EFF Update

I thought that as efforts at bank recapitalization in the U.S. seem to have reached an impasse, it might be time to revisit the Harper government's Extraordinary Financing Framework, and the core program in that initiative, the Insured Mortgage Purchase Plan.

According to a backgrounder prepared this week by the Department of Finance, to date $58 billion of the available $125 billion has been taken up. As in the U.S. the rate of uptake has declined markedly over the past two or so months. Acting on the government's behalf, CMHC has now held ten of the reverse auctions through which these assets are purchased, with the last two reflecting this drop-off.

CEO Karen Kinsey suggests that the reason for this is the stability of the Canadian banking system and the improved liquidity of banks. One would have to suspect, however, that it might also reflect changes to fair value accounting rules that would leave banks reluctant to actually establish a market price.

As well, unlike in the U.S., lower interest rates seem to have sparked something of a resurgence in real estate markets -- and it is likely that the mortgage market is quite healthy.

Yet it is difficult not to be skeptical. If our bank's balance sheets were that healthy, why did they have to unload almost $60 billion in assets in the first place. And how is it that the government proposes to profit from this given that they have not likely purchased the cream of the banks' mortgage portfolios.