The note below was posted on the blog progressive economic forum in response to about Henri Paul Rousseau before the Board of Trade of Metropolitan Montreal. If he accepts the burden of historical losses of the Fund, the former leader is nonetheless permitted to rely on forces beyond his control to explain the extent of damage in 2008. Yet the question of the importance of investments of the Fund ABCP - to the point where it accounted for nearly half of these securities in circulation in Canada - remains for him a "mystery of life". I tried to explain to my fellow progressives here how the ROC can sometimes take us for fools and get away so that we can add insult to injury. The political crisis
Around the fund's dismal performance continued to haunt The Political scene in Quebec. Urged to explain how one billion dollars up to 40 Might Have Been Lost history Düring Management Fund ex-director Paul Henri Rousseau Largely blamed The Economic and Financial Crisis, Factors Beyond His Control. Asked Why and How the Fund ended up with so much ABCP in its books in the weeks leading up to the credit crunch (more than half of non bank ABCP) Rousseau replied that it remains “one of the mysteries of life”.
Some mysteries are more easily solved then others.
When Rousseau was called to the helm of the Caisse by PQ Prime minister Bernard Landry (and self-styled third way social democrat) he explicitly underscored his desire to change the Caisse’s dual mandate from the active pursuit of economic development and financial returns to a new mandate inspired by financial market efficiency theory: what’s good for financial markets must be good for economic development. Armed with this new mantra Rousseau asked that the Caisse’s operations and investment decisions be “neutralised” politically and that the mandate to develop Québec’s economy and protect “Québec INC’s interests” be scrapped. It took a provincial election and the rise to power of the (neo) liberal party of Jean Charest for the mandate to be changed. Progressives and left wing nationalists have argued since that the Caisse has not only deserted Québec’s economy as a major investor, but that it has tacitly supported neoliberal policies such as P3’s.
What does this have to do with ABCP ? I’ve argued in the francophone press (an op-ed piece in the Devoir) and media that in fact the Caisse did have a new mandate of economic “development”. Given it’s size in Québec’s economy and in Canada’s financial system, a decision to limit the Caisse’s investment strategy to the pursuit of highest possible financial returns condemned the Caisse to develop Canada’s …. financial markets. The Caisse owned at least a 10% stake in Coventry, a major provider of non bank ABCP, it also controlled the Montreal exchange, who’s derivative activity is intimately tied to the development of non bank ABCP, and it works closely with National Bank, a major reseller and broker in the non bank ABCP market in Canada back in the good old days when these constructs where assimilated to highly liquid, highly secure, highly profitable “money market” instruments. All the evidence I’ve stumbled on seems to point to the Caisse acting as “market maker” in this situation, why ? Because developing this new segment was highly profitable in a context of low returns on stock, because it supported the Montreal exchange’s bid to become an important player in the derivatives scene, because it dovetailed with the National bank’s strategy, and on the whole the Caisse seemed, back then, to help Montreal’s insignificant financial district become a significant player again.
Progressives in Québec are arguing that in times of economic crisis and crunched credit markets the Caisse should be available as policy tool to help our beleaguered manufacturing sector weather the storm and more importantly Lead With A Public Investment Strategy Towards a greener economy o and more socially sustainable growth. The Current Government Instead of thinking IS HAVING The Fund finances P3's that The Private Sector can not fund ... More of the Same to come?
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