June 2, 1939

SC

Percy John Rowe

Social Credit

Mr. ROWE (Athabaska):

Mr. Speaker,

I have one or two observations to make-

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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?

Leslie Gordon Bell

Mr. COLD WELL:

On the point of order,

do I understand that the epithet used in regard to the Minister of Finance has been withdrawn?

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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LIB

Walter Edward Foster (Speaker of the Senate)

Liberal

Mr. SPEAKER:

I understood the hon.

member for Temiseouata to say that he would withdraw it provided the minister would say something. The minister has explained his point regarding the question of privilege of the hon. member for Temiseouata; I think the incident can be regarded as closed.

Central Mortgage Bank

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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SC

Percy John Rowe

Social Credit

Mr. P. J. ROWE (Athabaska):

I want to

thank the two speakers who have preceded me, the hon. member for St. Lawrence-St. George (Mr. Cahan) and the hon. member for Kootenay East (Mr. Stevens) for the comprehensive analysis which they made of this bill, of some of its defects and some provisions which might lead to abuse. I do not propose to deal with that aspect of the matter, but I should like to confine myself to an examination of some of the fundamental causes of the situation which this bill seeks to remedy. Before doing so, however, I want to thank the Minister of Finance (Mr. Dunning) for placing upon Hansard on May 6 a clear and concise analysis of the implications of the bill so far as it affects relationships existing between debtors and creditors. In that statement we have an admirable summing up of a relationship which is too seldom recognized. He said, as reported in Hansard at page 3665:

There is a secondary aspect of the problem which is sometimes given, I think, too little consideration, and that is the fact that while the mortgage debtor is in difficulties, particularly when he is a debtor who cannot fully meet his obligations under present conditions, it is also true that the creditor to whom the mortgage debtor owes the debt is himself a debtor.

I can illustrate that by taking two very common examples. If the creditor of the mortgage debtor is a life insurance company, the life insurance company is in turn debtor to its policy holders. Most mortgage companies are debtors to two classes of people, their debenture holders and their savings depositors. A trust company is in the same position; so when in our figuring we stop at the primary debtor and fail to follow through and remember that the creditor of the primary debtor in the great majority of eases is also a debtor to a great group of creditors, very often a large proportion of the people, we are not taking a realistic view of the mortgage problem. I think all too frequently people in approaching this problem indulge in denunciation and condemnation without enough examination, and I want to commend the minister for making a clear and concise statement showing just what our problem is.

Having said that, I want to state that the difficulty which this bill seeks to rectify is the result of world factors over which we have little control. At the present stage of our system one of the great causes of our trouble is fluctuations in the price level of primary commodities, which is one of the factors contributing to booms and depressions. To show graphically just how this affects the position of the farmers of the west, I want to quote just one sentence from the brief submitted

to the Rowell commission by the government of Saskatchewan:

Obligations which often proved difficult to support with good yields when wheat sold at $1.25 per bushel, quickly became impossible to meet in terms of 40 cent wheat at lower yields.

Of course that is the cause of our trouble. In 1937 the Manitoba cooperative societies submitted to the royal grain inquiry commission a brief in which they made some startling statements. In this brief they outlined the comparative gross income of the three prairie provinces from the sale of primary products for the periods 1926 to 1930 inclusive and 1931 to 1935 inclusive, as follows:

1926-1930 1931-1935

Manitoba $ 622,565,000 $ 285,047,000

Saskatchewan. .. 1,661,413,000 631,012,000Alberta

1,243,335,000 674,666,000

In other words, there was a decline of more than fifty per cent.

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

That is, comparing the two five-year periods?

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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SC

Percy John Rowe

Social Credit

Mr. ROWE (Athabaska):

Yes. This decline in the gross revenue of the farmers of the prairie provinces would be sufficient to pay off the total bonded indebtedness of the three prairie provinces, the total bonded indebtedness of all municipalities and the total mortgage indebtedness of all the farmers in the prairie provinces, with eifough left over to finance the three provincial governments for the next twenty years with the suspension of all existing taxation. There you have the real cause of the trouble facing the debtors of western Canada.

Just what are we doing about that by this legislation? It might be illuminating to take a glance at the incomes of the people of Canada, to show what type of investor will take up the bonds of the mortgage bank. These bonds will be taken up by people whose incomes are large, derived from the ownership of factories, mines and other assets which produce profits, rent and interest. A glance at the chartered bank returns to the Department of Finance for October 31 last will illustrate what I mean. In these returns I find that there are 4,122,963 savings deposits in the chartered banks of Canada, and of that number 3,797,481 accounts have an average balance of $119. In other words, over seventy-five per cent of all the savings deposits of Canada have an average balance of only $119. Obviously that group of depositors will not subscribe to the debentures of the mortgage bank. Coming down to the other end of the scale, or perhaps I should say "coming up," I find 2,541 accounts having an average balance of $44,030, or a holding of $111,880,230.

Central Mortgage Bank

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

But those are not personal accounts; those are the current accounts of large corporations.

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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SC

Percy John Rowe

Social Credit

Mr. ROWE (Athabaska):

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

Not the big accounts.

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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SC

Percy John Rowe

Social Credit

Mr. ROWE (Athabaska):

It would be

slightly less than that.

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

If my memory serves me correctly, our banks do not pay interest on deposits exceeding $50,000.

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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SC

Percy John Rowe

Social Credit

Mr. ROWE (Athabaska):

That is quite

right, so their earnings would be very small. Therefore it would be the natural thing for these people to seek a more remunerative investment for their otherwise uninvestable surpluses.

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

They could get that now

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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SC

Percy John Rowe

Social Credit

Mr. ROWE (Athabaska):

According to

the Manitoba brief submitted to the Rowell commission the income of Canada for 1934 was $3,600,000,000, to which should be added $100,000,000 received in that year by way of interest and dividends paid to Canadian capitalists by other countries. That gives us a total of $3,700,000,000. One-half or $1,840,000,000 is paid out in wages and salaries. The farmers got $440,000,000 of it, or 12 per cent. Then $300,000,000, or 8 per cent, went to the groups classified in the census as employers and workers on their own account-small merchants, home workers, fishermen, professional people with incomes from fees, and the like. The remainder of that income would go to the class of persons I have just been describing as having $297,000,000 in their savings accounts. I have pointed out several times in the house that those incomes do not come from services rendered in the production of food and clothing. They come from investments and ownership of property. So that what we are now doing is handing over the debtor class and the farmers to a group of people who are not workers or producers.

In that connection another point I should like to make is that the farmers are being given a reduction in interest rates on their mortgages. I quite approve that. But the farmers are operating at a loss. No business can operate on a basis of being unable to 71492-3091

obtain for its products the cost of operation and production. That is a state of bankruptcy, and the state in which the producers of western Canada now find themselves.

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

The wheat producers.

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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SC

Percy John Rowe

Social Credit

Mr. ROWE (Athabaska):

Yes, and that applies to coarse grains and dairy products, because those commodities fluctuate in sympathy with the price of wheat. The farmers are operating at a loss. We are asking and expecting them to pay five per cent fixed charges on their fixed obligations, so to speak, when they are unable to meet their operating expenses. The fluctuation in the dollar value is illustrated by the fact that in 1928 it took the same number of bushels of wheat to buy three binders as it required in 1938 to buy one binder. That disastrous fall in price levels is really at the bottom of our troubles in western Canada, and I believe in eastern Canada, too.

Much as I appreciate the efforts of the minister and the government to meet the situation confronting us, this looks to me like an attempt to rearrange the consequences of something, without examining the cause. That applies, of course, to all the palliatives and all the hand-to-mouth methods now being employed to meet a situation that is deep and fundamental. Unless we can succeed in raising the price levels of our exports of wheat, coarse grains, live stock and dairy products, palliatives of this kind will not prove to be a solution of the problems of the primary producers in western Canada.

Hon. CHARLES A. DUNNING (Minister of Finance): Mr. Speaker, I shall say but

little in closing the discussion. Listening to the last speaker's thoughtful address I gathered that his principal complaint was that the bill does not bring about the millennium. It does not seek to.

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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SC

Percy John Rowe

Social Credit

Mr. ROWE (Athabaska):

And it does not

attempt to.

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

It seeks to deal with a specific part of the economic problem and not to bring about a new heaven and a new earth. Neither does it purport in any particular to attempt to deal with the export values of our commodities which, as the hon. member has properly said, is largely responsible for the inability of some classes of producers to meet their fixed charges. I take it that while the hon. member damns the measure with faint praise, he takes the view that it is better to accept it than to refuse to support it.

With regard to the observations of the hon. member for Kootenay East (Mr. Stevens), here again we find an instructive, analytical

Central Mortgage Bank

and critical address but, may I say, one which does not propose any alternative, and one which, generally speaking, was more favourable to the bill as a whole than one might have expected. The criticism that this new organization will be tied up to the Bank of Canada was made by the hon. member for Kootenay East in the banking and commerce committee. There is a difference of opinion between us as to the advisability of adopting the course here proposed. I believe it to be most practicable to have.tMs governmental institution handled in the way prescribed by the bill, and placed under the control of the governor of the Bank of Canada. I disagree with the idea that this is a mortgage institution. It will not itself take mortgages; it will not itself value lands; it will not itself be dealing with mortgage debtors. It will be engaged in the business of providing refinancing facilities for those who are engaged in that business. And hence, as I said in the committee, the term "mortgage bank" most accurately describes, in my judgment, the functions which this institution will perform. I believe it to be desirable to concentrate control, rather than to create an entirely separate institution, partly because of the experience in other countries with respect to various financial measures. For instance, in the United States there are entirely separate governmental financial agencies set up to deal with different aspects of the same general financial and economic problems. In Australia the mortgage aspect of finance is combined with the ordinary banking aspect of finance, in the governmental banking institution of that country. There is a definite mortgage branch of the central governmental banking institution of Australia. Looking over the experience in other countries in that regard, the government reached the decision indicated in the bill regarding the connection between the two institutions in this country.

The hon. member for Kootenay East left the wrong impression in one particular when he said he did not agree that the state or the treasury should pay anything in order to secure a reduction in interest for people who could pay interest in terms of their existing contracts. That statement is likely to lead to a misconception. There is nothing in this bill to provide for any payment from the treasury with respect to reductions in interest in the future which may be brought about by the bill. That is to say, if a farm mortgage is adjusted within the terms of this statute and the future rate of interest is reduced in accordance with the terms of the bill to 5 per cent, the state does not make any contribution toward that reduction in interest rate for the future.

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

I do not think the hon. member for Kootenay East (Mr. Stevens) said otherwise. -

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

That is what I gathered from his remarks. I may have misunderstood him, but that is the impression I got and I wanted to make it clear to the house that this is not the case. The mortgage corporation bears the loss with respect to the reduction in interest rate for the future.

The hon. member for Kootenay East also expressed the fear that as a result of this legislation lending institutions would tend to concentrate their activities in those parts of the country where conditions were more settled and where the security was best, and that this might have the effect of depriving other areas of facilities for borrowing on mortgage. The lending institutions of this country are now and have been for some time looking for places to invest their money. There is a steady flow of money into our life insurance companies in the form of premiums, and if the actuarial obligations of those companies with respect to their policy holders are to be met there must foe a constant investment of the funds received in the form of premiums. The investment pressure is constant on that class of institution particularly.

I think all of us know that these institutions are looking for investment for their funds. There will always be certain localities and some classes of risks which will be regarded more favourably by lenders than others, but experience will indicate what is the course of wisdom in that regard. May I point out that in these localities the pressure of competition as between lenders is greatest. May I point out further and in conclusion that I have two hopes with respect to the legislation now before the house. One is that it will be possible for lending institutions to be created in parts of the country which heretofore have been considered at a disadvantage and that these companies will take advantage of the refinancing provisions of the bill with respect to new money required for mortgage lending purposes. While I do not believe that this bill will bring about the millennium, I believe it is a comprehensive attack in a sane and reasonable manner upon what is acknowledged to be one of our greatest Canadian economic problems.

Topic:   CENTRAL MORTGAGE BANK
Subtopic:   PROVISION FOR INCORPORATION, PURCHASE OF SHARES, GUARANTEE OF DEBENTURES, ETC.
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June 2, 1939