AFTER THE STORM
Early in 2009, stock markets and economic activity continue to drop. After surviving a political crisis in which three opposition parties try to take it down, Stephen Harper’s minority government in Ottawa assembles a plan to boost the economy as unemployment soars.
Flaherty: When we decided to run the big deficit in January, 2009, I had to talk to the opposition, because we could have been defeated. I give the opposition at the time credit for recognizing what a serious situation the country was in. … They easily could have defeated the government. They could have said, ‘You guys are responsible, you’re running a huge deficit, you said you’d maintain a balanced budget, [but] you’re not. We’ll have an election in six or seven weeks and see what happens.’ I mean, they could have done that. But they saw the better good.
Vachon: I recall Mark Carney – it was either January or February of ’09 – calling me. … I’m not sure to what extent they were seriously considering doing quantitative easing in Canada, but they were musing about it. Mark wanted to know what I thought about it. I said, ‘Mark, I’ll give you a gut answer. I don’t have a scientific answer but I’ll give you a gut answer. I don’t think it’s necessary.’… We have a bit of a recession, but we don’t have a collapse. We don’t have a collapse in liquidity. We don’t have an explosion in loan losses. Quantitative easing is the nuclear weapon of monetary policy.
Flaherty: There were lots of discussions. I’m opposed to quantitative easing, printing money. Bernanke and I have had some lively discussions on the subject, and I disagree with him.
Ultimately, the Bank of Canada keeps interest rates at ultralow levels but holds off on more extreme measures. Starting in March, 2009, the markets hand the policy makers a much-needed gift: a massive rebound. From its low on March 9 to June 30, the TSX composite index skyrockets 37 per cent.Some major companies still must prove they can survive. In early 2009, governments in the U.S. and Canada engineer a taxpayer-funded rescue of General Motors and Chrysler.
Meanwhile, Vancouver-based mining company Teck Resources, which inked its $14.1-billion (U.S.) acquisition of Fording Canadian Coal on the eve of the financial crisis, fights to refinance its debts and stay out of creditor protection.
Lindsay: I’ll never forget at Christmas , I was in my cabin in Whistler and I’d put my two daughters to bed because I was a single dad. And I was sitting there staring at the bar and I was thinking, ‘God, what have I done and how am I going to get out of this mess?’ No one believed that we were going to make it.
In April, 2009, Teck strikes a deal with its lenders to defer $4.4-billion of loan payments, and later sells $4.2-billion of new debt. China Investment Corp. takes a $1.74-billion stake in July, and the company’s survival is assured. But as its problems subside, Manulife Financial, another struggling company, is forced to make tough choices. In August, the life insurer slashes its dividend in half.
Guloien: It was a very difficult decision because it’s not something you do lightly. … I knew the earning capacity of the company wasn’t going to be as great as the numbers reported [in the] past. When you know the numbers in the future aren’t going to be, in the short term, anything close to what they were before, you have an obligation to talk about that and reset expectations.
Manulife’s bearish outlook proves warranted. It is a long, slow climb back to stability. The economy enters a prolonged period of sluggish growth and the central bank holds down interest rates, hoping to spur consumer spending and stimulate the economy.
Signs of life are seen in the auto sector, as sales begin to rebound, and in the housing market, where mortgage lending grows.But though the world looks upon Canada as having weathered the storm, there is still unease among government and business leaders about resting on those laurels.
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