The Globe claims to have the inside scoop on how this all came down "Income-Trust Crackdown: The Inside Story".
Ironically, it was the courtesy call placed to Finance Minister Jim Flaherty by BCE's Michael Sabia that appears to be the catalyst in the equation.
Astute investors might have picked up some nuances. When the PM was speaking at the Toronto Club after BCE had announced its planned conversion, Harper was asked point blank about the issue:
“Harper hummed and hawed and basically avoided answering,” said one CEO in the room. “I took it as a sign that this was something the government was worried about.”
The market never caught on. Indeed, Mr. Flaherty's decision was made several weeks ago, with the intervening time spent hammering out last-minute details.
I recall several times when I heard Flaherty being asked by MSM about the BCE and Telus announcements, and he always expressed concern. That should have been a warning sign right there.
We now come down a fundamental question - What is integrity? Is it better to keep a promise no matter how much the variables change as time progresses, or is it more principled to break a promise for the greater good; even at the risk of political peril?
It would have been so easy for the government to turn a blind eye to what was obviously turning into a very serious domino effect of corporate tax evasion and unsound financial practices.
The Toronto Sun's Linda Leatherdale caught up with forensic accountant Al Rosen for his POV:
Bay Street's outspoken critic of income trusts, Al Rosen, applauded Flaherty for having the guts to clamp down on what he calls a dangerous investment scheme, which countries like Australia and the U.S. have banned.
"Seniors have to understand there is a fair bit of accounting gimmickry holding up trust values," said Rosen, a forensic accountant with Rosen & Associates. "When they understand how the tricks work, they'll be glad they got out."
Rosen, who's tracked returns on income trusts, estimates only 20% of them are on solid footing. His advice is unless you own one of the more solid trusts, "you should be out while the chances are still okay," Rosen said.
So if we accept that it was the right move, was it done the right way? Some people like Garth Turner suggest that it could have been done in stages, to soften the blow to investors.
I think the minister of finance could have declared a moratorium on new conversions, struck a blue ribbon panel to study the industry and eased in regs over the past few months making it crystal what direction the feds were going in. That would have allowed for a more orderly, less panicked correction, and kept from scaring the crap out of a few million seniors. It would have been a kinder blow. But if you’re a prime minister planning an election in a few months, and want nasty things done now so people will forget about them, well, you pick another route.
But if there's one thing the stock market hates, it's uncertainty. Perhaps the Finance Minister reasoned that it was better to rip the bandage right off, rather than one painful hair at a time.
Some financial advisors are saying that now is a great time to hunt for bargains in the stock market. If that kind of attitude prevails, the market will recover. The political fortunes of the Conservative party is another thing.
It will depend on whether voters see this measure as a broken promise or rather a necessary intervention to protect investors in the long term, and ensure the continued national economic health.
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Another great analysis by Terence Corcoran at the National Post - "Flaherty fix killed a gimmick".