Gajillion dollar bailouts

As the US government continues to figure out just how much it will take to bail out financial markets, up to the tune of $1 trillion dollars, the sound of Dr. Evil's voice creeps into in my head - "Okay then. We will hold the world ransom..for One..Hundred..BILLION DOLLARS"

What's unfolding south of the border is like a crazy Hollywood action movie. Except it's not funny.

The scale of the thing eclipses any other government intervention in recent history and represents a damning indictment of the cries for a ‘free market' and ‘less government' that we've been hearing in the U.S. and in Canada for the past 20 years.

If this story was unfolding in Canada, the equivalent amount would be a $100 billion - about half the size of every other thing the federal government does.

It is the sheer size of this disaster that helps put a few things into focus.

First, and most striking: What a stupid way to spend such huge amounts of money.

Think how much further $1 trillion would have gone if even a fraction of it had been invested in creating more affordable housing options, the problem that triggered this mess in the first place.

Or imagine if it had been invested in public supports to help stretch Americans' paycheques and improve their lives. Think of the public health care and education opportunities a trillion dollar investment could have given Americans.

It's dumb economics to spend such obscene amounts of money to offset a crisis created by investors, with no clear and direct advantage to the average person on the street other than to say we kept the banks from completely fouling our nest today.

The second striking thing is how risk got shifted from the titans of Wall Street - the big players who get paid fortunes to take risks, gambling with America's future and the entire global economy - to hard-working families who could never get away with ducking the price for acting irresponsibly.

Of course, the bailouts are spun as benefiting everyone - and that's true to a point. But a nation of primarily low-paid workers is paying for a handful of loaded losers who made bad bets. In what other type of crap shoot does that happen? The CEO of Lehman's, which folded under his guidance, earned $40 million last year, including "performance" bonuses. Pardon the pun, but that's rich.

Not only are average working stiffs paying for these bad boys' mistakes, they are paying twice, if you count interest. Since the U.S. government is already in deficit, U.S. taxpayers have to borrow the money from someone who has it. Average Americans will be paying for the big risk-takers for a long time to come.

The third thing worth paying attention to is the scary amount of consolidation that these events are triggering. The credit crunch is paving the way for corporate concentration of power and market share in the U.S. and globally.

It's a world that Dr. Evil would fit right into.

The numbers of players in the financial market are shrinking, making the market share of those left standing players even bigger.

Three of the five largest investments banks in the US have disappeared in the past 6 months.

Bank of America has just "steadied" the market by buying up small fry Merrill Lynch (valued at $50 billion), making it now the world's largest brokerage with client assets of $2.5 trillion.

Last week Lloyd's of London swallowed a shaky Scottish based mortgage lender that had lost half its market value. Now Lloyds dominates about 40% of the market.

This kind of corporate concentration should be sending shivers down the global spine.

What does any of this mean to Canada? Conventional wisdom holds that Canadians needn't worry, the same things are not going to happen here.

But here's the fourth thing. It's true that the exposure of Canada's financial institutions to this contagion has not been enough to warrant bailouts. Major writedowns have led to corrections in the stock market - so the value of your RRSP may just have taken a big hit, but there's no wave of mergers, and our politicians are not on the hook for tough decisions. Yet.

But things are not looking good, as financial meltdown translates to economic slowdown, putting more jobs on the line on both sides of the border. And if lenders become more skittish about lending and hang on tighter to their money, interest rates will inch up.

All those credit card and mortgage payments that already are so hard to make at month's end may lead to record personal bankruptcies, if things continue to sour in the labour market, or if the price of borrowing goes up. Canada is not immune to widespread trouble.

So here's the fifth thing. In the middle of this fiasco, in the middle of an election, one politician has stood strong, focused and clear about the way ahead. Our Prime Minister has stated that governments don't guarantee jobs, and that "Canadian consumer spending has been a rock that has sustained the economy and we anticipate that that will continue".

That way of thinking - governments can't do anything for you, let the market decide, you're on your own - may have worked last year or even last month. But given the events of last week, the Harper line is starting to sound dated.

We're learning from south of the border that governments do have a strong and vital role in keeping the market in check. It's time Canadians start having that conversation - before the meltdown comes to a bank account near you.

-- Armine Yalnizyan