ICBC scandal adds to Liberal problems

Many scandals start with a bang then fizzle. When they go the other way — like the growing problems at ICBC — it’s a bad sign for government.
This one started when ICBC sent out a low-key news release in mid-February. It said the Crown corporation was investigating the sale of written-off vehicles from its Burnaby research facility. After the vehicles were used for testing, staff fixed some up and ICBC sold them. Up to 198 buyers might not have been told their cars had been written off and repaired, the release said. The issue was one of disclosure.
ICBC followed up March 19 with another news release. The first 277 words dealt with the disclosure issue.
Then in two paragraphs, ICBC mentioned that some employees had bought the vehicles and that there was “some evidence” that employees used the centre to have free repairs done on their personal vehicles.
Heads had rolled, the release hinted. And in the last paragraph it added that PriceWaterhouseCoopers had been hired to do an independent investigation into the centre.
This week, ICBC revealed more. Online auctions run through auto brokers were rigged. ICBC employees who wanted the repaired vehicles put in secret bids and were promised the cars for $100 more than the real top offer.
Legitimate bidders thought they were about to get a deal only to have it snatched away. How many times did this happen? ICBC doesn’t know, but it could be more than 100.
It’s a big embarrassment. ICBC is a monopoly; it’s supposed to operate in the public interest. And it’s fierce in finding and exposing corruption in others — repair shops that commit fraud or people trying to make phony claims.
And he problems follow last year’s scandal at B.C. Lotteries. The ombudsman reported the Crown corporation didn’t have procedures to protect people who brought lottery tickets from fraud, failed to respond when people complained they had been cheated and then misled the public once the problem became public.
That scandal cost the B.C. Lotteries CEO his job. Heading up ICBC — as the NDP has pointed out frequently — is Paul Taylor, who was the architect of the Liberals’ approach to budgeting and finance for the first three years after the 2001 election.
Handling all this fell to John van Dongen, hours after he was appointed to replace John Les as solicitor general. ICBC falls under that ministry – which doesn’t make obvious sense.
Van Dongen started well. He apologized to British Columbians for the lack of integrity and expressed his determination to get answers.
Then the answers – or non-answers – grew weaker. Van Dongen wouldn’t agree to release the already completed ICBC internal report. And he dodged NDP requests that he release the terms of reference for the ongoing PriceWaterhouseCoopers investigation. (The government says the report will be released when it’s done.)
The refusal to release the terms of reference raises big questions. There’s no need for secrecy. And the public has an interest in knowing whether the investigators have been giving a narrow assignment, preventing a full review.
By the second day of questioning, it sounded like that might be a concern — and that van Dongen was prepared to deal with it. The NDP asked again in the legislature for release of the marching orders handed to PriceWaterhouseCoopers.
This time, van Dongen said he had read the terms of reference and planned to speak with the ICBC board about them. And he said he expected the auditors to investigate and report on everything they considered relevant.
This affair doesn’t seem like a threat to Taylor, unless questions are raised about the response or it turns a lot of people knew this was going on. The CEO can’t really be expected to know about problems in a small corner of the business.
But the problems — like the B.C. Rail case and the Dobell affair — are starting to pile up for the Liberals.
Footnote: The government should be relieved that Les is not handling the scandal. His past performance in cases where questions have been raised about his ministry has resulted in self-inflicted damage to the government’s reputation. Van Dongen, despite his own brush with a special prosecutor, is a serious and credible person to handle the problems.

Understanding the subprime crisis and its real victims

Here's your chance to be the only on your block who understands the subprime loan crisis, what it
means for the average Canadian and why it's so alarming.
The crisis has driven down stocks and sent U.S. real estate values plunging. As a result, among other things,
demand for B.C. lumber has plummeted.
Canadian banks have lost billions. Thousands of families have lost their homes. The U.S. government, the
supposed free-market champion, has used taxpayers' money to bail out banks and investment companies that
recklessly lost money.
And some individual Canadians have seen their life savings vanish.
Here's what happened.
Once, banks lent people money to buy homes and then collected the mortgage payments for 25 years. They made
money as long as the payments kept coming. So naturally they were careful to loan to people who looked able to
pay them back. The banks also made sure the houses were worth enough that they could always foreclose.
About 30 years ago, very clever investment bankers had a good thought. They went to the banks and pitched the
idea of bundling hundreds of these mortgages together, calling them asset-backed securities and selling them as
investments, promising annual payments to the security holder.
The investors got a good return; the banks gave up some revenue but got all their money up front, instead of
waiting for 25 years; the middlemen got a big commission.
It was a success. A rising real estate market gave everyone comfort; even if a few borrowers did quit making
payments, the increase in value in their homes would ensure they could be sold for more than the debt. The
investors felt safe.
People and funds flocked to buy the securities. The banks and financial institutions needed to start writing a lot
more mortgages so they would have something to sell.
But now they weren't thinking much about whether the homeowner could keep making mortgage payments for
25 years. They were looking to find a buyer to take the debt off their hands within six months.
Subprime loans, they called them. Homeowners paid higher interest - which investors liked.
But they put nothing down, or got big mortgages they couldn't really afford. Lenders offered low payments for
the first two years - long enough to bundle the loans and flog them as asset-backed securities to investors.
And people rushed to get the mortgages and buy houses. We're optimistic. We figure we'll find a way to make the
payments. If not, our houses will have risen in value. We'll sell, pay off the mortgages and come out ahead.
Everybody was keen.
So imagine you're in charge of this business for a hot investment bank, pulling in $7 million a year. You have to
sell more secutiries this year than last, or you're toast.
Everybody got a little loose about quality. Banks make bad loans to new homeowners. Investment houses grabbed
dubious mortgages. Some were shifted on to unsophisticated investors, or they couldn't be sold and banks were
stuck with them.
Then it collapsed. Mortgage holders defaulted. Lenders seized homes but couldn't sell them, as property values
fell. Individuals found their savings had vanished.
The public corporations stuck with the securities on their books had to admit they weren't worth what the
managers had claimed - not even close. One big company, Bear Stearns, was worth $20 billion a year ago. Last
week, it was bought for $1.2 billion.
Shareholders and securities' owners got creamed.
And a lot of people made a lot of money along the way.
It's remarkable on one level. This was a business worth hundreds of billions of dollars that produced nothing. It
made money by persuading people to take increasingly greater risks in the hope of reward.
The lesson is that you can't really trust anyone. And the big guys don't pay a big price for their sins.
Footnote: Hearings have started on a proposed plan to settle with Canadian investors, including about 2,000
individuals who are being offered a fraction of the value of the securities. In return, they will have to give up their
right to sue the banks, investment houses and individuals who sold them the bad investments. The early reaction
has been fiercely negative.

Les resignation raises more questions for Liberals

The resignation of John Les and the revelation that he's been under police investigation since last June could add to the Liberals' headaches.
Les did the right thing, resigning as soon as he learned that the RCMP is looking into possible wrongdoing when he was mayor of Chilliwack in the late 1990s.
And, it's critical to note, just because the RCMP is investigating doesn't mean Les did anything wrong
But after dealing with the Dobell affair, and with the BC Rail corruption scandal still hanging over their heads, this is not good news for the Liberals.
And 48 hours after the surprise announcement at 5:30 p.m. on Friday - a favourite time to release bad news - the government still hasn't answered some important questions.
Worse, that task will likely fall to Attorney General Wally Oppal, whose mediocre performance in such situations keeps government communications types braced for a train wreck.
The first questions will be about why Les was able to keep his job as the province's top law enforcement officials for the last nine months.
The man responsible for policing - including, at least nominally, the RCMP - was under investigation by the force.
Les says he didn't know about the investigation until Friday, so he couldn't resign. Premier Gordon Campbell said Saturday he wasn't told about it, so he couldn't ask Les to resign.
So who did know? Specifically, did Oppal know? And was it the right decision by the assistant deputy attorney general to keep the investigation secret? That's who gets to make that decision.
The special prosecutor system was introduced by the Socred government in 1991. It was intended to reduce the risk of real or apparent political interference in police investigations that involved government.
If government lawyers were placed in charge of reviewing the evidence and deciding on charges in such cases, then they might fear career repercussions or feel other pressures.
So if a case involves a politician or government, the assistant deputy attorney general has the option of handing responsibility to an outside lawyer.
The ministry and the Law Society of B.C. collaborate on a standing list of lawyers to handle the assignments; the assistant deputy attorney general appoints one from the list.
It's a good framework.
But this case, along with the BC Rail investigation, raises questions about how well it's working.
The biggest problem in the Les case is the secrecy. If it was appropriate that he resign once the investigation was made public, why was it not appropriate that he resign when it began?
The government's Criminal Justice Branch says its "general practice" is to keep the appointment of a special prosecutor secret unless the public finds out about it somehow.
But the report that led to the creation of the process didn't call for that level of secrecy.
It suggested that the appointment of a special prosecutor be withheld from the public only when the information's release might undermine the investigation. That's not the approach the government is apparently taking.
The other questions will be about whether Oppal knew about the investigation and the special prosecutor.
The original recommendations suggested the attorney general could be kept aware of the progress of significant cases. Did Oppal know about this one? Did he consider whether the premier should be told, or Les should step down?
And would the public ever have found about the investigation at all if a CBC reporter hadn't forced the government's hand?
The Liberals will likely revert to the same kind of stonewalling they've used, with some success, in dealing with the Dobell case and the BC Rail scandal.
And they will point out, quite rightly, that everyone needs to remember that Les is innocent at this point. He says he's confident he'll be cleared.
But another cloud is hanging over the government.
Footnote: The original policy called for "senior criminal lawyers in private practice" to be appointed special prosecutors. But in the B.C. Rail case and now in this one, the ministry has picked lawyers who, while highly regarded, are not known for criminal work. Given the massive problems in the B.C. Rail case, this raises questions about why the change was made.