Thank you.
Thank you for the opportunity to appear. I want to disclose before I present that I have no consulting contracts of any kind anywhere in the world with any corporation or union or NGO or government, and 100% of my income is from Carleton University. I come before this committee prepared, if you will, to speak truth to power.
I was under the understanding...and I could be wrong, but I'm going to be speaking more about CMHC, because I was under the impression it was in other issues in the budget. I apologize if I misunderstood.
My background was as a banker for 10 years in the seventies, as a mortgage manager in the BMO building on Wellington Street, opposite the West Block, which I believe the finance committee is going to be going into soon. Now I'm a professor of business and public policy dealing with fiscal policy, economic growth, deregulation, and issues such as that.
I want to go very macro before I get into the budget. For the first time in 2,000 years, world leadership is shifting from the west to the east. From the time of ancient Greece and the Roman Empire, all the way through to the British Empire and then the American Empire, westerners or occidentals have understood that the west has ruled the world. This is no more. This is coming to an end. This is going to change everything.
That leads to the second transformation, that we in the west, as Governor Carney in his excellent speeches and others have noted, have been living beyond our means for the past 40 years in all the western countries. The bills are now coming due.
The third transformative event is the aging of the boomers, my generation, who, in my view, and that of others, caused the second problem of living beyond our means. Unfortunately, there are countries in southern Europe, and the U.S., that do not understand. They do not know that they do not know that these changes are happening and we must change our policies in every sector. Policies that in the past were used to protect and restrict, grounded in fear, must be transformed to policies that open and expand our economy to make our economy more competitive, more dynamic, and able to address these systemic changes. Budget 2012 is profoundly important for it represents the beginning, I believe, of the undoing and the redoing of many policies in sector after sector.
I want to now deal very quickly with CMHC. It was established in 1946 to help with housing for returning soldiers. Those were laudable objectives, but since then, it's like Topsy; it's just growing, growing, and growing. It's in at least five lines of business: commercial mortgage insurance for high ratio; social housing; economic and statistical analysis, where they have an army of excellent economists and statisticians who analyse market trends across Canada; the green and energy conservation initiatives; and, finally, a market maker as bundler and reseller of mortgage-backed securities.
There are problems. In my judgment, CMHC has a profound governance problem. It's the only insurance company that is not regulated in Canada, even though we believe in OSFI and regulation of financial institutions. Its third problem is that it doesn't really understand it's own business. I say that because in 2006 it attempted to introduce 40-year, zero down payment mortgages. It was only the intervention by then Governor Dodge that stopped this irresponsible decision by CMHC.
Yes, I support in the budget that CMHC must be supervised by OSFI; that is long overdue. Yes, it is a good idea to place ministers on the board. I also agree that banks should not be allowed to ensure conventional mortgages through CMHC and offload risk onto the taxpayer. But my criticism of the CMHC reforms is that they do not go far enough. The government should be the referee of the hockey game, but it should not own one of the hockey teams, for that is a conflict of interest. On a practical level, citizens are at risk for almost $600 billion, or one-third of Canadian GDP. Moreover, CMHC has a competitive advantage over private firms because 100% of its liabilities are insured by the government but only 90% of that of private mortgage insurance companies.
I have two other quick points and then I'll wrap up. On the Investment Canada reforms, if this does come up, moving it a much higher level is a very important step. I support the blue ribbon panel, and we should be implementing those reforms in the blue ribbon panel of 2008.
Thank you.