Wednesday Night #1396

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T H E  R E P O R T

Three topics dominated the discussion, namely the parliamentary crisis, the economy and the bailout of the U.S. automakers.

The Parliamentary crisis 
In the case of the former there appears to be a serious rift between the Wednesday Night right wing (not to be confused with the West Wing) that sees Stephen Harper as the victim of a sinister plot favoring the separation of Québec, and the overwhelming majority who hold the position that the Prime Minister’s principal aim was to govern the country without interference from a viable opposition and who is the sole author of the current crisis – an opinion that was bolstered by this evening’s address to the nation, a confrontational and mean-spirited attack on the coalition. To those who hold the latter position, the proof was their belief that the prime aim of calling the recent election was to financially cripple the already weakened parties in opposition, tempered by further assurance of the prolongation of a Tory Canada by attempting to cut Federal funding of political parties on a per vote basis, the coffers of the Conservative party being overflowing with donated money.
As to whether the Governor General, an appointed representative of the Queen and Head of State, has any discretion in the matter, one must recognize that her prime duty is to ensure that there is no prolonged interruption (maximum of six months or so) of the parliamentary process.  She does, however, have full discretion including several options;
– To deny prorogation.
– To agree to prorogation.
– To agree to prorogation with restrictions.
– To deny prorogation but deny new legislation.
– To call on the coalition to govern.
If the Government were to be defeated, the GG would have no choice but to call on the coalition, as an alternative government. In this respect, the opposition parties have played their cards correctly. In 140-150 years of parliamentary history in Britain and in Canada, provincially and federally, no monarch, governor general, or lieutenant-governor has allowed an election within six months of a previous election.
At least one expert on constitutional law insists that in practical terms, the only plausible option is to permit the coalition to take over.  As for the popular current theme, echoed loudly by the Conservative majority that this would give a secessionist party to hold the key to Canada’s future, it is important to recall that it was the Bloc that prevented the deregulation of Canadian banks, a move that strengthened Canada’s position in the current financial crisis.   Rather than discrediting the Bloc, Mr. Harper has likely destroyed his hard won support in Québec and by playing the Separatist card, has transformed an economic crisis to a political crisis and ultimately a constitutional crisis.

In conclusion – the Word Game
Peter Trent has responded to Tony Deutsch’s request that “we could perhaps circulate an inquiry among Wednesday Nighters to discover if anyone knows a word in the English language that describes government by those who lost the last election. Since Myanmar and Zimbabwe might soon be joined by another country, there is  clearly a need  for the term.”
My best shot would be: Apsephocracy – government that was not voted in.
Anikecracy (Nike: victory) would be a poor second. I have also invented/cribbed the following:
Amblyocracy – government by the stupid
Phenakistocracy – government by deceivers
Pornocracy – government by whores
Acephalocracy – a headless government
Cacocracy – government by the bad
Pygocracy – government by the rump
Nothocracy – government by the spurious or illegitimate
Anorchidocracy – government by geldings
Palinocracy – government by the backward (yes: Palin- means backward!!!)

Postscript
Tony Deutsch sent the following message two days later:
“My conclusion from the discussion of the constitutional issue was that
1. it was too emotion-laden to be useful,
2. Rick proved as good a source of information as I knew he was, and
3. many of us, I for sure, are not terribly well connected outside the chattering classes.
On the last point, what the carpenter working on my cottage told me, was, apart from the Quebec angle, a representative sample of the public opinion surveys published yesterday. What you heard at Wednesday Night clearly did not. The editorial Time for a leader in the Globe [‘If there are any leaders left in the Liberal Party of Canada, they are doing a pretty good job of hiding the fact. With Parliament in turmoil on Wednesday, and the Prime Minister opening ugly national-unity wounds, a leader would, you would think, speak up in the interest of his party and his country. Yet leadership front-runner Michael Ignatieff was reportedly silent during the Liberal caucus meeting that day.’] is close to the vox populi, but they wrote it after the events.
The published public opinion survey had a small sample, thus the sampling error on any part of it (Quebec) may turn out to be large. If the separatists got a bounce out of Harper’s speech, we should see it by the PQ share of the vote on Monday.”

Financial crisis
The only consensus on the current financial crisis is that ultimately, most of us who have not perished in the interim will survive the crisis and that those retirees living on their recently diminished savings will have the greatest problem. In the U.S. in particular, a contributing factor to the critical situation prevailing among retirees and in fact all those who have their savings in stocks is the large number of people have absolutely no education in portfolio management and no understanding of the basic premises of asset allocation.
According to one analysis of bear markets going back to 1900, they average out at -34% , which would indicate that the current one is an ‘average’ recession, but could well be one of the longest in recent history.
One crystal ball foresees the possibility of a market low in mid-December with the seasonable Christmas rally lasting until mid or late January, the resulting optimism providing a tempting but false opportunity to those who see it as an occasion to reinvest.  Many, in the 1931 rally, regretted falling into this trap.
A more optimistic view, while recognizing the evaporation of the seemingly never ending upward market trend, sees the presence of a great deal of cash generated by prudent investors abandoning the market, leading to a potential bubble in the bond market and a shift to some remarkable values in equity around the world. This optimism extends only to selected securities, such as, at present, some Southeast Asian ones  with ridiculously low multiples.  The proponents of this view would see the prudent investor at this point, making decisions on the basis of four essential themes, namely:
– Dividends
– Restructuring of the financial industry and the beneficiaries of the financial industry
– Infrastructure; staggering amounts will be poured into infrastructure – who are the beneficiaries? – steel, cement, etc.
– Food, fertilizer, water, (no matter what, people must eat) plus the ‘sin stocks’: brewing, tobacco, liquor, (always increased demand in periods of financial – and other – stress)  and basic materials, commodities, transportation. Finally, there are always special situations.
Investment should be made on the basis of value as opposed to speculation as to future share price. Arguably, once some of the pension funds begin to revamp their portfolios,  investors who have run scared from the market will return, avoiding derivatives and similar instruments that gamble on the future value of assets, and insisting on active investment management. In the interim, corporate bonds may prove to be a good vehicle because that is where the first turnaround will come.

The automotive industry
A compelling case can be made for the bailout of the U.S. domestic automobile industry based on the numbers employed directly and indirectly, the impact of plant closures on the communities where the automotive industry, its employees and suppliers constitute a sizable proportion of the population. On the other hand, there is little sympathy for management who have been their own worst enemies, producing SUVs, pick-up trucks and other gas guzzlers, while the Toyotas and Nissans produced attractive, fuel-economic cars.
It is interesting that at the point when the Democratic congressional leadership and the White House had virtually agreed on the bailout with few strings attached, it was President-elect Obama who changed the tone when he said ” we can’t have a bridge loan to nowhere”.   The respective situations of the Big Three are quite different. GM seems to have come up with a pretty comprehensive (expensive) plan  that requires concessions from the UAW; Chrysler doesn’t appear to have much of a plan, while Ford has said it will not be in financial danger in 2009 unless one of its rivals fails and causes a chain reaction of failures among auto suppliers. The company is asking only for a $9 billion facility and has agreed to reduce the CEO’s salary  to one dollar a year if the company requires further funds … They have also agreed to sell all 5 of their corporate jets.
Roots of the current situation are historical.  Obviously, excessive salary scales, benefits and pensions make Ford, Chrysler and General Motors uncompetitive with non-unionized plants in the South as well as with Asian imports.  However a closer historical view indicates the shortage of auto workers during World War II mostly supplying the armed forces, led to higher salaries and benefits, perpetuated in the subsequent seventy years by union wage demands.  Regardless of any solution, the pension plans forged in the last century will continue to haunt the Big Three for the rest of their existence, or until a new pension and benefits regime is implemented and the current pensioners ultimately die off. 

The Last Word
Recognizing that Ambassador Don and Nancy Bliss are (sadly) leaving Montreal, he was invited to give the last word, after a somewhat tumultuous political debate – almost worthy of the House of Commons.  Saying that the three consecutive Wednesday Nights had been increasingly exciting, he stated that over three years in Canada he had made two assumptions about Canada which were completely wrong. The first being that Canadians are more interested in American elections than in their own politics and, second, that Canadians thought that politics in Canada was boring [“it was until last week”]. He thanked everyone for the lively participation and vowed that he would not tell the White House a thing he heard. We will miss them both and wish them Godspeed.

T H E  I N V I T A T I O N

Be afraid, Wednesday Night Economists, be very afraid
How to Combat a Banking Crisis: First, Round Up the Pessimists
Hammered by economic woe, this former Soviet republic recently took a novel step to contain the crisis. Its counterespionage agency busted an economist for being too downbeat. “All I did was say what everyone knows,” says Dmitrijs Smirnovs, a 32-year-old university lecturer detained by Latvia’s Security Police. The force is responsible for hunting down spies, terrorists and other threats to this Baltic nation of 2.3 million people and 26 banks. … Finance Ministry officials acknowledge that secret police won’t save the country from economic crises. But they do believe Security Police vigilance makes the public think twice before spreading uninformed [what about informed?] gossip about banks. (Regrettably, this Wall Street Journal story will not be available for long).  — Thank you, Tony for this.

The escalating situation between India and Pakistan since the dreadful Mumbai attacks. As the world wondered, it became clear that the attackers had been trained in Pakistan, likely by jihadists in the Pakistani Army or ISI, or both. However what happens next between the two Southeast Asian nuclear powers is far from clear. The Times Online suggests that Mumbai attacks ‘were a ploy to wreck Obama plan to isolate al-Qaeda’ pointing out that “Relations between India and Pakistan were on a knife edge last night amid fears that Delhi’s response to the Mumbai attacks could undermine the Pakistani army’s campaign against Islamic militants on the frontier with Afghanistan.” We endeavour to keep up with events and you will find more on India, Pakistan and the Mumbai massacre. Please pay special attention to MUMBAI MAYHEM – THE INTERNATIONAL REPERCUSSIONS, to the best of our knowledge not yet published elsewhere on the Internet.

Canada’s Opéra bouffe  Just as many of us were breathing a deep sigh of relief and enjoying the symptoms of withdrawal from our addiction to Tina Fey, we are now faced with a bunch of clowns in Ottawa that actually make the last eight years in the U.S. look like a beacon of sanity. And we have no resident Jon Stewart or Steven Colbert to help us to see the funny side of a very unfunny situation.  We simply don’t know whom to blame: Stephen Harper with his unbelievable hubris and total inability to communicate reasonably with media or public – let alone the opposition in Parliament, or the hysterical advocates of the invincible progressive coalition rushing to the barriers.  Had you heard that there is actually a group organizing a series of “Candles for a Coalition” gatherings and rallies across the country for Thursday? We are sickened by such a tasteless cheapening of the original intent of candle-light vigils. Please, Canada, get serious and GROW UP! Now that Obama is President-elect, there just may be thousands of Canadians streaming across the border seeking refuge from idiocy. We believe that David Frum has it right “What is going on in Ottawa is a game of competitive suicide. Whoever “wins” this parliamentary power play destroys himself. Only the “losers” will survive.” For more on this see Canada’s Political Showdown . We will have our OWN Rick Schultz to comment on the role of the Governor General and whither we are headed. We shall limit ourselves to three topics this week, unless anyone can think of a good reason to suggest another (preferably one with humour attached).

The bailout of the automotive industry, with all its ramifications for the U.S. economy and taxpayer. We confess to being resolutely unsure of the right answer. Our dilemma is well expressed by Bob Sutton’s recently discovered blog:  The Auto Industry Bailout: Thoughts About Why GM Executives Are Clueless And Their Destructive “No We Can’t” Mindset. We have watched and re-watched Charlie Rose’s recent discussion with David Cole (a paid flack, but he raises some good points) and Andrew Ross Sorkin who advocates a ‘pre-packaged Chapter 11’   and makes an excellent case, but we are no further ahead. We are also reminded (and by the Washington Times, no less) that this is not a uniquely American problem: Ottawa considers bailout of auto industry . We are ready to be convinced by impeccable and irrefutable logic, even from pessimistic economists.
Bill Copp comments 2-12-08: The Canadian political situation would be laughable were the economic problems not so serious. Some may believe  these latest opposition manoeuvres to be unnecessary and self serving while others are cheering them on. Allow me to make one point; Canada is in surplus and the present government does not believe that economic stimulus is needed. In the U.S where deficits have reached so far past historical records that they are close to unfathomable, stimulus will be increased under Obama not diminished and few if any economists oppose these scheduled expenditures. The risk of doing nothing in this deflating economy is far greater than the risk of growing larger deficits, or in our case, creating them.

Finally, it’s a done deal, but there may be some opinions on the announcement of the new Obama National Security team, or at least, Hilary Clinton’s nomination as Secretary of State. We admit to having reservations, especially having learned that that Bill Clinton couldn’t wait to put out his own press release endorsing Hillary’s nomination, but are prepared to be convinced. We are certainly encouraged by the initial reaction that suggests that “the administration of Barack Obama will focus more on diplomacy, foreign aid and and maintaining relations with multilateral institutions than has U.S. President George W. Bush.” The New York Times
The FT doesn’t see things quite the same way New US administration tilts towards hawks “Barack Obama put the finishing touches on the senior echelons of his administration almost two months before he takes the oath of office, with Hillary Clinton, his former rival, topping the roll call of announcements”.