Wednesday, December 07, 2005

Income trust announcement

Kinsella's post today on this growing fiasco emanating from the profits people made before Ralph Goodale announced that the government would not be changing the tax rules for income trusts and would be decreasing taxes on dividends. As I see it there could be three explanations for the pre-announcement trading:

1. Investors found out about the news conference and correctly guessed what was going to be said.

2. Someone other than Liberal politicians, who rightfully had this information before the press conference began (either through carelessness or design) the chain of communication that disseminated this information.

3. Liberal politicians began (either through carelessness or design) the chain of communication that disseminated this information.

Please note that I am specific about placing the responsibility on the person who was first to "leak" this information. As I understand the law, only a person who has a fiduciary duty to keep information confidential is prevented from communicating or trading on that information. So, if someone trades on a piece of information that they cannot be reasonably expected to think is "insider" information they have done nothing wrong.

Case number one looked like the most innocent and probable explanation at first (and with proto-scandals this is usually the safe bet). It's hard to believe that the Minister of Finance could get a room full of cameras and reporters together for an announcement at 5 PM without someone knowing that it was happening before 4:30PM. Problem is that the CTV news story states that "skuttlebutt" (as some illiterate chat room poster put it) had begun circulating by 11:14 AM. Also, if investors only knew that there would be some announcement and even if they knew it would on income trusts there is no reason for them to know it was positive. Even if this was a fore-gone conclusion the news should already have been priced into the market. Also, this doesn't account for the movement in dividend-rich stocks.

Case number two has a staffer, civil servant, private consultant, whomever who knew about the content of the announcement as the culprit for starting the communication. Right now this seems like the most likely explanation but by no means absolves Goodale or other Liberals involved. They must have known the sensitivity of this announcement and therefore should have taken exceptional steps to prevent any leaks. Furthermore, the feet-dragging in terms of a public response is quite disheartening.

Case three has, as Kinsella implies, someone Liberal and elected whispering the good news to friends who then traded on the information. The obvious first objection here is that the potential loss for Goodale et al seems much greater than the gain. Why would they share such information when they know the likelihood is, at least, greater than zero of being caught? Well, for one they depend on the donations of friends to run campaigns, and what do you know we're in a campaign right now. Also, if politicians always made reasonable cost-benefit analyses in situations like this we wouldn't need the word "scandal". Perhaps the information was shared with someone who they knew to be discreet (and was) enough to take a small profit only for themselves but this sharing expanded the number of people in the second category (secretaries, spouses, brokers, drivers, etc.).

Whatever the explanation this definitely is dangerous for the Liberals. Slow developing scandals like this can easily derail an otherwise winning campaign. This scandal would probably have been less dangerous twenty years ago before the average voter understood (or cared) about insider trading. The Liberals, though, can thank Martha Stewart for bringing everyone up to speed on it. If nothing else this story will definitely increase the volatility of the campaign going into the first debate.


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Blogger TonyGuitar said...

Is this logic sound?

Save the Liberal party. Replace conservative industrialist Martin with a * Liberal *leader.

While my personal politics don't really matter, I think it is important to talk to as many undecided voters as possible and present this overview.

Liberal Voter ?

This time I*m voting for Harper because the Liberals need a time out to clear out the dead wood and renew . Respect for liberals is at such a low ebb, that if elected as a weak minority, the Liberal Party could go out in flames just as the Social Credit party did in B.C.

Industrialist Paul Martin at the helm makes the Liberals more of a Conservative Corporate party rather than a true Liberal party. Martin fired his Canadian marine crews and hired on non-union Central and South American crews. He also registered his Canadian Steamship Lines in Barbados in order to avoid paying Canadian taxes.
The Liberal party needs a liberal leader.

Those moves are acceptable for an industrialist but they are not appropriate for the Prime Minister of Canada. Martin is banking on the fact that most Canadian voters simply do not have the time to read the news in detail in these busy modern times.

You may be aware of the Sponsorship scandal, but that is only the tip of a very big iceberg. There are well over 200 losses and thefts of Canada*s public funds and the list is still growing.

These losses run well into the billions of dollars and have contributed to the loss of services in emergency hospital departments, schools, and countless other areas.

Today’s NDP literature refers to a minimum total scams figure of $10 billion.

Time for a Conservative vote. If the Harper team fails to do the job, we can always vote the Liberals back in and by that time the Liberals will have a new respect for integrity and efficiency and a real *Liberal* leader.
Sound logical? TG

5:03 AM  

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