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Canadians place a lot of trust in our mortgage system.

After the 2008 financial crisis the common wisdom was that prudent Canadian banks and financial regulation had saved us from the worst excesses of the U.S. and other countries, and will do so in future. But few of us are in a position to assess whether this is true.

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Canada’s mortgage market still depends heavily on “mortgage-backed securities,” a type of financial product that caused the financial crisis to spread from the U.S. to the rest of the world. What many find shocking is that, unlike most other countries, the Canadian government directly guarantees these securities for investors. In other words, if there is another crisis, Canadian taxpayers are on the hook for investors’ losses. According to a CD Howe analysis from 2015, that could reach $9 billion.

For my PhD thesis at the Peter A. Allard School of Law, I’m asking whether this system is worth the risk. For the one-third of Canadians who don’t own a home, asking us to accept this responsibility as taxpayers seems particularly unfair. But even for those who do own homes, the “grand bargain” struck by the Canadian government with the purchasers of these securities may not measure up. The rationale is that this program provides an attractive place for international investors to put their money, ensuring a steady supply of funds for mortgage loans. Yet, as admitted by experts such as Steven Schwarcz, professor of law and business at Duke University, no one really knows how to evaluate the risks of these complex financial instruments. The federal government does charge investors a fee for its guarantees, but who knows whether those fees are high enough to cover such uncertain risks?