Those regulations on credit card suppliers kicked in Stateside today, much to the applause of consumer protection groups across the country. But one Washington, D.C.-based group, Americans for Financial Reform (AFR), says even these new laws are not enough to protect the vulnerable. According to AFR, what’s actually needed is a new Consumer Financial Protection Agency, whose sole mandate is to keep banks’ and card issuers’ fee-happy ways reined in.

According to Heather Booth, the director of AFR, the extra protections on rate-jacking and fee-hiking “are a major step forward along the long path toward restoring basic fairness in our financial system.” But, says Ms. Booth, there is still much work to be done. “Almost immediately after this landmark legislation was signed,” she says, “banks began figuring out how to get around it, racing to increase fees and alter rates without notice ahead of these changes and proving that a piecemeal approach to protecting financial consumers won’t work.”

What Americans really need, Ms. Booth believes, is a “watchdog agency that is paying as close attention as the credit card companies are to the regulations – and possible ways to skirt them.  As we wait for the rest of the new regulations to be phased in next year, Congress must also take a broader look at how to prevent future abuses from hitting our wallets.”

Unfortunately, preventing such abuses also means the American consumer will have considerably less access to credit—in what is currently shaping up to be a jobless recovery Stateside. But that’s just an aside. What’s most interesting here is the thinking underpinning her argument: that somehow, those consumers ultimately weren’t responsible for their actions. Such thinking has been widespread in American analyses of what’s gone wrong with their economy over the past year. And in light of what needs to be done before America regains anything resembling fiscal health, that’s a major problem.

I am the last person to play apologist for credit card companies. I know too many people — mostly young people — who unfortunately need credit cards in order to survive, as a form of supplementary income to underpaid jobs. Such people get caught in a cycle of debt that is fiendishly difficult to escape.

What’s more, it’s fairly obvious that credit card practices are out of whack, if the strategic goal of many card suppliers was not to have a customer pay off the balance, but rather to hook unreliable credit risks willing to rack up big debts, from which banks and card companies made millions in fees. The hope is that the new laws on both sides of the border will help rein in such behaviour.

All that said, the notion that many of the people involved in this super-consuming society, those racking up all this debt, were somehow not responsible for their actions, is ridiculous. It’s the same kind of thinking that implies that somehow those making a killing flipping properties during the housing boom are now wayward victims of a greedy financial system that enabled their behaviour, or, for that matter, that crowds roaring approval at Nazi rallies were somehow disengaged from what happened next.

Surveys such as this one from non-profit human resources organization WorldAtWork show that many on this continent have had their finances gouged in recent years by a triple whammy of stagnant wages, rising inflation and rising credit card fees. For such people, the new regulations brought in today are not just good — they’re necessary. But what’s absurd is to try and argue that, when faced with a variety of credit options, most moderate-to-affluent American, and, let’s be honest, Canadian consumers had no other option but to live beyond their means.

Much of the superconsuming North American economy was driven by economically unsustainable consumption patterns that represent large numbers of people all deciding to consume in the same way. It’s those personal habits that need to change, if said consumer society is to regain fiscal health. In that light, it’s doubtful another regulator is going to be the best way to achieve that goal.

Unfortunately, the last time North Americans were in an economic hole this deep, what it ultimately took to get us out of it was a massive economic stimulus program called the Second World War. Let’s hope we won’t have to go quite so far this time.

At that summit, Harper attempted to dampen Mexican ire over his government’s decision to require visas for its country’s citizens by saying Canada’s clogged refugee applications system is somehow to blame. That’s partially true. But if our clogged system is the prime driver behind the hold-up in processing Mexican applicants, then presumably Canada should be working harder to fix the system—not penalizing the estimated 250,000 Mexicans who choose to visit each year.

However, it’s also plausible that, courtesy ongoing political instability in northern Mexico, there are a disproportionate number of Mexicans applying to come to Canada right now. Official figures put the numbers at approximately 9400 last year, which, the federal government claims, represents 25% of all refugee applicants to Canada in 2008.

Over the longer term, and combined with an intelligent overhaul of our immigration system designed to make it easier for immigrants to integrate more quickly into Canada’s economy, this could be a good thing. Study after study from the Conference Board of Canada and others show Canada needs more people to maintain its economic growth.

But right now, such an influx is a strain on the resources of the system that processes refugees. Rather than requiring visas on short notice, a move that penalizes all Mexican visitors, as well as the Canadian tourism industry, the smarter strategy would be for Harper et al to channel support down south and help mitigate the root problems causing this outflow of people.

By announcing he’d be sending $400,000 to help Mexican president Felipe Calderon combat Mexico’s northern narco-terrorists, Harper did eventually come around to this way of thinking. Unfortunately, that gesture came too little, too late. Net effect: instead of recruiting Calderon as an ally in what should have been a joint effort to combat new trade barriers that jurisdictions in all three countries are attempting to put up, Harper managed to alienate Calderon in the most public way possible.

The second worrying outcome of the Guadalajara meet-and-greet was Barack Obama’s disingenuous attempt to dismiss the ongoing problems caused by Buy American as “disproportionate.”

Buy American is a problem. It’s a drag on stimulus fund disbursement in the U.S. It’s causing confusion over hiring and contracting practices on both sides of the border. It’s prompting other jurisdictions and other countries to erect retaliatory trade barriers. That threatens global trade flows, which is the single factor most likely to nip nascent economic recovery in the bud. And all that means it’s going to be a key issue for businesses in all three NAFTA states—one that will have to be resolved before economic recovery can take root.

Better leadership is required to address and resolve the issue. However, for reasons that have more to do with domestic political pressures than economic sanity, Obama won’t acknowledge the problems Buy American is causing. Worse, he’s allowing a legal sleight-of-hand to obtain, whereby the federal government requires state and municipal governments to enact Buy American riders on stimulus projects—while somehow claiming this is entirely in the spirit of the free trade his country’s businesses continue to enjoy with Mexico and Canada. In so doing, Obama has made it clear that on Buy American, leadership will not come from him.

That puts the onus squarely on Stephen Harper. When he visits the White House on September 16, Harper has to make the argument, in as compelling terms as he can muster, that threatening the seven million jobs currently supported by cross-border U.S./Canada trade with short-sighted protectionist measures is not the route to cross-border economic health.

On September 24 and 25, the White House will welcome the world’s leaders to the Pittsburgh Summit, a global confab on the state of the economy. It’ll be exactly one year since the biggest economic crash since the Great Depression. By that time, consensus on what to do about Buy American should be clear, and concrete measures in place to mitigate its impact.

If nothing happens on Buy American, and the impact of those policies continues apace, global trade volumes will continue to dip. On July 22, the director of the World Trade Organization, Pascal Lamy, announced the WTO was revising its projected drop in trade volume for 2009 downwards from 9 to 10%.

Where trade flows slow, job losses follow close behind. Those losses will be more acute in Canada over the next couple of quarters, as the dramatic drop of 45,000 jobs in July shows. That’s because there is a six-to-eight month lag, as Canada absorbs the impact of recession and recovery in the United States. This time, that trend will be exacerbated in Canada by the impact of being effectively shut out of U.S. stimulus spending.

Unfortunately for all those predicting early recoveries, that’s a problem. For as long as jobs continue to evaporate at an accelerating rate, genuine economic recovery in Canada will remain an optimist’s pipe dream.

What’s most interesting to this writer, however, is why and how those two journalists got into that situation in the first place. And what that sad story shows is that it’s high time journalism fixed its broken business model.

Laura Ling and Euna Lee worked for a San Francisco-based new media organization, Current TV. They were in North Korea to research a documentary about women and human trafficking.

Founded by Al Gore in 2005, Current TV employs “citizen journalists” to roam the planet with videocams and notebooks, backpacking their way into stories that professional networks can’t or won’t cover. Though production standards vary, the citizen journalists of Current TV produce work that is daring and thought-provoking: consider this piece by Portuguese TV journalist Mariana Van Zeller on the immense risks El Salvadoreans are prepared to take to get to the U.S.

The problem is that the journalists are sent out on their own, and paid on a shoestring. A budget for security is non-existent.

In America, what Ling and Lee were doing is not illegal; it is practicing freedom of speech. But that’s a freedom that doesn’t exist in a dictatorship like North Korea’s. What’s painfully clear, as the curtain closes on this saga, is that the pair were inadequately briefed, inadequately financed and inadequately supported to do the kind of investigative work that involves navigating the murky politics of a totalitarian state.

Advances in videocam technology combined with high-speed internet connections mean anyone with a computer can set themselves up to go cover “the news” around the world. But as the lines between journalists and audience blur, the protections afforded reporters weaken, as Bob Steele, a journalism values scholar at The Poynter Institute, points out in a recent article. “If a journalist is not working directly for a news organization, or one that is not a long time, traditional news organization,” he says, “there might be a heightened risk. There might be questions about whether they’re really journalists.”

Most journalists would respond that any story worth covering involves a certain element of risk. But what the Current TV debacle in North Korea shows, is that it’s time to seriously rethink whether citizen journalists are the answer. That means casting aside the notion of audience as content provider—at least when it comes to the trickier aspects of foreign correspondence. Instead, media organizations should get back to thinking through how best to get those tough stories in a more professional way.

Of course, more professional story-telling requires professional-style revenues. Which brings me to the heart of the problem. It is hard, some would argue impossible, to charge for content — or audiences — when content is available everywhere online for free, and audiences are going everywhere online to look for it. That’s why advertising revenues at media companies everywhere are falling off a cliff. It’s also, conversely, why failed pay-for-content schemes litter the Internet.

Poll after poll appears to bear out this conventional wisdom. A new poll published Aug. 5 by the European Union found that fully 33% of 16- to 24-year-olds wouldn’t pay to download or view online content, as opposed to 15% of older age groups. (Though up-to-the-minute poll data for Canada and the U.S. is not available, trends are similar on this continent.) Given 16- to 24-year-olds are precisely the audience that media organizations are looking to court, it’s no wonder so many media outlets are either going bankrupt (the Chicago Sun-Tribune), are on life support (the New York Times) or are engaged in a series of high-profile firings, as panicked executives attempt to do something about the crisis.

However, even in the E.U. poll, glimmers of hope remain. Fully 10% of the 16 to 24-year-olds claimed to regularly pay for online content. What’s more, young people said they would pay for content if they felt it offered something above and beyond a standard download. And in time, that will include well-reported stories, decent investigative reporting and properly resourced foreign correspondents—whose meticulously researched stories should cost more to access than the uninformed ramblings of a basement blogger.

Consider: we’ve been here before. Recall the late 1980s, when the debate was over who would pay for cable television, when they could get the network version for free. Yet last I looked, cable subscriptions in both the U.S. and Canada are up, in a recession year. The cable TV example indicates overall audience size may fragment, but people will pay for quality content.

Secondly, consider the experiences of The Wall Street Journal. The newspaper’s pay-for-content program claims to reach 3.8 million people worldwide. Though those numbers aren’t confirmed by independent sourcing, the continuity and longevity of their program indicates the Journal has found an audience that is content to pay a decent price for regular access to a credible news source. (For more on the Journal’s web business savvy, check out this fascinating interview on how best to generate revenues online from executive editor Alan Murray of WSJ.com.)

Ryan Chittum, writing in the Columbia Journalism Review, has taken a look at American newspaper companies’ second quarter results and analysed revenue from advertising and circulation. He has found that although ad revenue is falling at companies such as McClatchy and the New York Times, income from circulation is actually increasing.

Ad revenue at both companies was down 30% in the last quarter compared to the same period last year. (The story is not quite as dire in Canada. For example, CanWest Media, the organization that publishes the National Post among other publications, reported results for their most recent quarter on July 10; its overall revenues were down 7%, and publishing revenues were down 19%, year over year.)

Chittum found that revenue at American newspapers from circulation actually rose 5% in the second quarter at McClatchy, to $69.4 million. (The daily circulation actually fell, but price increases made up for this.) And at the New York Times, Chittum points out, circulation revenues will pass ad revenues sometime this quarter for the first time ever, if current trends hold. In this year’s second quarter, the paper brought in $185 million in ad revenue and $166 million from subscribers. So if the ad income continues to decline at a rate of 30% and the circulation revenue keeps increasing, the latter is likely to overtake the former any time now.

It’s as yet unclear what the ceiling might be for media executives looking to continue hiking prices. However, Chittum suggests it points the way toward a new model based less heavily on advertising. He suggests charging $15 a month for full access to NYTimes.com. If only half of paper’s print readers and 2.5% of the website’s visitors were to pay, the paper could bring in $189 million a year: enough to pay for the entire Times newsroom. And of course, the paper could still advertise.

The Wall Street Journal is expected to bring in $120 million in online advertising this year despite its paywall, Chittum notes. If the Times was able to bring in a similar amount, it could easily survive in online-only format, he proposes.

Chittum’s findings hold out significant promise for those bemoaning the death of paid content. Given the urgency, it shouldn’t be too long before his insights, and those of savvy practitioners such as WSJ.com’s Alan Murray, find their way into the business strategies of media organizations everywhere. Once the business model is on sounder footing, it’s to be hoped that the days of citizen journalists backpacking their way into the prison camps of tinpot dictatorships are numbered.

However, this rosy outlook on the future of media comes with one very important caveat. Until the economy recovers, it’s probably wisest to keep all brave new pay-for-content ideas on the beta burner.

Tim Horton’s has arrived in New York City. With considerable fanfare, the company  announced opening day would be July 13th, at a wide range of locations across the city, including Midtown (Seventh Avenue near 50th Street) and in Penn Station.

How Tim’s will go over in the world’s most competitive city, however, is another question.

You would think Tim’s could rely on one solid source of support: the vast and varied group of Canadians living in New York. At a party Jacob Weisberg, the former editor of Slate magazine, gave at his loft in Tribeca last fall, one of many Canadians-in-NYC attending dubbed his brethren the “invisible minority.”

Though this news may come as a surprise to those living back home, Canadians dominate New York. Their talents flourish in circles from media (magazine writers Adam Gopnik and Malcolm Gladwell; broadcasters Morley Safer and, rest in peace, Peter Jennings; cartoonists Bruce McCall and Barry Blitt) to music (Brooklyn’s New Pornographers) to design (Karim Rashid). But while there, they never discuss the fact.

To promote Canadianness in NYC, you see, would be a mistake. The whole point of moving to New York is to melt in with everyone else. The goal? To slip the constraints of your former life and remake your world into exactly what you’ve always wanted it to be. (See The Corrections, by Franzen, Jonathan.)

Such invisible Canadians might find it a touch harder to blend in, however, now that Tim Horton’s is on their doorsteps. Going there every day would be a sure giveaway.

Branding concerns aside, Tim’s will be doing what it has always done in Canada: competing on a blend of quality and cost. One friend who works at the Port Authority dubbed the chain (approvingly) a mix of Starbucks and Dunkin’ Donuts – quality products at low-end prices. And given the Great Recession has crushed appetites for US$3 lattes, steamers and the like, Manhattanites may well decide that Tim’s more affordable lattes and iced cappuccinos are just what they have been looking for.

Yesterday the Canadian Association of New York, a social organization designed to link all those invisible Canadians together, sent out a circular trumpeting Tim’s arrival.

To celebrate, on opening day, Tim’s gave away free small coffees as well as iced coffees from their Penn Station location, which is on the Long Island Railroad level. (I am trying to picture the American reaction to getting a free small coffee. Even in troubled economic times, Americans don’t do small.)

While planning a large push into Manhattan, Tim’s management has ironically decided to head in the other direction – back to Canada. The company announced in late June that it is heading north with a plan to reorganize and convert its ownership to a Canadian corporation. That’s to take advantage of a few benefits, including Canada’s lower corporate tax rates. (According to releases, the company also, interestingly, indicated that being Canadian again will make international expansion easier.)

Meanwhile, New York state government grapples with a budget shortfall so severe, legislators are hiking subway fares, jacking state taxes, and fomenting much extremely entertaining discord in Albany. Wall Street reaction veers from amused to aghast.

So while Canadians in New York (quietly) celebrate the arrival of Tim Horton’s, you can be sure that some of their American counterparts are (just as quietly) taking notes on the company’s decision to move HQ the other way.

Among those in the business of politicking, consensus splits along party lines as to what to do. Some blame Buy American, and argue it should be rethought. (That is happening as I write. Currently, bureaucrats at the Office of Management and Budget, the body that oversees stimulus fund disbursement, are trying to figure out what the latest guidance on Buy American compliance will be. That’s good, in that the OMB actively solicited feedback from business groups for this round, including the U.S. Chamber of Commerce. However, it will slow the process of getting those funds out into the economy further).

Others, including Democratic presidential advisors such as Laura Tyson, say that there should be a second stimulus package – an idea that falls on less-than-receptive ears amongst those concerned the level of spending the country has already committed to is too high.

Congressional Democrats and White House economic advisor Lawrence Summers urge patience, pointing out that stimulus spending is designed to roll out over several years.

That’s true, acknowledges Maya MacGuineas, the Washington, D.C.-based president of the Committee for a Responsible Federal Budget, a fiscal watchdog. But according to her, more thought should have been given from the start to getting funds into the economy as fast as possible. Some re-thinking of timelines might be in order. “They should be putting money into food stamps, assistance for the unemployed; places where it is likely to be spent immediately,” she argues.

Only one thing is clear right now: as the debate over how best to get money into the economy rages, stimulus funds go unspent and jobs go uncreated.

Meanwhile, many eyes are on CIT Group, one of the country’s largest small-business lenders. A storm of media reports yesterday indicated the company is considering bankruptcy. That drove the stock down 94% to close at US$1.35, and prompted fresh talk in D.C. of a new bailout for small business lenders.

Small wonder the Chinese Investment Corp. (CIC) is actively seeking out equity plays, like the 17% stake it picked up June 26 in Vancouver-based Teck Cominco, to diversify away from the greenback.

The Big Money is Slate magazine’s online business start-up. Though it has its moments of irrational exuberance, it’s a smart and well-written site, and its articles often capture the absurdities of doing business in today’s New York. (Full disclosure: my partner used to work there.)

Some, including the Globe and Mail’s Christie Blatchford, question whether Madoff should have gotten a sentence that’s about six times as onerous as that served to the average murderer in Canada. She also questioned whether those being described as victims for buying in to Madoff’s schemes actually were victims, considering their motivations and the extent to which they were benefiting. She makes several good points.

However, this analysis underestimates the extent to which the Wall Street of the past nine months has needed the story of Bernie Madoff. He’s become a lighting rod for anti-Wall-Street anger – and a cathartic symbol for all that went wrong in a world where money magically created new money, and where not enough people asked enough questions about how or why this was happening. They just hoped it would continue, and that they’d get out with enough of a golden parachute to survive, once the mountain of debt on which that period’s prosperity was built came crashing down.

To illustrate the extent to which no-one was asking questions, or even wanting other people to ask questions, of how money was being made in the Leveraged Society, one of the first stories I covered when I moved down to the U.S. in January 2007 touched on a report put out by the redoubtable New York Senator Charles Schumer. It complained that excessively onerous Sarbanes-Oxley regulations were causing companies and capital to flee New York’s exchanges for the more welcoming climes of London’s AIM. How times change. Today, all Schumer can talk about is the importance of forcing AIG executives to pay back their bonus money.

Such whiplash-inducing shifts in attitudes to market regulation help show why Madoff got away with what he did – and then, once caught, received such a crazy sentence. With Bernie behind bars for 150 years, this thinking goes, the crime has been punished, the perpetrator put away. Now the rest of Wall Street can draw a veil over that particular era – and move on.

Too bad economic reality is likely to get in the way of that particular thesis. But still, everyone craves closure. And at least the man got sentenced. In Canada, he’d be busy writing a self-aggrandizing book, or some other such promotional activity, while regulators across provincial boundaries bickered amongst themselves as to how  to charge him.

Meanwhile, Ruth Madoff continues to entertain (and appall) with talk of crying herself to sleep, thinking of the millions of people her husband bilked. It’s a sentiment that doesn’t exactly go over well with the newly poor that Madoff left behind. As one so-called victim, paraphrasing Dante, put it: “May Satan grow a fourth mouth [of hell] where Bernard L. Madoff deserves to spend the rest of eternity.”

Meanwhile, the Canadian angles to Madoff’s demise continue to unspool. But more on that later.

Last Friday, over 100 House Democrats including nine committee chairmen signed on to new draft legislation that would require President Obama to submit a plan to Congress to renegotiate the North American Free Trade Agreement (NAFTA) and other trade deals.

The Trade Reform, Accountability, Development and Employment (TRADE) Act of 2009, tabled on June 26, calls on the president to create a plan that would address, through renegotiations, gaps between existing deals, as well as benchmarks Congress would set on core labour and environmental standards. (”Core labour standards” are defined as minimum wage, hours of work and occupational health and safety standards.) The U.S. trading partner would adopt and maintain these core standards in return for access to the U.S. marketplace. And the bill would require that any existing trade agreements (such as Nafta) be reworked to reflect these principles.

Which, of course, is going to be interesting, given Canadian labour and environmental standards mirror and in some cases exceed U.S. ones.

As with Waxman-Markey, it’s important to stress that it remains doubtful whether this bill will actually get so far as becoming law. Right now, it is draft legislation only. But given the mood in Congress these days, all bets are off. And if TRADE ‘09 does make it into some form of law, it strikes me Canada should seize the opportunity to do a bit of renegotiating of its own, once we have a leader whose idea of a foreign and trade policy involves a bit more than simply following the Americans, as they make 180 degree turns on everything from energy to market access.

A congressional super committee, to be chaired by the House Ways and Means and Senate Finance committees, would formulate the plan. It also calls for a new “fast-track” law that would require Congress to vote in favor of a new trade agreement before the president offers his signature.

According to a report in TheHill.com, primary sponsor Rep. Mike Michaud (D-Maine), described it as “consistent with what the president said he would do before he was elected.”

Oops. Guess this is what happens when politicians use fiery election rhetoric without considering the consequences.

The new trade legislation is similar to a 2008 bill, but that measure attracted only 74 co-sponsors and did not make it out of committee. The rising number of co-sponsors on the legislation reflects both the larger Democratic majority in the House and increasing skepticism about trade amid a global recession.

Among the bill’s less obvious opponents, curiously, is the Washington, D.C.-based National Association of Manufacturers, a manufacturing lobby group.

On Friday June 26, National Association of Manufacturers (NAM) Vice President for International Economic Affairs Frank Vargo issued the following statement:

The anti-trade legislation introduced in the House on Wednesday would subvert our nation’s historic commitment to international commerce and wreak havoc in major parts of our economy at a time when we should be doing everything we can to encourage growth and job creation. The architects of this extremely unwise proposal would do well to remember that the U.S. exports about $80 billion in manufactured goods each month and that millions of American jobs depend on those exports.

We have had time enough to review the impact of free trade agreements, and the verdict is unequivocal: we have a trade surplus in manufactured goods with free trade nations. The sum effect of free trade agreements is to give U.S. exports the same access to foreign markets that their manufacturers have to our domestic market. Approval of the pending free trade agreements would lead directly to more U.S. exports to those countries, and hence more jobs in the U.S. One can reasonably ask why the sponsors of this legislation are opposed to creating jobs in the U.S.

Good question. More to follow…

]]> http://blog.canadianbusiness.com/new-trade-bill-would-require-obama-to-renegotiate-nafta/feed/ 0 http://blog.canadianbusiness.com/obama-speaks-out-against-tariff-approach-in-waxman-markey/ http://blog.canadianbusiness.com/obama-speaks-out-against-tariff-approach-in-waxman-markey/#comments Mon, 29 Jun 2009 14:33:04 +0000 Rachel Pulfer http://blog.canadianbusiness.com/?p=2972 On Sunday, President Obama told Waxman-Markey-bill drafters that he likes the vision of a clean green economic future in their sights, but wants them to lose the tariff approach they’re currently favouring to get there.

Finally.

“At a time when the worldwide economy is still deep in recession and we’ve seen a significant drop in global trade,” Mr. Obama said, “I think we have to be very careful about sending any protectionist signals out there.”

He’s referring to a provision in Waxman-Markey, which passed the House on Friday. It would penalize exports from countries that do not accept limits on global warming pollution by requiring the president to impose a “border adjustment” or tariff on certain goods from countries that do not act to limit global warming emissions.

The provision was, natch, designed to appease Rust Belt state lawmakers concerned about job losses in their high-carbon industries. (The New York Times reported the provision was “inserted at midnight the day before the bill passed.” That doesn’t give the full picture. Though the specific wording may have gone in at that time, aspects of this kind of thinking have been in place since this bill was first drafted, back in March of this year.)

Even if Obama has to spend a bit of political capital here, he’s smart to finally speak out against this particular bill’s efforts to move the goalposts on trade. Such barriers are designed to help American high-carbon industries adjust to a low-carbon future, largely at the expense of those who export to the U.S. Should the bill pass the Senate with this provision intact, it would wreak serious havoc on the business models of most high-carbon industries exporting to the U.S., upending global export flows at just the moment recovery is starting to kick in.

But perhaps it’s finally dawning on Obama that the optics of pulling this kind of trick could destroy America’s credibility as a global leader. It’s beyond absurd for the world’s second biggest polluter – and the country that uses up 24% of the world’s resources annually – to make this kind of move, now that it’s finally decided it wants to go green.

Of course, cautions about sending out protectionist signals come a tad too little too late for this President, given his decision to allow Buy American riders in stimulus spending to be enforced at the state and local levels of government back in February is now inspiring retaliatory measures around the globe. (Canada’s anti-Buy American effort, details of which I’ll be covering off in the upcoming issue of the print edition of Canadian Business, is relatively mild in comparison with the Buy China trade bazooka that that country pulled out a week and a half ago.)

However, given what’s at stake here, Obama’s action Sunday is better than nothing.

It’s the first time a national bill that attempts to put a price on carbon has been passed by either House.

Some, including President Barack Obama, heralded the bill’s passage as a major step forward on tackling climate change.

In a radio and Internet address that aired late yesterday, Obama said the bill was designed to spur innovation, rather than hamper economic growth. He called on senators to disregard its critics. “We must not be prisoners of the past,” he said. “Don’t believe the misinformation out there that suggests there is somehow a contradiction between investing in clean energy and economic growth. It’s just not true.”

The president said the bill’s passage is a testament to a changing dynamic in both the scientific community and in the public, which he said have become far more convinced of the dangers of global warming. “There is no longer a debate about whether carbon pollution is placing our planet in jeopardy. It’s happening,” he said. “And there is no longer a question about whether the jobs and industries of the 21st century will be centered around clean, renewable energy. The question is, which country will create these jobs and these industries?”

In the long term, Obama is right. Global warming is happening, whether we choose to ignore the fact or not. In relatively short order — a matter of decades — the economic impact of legislation such as this will seem like nothing in comparison to what’s in store for those companies that don’t figure out how to hedge their energy costs, or those coastal cities that don’t figure out how best to reduce their exposure to rising sea levels. As the Sir Nicholas Stern and other reports have shown, if left unchecked, business as usual’s economic costs will render debates about the short-term economic impact of carbon-pricing legislation entirely academic.

However, that analysis leaves aside the very salient question of whether now is the right time to bring in new legislation to price carbon on a significant scale. There is no question that attempting to price carbon during a fledgling economic recovery, when fossil fuels still power 95 percent of the U.S. economy, is going to result in severe economic dislocation – for industrial polluters, sure, but also for average American consumers who are existing on marginal incomes. (According to MASSPIRG, a Massachussetts-based public interest research group, Americans on average spend an astounding 20 percent of their annual income on transportation, more than they pay for food or even health care. Approximately 10 percent of Americans spend more than 50 percent of their annual income on transportation costs.)

Given the economic pain the United States is already experiencing, the timing of dramatic new legislation designed to push up the price of emitting carbon is inevitably going to complicate the recovery. What’s more, critics charge new green technology and transportation infrastructure is not yet at a point where it would be able to offset the shock of newly spiking crude oil and fossil-fuel-fired electricity prices.

As for Canada, the implications are even more severe. When oil hit US$63 a barrel, back in summer 2005, our economy tilted dramatically in favour of developing high-carbon unconventional fuels such as oilsands syncrude, as opposed to lower carbon energy plays such as wind farms and solar power plants. This bill, if passed, will amount to a form of economic shock therapy on the increasingly carbon-rich economy those and other decisions created. (It’s also not good news for other, more prosaic reasons, that have to do with new protectionist measures in the bill, covered in yesterday’s blog post here.)

The core of the legislation is a cap-and-trade system that sets a limit on overall emissions of heat-trapping gases. It would allow utilities, manufacturers and other emitters to trade pollution permits, or allowances, among themselves.

President Obama campaigned on a pledge to auction off all the pollution permits as a means of raising revenue that would then go to help industries adapt to the challenges of a world where carbon is priced. However, in order to get the bill passed, bill co-sponsors Henry Waxman (D-Calif.) and Edward Markey (D-Mass.) made significant concessions to industry: for the first five to ten years, many industrial players, including coal producers, will qualify for such permits for free. (From an economic perspective this is a good thing, as the increased costs coal-fired electricity producers would incur from purchasing those permits would most likely be passed on to struggling consumers. Environmentalists, however, charge that giving permits out for free to the largest polluters will function in practice as an incentive to pollute – the opposite of the intended goal.)

Another key part of the bill is the Renewable Energy Standard. Bill co-sponsor Henry Waxman started out with a plan that would require 25 percent of the country’s energy to come from wind, solar and biomass by 2025, with some compliance possible through efficiency measures.

The cap would grow tighter over the years, pushing up the price of emitting carbon. The goal is for industry to find cleaner ways of making energy.

Many in the U.S. are surprised the bill has gotten as far as it has, given the range of forces opposed. And the bill has yet to pass the Senate, where opinion on its merits is even more stark than in the House. Regardless of whether it passes the Senate, though, the bill can be considered a marker for the United States’ position when international negotiations on a new climate change treaty begin later this year.

Outside the formal political process, opinion on the bill in the U.S. is also sharply divided. Greenpeace opposed it, and many charge it is a hodgepodge of moves that will not ultimately achieve the goal of lowering emissions sufficiently to prevent cataclysmic climate change. The National Association of Manufacturers and the U.S. Chamber of Commerce also opposed it. It was, however, supported by many large corporations, including Ford.

What’s next out of this extraordinary country? Watch this space.

The bill will also have to pass the Senate before becoming law. But one way or the other, we’ll soon have much greater clarity on what is going to happen to Canadian oilsands exports to the U.S.; whether further protectionist barriers are likely to go up against Canadian exports of “high carbon” goods; and to what extent this Congress is willing to put teeth to the green legislation it has been bandying about since March.

In recent weeks, the Administration has been trying to make out as though there’s a juggernaut of support for this bill. However, according to Hill sources, it’s still unclear as to whether it will actually pass. The Dems need 218 hard yeses to get this bill through. Given there’s 254 Dems in the House, you’d think it’d be no issue, but there are holdouts, given frenzied opposition from, among other lobbies, shale oil and coal-producing states, farm states, and the Department of Defense.

In the latest horse-trading on Tuesday, bill sponsor Henry Waxman (D-CA) bought Agriculture committee chair Collin Peterson (D-Minn)’s vote after they reached a deal by agreeing that the Dept. of Agriculture will oversee the definition of a carbon offset, rather than the Environmental Protection Agency. (Cue another round of spiking food prices.)

In light of that deal, many undecided Democrats are now expected to back Waxman-Markey, and the New York Times has been reporting the vote as though it’s going to pass. However, the extra support from farm producers still doesn’t indicate everyone is on board. There are a handful of Democrats displaying outright opposition to the bill, including Mike Ross (Ark.), who was one of four Democrats to vote against it in committee. Ross issued a press release on Wednesday referring to the House bill as an “energy tax” and touting an alternative bill, the American-Made Energy Act of 2009, that he released this week.

The heart of the deal is a cap-and-trade on carbon produced by industrial emitters. The goal is to reduce carbon emissions by 17% by 2020 and 83% by 2050. Other major concessions include giving 85% of pollution permits to large industrial emitters such as coal producers away for free, rather than auctioning them off. (Originally the plan was to use those funds to pay for health care.) But despite frenzied lobbying from Alberta and Canada, what’s still in the bill doesn’t bode well either for Canadian oilsands producers or for Canadian manufacturers as a whole.

“We’ve heard talk of Buy China retaliation; Buy Australia … basically, this legislation has sparked Buy Local movements around the globe,” says Braddock. (Buy China isn’t just talk. Check out this report from the FT on new Buy China rules announced yesterday, and what they might mean for foreign companies.) What the Chamber is after, is a solution that ensures free trade for all.

Only 6% to 7% of stimulus funds have been deployed to date. And according to Braddock, Buy American has actually slowed down the stimulus effort in a few key ways. First, it’s created mass confusion as to who can or cannot bid on a stimulus-related contract. Second, it’s meant that some U.S. companies, such as Duferco Steel in Pennsylvania, have found themselves shut out of participation on recovery projects because of foreign products in their supply chains, putting, in this case, 450 American jobs at risk. Third, some U.S. companies have been prevented from bidding on stimulus-related government contracts overseas. (See Canadian Business editor Joe Chidley’s post on General Electric chief executive Jeffrey Immelt’s experiences for context.)

In the past week, the U.S. Chamber has gone very public on this issue. On Thursday, June 11, they held a press conference in D.C. to ask Congress to exempt state and local governments from complying with Buy American riders. That way, federal rules around procurement would truly be in compliance to the United States’ international obligations to other nations under the terms of free trade treaties – as President Barack Obama promised way back in February.

This, in Braddock’s view, is preferable to the legal sleight of hand that’s currently obtaining. Right now, state and local governments in the United States are, for the most part, not covered by international trade treaties. However, conveniently, most procurement decisions are made at the state and local goverment level. In applying Buy American only to state and local governments, the Obama administration has been able to claim it is honouring free trade principles at the international level – while requiring lower levels of government to do an end run around them.

In Saskatchewan, where part of my family is from, we have a good phrase for that kind of thing. Unfortunately, it’s not printable.

The U.S. Chamber’s effort was timed to coincide with a joint Hill lobbying spree by the premiers of Canada’s provinces and Prime Minister Stephen Harper. The Harper government is calling for exemptions for Canadian companies only from Buy American riders. Both the feds and the provinces want the U.S. to sign on to open procurement policies at all levels of government.

Of course, what the Harper government is calling for isn’t entirely what Braddock and his colleagues want. That’s because it’s not just Canada that’s affected by the Buy American riders. And in retaliation, Buy Local movements are taking root around the globe.

With Canadian municipalities voting in favour of retaliatory action last week, the United States has 120 days to roll back its Buy American riders on stimulus funds. If the riders aren’t rolled back, then Canadian municipalities will cut companies from countries with discriminatory procurement policies out of bidding on their contracts. And that, says Braddock, represents potentially billions and billions of dollars in lost business for U.S. companies – further hampering the American economy’s attempts at recovery. (Canadian cities buy roughly $15-billion worth of goods and services from U.S. suppliers every year.)

In a classic twist on the let’s-bash-up-on-Canada-regardless storyline, some north of the border seem to believe this is still (somehow) the result of lack of Canadian foresight and a missed opportunity. According to one analysis in a respected newspaper, the premiers of all Canadian provinces should have signed on to the World Trade Organization’s Agreement on Government Procurement years ago, thus securing reciprocal access to contracts in 37 American states.

Meanwhile, this thinking goes, competitor nations that did sign on to the WTO’s deal are blithely unconcerned about Buy American riders affecting their companies’ abilities to bid on stimulus contracts.

This reading misses two key points. It overplays Canadian agency in a situation that has been largely driven by U.S. domestic politics. Second, it overplays the reach of the WTO deal, which doesn’t apply at the municipal level – where much of the federal stimulus procurement effort is being made. Sure, Canadian business missed an important opportunity when the then-premiers decided not to sign on the WTO’s agreement way, way back. But doing that wouldn’t have solved much of the problem now facing Canadian companies operating down south.

Meanwhile, Buy American riders are popping up across the American legislative landscape. Two new bills that recently passed the House, the “Water Quality Investment Act of 2009” and the “21st Century Green High-Performing Public School Facilities Act,”  included “Buy American” mandates in their terms. These bills authorize billions of dollars in spending over periods of several years.

Right now, Buy American only matters for the two years stimulus funds are designated to flow. Once 2010 ends, Buy American is history. But if similar provisions become law in bills like these, then the U.S. is very much shutting its doors to free trade for the long haul. And that, for anyone who does business across the border, is a major problem.

The prospect of mild-mannered Canadian mayors bringing doofus-minded American protectionists to their senses is tantalizing — particularly as the effort appears to involve some cleverly worded resolutions, designed to give America just enough time to wake up to the global idiocy its protection-laced stimulus could potentially unleash.

Turns out I’m not alone: The New York Times‘ op-ed page has also been paying attention to the new Northern Threat. I quote a recent editorial, The Peril of Buy American:

…. “as states and municipalities start spending stimulus money, the idea is starting to look as counterproductive as it should have looked from the beginning. It is sparking conflict with American allies and, rather than supporting employment at home, the “Buy American” effort could ultimately cost American jobs.

Further…

According to the United States Chamber of Commerce, retaliation by Canadian municipalities could cost American water equipment companies an estimated $3 billion in lost business.

For more, check out the NYTimes’ op-ed on the Buffering Border here.

It would appear the U.S. Chamber of Commerce is indeed concerned. Check out a recent letter posted June 2 on the U.S. Chamber’s site to members of Congress, in which the U.S. Chamber lays out its position on this very matter here.

Three billion bills is a lot of bargaining power. And that’s just water equipment.

Being an incurable optimist, I’m currently seeing the Canadian resolution, passed Saturday, as a bluff to get the Americans to stop being idiots and start playing fair, now that it’s becoming increasingly clear that it’s in their own interests to do so. (Of course, I may be giving said mayors too much credit. It could be that some of them actually believe Buy Canadian is a good idea.)

Guess we’ll soon find out.

Obama took pains to imply that Chrysler’s bankruptcy provided a clear road map with which the United States could tackle GM’s version— with supposedly smooth results. Under yesterday’s terms, the United States federal government now owns 60% of the company. The governments of Canada and Ontario are to own roughly 12%, and have pitched in $10.5 billion to ensure GM Canada continues operations without going into CCAA, Canada’s version of Chapter 11.

All of this raises significant questions that I’ll get to in a minute. But on balance, the ho-hum reaction to GM’s news isn’t so surprising.

Firstly, this was not, shall we say, an unexpected event. A Wall Street lawyer with knowledge of the proceedings confirmed on Tuesday last week that GM’s bankruptcy was already in the works, and a Paul Weiss lawyer I’d spoken with in midtown on the Friday before the weekend was in fact convinced GM’s unsecured bondholders had already rejected the government’s terms. (He was wrong — a group of unsecured bondholders voted 54% in favour of a sweetened government deal that offered them 9 cents on the dollar on Saturday. But then again, New York is currently lousy with underemployed lawyers, whose firms, rather like the governments that oversee them, are busy dreaming up creative social-enterprise schemes to keep them busy. Probably his mind was elsewhere.)

Secondly, the Obama administration’s late March decision to force former GM chief executive Rick Wagoner’s retirement, combined with Chrysler’s controlled bankruptcy process and plenty of leaks from the administration’s media machine, indicated some kind of government-run bankruptcy has in fact been in the works for GM for months.

The President was at pains to stress yesterday that continuing to bail out the debt-burdened giant indefinitely was simply not an option; neither, given the automaker’s importance to the global economy, was an uncontrolled bankruptcy, a la Lehman Brothers. The solution? Rather than larding more debt onto GM’s balance sheet, the administration takes a 60% controlling stake in the company’s equity; a controlled bankruptcy ensures the company is split into good and bad parts (and that the company that emerges is viable and competitive). And we’re left with Government Motors.

There’s a fairly obvious US$30-billion-in-new-public-money-on-top-of-$20billion-already-promised problem with all this. It’s worth noting Treasury Secretary Timothy Geithner was in China last week, attempting to drum up more buyers for the ocean of T-bills required to finance his government’s financial commitments—of which GM is only the latest. Small wonder markets for U.S. sovereign debt have been balking of late.

There’s also the gigantic gamble the government is taking, in assuming GM can emerge from bankruptcy a globally competitive car-selling machine. Make no mistake, Obama’s comments about being a “reluctant shareholder” aside, every major decision the company makes from this point on—particularly decisions around new plants, layoffs and the energy-efficiency of new cars—is likely to be run through the mill of its political optics first.

Many worry publicly about what impact government-led attempts to meld a private company with other public goals will have on that company’s profitability. However, the blurring of mandates works both ways. As Maya MacGuineas, director of the fiscal policy program at the New America Foundation in Washington, D.C., points out, it’s now very much in the Obama administration’s interests for GM to succeed. “Failure to become profitable would imply failure of policy,” she says.

What’s more, MacGuineas points out, new energy taxes, plus the Waxman-Markey legislation on carbon emissions currently in the works in Congress, indicate any mandate for GM to produce, say, significantly more energy-efficient cars may actually help GM become profitable in the long-term. But we’ll see.

Of course, as with most heroic government efforts, what’s most interesting about yesterday’s announcements is what wasn’t said. For example, unlike our Prime Minister, Stephen Harper, Obama neglected to highlight that the government is likely to see little to no payback on its investment—at least in the short term.

Obama administration officials’ estimates for how long this process is likely to take are also likely overly optimistic, at 6 to 12 months. In a research note published yesterday, Barclays Capital analyst Brian Johnson estimated it will be more like 12 to 18 months. Johnson did however acknowledge that the government’s deal for bondholders—offering 9 cents on the dollar, as opposed to the zero-to-five-cent deal floated earlier last week—was better than expected.

“A significantly improved balance sheet, in our view, boosted potential recoveries for bondholders … and helped to win bondholder acceptance,” Johnson noted. “The potential capital structure of the ‘new GM’ has $17 billion of debt and $9 billion of preferred stock (that is, $26 billion of liabilities and preferred stock) versus our prior assumption of $48.3 billion of liabilities.”

He acknowledged the terms of the offer continue to favor the United Auto Workers over unsecured bondholders, which, as was the case with Chrysler, reverses the traditional order of payouts. But in Johnson’s view, the offer for 10% of equity and warrants for an additional 15%, along with the improved capital structure, make for “an improved recovery for bondholders.” (It should be noted Barclays Capital is advising GM, and presumably hopes to do business with the future company; this will likely positively influence their analysis of the bankrutpcy.)

All of this leaves aside one of the more interesting long-term questions: How policymakers will tackle a government bailout over three jurisdictions, using three different pots of public money, while officials on the U.S. side continue to promote Buy American stimulus procurement policies designed to keep American jobs at home.

Presumably, the Canadian governments’ investments mean GM Canada will not face inordinate job losses or plant closures. However, as of press time the company has (wisely) made no such commitment. Its release simply states that the company “contemplates no further plant closures at this time.”

Hopefully, the investments do however mean added leverage for Canadian policymakers when it comes to renegotiating the idiocies of Buy American. And Maya MacGuineas of the New America Foundation certainly sees the three governments’ cross-border financing efforts as a positive when it comes to maintaining free trade.

“Greater fluidity at the border of goods and labour is critically important to economic recovery. In an economy like this, it’s so easy for countries to lose sight of that,” she says. “We’ve seen glimmerings of protectionism on both sides of the border. That these investments are happening across all three governments can only be a good thing.”

Let’s hope she’s right. Because judging from the near-total lack of traffic of any kind at the Peace Bridge border crossing near Buffalo yesterday—a crossing manned by newly-armed Canadian officials, where, for the first time ever, passports were required to enter Canada by land from the U.S.—right now the cause of free trade could use all the help it can get.

At 18.7%, that card’s interest rate wasn’t great, and new debt piled. So when Capital One offered Lokanandi a new credit card with what looked like fabulous terms — zero percent interest for the first six months — he bit. He took the card, and transferred much of the debt he owed on the first card to the second.

What Lokanandi didn’t see was the fine print. Should he be late on a payment, or God forbid, miss a payment, Capital One reserved the right to hike the interest rate — to a whopping 23%. Sure enough, there came a day this past winter when Lokanandi missed a payment. Next thing he knew, he was paying interest charges of up to $90 a month on his fall debt.

Such personal indebtedness is rife on both sides of the border. One couple featured on Oprah on September 23rd of this year owned a home that was worth less than they had paid; had recently endured a layoff; had no health insurance; and were living off of 29 credit cards. Lokanandi’s case is mild in comparison. But all that debt adds up. At the end of 2008, Americans’ credit card debt reached $972.73 billion, up 1.12% from 2007. (That number, sourced from sector watchdog www.creditcards.com, includes both general purpose credit cards and private label credit cards that aren’t owned by a bank).

To mitigate against such a teetering mountain of personal indebtedness, today the Obama administration announced the passage of the Credit Card Accountability, Responsibility and Disclosure Act. The law is designed to prevent what’s described as “unfair” rate increases, put a stop to unfair rate traps and late fees, and ensure the terms of contracts that are disclosed in plain language, in plain sight. Credit card issuers have nine months with which to adapt to the new regulations. Hence Lokanandi’s and many other American consumers’ difficulties, as banks hereabouts tighten their terms of credit and jack up rates.

Of course, a law that is designed to protect consumers will also have a real and measurable impact on banks’ willingness to issue credit to consumers in the first place.

“This law signals we are moving back to an era of real underwriting and real pricing,” explained Ellen Seidman, financial services policy director for the New America Foundation in Washington, D.C. “We’ve all been free-riding for years on cheap credit; this law ensures people will have to pay for that credit in a timely and appropriate manner.”

In Seidman’s view, it’s the rules around how banks alter the interest rates they charge are likely to have the most immediate impact. “This legislation basically puts an end to the cheap-credit model,” she says. “In the past, any time an issuer became concerned about the ability of a customer to pay their past debts, they simply raised the rate they would charge. That is what they will not be able to do anymore.” That means fewer people will have access to credit. “But those who receive credit, will get it on terms that are priced more fairly, thus ensuring that credit will be repaid,” she said.

The new laws also imply a change to the way American workers get paid. People will no longer be able to use their credit cards as a form of bridge financing to supplement inadequate paychecks, Seidman said. To sustain demand, the wages of average workers may finally start to increase in step with inflation, after several years of remaining stagnant.

Similar legislation is in the works in Canada. This week, Finance Minister Jim Flaherty proposed nine new regulations that would rein in the use of credit cards. The highlights of those proposals include a 21-day grace period on new purchases, provided the outstanding balance is paid in full; card issuers must also supply consumers with notice before making a change to their interest rate on an existing balance. The Canadian proposals differ in that Flaherty is not pushing for legislation that limits a card issuer’s ability to increase rates “unfairly” on existing balances, or introduce most new fees. Issuers can still raise rates but they must provide the consumer with “adequate” notice before doing so.

It’s difficult to tell what impact this legislation is likely to have on the U.S. economic recovery—and by extension, that of Canada. But in the meantime, think it through: what do the Canadian proposals imply for your use of credit cards, and what is the new legislation’s likely impact on the U.S. economy, as it struggles towards recovery? Have your say at www.canadianbusiness.com.

]]> http://blog.canadianbusiness.com/cheap-credit-rip/feed/ 1 http://blog.canadianbusiness.com/dalton-mcguintys-new-york-moment/ http://blog.canadianbusiness.com/dalton-mcguintys-new-york-moment/#comments Thu, 21 May 2009 14:42:58 +0000 Rachel Pulfer http://blog.canadianbusiness.com/?p=2145 It’s mid-week at the Thomson-Reuters building in midtown Manhattan. Far aloft, on the thirtieth floor, picture windows give an unparalleled view of the ball that drops over Times Square on New Year’s Eve. And Ontario premier Dalton McGuinty is holding forth on his mother. “I know there are a bunch of Ontarians in the room,” he says to the assembled throng. “Well, this is a message on behalf of all Ontario mothers: it’s time to have you back.”

Gulp.

Veiled guilt trips about the brain drain aside, it was a good thing McGuinty came to New York to promote trade with Ontario. (It had been a while: his last trip here was in December 2003.) Ontario is the state’s biggest trading partner by volume—according to factsheets prepared by Statistics Canada, the two do some $23 billion in trade annually—and McGuinty was here to sell New Yorkers on efforts Ontario is making to preserve and expand that business.

His speech was a brief run-down of what Ontario’s been up to, and why New Yorkers should care. This included plenty of spending — $3.2 billion, for example, on nurturing an “innovation economy” in Ontario, with a focus on clean technologies, health sciences and digital media. He acknowledged the challenge of coordinating with the U.S. federal and state governments in their ongoing attempts to bail out the cross-border auto industry. And he cited the province’s commitment to build new nuclear power plants. That’s an overdue—if likely very costly—effort to bridge the energy gap created by his government’s efforts to close coal-fired power plants—with no clear plan of what was going to replace them.

The contrast between McGuinty’s effort and Stephen Harper’s New York moment was striking. Harper came to town in March, just after U.S. President Barack Obama’s visit to Canada. He invited media in — to stare at a closed door, then speak briefly with his spokesman.

That said, McGuinty also left no time for questions after the speech. So I asked him casually why his government had gone for nuclear over other options. He said he saw it as the best solution to a complex problem, and that the most interesting response he’d gotten to it came from U.S. state governors caught in the same energy-bind as Ontario—who were amazed Ontario could even attempt nuclear. (With Three-Mile Island and other nuclear disasters clear in the public’s mind, nuclear is seen as a less viable political option Stateside.)

The chief alternative to nuclear—at the scale required—is coal-fired power plants equipped with carbon capture and sequestration technology, in which the carbon burned by the plant is captured and stored underground. In theory, such technology allows for cleaner coal, which is both a cheap source of electricity and abundantly available. However, it comes with a roughly equivalent price tag to nuclear—estimates range at up to US$1.3 billion a plant. It’s also potentially dangerous  (like all gases, carbon dioxide in concentrated form is lethal to human health). And it has only been tested out over the past decade.

The technology to capture and store nuclear waste, on the other hand, has been proven over several decades. However, the issue of where to put that waste presents a tough problem—and the Ontario experience with nuclear plants in the past is not exactly confidence-inspiring either. It’ll be interesting to see how this all pans out.

McGuinty headed out soon after his speech, leaving a throng of navy- and black-suited New Yorkers and Canadians to mingle and talk shop. Of course, the business crowd was most struck by the Ontario premier’s pledge to continue to lower corporate taxes—currently at 14%, and slated to come down to 10% over the next three years. There’s also tax relief in the works for manufacturers, who have been suffering mightily from the double whammy of the high dollar and collapsed U.S. demand.

Commented John Leung, a Canadian businessman who works for a U.S. company in New York and has been here for more than 15 years: “Everyone this side of the border is raising taxes. It’s frankly refreshing to hear there’s somewhere that’s lowering them.”

Discussions of relative stressedness aside, US$75 billion is a lot of money.  That’s probably why Nouriel “Dr. Doom” Roubini was on CNBC at market close Friday, attempting to put a lid on the market euphoria that’s bubbling up all around him.

Meanwhile, Dow Jones Industrials closed up 165 points, capping a strong week. That indicates for this week at least, much of Wall Street has been getting back to what it likes doing best: piling into stocks, bonds and everything in between.

Likewise, the Bureau of Labor Statistics reported earlier today that the U.S. economy dropped 539,000 non-farm jobs in April. This is also apparently something to celebrate — analysts were expecting far worse.

Best of all, however, at least for the regrettably small number of us who despair of the lack of genuine competition in Canadian banking, is tidings of a new force heading north this year. Its mission: to boldly go where few international investment banks have gone before. Its goal: to set up a profitable I-banking business in the foreign-bank-averse Great White North. Its name: Barclays Capital.

The path BarCap is embarking upon is one littered with failure. But BarCap’s leader, Jerry Del Missier, is good at spotting opportunity where most see problems. He’s the guy whose deal-making skills helped BarCap eat Lehman Brothers’ most profitable divisions for lunch last September. And he’s Canadian—originally from Sudbury, ON. He’s worked in Toronto and understands the proclivities and eccentricities of our market—not to mention the profits to be had in such an uncompetitive environment.

All of which explains why JDM, as he’s affectionately known by his staff, is coolly confident BarCap will succeed.

Del Missier laid out the basics of his Canada strategy on a day that saw his parent bank, Barclays LLC, report eye-popping first quarter results (income up 42%, largely driven by the division he runs.) The core of their value proposition is global financing products and services available to Canadian businesses on all five continents. It’s to be an incremental build-out, with offices in Toronto and Calgary. More details will come to light later this summer.

Of course, it wasn’t so long ago that BarCap’s parent, Barclays, was selling off the crown jewels—in the form of iShares, a profitable and valuable exchange-traded funds division—in order to shore up its capital cushion and keep nosy British regulators out of its business. Analysts warn that the very real possibility of fresh shocks to Barclays’ business—say, more losses to the £77 billion in UK mortgages it holds on its books—bode ill for the parent bank’s prospects.

But with Barclays’ stock closing today at 161 pence, up from 95 pence just one month ago, investors are apparently willing to give the bank the benefit of the doubt. Which, of course, helps when planning new initiatives in places like Canada.

The other major risk in BarCap’s plan is that international capital won’t want to play. Historically, international capital has avoided making direct investments in Canada. That’s because our patchwork of securities regulators, lack of enforcement of securities laws, and all-around bad reputation as the Wild West of North American financial markets means it has historically been hard for Canadians to guarantee the security of such investments. Presumably this reputation could pose a problem to any investment bank looking to come into the Canadian space.

Many have treaded this path, only to retreat from the Canadian market in shambles. It’ll be interesting to see how this particular effort fares. More news this summer.

Now, of course, the Chrysler building is no longer owned by the troubled company. And a good thing too for the building’s tenants: Chrysler’s U.S. operations just declared bankruptcy.

In midday remarks, President Barack Obama said the Chrysler bankruptcy process will be “quick” and designed not to disrupt Chrysler’s operations. Thanks to sacrifices by the company, employees and big debtholders, not to mention the alliance with Fiat, “the necessary steps have been taken” to give Chrysler “a new lease on life,” he said. He also announced that GMAC has agreed to finance Chrysler sales.

If ever there was a moment of symbolism designed to gauge the health of American capitalism, this would seem to be it. Chrysler has been to the brink before, and survived—a government bailout in the 1970s kept the company from going under. But according to the Wall Street Journal this morning, talks stalled after a group of creditors refused to accept the Obama administration’s deal: US$2.25 billion in cash in return for an agreement by creditors to forgive US$6.9 billion of Chrysler’s debt. Soon afterwards, the company declared itself bankrupt.

Speaking in the foyer of the White House, President Obama was clear as to whom he blamed. “While many stakeholders made sacrifices and worked constructively, I have to tell you that some did not. A group of hedge funds and investment funds decided to hold out for an unjustified taxpayer bailout.”

Obama said it was “unacceptable” for a “small group of speculators” to endanger Chrysler’s future. But he expressed optimism that Chrysler, which makes brands including Jeep and Dodge, can be restructured through a bankruptcy filing: “This is not a sign of weakness but rather one more step on a clearly charted path towards Chrysler’s revival.”

This news casts a cloud of uncertainty over the future of the 54,000 people Chrysler directly employs. Tens of thousands more work for parts companies and in motor dealerships that depend on the firm for business. About 115,000 retired Chrysler workers depend on the company for healthcare and benefits.

Coming on the heels of months of job losses, the Chrysler news bodes ill for the recession-weary U.S. economy. But underneath the vaulting symbolism and dire prognostications of what this might mean is more prosaic reality. And in Chrysler’s case, the economic impact — measured in numbers of jobs lost — may be less dire than currently anticipated.

A report put out by the Center for Automotive Research (CAR) last December to bolster the companies’ first request for bailout money indicated the total number of jobs lost if all three Detroit auto companies went bankrupt would be 3.3 million. It assumed all these jobs would be lost in the same year as the company shutdowns.

But break out Chrysler’s share—54,000, plus several thousand more in indirect employment—then compare to the overall employment figures in the U.S. economy—133.6 million, according to the Bureau of Labor Statistics’ March statement, and we start to understand why the Obama administration did not push harder for a bailout.

This is not meant to dismiss or in any way downplay the very real economic pain that this news represents. But it’s not hard to see why the administration opted for bankruptcy as the best option for taxpayers. In addition, a report put out in December in response to the initial CAR report by the right-leaning Heritage Foundation, based in Washington, D.C., shows the CAR analysis did not account for those workers likely to bounce back.

“When workers lose their jobs, they don’t just shrivel up and die,” said that report’s author, policy analyst Karen Campbell, in a phone interview today. “Some will find new jobs servicing parts or retrofitting older cars. Others will find jobs in other industries. Those numbers, and that dynamic economic reality, isn’t reflected in the CAR study.

Campbell’s study makes a couple of other interesting points:

The assumptions employed by CAR …  assume that the Big Three simultaneously declare bankruptcy and shut down in 2009 and cease operations for a year. This assumption is divorced from bankruptcy reality. The usual practice in large-scale bankruptcies is for the petitioners to continue operations but at a reduced level. Because the automakers have suggested that they are at least 30 percent short of needed cash flow, a more reasonable assumption would be to reduce Detroit production levels by that percentage in 2009, 2010, and 2011 (the three years covered by the CAR study).

When the more realistic assumption is made, the estimate of employment loss plummets to 453,000 jobs in the first year, a figure 86 percent lower than CAR’s estimate. In other words, the CAR report inflates estimated job loss by a factor of more than seven.

In Campbell’s view, and clearly in the Obama administration’s also, bankruptcy makes sense as the company’s fastest ticket to solvency.”Chrysler is the smallest of the Big Three, so it’s going to have the smallest impact,” Campbell said. “And everyone involved has an interest in seeing Chrysler emerge stronger, so the hope is those aligned interests will help speed the bankrutpcy process.”

Unfortunately, this logic echoes a lot of the thinking that dominated government and Wall Street players’ mindsets just before Lehman Brothers declared bankruptcy. We all know how that supposedly logical, sensible decision played out. How markets and individuals react to news of a major bankruptcy at a time of economic strife is unpredictable—and the optics of this particular bankruptcy are harsh. It’s going to be an interesting ride.

One important distinction for Canadian readers: Chrysler Canada is a separate entity, and it is still a going concern. What’s more, the Canadian federal and Ontario governments seem determined to keep it that way. Both made midday announcements of fresh loans totalling CAD$3.77 billion designed to keep the company afloat.

This, says Campbell, is likely to work in the Canadian company’s favour in a couple of ways. First, there will be minimal economic dislocation. Second, provided the bankruptcy is as speedy as the Administration claims, the Canadian company will be in a good position to benefit from new business generated by a stronger, solvent Chrysler.

The carbon content is defined “from well to wheel.” That means the regulation takes into account the carbon burned to make the fuel, as well as the carbon released in burning it, when determining which fuels can be burned in that market. Fuels that are determined to be high in carbon-content are not welcome. The goal is to help California slash emissions in automotive fuels and spur the market for cleaner gasoline alternatives.

“California’s first in the world low-carbon fuel standard will not only reduce global warming pollution, it will reward innovation, expand consumer choice and encourage the private investment we need to transform our energy infrastructure,” Governor Arnold Schwarzenegger said in a statement yesterday.

At least 11 other states are considering similar low-carbon fuel standard policies. Draft environmental legislation proposed by Congressmen Henry Waxman and Edward Market to the House of Representatives recommends bringing national U.S. fuel standards in line with California’s. And U.S. President Barack Obama campaigned on a promise to put policies in place designed to reduce greenhouse gas emissions 80% by 2050.

Considering the carbon content of oilsands syncrude from the Alberta oilpatch is among the highest in the world, this development has significant implications for Canadian exporters of Alberta syncrude. These were first discussed in Canadian Business in Go Green or Go Home, published June 2007.

California does not yet represent a major market for oilsands syncrude from Canada. However, should a version of this law be adopted in the rest of the United States, the implications for both the Canadian oilpatch, in terms of reducing the carbon content of its fuel, and for the cost of transportation fuel in the United States, are immense. Canada supplies the United States with approximately 13% of its fuel supply.

The issue du jour? How protectionism has crept into draft climate change legislation in the United States. How it’s likely to affect Canada. And how best to head it off—before it becomes law, and real damage is done to our economy.

Last week, Page’s round table released a new report on how Canada needs to tackle the issue of climate change. Entitled Achieving 2050—A Carbon Pricing Policy for Canada, it sensibly rejected much of the Canadian federal and provincial governments’ efforts to date—including the piecemeal provincial approach and the federal government’s favouring of “intensity” targets on only the largest emitters.

Instead, Page’s report favours one clear national standard to price carbon across the country. (This is a solution Canadian Business’s editorial board has long preferred.)

Page has been at pains to stress that Canada’s future economic health depends on making these changes—as quickly as possible. And it comes not a minute too soon.

Like Page, everyone who exports energy and manufactured goods to the U.S. should be paying close attention to the wording of draft legislation tabled by Congressmen Henry Waxman of California and Edward Markey of Massachusetts on March 31 of this year.

That’s because the current wording of the new bill, titled the American Clean Energy and Security Act 2009, has major implications for Canada.

Under the segment titled Transportation Efficiency, for example, the bill proposes what amounts to a low-carbon fuel standard across the United States. If implemented in current form, that move would likely cut exports of oilsands syncrude out of the U.S. marketplace.

Worse yet, says Page, is the creeping protectionism embedded in the bill’s current wording—particularly the segment titled Ensuring Domestic Competitiveness. “The gist of the bill is that if any U.S. company complains that this program puts them at a competitive disadvantage, it will become eligible for rebates from the U.S. government that will allow it to continue to compete,” Page explains.

The bill goes on to state that if…

….the President finds that these rebates do not sufficiently correct competitive imbalances, he would be directed to establish a “border adjustment” program, under which foreign manufacturers and importers would be required to pay for and hold special allowances to cover the carbon contained in U.S. bound products.

What this amounts to is new tariffs on goods from countries whose climate change legislation is deemed by the U.S. to be somehow inadequate to its own standards. Explains Page: “This represents both a direct threat for products from the oilsands, and a threat to any Canadian product that represents a high fuel intensity — steel, cement, auto parts.” You can read a draft summary of the bill here.

Page acknowledges that we don’t yet know what kind of an economic hit this legislation is likely to represent. And it’s also important to stress that the legislation remains in draft form. Powerful entrenched constituencies in the United States — ranging from the coal mining industry, to advocates for those on low incomes, to consumer groups, to the Department of Defence—will be working overtime to get these bills changed.

But Page insists that the threat is real. “The protectionist elements of this are really aimed at China,” he says. “Canada’s getting caught in the downdraft.”

In Page’s view, the best way to head off the impact of this legislation is by bringing Canada’s climate change legislation in line with what the U.S. is considering. But that, of course, is likely to mean major economic pain and dislocation for businesses and consumers right across the country. So his report recommends a series of measures to offset that pain.

For example, it suggests the government continue with an idea Alberta is already implementing: that the proceeds from the sale of pollution credits at auction go towards a technology fund. That fund would then invest in technologies—carbon capture and storage, thermal power, energy-efficient technologies and renewables—that can help bring down the carbon content of Canada’s fuels and products.

Another likely offshoot: spiking oil prices, as high-carbon fuels are legislated out of the fuel supply. So Page’s report recommends some funds from the sale of credits be spliced off to help low-income Canadians most at risk from higher oil prices.

As for possible job losses: though the report doesn’t comprehensively tackle job training, Page says his group is closely following initiatives such as the Green Jobs corps currently championed by the White House’s green jobs czar Van Jones (see yesterday’s blog post—Meet Mr. Jones.) “The infrastructure program in the last federal budget should be looking at the green jobs area,” Page says.

Toronto-based cleantech investor Andrew Heintzman has also been watching these developments. He applauds Van Jones’ green jobs training idea in theory, but points out “you can’t put training for green jobs in place without clear markets for those jobs in the first place.” That’s why he’s been investing in cleantech start-ups.

Heintzman also serves on Ontario Premier Dalton McGuinty’s task force for greening Ontario’s economy. He acknowledges when it comes to finding clear leadership on climate change policy, Canada’s approach has been a bit of a mishmash. Ontario has feed-in tariffs to encourage the use of renewable energy. B.C. has a carbon tax. Alberta’s working with a form of cap-and-trade — capping emissions on the largest polluters and investing the sales of pollution credits into a tech fund. And as for booming Saskatchewan, well, according to an article published this morning in the Globe and Mail, that province’s environment minister Nancy Heppner said recently that it just doesn’t make economic sense for the province to attempt to meet its climate change targets— at least not for this year.

It adds up to a policy of madly off in all directions. And with Canada’s greenhouse gas emissions continuing to skyrocket, it clearly isn’t working.

“What amazes me is that we aren’t further along with this process yet,” Heintzman says. “We’ve known this was coming.”

Pragmatists hope that Page’s recommendations—which some in the oilpatch applaud for their clarity—will help Canada get its act together on the climate change file. For as Page sees it, some form of emissions reduction is going to have to happen in Canada, and it’s going to be painful anyway. Might as well figure out a clear policy now, to help businesses and consumers mitigate the pain—before the economy gets slammed with new green tariffs down south.

Canadian Business first wrote about Jones back in January 2008, when he was running the Ella Baker Center, a non-profit he set up in Oakland to help the urban poor find ways to participate in what Jones envisioned as the new green economy. A tall, charismatic man with a talent for boiling complex ideas into street-rhyme sound bites, Jones talked of a national training program to help the recently incarcerated and recently-laid-off find jobs weatherizing homes, installing solar panels, helping construct new public transit networks, and installing a new smart grid across the country.

Jones is also the author of The Green Collar Economy, a book that came out last fall. A bestseller on this side of the border, it set out Jones’ vision of training the underemployed as green tradespeople. Jones sees the green-collar economy as a way to solve urban poverty through making the United States more energy efficient. Think of it as a Green New Deal.

Now, Jones is on the inside, with the clout to make his vision a reality.

As Obama’s green jobs czar, Jones is directly responsible for deploying US$500 million in recovery funds for green-collar job training. The U.S. federal government’s Employment and Training Administration estimates—probably overly optimistically—that the US$787 billion stimulus Congress authorized in February in the American Recovery and Reinvestment Act could result directly in 3 million green jobs. Jones is the guy responsible for making those jobs happen.

A recent McKinsey report estimates governments and private enterprises could leverage already-existing technology to generate thousands of green collar jobs. The report, Pathways to a Low Carbon Economy, lists more than 200 opportunities, spread across ten sectors and twenty-one geographical regions. It claims they have the potential to cut global greenhouse gas emissions by 35 percent below 1990 levels by 2030, a reduction of 70 percent from the business as usual scenario.

There are plenty of problems with what Jones is trying to do. The most obvious is how to define a green job. Arguably the most successful green job initiative in North America to date has been the Bush-era corn ethanol subsidy — which scientists and environmentalists charge isn’t exactly green. (Studies from Cornell University and elsewhere show producing a barrel of corn ethanol requires significant inputs of traditional fossil-fuels. There are also major economic and ethical issues involved in diverting land from growing food to fuel.)

This issue, however, isn’t going to go away. According to a piece in Slate by Michael Levi, a senior fellow on energy and the environment at the Council of Foreign Relations in D.C., a recent United Nations report estimated that the heavily subsidized U.S. ethanol industry provides employment for 154,000 Americans. That’s about five times as many as the wind power industry and nearly 10 times as many as the solar industry. Argues Levi:

At its base, corn ethanol is not a green policy so much as a jobs policy—and its success in that respect has made it almost impossible for the government to change course.

What’s more, as David Pellow, a professor of sociology at the University of Minnesota who specializes in environmental conflict, points out, given the toxins and carbon footprint involved in manufacturing solar panels, for example, it’s likely other supposedly green initiatives of the green-jobs revolution may not seem quite so green once run through a rigorous filter.

Asked to explain how corn-ethanol-related jobs might fit into his green-collar vision for America on a White House conference call yesterday, Jones dodged. “We’re in a transitional stage with this,” he said. “Definitions are going to be fought over. What was once acceptable as environmentally sound may not be in the future.” The problem is, Jones’s boss, President Barack Obama, is a vocal supporter both of ethanol subsidies and of the clean coal constituency — the group that believes that it is possible to create a form of emissions-free coal-fired electricity, through carbon capture and sequestration. How those green-job definitions evolve will likely be more a matter of politics than anything else.

The second sticking point with Jones’s plan is, how to encourage the private sector investment necessary to fund demand for the green collar jobs the Administration is touting. From this point of view, it’s hard to see developers or under-water homeowners lining up to invest in expensive retrofits in the current economic environment.

Working in Jones’s favour, however, is new support at both the federal and state level for massive incentive programs encouraging developers to build green. Consider the generous system of tax credits to offset the upfront costs of green homes currently being piloted by the Republican state administration of Gov. Bobby Jindal in Louisiana. The first home built to standard under this new system is a single-family-dwelling constructed by Brad Pitt’s Make It Right foundation in the Lower 9th Ward in New Orleans. According to New Orleans, LA-based architect Gerry Billes, whose firm designed the home, that homeowner’s energy bill last month was US$3.

This raises one last question around Jones’s initiative—one that’s well known to those in Canada’s oilpatch. What happens to those employed in polluting industries, whose jobs may well be threatened or made redundant by a more energy-efficient America? As Levi points out:

… Every unit of energy generated from alternative sources displaces a similar amount generated by traditional means, so forgoing those other energy sources means giving up whatever jobs they were providing. This doesn’t mean that greening the economy will have no net impact on jobs, but it muddies the math considerably.

Right now, and perhaps unsurprisingly, given the questions it raises, there are few equivalent Canadian initiatives to Jones’ green-jobs effort. Andrew Heintzman is the chief executive officer of InvestEco,  a Toronto-based fund that invests in green businesses. He’s also a member of Ontario Premier Dalton McGuinty’s task force on greening Ontario’s economy. Speaking off the cuff, Heintzmann pointed me to Ontario’s new Green Energy Act, which, among other initiatives, offers funds to match those of private investors interested in seeding technology start-ups.

Green jobs will, of course, result as part of these efforts, as Tyler Hamilton of the Toronto Star points out in this report on EverBrite Solar’s new plant near Kingston, Ontario. And there’s a few other efforts—according to Jane Almeida, a spokesperson for the premier’s office, Ontario has invested recently in a training program for wind technicians. However, a comprehensive jobs-training effort aimed at ensuring those at the bottom of the economic food chain can participate in the new green economy is not part of the equation. It all adds up to an approach of wait-and-see.

We may not have to wait long, however. Recent developments in the U.S. indicate Jones may find his green-jobs programs deployed at scale—rather faster than he anticipates.

First, there’s the eye-popping unemployment numbers of the past few months. According to the U.S. Bureau of Labor Statistics, non-farm employment fell by another 663,000 in March. That’s 5.1 million people out of work since the recession officially started in December 2007. Clearly, the number of Americans in need of employment is piling up faster than Jones can generate the support to get his Green Jobs Corps set up.

Second, an Environmental Protection Agency ruling announced April 19 found that the rise of greenhouse gases in the atmosphere is directly linked to human activity. It’s the first time the EPA has acknowledged this link.  This should shore up Congressional support for cap-and-trade legislation in the United States—which is also closer than many realize. A draft version was introduced in March by Henry A. Waxman of the Energy and Commerce Committee, and Edward J. Markey of the Energy and Environment Subcommittee in the House of Representatives. This bill would establish a U.S. national cap-and-trade program for greenhouse gases, one whose impact will likely be to burden polluting industries with higher costs, while making energy-efficient solutions more economic. It would also impose border duties on imports from countries deemed to have lax climate-change rules.

That news, of course, has major implications for Canada. It’s no secret our country has, to date, been behind the eight ball when it comes to figuring out the job- and wealth-creation piece of the green economy.

However, the news out of the EPA and Henry Waxman’s climate change legislation indicates Canada’s focus is also about to change. The chairman of Canada’s National Round Table on the Environment and the Economy (NRTEE), Robert Page, strongly recommended last week that the country should also implement a national cap-and-trade system to reduce greenhouse gas emissions blamed for climate change. Figuring out some kind of intelligent green jobs strategy will be an important piece of that puzzle.

I’ll have more on that after I speak with Page tomorrow. But his findings—in tandem with the implications of the U.S.’s green shift—could mean Jones’ ideas do have some relevance for Canada, after all.