market exposure. They have demonstrated that they are not the brightest bulbs on the street. An insurer who never accounted for the possibility that the stock market might actually go down.

    Maybe the finance department just suggested that perhaps it would ask the regulator to scrutinize and stress test insurers a bit more rigorously, because low mortgage rates increased the probability of a real estate bust in Canada, and that would mean lower interest rates for longer, which would have implications for solvency and expected return on the investment portfolios of insurance companies.

    You don’t have to tell somebody not to do something. You can tell them you are going to do something else, which makes the other party think a bit more carefully.

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