What to do with the Caisse de dépôt et placement in a time of crisis? text submitted to the Duty
loss of 38 billion the sum is staggering. Rumor layoff of 7 out of 11 executives of the institution, the answer is equally important. What happened to the Caisse de depot et placement du Quebec? In 2004, the Charest government, reacting to what was perceived as political interference in the activity of the Fund and poor governance that resulted, has revised the mandate of the institution by asking something : yield, yield and performance. The syllogism of the efficiency of financial markets passed by Henri Paul Rousseau took up an idea conveyed in the U.S. on GM in the '50s: in these times then "what was good for GM was good for America." Here, what is good for financial returns is good for economic development of Quebec.
The Fund has therefore launched headlong into financial innovation. Brilliant and ambitious young minds were exceeded in financial engineering schemes. All imagination and creativity of the organization were mobilized by a culture of speculative activity. Results, in 2007, 40% yield of the Fund come from an arbitration in the foreign exchange market. The Fund and put big wins following his challenge on the volatility of the value Canadian dollar on the futures markets. Volatility contributes, it must be said, to provoke. So it's completely wrong to maintain that the Fund is an investor "patient." Nothing is more short term approach that speculation on the exchange but it is a new market segments where it operates. The Fund, like many other funds, participates actively in the movement of financialization of the economy that many believe has set the stage for the current economic crisis. We must remember that the Fund is by far one of the biggest financial players in the Canadian markets. It can, given its weight, difficult to prevent that its actions become structural.
Problem interventionist governance or new mandate?
losses of 38 billion is related to the participation of the Fund ABCP market, commercial paper backed by assets. This market was central to the mechanism of securitization of U.S. and Canadian consumers. Essential to maintain growth in a decade, he allowed the expansion of household debt to unprecedented levels employed in modern economic history and "intoxication" by the famous markets of subprime mortgages. Currently associated losses the Fund to a problem of governance. " It is once again haunted by the specter of mismanagement. Rather, we believe that the Fund operates under its new mandate, which ultimately is just as interventionist than its previous mandate. The Fund does not play a passive role in the development or secondary market for securitized assets in Canada. Market is growing dramatically since the mid 1990s and a second wind from 2004, when the Fund began seriously in this segment of money markets. (See on this chart above)
It is important recall that in 2007 in Canada, when the bursting of the credit crisis that led to the economic crisis that we know, the market commercial paper met in Montreal in the offices of the Fund to attempt, unsuccessfully to find a solution to the collapse of this sector financial and currency markets. The Fund was perceived by all actors as the "" Market Maker "of the ABCP, the market maker, the buyer of last resort. Why Is the Fund has become a central player to the point where almost 25% of ABCP belonged to him?
Since the Fund is searching for high yields its sole objective, it has established, as several other financial institutions, internal incentive schemes, mainly bonuses to short-term returns that reinforce a culture of speculation in the organization. The measure of returns in the financial community today is relatively simple. To be rewarded, we must "do better than the market" (beat the market), as measured by the standard positive (or negative) investment performance of a manager relative to average performance of similar investments. In the very short term and occasionally a good challenge, a good load and access to inside information can "beat the market, but generally the only way to deviate systematically in the average yield is to play on the level of portfolio risk. Make riskier investments relate more to short-term. But what about the long and medium term? "I'll have a job somewhere else," said the manager may be used to move from one organization to another. The Fund, under Henri-Paul Rousseau, has diversified its investment strategies and participated actively in financial innovation that has characterized the period preceding the current crisis. Year after year, she "beat the market "And the shame associated with failures of investment more or less profitable in Quebec Inc. and entrepreneurs close to the political class have been forgotten.
The economy is growing at an annual rate of 2 to 4%, however, the Fund reported almost year in, year out, a return higher than 10%. What genius! 2007, the stock market is stagnating, the performance of the portfolios of large investors wavers. Despite this, the Fund keeps track of positive returns. In 2008, she gets her own game and towels massive loss of market it helped to establish.
Bottom of wool or development tool?
It must be remembered, the assets of the Fund is (for the time and fewer new listings disastrous) 40% of gross domestic product of Quebec. He has the ability to deeply affect the structure and dynamics of our economic activity, as demonstrated elsewhere in support of the Fund for the development of the securitization market in Canada. This demonstrates also that the attempt in 2004 to "neutralize" the political impact of the Fund was a decoy. Confine the Fund in terms of financial returns meant to direct its activities towards the development of financial sector increasingly speculative short-term approach and voracious returns, without regard to its impact on the real economy. It should also be emphasized that relatively speaking, the losses are associated with this debacle seem like paltry losses associated with the support of dubious projects of Quebec Inc. Scraire for years.
The Fund from its inception was designed to be more than a "nest egg". It is a tool of intervention options across partisan, that is to say a tool of economic sovereignty. If we wanted a nest egg, he would have just put several competing fund managers Quebec and Bay Street by giving them a part of the money savings of Quebecers institutionalized. The risk would have been distributed. External auditors and government officials have overseen the management of our various savings and assets would have thought and melted after the vagaries of the market and our abhorrence or our risk appetite. The architects of the Quiet Revolution chose instead to centralize these savings and make a lever of development. At first the "province of Quebec could free itself from its dependence on private finance, yet very British of Bay Street. Thereafter Crown corporations, such as Hydro-Quebec could finance large development projects of public infrastructure productive.
We are again confronted with critical challenges to our economic future. On the one hand, all to preach a revival of an economic crisis that has shown its limits in the social: inequality, debt, consumerism, crumbling public infrastructure. On the other hand, we are facing an ecological crisis increasingly palpable that challenges the very idea of reviving the growth of consumption. Several analysts argue for a plan to end the crisis that would shift significantly the development of our economies towards a more ecological, less dependent on international markets and more united. The Fund, as the weight of his active imagination and creativity of its workers could be made to serve this project to end the crisis. And I'm sure to focus on the development of our economic sovereignty will bring long-term yields necessary to sustain the growth of responsible and realistic in our collective savings.
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