Where is Roxham Road?
Guest: Frank McKenna, Deputy Chair, TD Securities
Host: Peter Haynes, Managing Director and Head of Index and Market Structure Research, TD Securities
In Episode 37, Frank deep dives the immigration complexities of North America, in particular the issue of refugees seeking asylum from the USA into Canada via irregular ports of entry not covered under existing immigration agreements between the two countries. He admits there is no easy solution to the US's Southern border refugee problem which is complicated by the fact it is not just Mexicans using its border to enter the US illegally. Frank discusses the rhetoric between Russia and Ukraine at the one year anniversary of the War and explains why an audit of Western Aid during a war is all but impossible. He finishes with a look at the Dominion Voting Machines lawsuit of FOX News, which judged in the court of public opinion is a slam dunk victory for the plaintiff.
FRANK MCKENNA: I think the responsible Republican leadership is squarely behind the administration's efforts, and I think President Biden deserves a lot of credit, actually, for keeping the NATO coalition together.
PETER HAYNES: Welcome to episode 37 of our monthly TD Securities podcast on Geopolitics with our guest, the Honorable Frank McKenna. My name is Peter Haynes. I'll be your host for today's episode entitled, "Where the heck is Roxham Road?" Before I get started, I want to remind listeners that this TD Securities podcast is for informational purposes. The views described by Frank and me in today's podcast are of the individuals and may or may not represent the view of TD Bank or its subsidiaries. And these views, of course, should not be relied upon as investment, tax, or other advice. Well, Frank, today is legal day 1 plus a day of our merger with Cowen in the United States. So it's a big deal for TD Securities. We're a bigger firm with a bigger footprint south of the border. That's something that's been definitely keeping my attention. I'm curious, over the last month, what's been keeping your attention?
FRANK MCKENNA: The world is just getting increasingly complicated and in many ways more dangerous. The Ukraine situation is not diminishing in its seriousness at all. If anything, it's escalating. And, of course, we're seeing potential tie-ups even in terms of weapons procurements between China and Russia. We're seeing Iran getting increasingly close to being able to be nuclear. It just seems everywhere we turn, we're seeing just a little bit more danger being placed on the scale. So those are some of the things that I would worry about.
PETER HAYNES: Well, the fact of the matter is for someone like yourself who studies these issues in detail, it keeps you busy. There's no shortage of topics. And we have some interesting topics we'll start off with in our home country here in Canada. And I'm going to start with the Roxham Road. A month ago, I suspect, less than a handful of Canadians had heard of Roxham Road, but now it is the lead story in Canadian media. For 20 years, Canada and the US operated border security under an agreement known as the Safe Third Country Act. Under this agreement, refugees that sought asylum must do so in the first country they reach. As such, asylum seekers entering Canada from the US and vice versa will be sent back with one main stipulation, and that is as long as they entered via an official port of entry like the Rainbow Bridge, say, in Niagara Falls. Roxham Road, which is a small road that links northern New York to Quebec, is what is known as an irregular port of entry, and is therefore not covered under the STCA. For years, refugees entering the United States with the goal of getting to Canada have crossed into Canada on foot at Roxham Road. And from there they're handled by border security, and in many cases granted asylum. Recently, the number of refugees crossing illegally at Roxham Road has risen parabolically. In fact, I think in 2022 the number was twice as high as the previous record, which I believe was set in 2017, and I think it was something like 35,000 or 40,000 people had crossed. This has put huge strain on Canada's immigration system, and it's forced Quebec to send many of these refugees to other cities in Canada. The province of Quebec has asked the federal government for help. The federal government claims it's negotiating with the US to solve this problem. The US ambassador is claiming otherwise. Conservative opposition leader, Pierre Poilievre, suggested Canada should just shut down Roxham Road within 30 days. Prime Minister Trudeau says that Poilievre's solution oversimplifies the problem of managing the realities of the longest unprotected border in the world between Canada and the US. If you just shut down Roxham, then these asylum seekers will use other more dangerous illegal points of entry to come into Canada, and in many cases will not survive the elements. And there's been some really high-profile tragedies in that regard we all know about. Frank, what's your take on Roxham Road, and what is the solution?
FRANK MCKENNA: In these complicated questions, there are no simple solutions, and usually, we end up muddling through. Let's understand the origins of the Safe Third Country Agreement. It came about, in large measure, after 9/11, and largely at the instigation of Canada. There was a huge influx of people traveling seeking asylum moving through the United States into Canada, to the point where it overwhelmed our capability to process all of the incoming traffic. And so we were able, because of a lot of goodwill, to negotiate a deal with the United States, which was very, very balanced in our favor, which became the Safe Third Country Agreement. So with that as an origin, you can understand the nature of the dilemma before us now. So the only thing that was excluded from that agreement, of course, were irregular points of entry, and that now has taken on a life of its own. So Poilievre is not wrong in saying that this is a big problem we have to fix it, and why don't we close down Roxham Road. The problem, of course, is that that's a pretty simplistic solution. Quebec has a particular stake in this because a lot of these irregular asylum seekers don't speak French, which really interferes with Quebec's strategy towards immigration per se. So that's one of the reasons they're so incensed at the way this is continuing. Trudeau was not wrong either in saying that if you simply whack that mole, so to speak, that is block entry through Roxham Road, you've got 6,000 kilometers of other border that you're going to have to try to deal with. And that represents a real challenge. We can't forget it was just about a year ago that Jagdish Patel, his wife, and two of his children froze to death trying to cross the border into Manitoba from the United States. And we don't want to open up to these catastrophes either. So a negotiated solution would be best, but it's not going to be easy to find a negotiated solution when the agreement was reasonably one-sided in our favor. I would say that's the nature of the challenge that we have before us, but that's where diplomats make the big money, trying to find ways to resolve these intractable problems.
PETER HAYNES: What do you think is going on behind the scenes when you have your former peer, the US ambassador to Canada, claiming that there are no negotiations going on? Would you say that that's just kind of a cover right now and that there is back room discussions between the two countries trying to lead to some sort of solution?
FRANK MCKENNA: Yes and yes. I hate to use this expression, but it may come down to, what is the negotiation? There's absolutely no doubt there are discussions. Let's call it that. Negotiations, well, it may not be elevated to that sense, but yeah, certainly discussions. And remember, our Foreign Minister, our Global Affairs Minister, Melanie Joly has a very close relationship with Antony Blinken, the Secretary of State in the United States. And you can be sure that she's pursuing very vigorously this problem with him and many others involved in the discussions as well. But I think Ambassador Cohen is not wrong in saying that if you start elevating this to the level of a negotiation, you create an expectation that has its own consequences. So a lot of diplomatic gobbledegook, but at the end of the day, I would say that people are talking.
PETER HAYNES: Well, Canada has always been a very open country in terms of immigration, and that's something that's, obviously, helped us. But as you've pointed out in the past, Frank, Canada's immigration policies have really been geared towards bringing in-- being able to control the process. And when you think about the Roxham Road situation, I believe they've sent 700 or 800 illegal asylum seekers to Niagara Falls. Of course, they're sending them to cities where there's lots of hotels. So now you have 800 hotel rooms or 800 people staying in hotel rooms in Niagara Falls that otherwise would be occupied potentially by people that are visiting that area and spending money. So you know that the local community there and all the little merchants that are on the streets who aren't seeing any business because those hotel rooms are taken up by people that are, unfortunately, not able to spend money, you can see how this becomes a bit of a cascade across the country, and clearly is a hot button item. And funny-- in many ways, Frank, I think the US's immigration problems which have been so well documented have become Canada's. We know that the Mayor of New York recently sent a busload of refugees to the area of Roxham Road, and many of them crossed into Quebec. And I'm assuming part of the reason why the mayor did that was because New York is a sanctuary city where the Governors of Texas and Florida and other states have been sending their refugees. So it's very well documented that what former President Trump tried to do with the Mexican border, obviously, became a high-profile issue. And President Biden had handed the immigration file to Vice President Harris. And, really, I think little progress appears to have been made in solving the illegal immigration problems coming into the United States through Mexico. There has been a little bit more profile on this topic lately with the Democrats trying to figure out whether or not-- how they're going to address this issue. I believe Title 42, which was put in place around the COVID problems, which essentially allowed the United States to send asylum seekers back to where they came from if they came from a country that was on a COVID list of some sort, I think, if I've got that right. But, Frank, the United States immigration problem is not going away, and in many ways it's becoming our problem. What can the US do to solve its immigration issues?
FRANK MCKENNA: If I had the absolute truth on that, I would be doing something more than talking to you right now, Peter. I'd be making a lot of money off of my knowledge. There is no simple answer, and there never is. To start with, let's, at least, have some semblance of compassion for the people who are involved in this. These are people that are acting out of desperation in large measure. And, look, it's not just here, but around the world. People are dying in massive numbers trying to reach foreign shores. And in almost every case, they're trying to get away from desperate situations at home, from acute poverty, from gang violence, from all of these things that are causing them to fear for their lives and the lives of their family. The end result is that we've got the world awash with desperate people, and so that's the gravamen of the problem. Of course, the United States has-- this is a very politicized problem, and with good reason. Because a lot of people feel that it's the element-- most elementary nature of a country that you can protect its sovereignty at the borders. I'd say a couple of things in the case of United States. One is temporary foreign workers. So Canada has a really robust temporary foreign workers program, and in many ways, the envy of the world. People come up. I see them in my village in New Brunswick. They come from Mexico. They come from Jamaica, other places around the world, Philippines. They come and they stay for a period of time, and then they go back home. They know that they can get back into Canada to get their jobs again, so they come, they do their work, they go back home. The United States has had a far less sophisticated program. And the case of Mexicans, in particular, a lot of Mexicans have felt, look, the only way I can keep access to my job is if I, essentially, try to skip trace into the United States and live there rather than going back home. So I think they're starting to work at remedying that problem successfully, which deals with what used to be the original problem, which would be Mexicans trying to get into the United States. The problem now is that that border has become the choice for desperate people from all across Latin America and the Caribbean. And that includes Venezuela, where the country, of course, is in shambles and people are starving and leaving in droves, and not just to the United States, but to countries like Colombia and Haiti where you've got anarchy, just plain simple anarchy, El Salvador, where the gangs have been controlling the country. People live in abject fear for their lives every single day. So people are fleeing all of these places and piling up at the Mexican border. And part of the solution, but it's longer term, is the dealing with some of the root causes of trying to provide money for policing in El Salvador, trying to restore democracy in Venezuela, trying to restore governance in Haiti. Those are longer term solutions, but they were always part of the arsenal of weapons the United States brought to the equation. And during the last four or five years, the United States has pulled back on a number of those programs, and I think we can see the results of that. So it ain't easy. That's just fact. And governments are torn between protecting their borders, and being coldly rational, and being compassionate, and not separating families. And it's very, very tough. I should tell you, Peter, as an aside, one of my proudest moments, at least, for me, my little spin in the limelight. When I was ambassador, I had to go on CNN and answer to the question of border integrity. And Lou Dobbs was the moderator, and he was going at this issue very, very aggressively. And he asked me, Mr. Ambassador, aren't you concerned about the integrity of the border? And is it fair for the United States to have to deal with this people from all over the world trying to get into the United States and everything else? And I said, Lou, that may be true in your southern border, but I can tell you I know of no situation where a Canadian has crawled under a barbed wire fence to try to get into the United States of America. We're pretty happy in the country in which we live. Anyway, he laughed and smirked at that, but I thought it was a pretty good comeback.
PETER HAYNES: My guess is Lou Dobbs has not gotten off his perch in dealing with this issue. I'm sure he still raises it as one of his lead topics. Maybe you need to go back on and have another conversation with him. You mentioned gang violence, and you mentioned Haiti. And I want to pivot here to Haiti because many of the refugees at Roxham are actually of Haitian descent. And I know you mentioned a lot of them are coming in and they don't speak French. But Montreal has a very robust and healthy Haitian community. And it's really no surprise that Haitians are leaving its country en masse and, in many ways, trying to get to Montreal where they would have, I'm sure, friends and colleagues. Haiti has been in disarray since the most recent peacekeeping mission ended in 2017. Last week, Prime Minister Trudeau pledged financial assistance to Haiti as well as military surveillance, but he stopped short of agreeing to send troops in to help the local government. A proposal that is gaining steam amongst Caribbean nations as well as the US and the UN, but it is very unpopular with local Haitians. I know Haiti is a country near and dear to your heart. You've traveled there several times on charitable missions. What do you think is the solution in Haiti to get this beautiful country out of its disarray?
FRANK MCKENNA: Well, I think Haiti is an incredibly beautiful country, and the people are wonderful. Recall our spectacular Governor General Michaelle Jean who became a refugee in Canada and went on to become a very elegant governor general. Speaks to our country, and speaks to her as well. But it's a country of great beauty, and great artists, and poets, and et cetera, but it is, without doubt, one of the most dangerous places in the world, and it's had more bad luck than any other country that I know of on top of that. I really started going there after the massive hurricanes, I think there were about four in a row, and the floods that devastated the country and killed tens of thousands of people. And I was there with Wyclef Jean, Matt Damon delivering food aid from the back of trucks to people who lined up all over the place. And I remember one afternoon we ran out of food, and we literally were chased by a mob down the street. And I was running as fast as I could in my gum rubber boots because the water was up to our knees. And I looked next to me, and there was Matt Damon just going like hell. I said, my God, that's Jason Bourne. I got to catch up. [LAUGHS] The next time, I recall sitting with President Clinton on the steps of the Hotel Montana. And it was one of the most memorable moments in my life, Peter. I apologize for taking your time. But we sat there all night long talking about Haiti, and talking about what wonderful people, and what could we do to help it. And Secretary Clinton, of course, his wife was very involved in Haiti as Secretary of State, and he was on the phone to her every hour or two, what about this help? What about that? Couldn't we do this? Couldn't we relieve this role or that role? Anyway, this went on until the sun came up in the morning. I'll never forget it. Three months later, that hotel was almost at the epicenter of the enormous earthquake that hit in 2010, and the entire hotel was destroyed. And it was interesting, Air Canada pulled into the airport that day. And people in business class, of course, end up disembarking first, and almost all of them headed, as you would, to the Hotel Montana. So the people who got into the hotel in Montana first that day all ended up dying in the earthquake. Everybody in the Hotel Montana died in that horrible earthquake. So fate is a funny thing, and you never know what's going to happen. And I'm hoping that fate intervenes in a positive way for Haiti now. We need a leader to emerge. Canada is not wrong. By the way, Canada and the US are the only players that matter really in Haiti. We both have large diasporas, and we have credibility in the country, and what we do and say matters. And the prime minister is not wrong. We can't go in. We can't pick a horse in this race, because you just can't be sure which horse is the legitimate horse. And so you can't really go in and support a government per se. We are doing things to support the policing services there, and we're providing training for them and equipment, et cetera. But at this stage, we have to watch and wait and hope that democracy will prevail, and they'll finally produce a credible elected person that we can rally behind. And in the meantime, we have to keep investing in people. And that's what our family does. We're sponsoring an NGO there that invests in women and children. And these beautiful people are doing wonderful things creating local entrepreneurship and providing jobs for people. And it gives me hope just watching it, but there's no simple solution other than having the right leader emerge and people galvanizing around them. In the vacuum, the gangs control Port-au-Prince, and it's life threatening to even move from one street to the other under the current circumstances. There's one other thing I'll throw in gratuitously, Peter, and it'll get me some blowback, and that's all right. I'm a big boy, I can take that. But that's just in terms of the skills that are being produced in Haiti. In Haiti, the central language, of course, is Creole. And French would be a formal language they learned in the school system. But Creole would be the base of a lot of the language that is spoken there. And I don't think that you can thrive speaking, really, only two languages that nobody within 1,000 square miles around you speaks. And I'm all for people preserving their historic languages, et cetera, but they live in a neighborhood surrounded by English-speaking, Spanish-speaking people, tourists that would speak other languages. And, at some point, they've just got to start producing people in Haiti who have the language skills to be able to communicate with their customers, or their tourist clientele, or whatever the case might be.
PETER HAYNES: It's not a good situation, and it's hard to believe it. It's the other half of an island that people visit all the time in the Dominican, I believe, so it just doesn't make sense to outsiders who, unlike yourself, don't fully appreciate what's going on there. So well, let's hope that peace prevails, and that they can find a leader that can take control of the country. And maybe we had that and then they assassinated him last year, so hopefully that situation gets sorted out. Another situation, obviously, that's very unstable right now is we reach the one-year anniversary in the Russian invasion of Ukraine. Marking this anniversary, President Biden visited Ukraine and met with President Zelensky on the ground with a pledge for additional financial assistance from the United States. Meanwhile in Russia, in a very fiery state of the union speech, President Putin accused the West of causing the war in Ukraine, and suspended the Russian participation in the START nuclear treaty. It's natural that at the anniversary, or the first anniversary, of such an important global event that both sides would be digging in. Is there anything that surprised you from either side, and do you think Putin upped the ante to a different level by pulling out of START?
FRANK MCKENNA: Well, I think that was an unfortunate escalation, but there's nothing surprising here. Both sides are dug in. The West can't retreat really. It probably would mean escalation into some of the Baltic states, and Russia, essentially, asserting itself in places like Moldova, and Estonia, Lithuania, and so on. And the West simply can't allow that continued expansion. And in the case of Putin, he's got himself out on a ledge. There's no happy result for dictators. They either continue to be dictators, or it ends very badly for them. And so he's in a very unfortunate spot of his own making as well.
PETER HAYNES: Were you surprised that former President Mike Pence so vigorously agreed with the decision, or, at least, the Democratic side with respect to the potential for President Putin to move into the Baltic states? It seemed that that was a view that's not consistent with other Republicans and maybe suggests he's not going to run for president. Did his comments surprise you?
FRANK MCKENNA: No. The responsible Republican leadership is squarely behind the administration on this. Mitch McConnell is extraordinarily vigorous in his defense of the United States' role in the Ukraine, as are Tom Cotton and a lot of other responsible Republicans are. There are a few Republicans who are speaking differently, but a lot of that's just virtue signaling. They're just saying, well, we've got problems here at home, and we should think twice about sending money to the Ukraine. And we want to make sure the money's well spent, et cetera. But that really-- if they were actually in a position where they had to make the decision, I suspect they would end up making exactly the same decisions that are being made now. It's easy when you're in opposition to play to your audience, but I don't take that all that seriously, quite frankly. I think the responsible Republican leadership is squarely behind the administration's efforts. And I think President Biden deserves a lot of credit actually for keeping the NATO coalition together in focusing the United States as well on this effort. I think he deserves a lot of credit. I think this issue is going to give some fits to the Republican candidates for their nomination. President Trump, as usual, is all over the place on this, but he's certainly doing a share of virtue signaling. And even DeSantis is showing more ambiguity than you want. And I saw a really sharp editorial in the Wall Street Journal about him and his posture. But Ambassador Nikki Haley is all in in terms of supporting Ukraine, and I think that will be the position that most candidates take before it's all over.
PETER HAYNES: One of the comments that I hear from the right side of the aisle, whether you support or don't support, or you're virtue signaling with your comments as a person on the right side, is concern over the use of the US financial aid, and, I guess, the Western world financial aid that's going to Ukraine. Republicans have been naturally skeptical of Ukraine, and rightly or wrongly, consider it to be a corrupt nation. What checks and balances are there that can satisfy Republican concerns that the financial aid that they're receiving in Ukraine is being used for the war and not being funneled to criminals, which is a concern that's only been heightened by the fact that President Zelensky keeps firing some of his senior leaders who have previously been accused of corruption? Is there some sort of an audit process here, Frank, to make people comfortable that this financial aid is not being funneled to criminal uses?
FRANK MCKENNA: Well, I think the fact that Zelensky is firing people and calling them out is probably the best hope that we have. There's no doubt that Ukraine has allegedly had some history of corruption. It probably pales in comparison to what we've seen in Russia, but those allegations have always been around. But on this whole lot of thing and so on, I can understand everybody wants value for money. Everybody wants their dollars to be spent well. The problem is when you're in the middle of a crisis, it's hard to do audits. It's hard to do an audit in an earthquake and say that every single thing that you're doing is value for money. It's hard to do an audit on a battlefield, and say, look, I've been watching very carefully there, and you've lobbed in 36 artillery shells when 34 would have done the job. When it's all over, the auditors can come down and shoot the wounded as they often do. But in the meantime, we have to prosecute a war, and we have to do it by using our best judgment.
PETER HAYNES: So, Frank, I have a technical question on this. The aid that the Western world is providing to Ukraine, it's not a gift, I believe. It's a loan that gets paid back at some point, or parts of it are paid back, and parts of it might be gifted. Do you understand, or can you explain to our listeners exactly how that process works? Because we're talking about significant sums of money?
FRANK MCKENNA: Yeah. I'd say they're combinations. In some cases it's just an outright gift. In other cases, it represents a loan. In many cases, there's probably a bit of a wink, wink, nod, nod, we know you'll never be able to repay this loan kind of thing. We have to rely on the IMF and the World Bank who usually end up becoming the bookkeepers for these kinds of transactions. But let's face it. The scale of the damage in the Ukraine is beyond the ability of that country to deal with, and it's going to require something in the order of magnitude of a Marshall Plan. And that was one of the extraordinary outcomes from the Second World War that, I think, the world should take some pride in, the fact that the world was able to galvanize around a plan of that magnitude that allowed Japan and Germany, in particular, to end up becoming important participants in the global economy, in fact, leaders in the global economy. We're going to need something of a similar nature in Ukraine to rebuild those shattered cities and restore its productivity. But the Ukrainians have demonstrated a resiliency and a technical capability, et cetera, that should lead people to believe that once peace is restored, they're going to have the ability to be an extraordinary economy. And one of the interesting truisms in the world is after every horrific event, the rebuilding process creates an ultra modern economy that leapfrogs in some ways over other competitors. And we saw that really in the case of Germany and Japan, I guess you could say. And in the case of Ukraine, when history is finally written, I hope that will be in the shorter term rather than in the longer term. They're going to have a very modern economy, I think, a very competitive modern economy. Because there's absolutely no doubt that a stunning amount of money is going to have to be spent on reconstructing Ukraine.
PETER HAYNES: Well, we can only hope that that money starts to be spent reconstructing the country before it's completely been leveled, which, obviously, there's some areas of battle right now which are intense. And we can only hope that the civilians that are still in cities like Bakhmut, I believe, maybe I'm pronouncing that incorrectly, are able to survive as it's pretty scary times. Republican critics and right wing members of the media have for long expressed doubt about the US's unwavering support for Ukraine as we just discussed. And they tend to want to focus on Biden visiting Ukraine at the one-year anniversary rather than going to East Palestine, Ohio, and seeing the chemical spill. Many of these people on the right side of the aisle may not even be aware, as they're worried about these other issues, that there were texts that were made public as part of the discovery in the Dominion Voting Services lawsuit of Fox News. According to the discovery release, texts that went back and forth between Fox on-air hosts, including Tucker Carlson and top brass in the news agency, showed that Fox was well aware that there was absolutely no merit to the concerns expressed on air by their hosts about irregularities in the voting machines. And yet, these same Fox hosts allowed a narrative to continue that suggested there was some sort of malice going on with the machines in order to keep its viewers engaged. The reason, of course, is advertising dollars, in a sense, for these media conglomerates that run most of the major news agencies. Frank, what can be done to regain our trust in the fourth estate the way we once trusted Walter Cronkite, Peter Jennings, Lisa LaFlamme, or even a Peter Mansbridge.
FRANK MCKENNA: Yeah. Look, you're asking an extraordinarily important question, Peter. And just so that the viewers understand, I mean, this is not a close call, it's just-- it's graphic. The evidence that's emerging is graphic. The prominent names that you've talked about, Hannity, Carlson, on air basically said one thing when they believed another. Simple as that. Their text when they got off the set would be, what a pile of malarkey, and on the set they would continue to bring in Sidney Powell and Rudy Giuliani and everybody else to propagate the myth that the election had been stolen. So as a lawyer, I can tell you, in spite of just how obvious it all seems, there is so much protection for free speech that it's still an uphill battle for Dominion to win that case just because of the nature of the technical hurdles that you have to overcome. But I think in the court of public opinion, people will say, yeah. What happened here is that business trumped news, and it was just very clear. The Fox people were saying, our audience, they want red meat. They want us to take the Trump side on this. If we waver on that and concentrate on telling it the way it is, we're going to lose a massive amount of body and share to Newsmax and others, just as simple as that. So how can we change-- well, to start with, I'm not sure we'll get the caliber of journalists that you've talked about again. I mean, we live in a world of disintermediation now so that one or two major channels don't end up producing all of the news that people consume. It's literally thousands and thousands of digital sources that people get their news from. And if they don't like it from one place, they'll go to another place that has a little bit more Tabasco sauce on it. So that's the world we live in. But, Peter, I think the root situation here will only change when the underlying polarization in the United States changes so that people-- because it's not just one side. Fox News represents the far right side, but MSNBC brings its own biases, and CNN, et cetera, et cetera. And it should be that news should be news and separated from the political polemics. But that may only change when the underlying root causes of polarization change. And that involves a number of factors. But two of the biggest ones are gerrymandering, and secondly, campaign finance. And those two issues have resulted in a highly, highly polarized United States, and the news simply reflects that fact. So in order to fix the news and make it more credible, we almost have to depolarize the United States, and that's not going to come easy.
PETER HAYNES: I think we need to spend an entire episode here, Frank, understanding and unpacking gerrymandering and issues around that, and trying to move the political landscape to the middle here. And campaign financing is another side episode that we would need to spend an hour on. So, Frank, as we finish up here, we talked about the war, we talked about other geopolitical issues here in Canada around Roxham Road, more opinion-oriented discussion around Fox News. What have we missed here that's getting your attention?
FRANK MCKENNA: Well, there's a lot of interesting things going on in the world. And, Peter, we talked about the negatives because they make the news. The world is still a very positive place to live in. A vaccine was created in the shortest time in our history to deal with one of the greatest threats that we've had. And the world is continuing to enjoy relative prosperity. But the one thing that I think that people need to pay a bit more attention to is the so-called Inflation Reduction Act in the United States. And it's the worst named act in the history of legislation because that has nothing to do with inflation reduction, but it really has a lot to do with climate. And it has massive implications for the world because it represents an extraordinarily aggressive and generous US approach towards climate-reduction measures. And that, for the planet, that's a good thing. But for places like Europe and Canada, it's making us very uncompetitive when it comes to battery companies and to E vehicles and so on. The United States is creating production credits that just absolutely overwhelm almost anything that other countries can introduce. So on the one hand, is it good for the planet? For sure. The United States is unequivocally asserting its leadership on the climate change file. But in Canada right now, it's probably the biggest single headache the government of Canada has. And there will be a response in the upcoming budget as there is in Europe, but it's going to be a difficult challenge for us to meet.
PETER HAYNES: Another aspect of the budget that we'll hear about in a couple of months, the specifics of the 2% buyback tax that the Canadian government has essentially followed suit to the US. Now, Biden has recently said that the 1% rule-- and I can't remember, Frank, if that was part of the Inflation Act or one of the other legislative acts in the US, but it became effective in January. And I guess it didn't work, and now they're considering or suggesting they want to raise it up to 4%. What is your take, high-level take, on all this discussion about buyback taxes, which may start out as innocuous, but may eventually end up being a significant revenue source for governments?
FRANK MCKENNA: Well, it's an intrusion into the market, which I wouldn't welcome. I don't think Biden will be able to get 4% through a divided Congress, so I don't think we have to worry about that in Canada. Of course, the government probably can get it through. Again, just to be totally candid, I think in the case of Canada, it's virtue signaling. The current government is kept in power because of its relationship with the NDP, and the NDP is always looking for a pound of flesh from business. With the bank tax-- the surcharge on bank profits, I think, was a piece of red meat in a sense thrown to the NDP, and similarly, the tax on share buybacks. And so is it possible it could be increased? If they're looking for some way to appease the NDP, I suppose so. But it doesn't make sense. The logic behind it in the United States and the logic espoused in Canada is that rather than buying back shares, we want that money to be circulating, and you doing-- making productive investments in the economy. In other words, use the money to grow your business rather than simply buying back shares. But the main target of the share buyback program in Canada are the oil sands companies which are enjoying significant profits at this point in the cycle. And the government of Canada really doesn't want them to produce more oil and more gas because it's contrary to other goals that they have. So in a way, it's a contradiction for the government of Canada to be promoting their tax on the grounds saying that they want to create more economic activity. So I don't know what they're going to do in the budget, but I think it's not healthy for governments to continue to intervene in the natural law of the market. It's not a good thing.
PETER HAYNES: Well, you indicated that Canada is targeting the very profitable energy companies. And, obviously, if you own an energy company, you can understand why they would reinvest in more oil wells. But for obvious reasons, the government doesn't want that in Canada. In other industries, shareholders may not want companies to make that type of investment into a new business. They would rather take that money back themselves and figure out what companies they want to invest in. So that's always been the argument for shareholder yield and from the shareholder perspective on why they like buybacks along with dividends and other returns of shareholder capital. So this story has not ended, Frank. I'm sure we'll be discussing this again in the future. Now, another story that is extremely interesting for both you and me is how spring training has started in Major League Baseball. And most specific of all is the rule changes that are causing all kinds of intrigue confusion and anger from some of the traditionalists. But I'll tell you, most people are onside. What is your view, in the first few days of spring training games, of the new rules? I'm speaking specifically about bigger bases, the pitch clock, which is the most controversial, and then the rules around the shift. What are your thoughts around these new rules?
FRANK MCKENNA: Well, generally, I'm supportive of them like anything that speeds up the game, and not only in terms of time, but also in terms of speed on the base paths. So I generally like this. It's pretty boring watching a three and a half hour game that consists of strikeout after strikeout with the odd homerun thrown in between. I think most people who watch baseball or are excessively fanatic about it a little bit, as I am, probably have the remote in their hands going back and forth between channels because it can get pretty boring. So I'd like the effort to try to make the game more entertaining for the fans. I should tell you, though, to some extent, this shouldn't be necessary. The ownership group in baseball should want a more entertaining product for their fans, and I think that fans should be demanding a more interesting and entertaining product. I remember doing an interview with Kevin Pillar once, who was a great center fielder for the Blue Jays, a magnificent fielder as you know, and fast on the bases and everything. And it was just at a point in his career where he'd stolen 32 bases the year before, and it was down to, I don't know, 12 or 13. And in this little interview I said, how come you stopped stealing bases, and what's the rationale behind that? He said, well, I made the mistake-- or not the mistake, he said, I went through arbitration. And I said, so what's that got to do with it? Well, he said, you sit in that room and listen to them telling you what they think is important, and it's very different from what you think is important. And I can tell you, listening in that room, stealing bases was not important to my team. So if you've got the ownership group who are concentrating on hitting runs, I think the players are prepared to swing and miss, and then hit the odd homerun rather than playing what you and I like which is situational baseball and just aggressive management, trying to squeeze out runs, and all kinds of other stuff. So in many ways, these rule changes, I think, are necessary to try to force ownership in baseball to produce a more exciting product on the field, which they should be doing in their own right.
PETER HAYNES: I'm so glad you brought up arbitration because I just read an article the other day about it. The owners have been winning all the arbitration cases this year. They're like winning three out of four. And one of the players that lost was interviewed and said, I just sat in there and listened to Major League Baseball owners, our owner, talk about all the things I don't do, which are all based on the way the game was used to be played. Now you've made all these rule changes which are going to make me a better player, and you're telling me I'm not worth what I should be paid based on the way the game is going to be played in the future rather than the way, as you say, Kevin Pillar gets paid to hit homeruns not steal bases. So that process is broken. And, Frank, I'll just finish by saying, I don't know how I can love something and hate something as much as I do at the same time, and that's social media. We know all the reasons why we hate social media, but God, I love it in some cases. They showed on social media a side by side-- Pitch Ninja, which is a guy you should follow if you like baseball. Anyways, he showed side by side one pitcher from last year who threw one pitch in the same length of time it took one of the spring training games to play an entire half-inning. It was hilarious. The guy stepped off five times. The batter stepped out. And then finally, they threw the pitch just as the other minute and a half or three minutes or whatever it took. It was just spectacular to show where we were and where we're going. And I think if you're a baseball fan, we'll all get used to these new rules really quickly. So I look forward to watching some baseball with you this year, Frank. And it won't be long before we get to see the changes to our stadium, and that'll be fun. And for now we'll sign off and chat again in a month. Thanks, Frank.
FRANK MCKENNA: OK. Thank you, Peter.
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Deputy Chair, TD Securities
Deputy Chair, TD Securities
Deputy Chair, TD Securities
As Deputy Chair, Frank is focused on supporting TD Securities' continued global expansion. He has been an executive with TD Bank Group since 2006 and previously served as Premier of New Brunswick and as Canadian Ambassador to the United States.
Managing Director and Head of Index and Market Structure Research, TD Securities
Managing Director and Head of Index and Market Structure Research, TD Securities
Managing Director and Head of Index and Market Structure Research, TD Securities
Peter joined TD Securities in June 1995 and currently leads our Index and Market Structure research team. He also manages some key institutional relationships across the trading floor and hosts two podcast series: one on market structure and one on geopolitics. He started his career at the Toronto Stock Exchange in its index and derivatives marketing department before moving to Credit Lyonnais in Montreal. Peter is a member of S&P’s U.S., Canadian and Global Index Advisory Panels, and spent four years on the Ontario Securities Commission’s Market Structure Advisory Committee.