Sunday, December 30, 2007

Calgary is the home of Canada's two largest securities frauds: Bre-X and Steve-X

David Dodge was correct in pointing out that Canada is the wild west of securities regulation. Mind you he did nothing about it, apart from enjoining himself in the execution of the larger of the two frauds, namely the Steve-X securities fraud. Evidently doing so is deserving of being named to the Order of Canada. More like the disorder of Canada.

To be successful, every securities fraud needs to have the air of truth about it. In the case of mining promoter David Walsh, the proposition was that junior mining company Bre-X had discovered a massive gold strike in the back waters of Indonesia. As proof of its discovery, Walsh provided drill core samples that were assayed to have contained very rich deposits of gold. On the basis of these claims, the value of Bre-X stock increased from a worthless penny stock to a company worth over $6 billion in the minds of the market. Every major Gold company and major mining company in the world was interested in getting in on the Bre-X action. Brian Mulroney as Director of Barrick Gold even arranged to have George H.W Bush intervene with President Suharto of Indonesia on Barrick’s behalf in order that they could bid on developing the property. IN the end the whole thing was a hoax, as the core samples had been “salted” with gold to falsify the assay results. The fact that the salted gold was “alluvial” gold that could only have come from a river deposit, and not from an underground deposit only showed how amateur an operation that Bre-X had been. The net result was that investors lost $6 billion as a result of the blatant act of securities fraud.

As bad as Bre-X was, Steve-X is much worse. Like Bre-X, Steve-X involved the luring of unsuspecting and trustworthy investors into a false promise. This false promise involved the Prime Minister of Canada making a solemn election promise that he would (i) not tax income trusts and (ii) he would not raid seniors nest eggs. This promise resulted in a large number of investors entering the income trust market for the first time. It gave those who were already in the market a sense of fiscal certainty that had been lacking before and which profoundly affected their sense of acting prudently by remaining fully invested in the market.

A short nine months after making this election promise that had been highly successful in garnering many voted for Steve Harper, he promptly and without any public consultation reversed his course, and broke both of his election promises of never taxing income trusts and never raiding seniors nest eggs. He could have done one without the need to have done the other, by simply grandfathering all existing trusts, which would have allowed him to have preserved seniors nest eggs. Steve Harper took the most draconian approach conceivable.

As disreputable as the broken promise is, worse yet is the false premise for the broken promise. The false premise for the broken promise was one of the most opportunistic of acts imaginable. By promising to never tax income trusts, Steve Harper not only brought certainty to the equation for investors, he did so as well for potential issuers. This would have been obvious to anyone with even the remotest competence in policy making. Obviously it was totally lost on Steve, since he immediately panicked when the obvious occurred, namely the continued conversion of corporations into trusts as a means to maximize shareholder value (and incidentally, maximizing Ottawa’s ongoing tax collection on corporate earnings).

Those who were intent on killing the income trust sector for their own narrow self interests used the announced conversions of Telus and BCE as their rallying call that “the sky is falling”, and that tax leakage will ensue. Steve Harper bought he whole story, hook line and sinker. The argument of tax leakage in the Steve-X scandal is as credible as the argument of gold deposits are in the Bre-X scandal. Tax leakage in the Steve-X scandal is created in the same way as gold deposits are created in the Bre-X scandal. Both are the product of “salting” the results. Just as alluvial gold was surreptitiously and fraudulently salted into the core samples taken from the Bre-X drilling program,, so too was tax leakage from the conversions of BCE and Telus were fraudulently derived.

This was the work, not of geologist Michael de Guzman at Bre-X, but rather Mark Carney of Steve-X. The Bre-X scandal was uncovered and made visibly apparent when the assay results were made available for third party review. The claims of tax leakage in the SteveX scandal have never been made available for public review, since the only proof of tax leakage advanced to date has been the 18 pages of blacked out documents that were curiously demanded be returned. However what the perpetrators of the Steve-X scandal failed to realize when they embarked on their fraud was that there exists a parallel model to the one they are using and which resides in the hands of HLB Decision Economics, who collaboratively developed the model with the Department of Finance during the Goodale consultative round of September 2005.

The Steve-X securities fraud shows all the amateur and clumsy handiwork of the Bre-X fraud. Rather than salting the tax leakage results with alluvial gold. Mark Carney salted the tax leakage analysis with the false assumption that RRSPs and Pension funds that hold income trusts are tax exempt, and as such NEVER pay taxes on their distributions. This is completely false and indefensible as an underlying assumption in the formulation of tax policy. Furthermore, having deluded themselves into this line of reasoning, they falsely exaggerated the percent of income trusts that are held in such “tax exempt” accounts, since to do so would help effect their desired end result, namely that income trusts cause tax leakage. Numbers as high as 38%-52% were used by Ottawa in their deliberate and clumsy efforts to drive the desired outcome, when in fact a more accurate number of 31% is thought to apply.

In the end, income trusts do not cause tax leakage, but rather the Department of Finance under the intellectually corrupt leadership of Mark Carney causes tax leakage.

The Steve-X fraud perpetrated by Steve Harper on the Canadian Capital markets has done irreparable harm to the 2.5 million Canadians who made “detrimental reliance” on his false promise, every tax paying Canadian who will be faced with making up the $7.5 billion funding shortfall that will be induced by this policy and the damage to Canada’s reputation as a stable and predictable marketplace in which to invest and which is premised on sound economic principles and not voodoo concepts of tax leakage, more deserving of the backwaters of Indonesia and not a G7 country........presently run by Hooligans and witch doctors in Finance.

Thursday, December 27, 2007

Asleep at the switch

If nothing else, Jim Flaherty is a study in complete hypocrisy and profound fiscal mismanagement. His inability to discern good from bad, right from wrong is proving detrimental to all Canadians.

In the accompanying photo we see a beaming Jim Flaherty about to report on his school project entitled “How I taxed income trusts, after promising I never would”.

Jim Flaherty seems to think the loss of $35 billion in Canadians hard earned life savings is deserving of a grin from ear to ear. The main theme of Jim Flaherty’s school project was based on the false premise that income trusts cause tax leakage. Had Jim Flaherty been so confident in this central premise, he probably wouldn’t have issued 18 pages of blacked out documents as his sole source of proof. Eighteen pages that he subsequently demanded be returned, even though they had been issued under the Access to Information Act.

As with all snake oil salesman of his ilk, Jim Flaherty makes good use of the tactic known as fear mongering. What other possible purpose would the coloured slide haved serve, apart from invoking the fear that the announce conversions of BCE and Telus, meant the beginning of the end? This is where being able to discern good from bad is a very useful trait in a Finance Minister. The conversions of BCE and Telus to income trusts were actually the best possible outcomes for Canada, as the conversions of these two companies, which at the time were paying no corporate taxes whatsoever and who were forecasting that they would not be paying any corporate taxes for many years to come, would have meant that these two companies would have paid over $1 billion a year more in taxes as income trusts, beginning immediately.

Jim Flaherty is the first Canadian Finance Minister to bring into legislation a set of provisions that acting alone and acting together serve to promote the foreign takeover of Canadian businesses, and in so doing results in a loss of taxes to Ottawa. As such Jim Flaherty’s policies represent Government tax subsidies that encourage foreign takeovers. These policies are:

- The imposition of a 31.5% income trust tax that is paid by average Canadians, but not by foreigners who acquire these income trusts, that have been devalued by the trust tax. This creates what is called an arbitrage, with the economic advantage going to foreign owners is to the detriment of average Canadians, thereby creating an unlevel playing field. Foreigners acquire these trusts using debt in sufficient amounts to avoid paying any Canadian taxes on the earnings which previously were fully taxable in the hands of average Canadian investors resulting in a net loss of taxes to Ottawa. This was widely predicted to occur. When it did occur, Flaherty defended his actions by saying: “It’s not my fault”.

- The imposition of growth restrictions on these companies while in the hands of average Canadians, which are not imposed while in the hands of foreign owners. Again this creates and arbitrage that favours foreigners to the detriment of average Canadians

- The elimination of the 15% withholding tax on foreign investors of leveraged buyout loans used to acquire Canadian companies at reduced cost and at grander scale, such as was the case with BCE whose foreign funded buyout vastly benefited from this measure

So rather than bemoaning the growth of income trusts, on the basis that they were a bad thing, when in fact they were a good thing, and rather than have been fear mongering about BCE’s announced conversion to an income trust, when in fact all the policy served to do was to bring about the worst possible outcome, namely a highly debt levered private equity takeout that will cost Ottawa a mere $793 million a year in lost taxes, Flaherty should have been alert to the real crisis that was unfolding before his very eyes, namely the ABCP meltdown.

But then Jim Flaherty was asleep at the switch wasn’t he?

Jim Flaherty and the Department of Finance who are responsible for the regulation of the “exempt” market were completely oblivious to the crisis about to unfold in the Asset Backed Commercial Paper (ABCP) market. A house of cards if there ever were one, as it involved the purchase of a portfolio of long term fixed rate financial assets with short term floating rate paper. This market was growing at a pace that should have made the fear mongering Jim Flaherty blush, assuming he was even aware of its existence.

During the past three years the ABCP market has nearly doubled to its present level of more than $115 billion which mirrors the pace of growth in the US ABCP market. Of this amount, $35 billion forms the non bank ABCP market which is the segment that is in peril. How much of that $35 billion in ABCP market investment will be lost and how much will be recovered is anyone’s guess, as the whole value equation turns on the perception of risk.

So rather than attending to the crisis that was unfolding before his very eyes, Jim Flaherty manufactured one of his own, by taxing income trusts, which has resulted in the loss of $35 billion in the life savings of average Canadians, induced over $65 billion in trust tax related takeovers, which to date has caused the loss of $1.4 billion in annual taxes. This takeover activity will continue unabated and ultimately will see the loss of $7.5 billion in annual taxes to Ottawa. All to fix an alleged loss of $500 million in taxes that was was never proven to have even existed. Investors who were making long term investments in income generating instruments are now finding their investments turned into short term investments and are sustaining the $35 billion loss in the process.

Meanwhile the ABCP fiasco that was left unadressed has resulted in a group of short term investors finding themselves with a failed market instrument that will be replaced by long term paper. Unlike income trust investors, these ABCP investors were sophisticated institutional investors who should have known better. Furthermore their loss was the result of a systemic problem and not one brought about by the direct act of government, but rather from benign neglect. The good news is that they will have to recover zero cents on the dollar, before they sustain the $35 billion loss experienced by income trust investors, and nor will they be burdened with the fear of how they are going to make up the funding shortfall for their retirement brought upon them solely by the governments ill conceived actions.

Tuesday, December 25, 2007

Merry Christmas Dalton McGrinchy

On Christmas Eve, I received a package from the Freedom of Information and Protection of Privacy Office of the Ontario Government’s Ministry of Finance. The package contained the information I had requested concerning the allegation made in a letter dated January 2007 to Jim Flaherty from Greg Sorbara that claimed Ontario was losing tax revenue as a result of income trusts. and Greg Sorbara was voicing Ontario’s support for the Harper government’s income trust tax. Greg Sorbara was one of 10 provincial finance ministers who dutifully and compliantly sent in letters over a three day period immediately prior to the holding of Public Hearings by the Parliament’s Finance Committee

These 340 pages of documents only cost me $193 to retrieve. Evidently freedom of information in Ontario is anything but free.

Most of the 340 pages were simply copies of articles and studies by third parties. There was however one memo written by Brian Lewis, Director of Economic and Revenue Forecasting and Analysis Branch entitled: Net Revenue Impact of Income Trusts. This study has never seen the light of day and nor has it been subject to any outside verification or peer review. I have no intention of attacking any of the assumptions or methodology used in this review, but instead will take everything contained in this analysis as given.

There are several observations worth making. First, this analysis observes that 37.7% of trust investors reside in Ontario. It also assumes that none of the 15% withholding tax paid on distributions made by Ontario based trusts to foreigners is shared by Ottawa with Ontario. The analysis assumes that Corporations pay out 100% of their earnings in the form of dividends each year, in a manner consistent with income trusts. Please show me one corporation that does that. If such a scenario existed, there would be little need for trusts, since trusts primarily exist because investors are seeking the payout model, more so than the tax flow through model per se.

This analysis concludes that Ontario is losing $38 million a year in tax revenues. On this basis the Ontario Government explicitly supported the Harper government’s tax, notwithstanding that the public had never been consulted or the Ontario Government’s analysis vetted. Income trust investors lost $35 billion as result of this policy move supported by Ontario. The 37.7% of trust investors who were Ontario residents would have sustained $13.2 billion of this loss. And for what? So Ontario could recoup an alleged loss of $38 million a year in taxes. $38 million a year in taxes is what the Harper government roughly spends per year in polling. It would take a mere 347 years for this loss experienced by Ontario residents to be recouped by the Ontario Government’s alleged loss.

Thanks a lot Dalton McGuinty. Santa Claus you are not.

There was another document that I was sent that was a qualitative assessment of the income trust market as it relates to Ontario. A few observations made are worth sharing, since they were obviously completely overlooked by the McGuinty government in coming to their "income trusts are bad" policy. The following are direct quotes:

-Provincial actions over the past 20 years may be seen as tacitly/actively supportive of income trusts (e.g. Sale of Teranet, extending limited liability through provincial legislation)

-Ontario’s requests for proposals for new energy from the private sector may be filled by smaller energy income trusts

-The province as co-sponsor of a number of large Ontario public sector pension, could be subject to higher contributions if plan returns are lower due to a change in income trust policy

-Income trusts are a significant part of Canadian capital markets, which are largely centered in Ontario

-The TSX and other capital market participants have cited income trusts as an innovation and competitive advantage for Canada’s capital markets.

I will end by addressing these last two points.

Given that the loss that was sustained by Ontario residents will take 347 years to be recouped by the Ontario government, is the alleged $38 million annual loss not worth it if it means preserving a competitive advantage for the Canadian capital markets that are so beneficial to Ontario? Did the McGuinty government not realize that income trusts were generally responsible for some 50% of new issue activity on Bay Street over the past ten years? Is the McGuinty government not aware of the cause and effect relationship that has seen IPO activity fall by 80% since the trust tax was introduced. Is the McGuinty government unaware of the tax riches that have befallen it from the income trust innovation.

How long do you suppose it would take for Ontario to recoup this alleged $38 million annual loss of taxes from the following underwriting fees earned by Bay Street over the last 10 years. In case Dalton McGuinty doesn’t know it, Bay Street is about three blocks south of Queen’s Park and apparently about a world removed from the myopia of the McGuinty government’s incredibly narrow minded view.

The McGuinty government is actually impairing the competitiveness of one of its key engines of economic success and economic power and leaving Ontario more vulnerable to the Goldman Sachs of the world.

Time for Dalton McGrinchy to reconsider who is being naughty and who is being nice.

CIBC $1,332,250,000
RBC $948,200,000
Scotia $749,900,000
BMO $526,900,000
TD $349,500,000
National $200,600,000

Total $4,107,350,000

Sunday, December 23, 2007

Harper's new religious order: Canadians must trust

During this festive holiday season, many people take the time to reflect on their family and faith. So it is only appropriate to reflect on the brand of religion that is being proselytized by Stephen Harper. It’s called faith based government. Faith based government allows its practitioners to be free of any of the daily worries of accountability or transparency. Mere assertions of “tax loopholes” and other spiritual symbols are taken utterly for granted. There can be no questioning harbored in this religion. Utmost faith and trust is required, lest we expose the truth for the ugly blasphemy that it most assuredly is. Here was my personal spiritual call to order from Stephen Harper, that I along with hundreds of thousands of Canadians devastated by the income trust would have received, once the PMO got their messaging just right, three and half weeks after the fact:

Date: Fri, 24 Nov 2006
To: Brent Fullard
Subject: Office of the Prime Minister

Dear Mr. Fullard:

Thank you for your e-mail message regarding the government's decision on income trusts. I am pleased to have this opportunity to respond.

I understand your disappointment with this decision. We recognize that Canadian investors, including many pensioners and seniors, have made important investments over the years and benefit from the current income trust structure. However, Canadians must trust that their government is watching out for them and is upholding the values that define us, like fairness. They expect us to fix problems, right injustices and close loopholes.

Evidently this brand of faith based religion holds it to be more sacrosanct to right injustices and close loopholes than to provide any documentary evidence whatsoever about alleged tax leakage and keeping their solemn election promises.

Meanwhile, do you suppose the following fine upstanding citizens were more concerned about slaying the mythical dragon called tax leakage, or feathering their own stock option nests? I believe you will find that many of these unnamed folks are, in fact, the high priests of Harper’s faith based religious order, called influence for sale or rent. Democracy for the highest bidder. Accountability and Lobbyist Registry Acts be damned.

After all, we have a country to sell.

Income-trust crackdown: The inside story
Globe and Mail
November 2, 2006

High-profile directors and CEOs, meanwhile, had approached Mr. Flaherty personally to express their concerns: Many felt they were being pressed into trusts because of their duty to maximize shareholder value, despite their misgivings about the structure. Paul Desmarais Jr., the well-connected chairman of Power Corp. of Canada, even railed against trusts in a conversation with Prime Minister Stephen Harper during a trip to Mexico, and told him he should act quickly to stop the raft of conversions, according to sources.

Goodbye David Dodge....we hardly knew ya

My only exposure to David Dodge over the course of his seven years as the Governor of the Bank of Canada was the sad role of complete capitulation that he played on the Income Trust matter. Here is a person who one minute (early October 2006), of his own volition, was saying that income trusts had an important role to play in making the capital markets more complete, and three weeks later he was allowing his name, his office and the institution he ostensibly heads to be enjoined in one of the greatest misrepresentations of discernable facts this country has witnessed , namely the wholly unproven construct known as tax leakage, to be used as a specious argument that served as the central underpinning of a far reaching tax policy that was hoisted on Canadians by an intellectually corrupt government without prior notice and without public consultation (save and except massive back room lobbying by self interested CEOs, many of them unregistered to be doing so), and thereby causing great financial hardship to a vast number of Canadians and irreparable harm to the integrity of our capital markets and the perception by investors, both domestic and foreign, that Canada is a stable and predictable investment climate.

So there you have it Mr. Dodge. In the minds of many Canadians this is the legacy that you are leaving behind. Whatever other deeds you may have done over the course of your career that others might claim made you a good Governor of the Bank of Canada have now been eclipsed and rendered irrelevant and insignificant, since your final act of office was to allow yourself, your office and the institution you head to be politicized. Lest you think that you aren’t being given the benefit of the doubt, I would put to you sir that the matters before you and on which you opined are all factually discernable in nature. There is a hard truth to the allegation of tax leakage that is readily discernable in nature. There is a hard truth to the allegation of the impact on the Canadian economy of income trusts versus corporations to be discerned and which has already been discerned in two very comprehensive studies. You made no effort to discern either or to even acquaint yourself with the preexisting body of evidence , despite repeated attempts by our association to present the facts to you. Facts from highly credible groups, like HLB Decision Economics. PricewaterhouseCoopers. Deloitte, BMO Capital Markets, RBC Capital Markets, Canaccord Capital etc etc.

In the end you deliberately avoided the truth and you did it for political ends. Imagine, instead of being the Governor of the Bank of Canada, you were the Auditor General and you allowed such a dynamic to prevail over your conduct as Auditor General. Your absence of fortitude in upholding the integrity of your office on the matter of income trusts represents a very sad point in the history of the position you held and the institution you represented. One can only hope that the next occupant of the Governor of the Bank of Canada will reassert the integrity of that important office you are now vacating, however we will have to skip at least one generation, since the incoming Governor, Mark Carney, could not have been more involved in this intellectually corrupt scheme to defraud average Canadians to achieve the narrow interests of the corporate elite than if he were still an investment banker at Goldman Sachs.

Below is just one representative example of how you knowingly allowed yourself, your office and the institution you purported to represent to be used for political ends. A hero sir, you most assuredly are not. You failed at the time of your greatest calling. For reasons known only to yourself. Evidently transparency and accountability carry no province with you.

From: Brent Fullard
Date: Thu, 08 Feb 2007 17:43:51 -0500
Subject: Gross Mistatements by Judy Wasylycia-Leis on ROB TV

Denis Schuthe
Chief Communications officer
Bank of Canada

Mr Schuthe:

I was just watching ROB TV with Kevin O’Leary broadcast nationally.

I believe NDP Finance Critic Judy Wasylycia-Leis just made a gross misrepresentation of the testimony of Governor of the Bank of Canada David Dodge, by stating words to the effect that Mr. Dodge agrees with the DoF’s assertion of tax leakage. As you know these assertions are wholly unproven and highly suspect based on testimony provided by Dennis Bruce of HLB Decision Economics, who can be reached at 613-234-0080 or 709-632-1708 (cell). I am sure you agree with me that such allusions as to the Governor’s position on this matter are not helpful in any way to this “debate”. Please contact Ms. Wasylycia-Leis and ask her to retract or correct her comments, or failing that please issue a clarifying statement on what the BOC’s view is on the specific matter of “tax leakage” so that others like Ms Wasylycia-Leis do not take such liberties in speaking on the BoC’s behalf.

As I have stated to you previously, the integrity of the Canadian capital markets is at risk, a matter which I am sure is of great importance to the BOC and the Governor.

Thank you for your prompt attention to this matter.

Brent Fullard
President and CEO
Canadian Association of Income Trust Investors

Saturday, December 22, 2007

Derek, Derek, Derek

Yes, Virginia, sometimes columnists do get it wrong

Globe and Mail
December 21, 2007

A B from Calgary Area, Canada writes:

Yes Derek.... you and millions of other Canadians drank and enjoyed at face value, OberGruppenFuhrer Flaherty's great 'Have a Glass of the KoolAid I am serving'.

Income Trusts... Bad, said Flaherty, Tax Fairness Plan.... Good.

Well it turns out to be The Exact Opposite..... There is Tax Leakage all right: from the tax-free Private Trusts and Pension Plans scooping up these once great assets. These once great assets that were distributing
there profits into the hands of unit holders... Where It Was Taxed.

Registering My Opinion from Canada writes:

It's taken longer than I thought for the press to wake up to the Flaherty/Harper Tax Unfairness Disaster. It's no wonder they only released 18 pages of blacked out data.

Not only has the sell off continued but the tax unfairness of double taxing Income Trusts in private RRSP's while letting Private Pension Plans off the hook also continues.

With the takeout of many Income Trusts by Private equity and Private pension plans the government stands to lose billions anually...much more than Flaherty's estimated mythical tax loss that he can't back up. Myths that have been proven false by many credible tax experts.

The next step is for this government to prove it's tax leakage case or drop the tax on Income Trusts. Show us how much is now being lost because of this careless action devaluing trusts for takeover.

It seems we must wait for the next election to get rid of these jokers and get a fair resolution to this issue.

M. R. from Canada writes:

Derek Derek Derek . . . your biggest mistake was not debunking the TFP for Canadians. This would have been a real public service. In this regard you have failed miserably as have all your coherts at the g&m.

All the info disputing Flaherty's tax loss claims is available but none of you took the ball and ran with it. Why?

Friday, December 21, 2007

On the good ship Harper Valdez

(Sung to the tune of The Good Ship Lollipop)

On the good ship Harper Valdez
Where we're headed is anyone's guess
Little Jimbo plays
Making mincemeat out of senior's nest eggs

On the good ship Haper Valdez
It's a short trip to a fiscal mess
Surplus heading south
Soon we'll all be living hand to mouth

TD: Banking can be this self-serving

Obviously TD Bank’s idea of being a good corporate citizen revolves around doing what’s in the TD Bank’s narrow self interests, as opposed to the interests of its clients or the financial markets in which it is a participant. Take their entirely hypocritical position on the income trust tax vis-a-vis their position on the unfolding ABCP fiasco.

In the case of the income trust tax, despite the fact that Canadians have lost $35 billion in their retirement savings and despite the fact that Stephen Harper brought total certainty to the capital marketplace with his promise to never tax income trusts., here is the TD Bank’s official position on the reversal of Harper’s promise:

“TD Bank Financial Group considers the fact that there is now a greater measure of certainty in the marketplace on this issue as being a good thing.”

Importantly, this followed the words: “As you already know, the Minister of Finance’s plan is based on the assertion that the federal treasury has lost millions in tax revenue”.

Therefore, if we are to take TD’s line of reasoning, they prefer the market certainty associated with Harper’s broken promise as opposed to the market certainty associated with Harper’s promise promise. Furthermore the TD Bank prefers the market certainty associated with the broken promise, even though the broken promise is predicated on nothing more than the “assertion that the federal treasury has lost million in tax revenue.” What kind of logic and reasoning is that?

That said, do you suppose the TD Bank would authorize a loan based on the “assertion that the federal treasury has lost millions in tax revenue”? A mortgage? Personal line of credit? ABCP? Didn’t think so. What’s good for the goose, is bad for the gander.

Meanwhile we have the Asset Backed Commercial Paper matter to deal with, in which the TD Bank is the lone holdout. Or is it the loan holdout? The ABCP fiasco, we are told, is bringing untold uncertainty to Canada’s financial markets, in particular the lending market of which TD Bank is a major participant. TD Bank is a major participant in Canada’s financial services market because they have been basically granted a monopoly by the government. TD Bank was given special dispensation by Ottawa to acquire Canada Trust, from which TD’s current CEO hails and which forms a large part of what TD Bank is today. Perhaps all of this is completely lost on TD Bank. Where is the corporate citizen quid pro quo? Perhaps TD Bank only espouses the great need for “market certainty”, as in the case of the income trust tax, when it comes at the expense of others, including its many hundreds of thousands of adversely affected retail clients, about whom, TD Bank apparently it doesn’t give a wit about. Maybe TD Bank only espouse the need for market certainty when it positively affects its bottom line, as in the case of income trusts, since TD Bank has no active retail distribution network to speak of, which is why it performed so miserably in the income trust “league tables” and therefore benefitted from their legislated demise. Something on which I am told the TD Bank had input into before the fact, and before Harper’s act of voter betrayal.

Meanwhile all of this was predicated on what TD wisely points out is merely an “assertion of tax leakage”. TD Bank should know better than most about the absolute need for transparency on financial matters such as tax leakage or the precise nature of the assets which underlie Asset Backed Commercial Paper, since TD Bank was one of the few banks unwilling to distribute ABCP product, since we are told by them that they felt there was inadequate disclosure on ABCP. Again, they are proving their inherent penchant for corporate hypocrisy, since TD Banks believes that all Canadians should blindly take tax leakage as a god given truth. Meanwhile this is not how they conduct their own affairs as evidenced by their disclosure standards on ABCP. If it’s not good enough for TD Bank, then why should complete non disclosure about tax leakage be good enough for Canadians? And if TD bank is such a strong proponent in the face of client adversity about the need for market certainty, why are they the lone holdout on resolving the ABCP market fiasco? Or is TD Bank only ever interested in what’s best for TD Bank?

TD Bank: “Where banking can be this friendly.”.......not to mention this hypocritically self serving and narrow minded. Aren’t stock options great when it comes to achieving society’s best interests?

Thursday, December 20, 2007

Maybe there was method to Mulroney's madness

Really, why would anyone in their right mind want to pay taxes to Ottawa if such tithing isn’t even acknowledged? Perhaps this is behind Mulroney’s madness. Maybe Mulroney had insight from his years in government into how the Department of Finance fails to acknowledge the taxes that are paid by Canadians on RRSPs and retirement accounts. Or as former Finance official Jack Mintz confided “Finance was wrong to treat the impact as zero.”

As for Mulroney, earning income and not paying taxes simply meant failing to live up to one of society’s most basic obligations, called paying your own way.

The corollary to Mulroney’s situation, would be to actually pay taxes to Ottawa, but for Ottawa to not acknowledge their receipt or existence. That’s exactly what the income trust fiasco is all about: the non acknowledgement by the Harper government that taxes are being paid to Ottawa on the 38% of income trusts held in RRSPs. This is how Jim Flaherty concocts his false tax leakage argument. By ignoring the taxes paid on 38% of income trusts held in RRSPs. This is fraudulent, as there is no credible economic or finance reason to not acknowledge these taxes. As bad as that is, the problem is then compounded by the Harper government, who then used this flawed methodology to devise a policy that is regressive to these very people whose taxes are not being acknowledged. As further punishment, these people are losing an important investment choice and have sustained a permanent loss of $35 billion in their life savings, as a sole result of Harper’s actions, which are the corollary to Mulroney’s.

Failure to acknowledge taxes on the part of government is as socially unacceptable as the failure to pay taxes. If I am not mistaken, this was the flash point for the American Revolution. Taxation without representation.

Meanwhile all Canadians will pay for this income trust tax policy blunder, as the Harper government has already precipitated the loss of $1.4 billion in annual taxes to fix an alleged $500 million problem. But it gets worse. The Harper government’s decided preference for foreign investors like Li Ka Shing and Abu Dhabi Energy will mean that Ottawa will forego an eventual $7.5 billion in annual taxes.

Who would want to share in that manufactured liability? Which political party wants to stand idly by, as that inevitable outcome visits upon tax paying Canadians? Brain Mulroney included, bless his belated voluntarily disclosed retroactive soul.

Tuesday, December 18, 2007

Mark Carney has hijacked our democracy

I am of the view that income trusts should have no right to exist if they caused material tax leakage of the magnitude that Mark Carney claims. Such would also have to hold true for private income trusts and private limited partnerships, since tax fairness requires a universal approach.

Too bad the analysis that supports the allegation of tax leakage was deliberately manufactured by Mark Carney to achieve ulterior ends, none of which serve the interests of Canadians. This fabricated claim of tax leakage permitted Mr Carney to introduce a sweeping tax measure, namely the puntive 31.5% tax on Income Trusts, that Parliament approved believing they were addressing a legitimate problem.

The alleged tax leakage is only as legitimate as the analysis that underlies it. And the true intent of Parliament is only achieved if the underlying premise of tax leakage is true. Sadly, it is not. Thus, Mark Carney has essentially hijacked our parliamentary democracy to serve outside and extremely narrow interests. The $35 billion in losses sustained by average Canadians pales when compared to this end-run around democracy.

As for Mark Carney’s manufacturing capabilities and handiwork:

Insofar as tax leakage is a measure of the difference in taxes collected by a business structured as a corporation versus the same business structured as an income trust, how credible do you think it is for Mark Carney to have approached his analysis on the following approach;

(1) Making the steady state assumption throughout his forward looking analysis that corporations are taxed at today’s statutory tax rate of 22%, which ignores that corporate tax rates are to be reduced to 15% by the year 2012, including legislated reductions already passed into law. As such he is not modeling the real world, and is profoundly and misleadingly biasing his results in favour of corporations

(2) Assigning zero value to the taxes that are collected by Ottawa from the income trusts held in RRSPs, even though the trust policy permits/encourages pension funds to acquire income trusts and not be subject to the new 31.5% tax and even though these future taxes paid by RRSPs are very easily and accurately determined. Their value is of immense value to the Government. Any Goldman Sachs employee would tell you so. For example, the total assets presently held in RRSPs roughly equals Canada’s national debt. The deferred taxes collected on annual withdrawals from RRSP’s services about 25% of the annual interest servicing costs on Canada’s outstanding debt, allowing more of today’s taxes to be devoted to funding today’s social programs (in answer to Flaherty’s stated concern). The act of Mark Carney ignoring these vast amount of taxes paid by income trusts is without any credible financial or economic rationale.

Just ask Jack Mintz who stated “Finance was wrong to treat the impact as zero.” Better yet, speak to Dennis Bruce, since unlike Jack Mintz, Dennis Bruce is independent, but was working with the same Dept. of Finance figures.

(3) Overestimating the value of income trusts that are held by RRSPs. Industry numbers indicate 31% of trust are held in RRSPs. Mark Carney assumes 38%. Since Mark Carney assigns zero value to the taxes paid by income trusts in RRSP, this pumping up to 38%, only results in further skewing the manufactured results, by ignoring more of the taxes paid by income trusts.

To date $1,368 million in real tax losses have occurred because of Mark Carney’s income trust the effort to stem an alleged $500 million tax leakage problem. How much more wrong could a policy be than to achieve the direct opposite of its stated purpose?

No wonder Mark Carney was downsized from Goldman Sachs and wound up in Ottawa. All of which reminds me of the comment of senior finance official Brian Ernwein at the public hearings: “I guess, if we were incompetent we wouldn’t admit to it:”

It’s time to admit to it folks. Failing that it’s time to heed the Green Party’s and Liberal Party’s call for a public inquiry on alleged tax leakage. Who gains from hiding the facts? Certainly not Canadian taxpayers who will be left to pick up Mark Carney’s tab as he flits off to the Bank of Canada.

Brent Fullard
President and CEO
Canadian Association of Income Trust Investors

Saturday, December 15, 2007

Canadian Media: Who Owns What? The BIG THREE

The problem with intense concentration in the media, such as today’s big monolithic and homogenious three, is that these monopoLIES start cranking out lousy products like the Big Three in Detroit. Consumers are the first to suffer, followed by the standards and employment opportunities of those who work in the industry and inevitably the whole industry itself is in jeopardy, since the industry ceases to have ongoing reasons to exist, particularly in light of the internet as it pertains to media.

I think the media scene in Canada today is at the equivalent stage of devolution as Detroit was in the 70’s, where consumers had the choice of owning a pimp mobile like a Chrysler LeBaron Opera Edition with Rich Corinthian Leather, or alternatively a smog legal Chevrolet Corvette that was perfect for the local Saturday Night Fever shoe salesman that cranked out a whopping 142 horsepower.

Investigative journalism in Canada is virtually dead

Simply look at the media’s ready acceptance of 18 pages of blacked out documents as satisfactory evidence to support a $35 billion loss. Who cares, it’s only our parent’s and grandparent’s money that’s being ripped off? Almost reminds a person of the Mulroney era, doesn’t it? However, unlike the Stephen Harper regime of today, Mulroney had sufficient empathy and/or political savvy towards the elderly to have famously reversed his position on pension indexing when confronted by an elderly woman seeking redress in a public encounter with the Chin. I guess these pesky senior people are now out of sight and out of mind with the big three, who are more preoccupied with severely limiting senior’s investment alternatives to those products that can be sold via paid advertising in the print and broadcast media, like the ubiquitous Income Plus by Manulife, as opposed to the latest income trust offering whose issuer and underwriters are precluded by law from advertising. Meanwhile the “media buy” of people like Manulife and Power Corporation’s Investment Planning Council is overwhelming the advocacy work done by token seniors advocacy groups like CARP, which have simply devolved into marketing portals to the consumer needs and habits of the growing demographic known as seniors or “50PLus”.

Quite pathetic indeed on all accounts, the extent to which money corrupts Canada’s democracy and the rights of its citizenry. Brian Mulroney is presently giving us a speed course in that reality. Who knows, maybe 14 years from now, we’ll finally learn that Mark Carmey was actually cooking the government’s books to fabricate the impression of tax leakage, since that appears to be the glacial speed at which today’s journalists operate, despite the internet and the abundance of irrefutable evidence that lays bear this complete falsehood, for any one brave enough to acknowledge it in the here and now:

Canadian Media: Who Owns What? The BIG THREE:

Friday, December 7, 2007

Green Party calls for inquiry into the alleged tax leakage of income trusts

The following is a press release issued by the Green Party of Canada on Dec 07, 2007

OTTAWA – The Green Party of Canada is calling on Prime Minister Stephen Harper to launch a public inquiry into Finance Minister Jim Flaherty’s unproven allegation that income trusts result in a loss of tax revenue to Ottawa.

To date, no evidence has been provided by the Department of Finance to support the pivotal policy assumption that income trusts result in a loss of tax revenue. The only evidence provided by the government has been 18 pages of blacked out documents obtained by Access to Information. In a highly unusual move, the Department of Finance subsequently asked that these documents be returned

“The Harper government’s actions do not demonstrate the accountability or transparency necessary for the proper functioning of a modern democracy,” said Green Party leader Elizabeth May. “As the Auditor General has said, ‘Parliamentarians need objective fact based information on how well the Government raises its funds’.”

A report issued today by accounting firm Deloitte indicates that the flurry of income trust buyouts that have occurred since the decision to tax income trusts, many by foreigners such as Abu Dhabi Energy and Cheung Kong Infrastructure Holdings, has actually resulted in a loss of taxes.

According to Deloitte, “Buyers in the 40 announced deals were equally split between strategic and private equity, as well as between domestic and foreign. But in terms of tax revenue for the Canadian government, the news was not so balanced: 70% of purchasers are tax exempt pension/private equity funds or foreign buyers who pay little if any tax in this country.”

Green Party Finance critic Peter Graham said that the income trust tax announced on Halloween of 2006 has resulted in a loss to the value of the hard-earned savings of Canadians of $35 billion.

“These Canadians have also lost significant retirement income,” said Mr. Graham. “As Mr. Harper stated himself in an op-ed in National Post on October 26, 2005, ‘Seniors are actually enraged, frightened and panicked about potentially losing retirement savings that they count on for the essentials of daily living.’.

For more information, see the Deloitte report: Income trust buyouts: Lots of activity, little tax revenue

Camille Labchuk
Press Secretary
613-562-4916 ext. 244

Peter Graham
Finance Critic

Wednesday, December 5, 2007

Red Wilson's pet project received a $17 million grant from Harper government

What’s with all these poodle panels announced by Stephen Harper? In particular the Competition Panel headed by Red Wilson on the hollowing out of corporate Canada?

I’m still waiting for Red Wilson, president of the Competitiveness Council, to return my phone call of six weeks ago. I was hoping to tell his eminent panel looking into the hollowing out of corporate Canada, that 7 of the largest 25 takeovers of Canadian businesses in the last 5 years can be directly explained by a piece of legislation that has been in effect for only one year, namely Stephen Harper’s income trust tax. Evidently Red Wilson is not interested in hearing about causal relationships as he and his panel are going to be prescribing cures without knowledge of the causes, it would appear.

Or perhaps Red Wilson and his panel have been conveniently set up to absolve the Harper in any economic wrongdoing.

We are told that these multitude of panels that have been set up by Stephen Harper are “independent”.

How is it conceivable that Red Wison is “independent” when his pet project, namely Historica Foundation, received a $17 million grant from the Harper government coming in at number 96 in the Top 100 grants of the last year?

The fact that this panel of five “emminent” Canadians has no less that 3 people associated with BCE, one of the world’s largest leveraged buyouts and dominated by foreign capital making use of Harper’s policy of tax free foreign leverage buyout loans is a further troubling reality as it relates to this panel’s true agenda and professed independence on the matter of foreign takeovers.

$17,105,000 HISTORICAFOUNDATION OF CANADA (Toronto) Cdn. Heritage Exchanges Canada, Contribution

Mr. Wilson is Chairman of the Board of Nortel Networks Corporation and Chairman of the Board of CAE Inc. He is also a director of DaimlerChrysler Canada Inc., and DaimlerChrysler AG (Supervisory Board and Chairman's Council). He is a member of the International Council, J.P. Morgan Chase & Co., (New York); and Founding Co-Chairman of the Historica Foundation of Canada. From:

Monday, December 3, 2007

Stephen Harper leveled the playing Paul Desmarais Jr's/Power Financial's favour

One year after the income trust announcement, a person simply needs to connect the dots:

Dot #1: December 3, 2007 as reported in the Globe and Mail:

CI Financial Income Fund has all but thrown in the towel in the bidding war for DundeeWealth Inc. because of some obstacles that appear insurmountable, leaving Power Financial Inc. and Bank of Nova Scotia neck and neck as duelling contenders for the coveted wealth management firm, sources say.

DundeeWealth's controlling shareholder, Ned Goodman, is reluctant to accept cash in exchange for his stock because that would trigger capital gains tax, sources suggested. However, he is also said to be reluctant to accept units of CI Financial as payment for his company, because the securities have an uncertain future.

Dot #2: November 2, 2006

Income-trust crackdown: The inside story
When the telephone rang, Flaherty knew he had to act

Globe and Mail

High-profile directors and CEOs, meanwhile, had approached Mr. Flaherty personally to express their concerns: Many felt they were being pressed into trusts because of their duty to maximize shareholder value, despite their misgivings about the structure.

Paul Desmarais Jr., the well-connected chairman of Power Corp. of Canada, even railed against trusts in a conversation with Prime Minister Stephen Harper during a trip to Mexico, and told him he should act quickly to stop the raft of conversions, according to sources.

Dot #3: Thursday, February 1, 2007

Standing Committee on Finance   
Mr. Dominic D'Alessandro (President and Chief Executive Officer, Manulife Financial):

"I will be very brief. It's my opinion that the income trust sector in Canada is increasingly populated by businesses other than those whose principal activity is the operation of real estate or royalty producing assets. In June of last year, CI Financial converted to trust status.

I don't know why we would want a tax regime that would discourage the accumulation of an appropriate level of retained earnings by the corporate sector.

I think underlying some of this is a theory that somehow corporate management can't be trusted to properly employ the capital and therefore they should distribute it out, and then go back to shareholders or unit holders and ask for a reinjection whenever the need arises.

The notion and the implication that somehow the government on this file is responding to initiatives that originated with corporations is not based on reality."

Obvious Conclusion:

We believe you Dominic. However reality and the actions of Power Financial betray you. The tax fairness plan was never about taxes in the first instance. If it was, then the analysis by the government would have been released as opposed to  being disguised.

This issue was only ever about the cost of capital advantage that income trusts, specifically CI Financial, had over your company, Manulife and Power Financial. As an income trust, CI Financial was worth more in the eyes of the marketplace. This is because investors prefer the discipline of management paying out its excess earnings. That model didn’t suit either you or Paul Desmarais for reasons specifically related to your personal goals and the form of your personal compensation. You have placed your personal goals ahead of your shareholders interests. You then enjoined the easily coerced Stephen Harper government to do your exclusive bidding. The government’s actions at your behest have done untold damage to millions of Canadians and has placed Canada in a disadvantaged position in the global economy.

This tax fairness plan has resulted in $65 billion of takeovers in the first 12 months and the loss of $2 billion in tax revenue to the government. This will soon grow to the annual loss of $7.5 billion in lost taxes.  Your actions  and those of Paul Desmarais Jr. were selfish and destructive. Meanwhile your fellow Co-chairman  of the CCCE and fellow member of the NACC, Paul Desmarais Jr., has lobbied the government and is not a registered lobbyist. Who does he think he is, Brian Mulroney?

See the Public Registry of Lobbyists