Finance Committee on June 20th, 2011

[Randy Hoback, Conservative, Prince Albert, SK]

They could, so there is a reason, and not just a monetary reason for the private sector, but there is a reason for the customer to benefit from having other players in the marketplace.

[Karen Kinsley]

We could do the same as well, as an example, so the whole notion of how one pays for premiums, and to what degree, is within the operating parameters of the insurer.

[Randy Hoback, Conservative, Prince Albert, SK]

And that's the joy of competition, because it creates imagination and different ways of delivering services.

I'm going to go to Ms. Bell. I come from the agriculture committee, and we've been doing a study on biotechnology, so to me this is just such a great announcement of $65 million.

I know that my colleague Ms. McLeod was asking about products in Vancouver. Of course I come from Saskatchewan, and it's amazing what you've done in the canola sector and the pulse sector, and actually you're doing some stuff in the wheat sector now. Do you want to just talk a little bit about that?

[Dr. Cindy Bell]

We've funded projects over a few years, in wheat, as you have said, looking at ways to create wheat that's drought-resistant, cold-tolerant, etc. But we have just funded a project, led out of the prairies, in which they are going to be part of the international team that's going to sequence the wheat genome, which will be an amazing resource, especially for Canada, where wheat is such an important commodity for us. That will lead to an ability to develop a number of varieties of wheat.

[Randy Hoback, Conservative, Prince Albert, SK]

It's amazing when you sequence a genome, the amount of time you cut off the breeding section. Instead of it being a ten-year breeding program, in one or two years you can actually grab the markers you're trying to identify and really bring out new varieties quickly and effectively that are non-GMO, in fact. So it creates—

[Dr. Cindy Bell]

That's right; it's non-GMO.

[The Chair, Conservative, James Rajotte]

You have about 30 seconds.

[Randy Hoback, Conservative, Prince Albert, SK]

How do you foresee the rollout of your funding of the $65 million to the different centres themselves? Will a percentage of that go to the centres and then a percentage go into the competition, or how do you see that angle working?

[Dr. Cindy Bell]

The money that will be available for research will be through an open competition in which scientists from across Canada will apply. That will be funded depending on the best science. That's how it works. And then a small portion has been allocated, according to the budget directions, to the support of the centres for their oversight.

[A voice]

And their operation.

[Dr. Cindy Bell]

That's correct.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Hoback.

Monsieur Giguère, pour cinq minutes s'il vous plaît.

Mr. Giguère, you have five minutes please.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you, Mr. Chair.

I want to get back to a very interesting question asked by my colleague Van Kesteren. I was extremely surprised by Mr. Poschmann's answer.

Correct me if I'm wrong, but in the U.S., the political pressures for deregulation came directly from the financial market. The pressures were numerous and strong, and they resulted in the deregulation we saw in the United States. The deregulation led two private companies, Fannie Mae and Freddie Mac, to agree to loans through what is called commercial papers.

Unless I'm mistaken, those two companies, although extremely transparent while they were privately owned, became government enterprises. The private sector actually took the profits, but it left American taxpayers with a tab of almost $500 billion. That's not really the type of situation I would like to see develop in Canada. I hope you agree with that.

Mr. Poschmann?

[Finn Poschmann]

Merci, monsieur.

I think, for the most part, I would agree. There was what one might think of as an unholy alliance in operation in the housing finance, insurance, and securitization market in the U.S. There absolutely was political pressure to extend lending, where arguably and in retrospect it certainly ought not to have been extended.

Certainly mortgage lenders who were operating under what's called an “originate to distribute” model sold off liabilities to buyers who were not very well informed about the risks to which they were exposed.

The management of Fannie Mae and Freddie Mac pressured Congress to lighten their lending standards so they could lend more and extend their books. In fact they were under extreme pressure to demonstrate profitability, and the management also had performance-based pay. This was at Fannie Mae and Freddie Mac, whose operations in every detail were overseen by U.S. legislation. It became so problematic that management had to be removed in the wake of severe questioning about the probity of their financial reporting.

So there was a very nasty and unfortunate confluence of events or interests among mortgage lenders, mortgage insurers, securitizers, borrowers, Congress, and the White House.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Mr. Chair, I think there was also some confusion between the private sector and public institutions. Unless I'm mistaken, during the recent economic recession—Ms. Kinsley could talk about that—the federal government asked the Canada Mortgage and Housing Corporation to provide the banks with some liquidity because they were holding back payments, and that could have caused a recession. If I understand correctly, your intervention helped reduce the deficit by a few billion dollars. Had that not been the case, the funds would have been drawn from the Canadian budget.

Is that correct, Ms. Kinsley?

[Karen Kinsley]

Yes, the essence of what you've said is correct, but I'll make a few corrections to the technicalities.

While the global economic downturn did not arise in Canada, it had a ripple effect in Canada. The quality of our housing market and our borrowers was strong, but the implication of the downturn was that banks didn't have the same degree of access to capital to continue to lend to qualified borrowers as they had in the past. So it was a liquidity crisis exactly as you've described. The question then became how could we assist in our role as the national housing agency.

We said to the government, by way of advice, “We have insured mortgages already with many of these lenders, so let's bring those mortgages to the broader capital market”. We have a program today that does that, and we were very successful at being able to raise money in the capital markets when ostensibly they were shut to most other issuers. But in addition, in the unique program that was introduced, that only went so far. Investors said, “While we like you only to a degree--”

[The Chair, Conservative, James Rajotte]

Ms. Kinsley, can we wrap up very quickly?

[Karen Kinsley]

Certainly.

We ended up purchasing to hold the mortgages that were already insured at a fee revenue to the Government of Canada. So the banks ended up with the liquidity they needed, the Government of Canada made money, and we ended up with no bigger risk than the risk we had through the insured mortgages.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Adler, please.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Chair.

I also want to thank all the witnesses for being here today. I know some of you from my previous incarnation.

My first question is to Mr. Poschmann.

Based on your earlier remarks--I suspect you would agree with this--under the current bill CMHC is required to keep copious records, data, and all of that. The Minister of Finance would have access to all of that information to be able to share it with OSFI and the Governor of the Bank of Canada. I suspect you think that's a good thing.

[Finn Poschmann]

Mr. Chairman and Mr. Adler, yes, I do. In fact, I would be tempted to go just a little bit further to be just a little more prescriptive and say not that the minister may request but that CMHC shall provide reporting equivalent to that which is done by the private insurers.

[Mark Adler, Conservative, York Centre, ON]

In terms of its oversight of the Canadian housing market, how do you think that would enhance oversight by regulatory authorities?

[Finn Poschmann]

The key point, Mr. Chairman and Mr. Adler, is clarity from the point of view of parliamentary oversight and oversight by the public of the risks to which Canadians are exposed through CMHC's mortgage underwriting and mortgage insurance activities and securitization activities. Again, we have little reason to doubt that the risks inherent in these activities are well managed. However, they are very large numbers, and they're very large risks. If you think about the impact of a significant housing market shock, while CMHC is well capitalized, as Ms. Kinsley has indicated--capitalized, they say, at higher than the standards that OSFI requires, so we should be well protected as taxpayers--nonetheless a significant market shock could easily eat up the capital that CMHC has set aside.

It's knowing something about the risks and making well-informed judgments about those risks from the point of view of Parliament, from the point of view of the federal taxpayer, that's absolutely central here.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Mr. Poschmann.

Ms. Bell, Genome Canada has been hugely successful since its inception. It's created various products from inception to commercialization; it's created very successful companies. To your knowledge, how many jobs across Canada would you say Genome Canada is responsible for, and how much does this contribute to the Canadian economy?

[Dr. Cindy Bell]

With regard to job creation, there would be thousands of jobs simply due to the research projects we support. Those are made up of dozens of scientists in each of the projects, and technicians, graduate students, post-docs, etc. The majority of the funding we spend actually goes into human resources.

In addition, we have at least 25 companies, I believe, that have spun out from Genome Canada. They're very small still, with few staff, so that may add an additional couple of hundred people.