The federal government will buy another $50 billion in residential mortgages to ease the credit crunch facing Canadian banks, Finance Minister Jim Flaherty said today.
And he revealed that Ottawa is in talks with Big 3 automakers over federal investment in the devastated industry.
The $50 billion move triples the amount of insured mortgages Ottawa can buy from banks by the end of the fiscal year, a plan Flaherty announced last month.
It is meant to take billions of dollars in mortgages off the books of Canada's big banks, which would then give them the financial capacity under current regulations to lend more money for consumer and student loans, lines of credit and corporate loans to help stimulate spending and economic growth in the flagging economy.
Flaherty stressed that the mortgages are already insured through the Canada Mortgage and Housing Corp., a federal Crown corporation.
"It is an efficient, cost-effective and safe way to support lending in Canada at a time of extraordinary strain in global credit markets," he said in a news conference from his Toronto office.
The move will also help average Canadians by making "consumer and mortgage loans more affordable and more available," Flaherty said.
On the auto front, the finance Minister said discussions with Canada’s Big Three auto manufacturers are in progress, and he confirmed that there is money to be spent under certain conditions.
“We have been having discussions with the Detroit Three here in Canada,” he said.
“We have money available for innovation — transformational money, if I may call it that. Because at the end of the day, we need car makers who are making cars people want to buy.”
Automakers have said they need more than $1 billion in loan guarantees to help tide the sector over until demand recovers for North American-produced vehicles in the U.S.
The federal Conservatives have long rejected direct intervention in the auto sector.
But Flaherty suggested for the first time Sunday that Ottawa may be willing to help, but with the proviso that aid is targeted at auto plants with viable prospects.
Flaherty says the issue of whether or not the government should bail out struggling auto manufacturers is controversial and people in his own Ontario riding — the Canadian home of General Motors — are telling him not to do it.
“There are many people saying we should do something with respect to the auto sector,” Flaherty said today at a conference of economists in Toronto.
“But I can tell you even in my own riding, where I was yesterday, in Whitby-Oshawa … there are lots of people who say, ‘Don’t do anything. Don’t use my tax money to bail out an enterprise that may not survive.”’
“These are not high-faluting rich people that are saying this to me, these are people on the street.”
Ottawa will also make it cheaper to use government insurance guaranteeing bank borrowing under its Canadian Lenders Assurance Facility.
The facility, announced last month by Flaherty, offers insurance on wholesale term borrowing that banks need to fund operations and make credit available to Canadian households and businesses.
The base commercial pricing of the facility will be reduced by a quarter percentage point, Flaherty said today. The government will also waive the quarter point across-the-board surcharge for insurance provided under the program "until further notice."
The government will take whatever steps are necessary to help Canada avoid economic risks caused by global events, he said.
"Our goal in all of this is to support the availability of credit to Canadian consumers and businesses and foster economic growth."
The finance minister added that despite the global economic crisis, Canada is still on track for a small surplus in the current fiscal year.
In another development today, the Bank of Canada says it will inject an additional $8 billion into the country's tight money markets under new liberal terms.
The bank says the new Canadian-dollar term loan facility will be conducted in four auctions of $2 billion each over the next few weeks.
Qualifying financial institutions will be able to offer non-mortgage loans as collateral, meaning they can offer most loans currently on their books.
Flaherty stressed that the government must ensure any bailout would be tied to the “sustainability,” of the sector, or risk a taxpayer backlash.
“We need to find a way, if we are going to be able to do something, find a way to ensure sustainability, survivability,” he said.
“That has to be the goal, otherwise — as has happened in other places in the world, not the auto sector, but in some of the other European countries — there’s a backlash to governments using taxpayers’ money in what is perceived to be a bailout of a failing business.”