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The Globe And Mail is reporting the Bank Of Canada to take riskier assets as collateral.

The Bank of Canada says it is prepared to accept some of the riskiest assets on the market, giving it more power to fight the credit crisis. For the first time, the central bank will accept as collateral for emergency loans asset-backed securities of the type at the heart of the crisis of confidence that has seized financial markets for the past year.

Governor Mark Carney revealed yesterday in the Canada Gazette how he intends to use new powers granted him by Finance Minister Jim Flaherty in legislation that cleared Parliament in June. It was left up to Mr. Carney to decide which assets would be acceptable to the central bank.

The change aligns the Bank of Canada with other major central banks, including the U.S. Federal Reserve and the European Central Bank, and clears the way for Mr. Carney to more forcefully attack a problem that he says has subsided in Canada for now.

"This is a positive development as it brings the Bank of Canada's powers more in line with that of its peers, and it reduces the risk of further credit market problems in Canada," said Eric Lascalles, an economist at Toronto-Dominion Bank.

There is no evidence the TAF, PDCF, or TSLF do what they are supposed to do. I talked about this back in April in Failures of the Term Auction Facility.

No one in their right mind should  want to replicate the failed policies of Ben Bernanke. Indeed, common sense alone would suggest that any program designed to swap good assets for bad, when they eventually have to be swapped back is an exercise in futility and a waste of time for all involved.

So why is the Canadian Central Bank embarking down the same silly path? The reason is simple. Bureaucrats, being bureaucrats have to do something. It is simply impossible for bureaucrats to do nothing, even when compelling reasons can be given for doing just that: nothing.

It's always important to remember that the primary goal of a bureaucrat is to make sure that when the finger is being pointed, that it is pointed at someone else. In that regard, the safe thing to do is what other bureaucrats are doing, whether it makes any sense or not (and sadly it never does). This of course gives all of them cover when the scheme blows sky high, which it will. When it does, the Central Bankers will all get together and say "Everyone else was doing it, who could have possibly known?"

This is of course the exact same kind of "Monkey See Monkey Do" rationale that every bank in the U.S. was using while pursuing subprime loans, Alt-A liar loans, toggle bonds, and all sorts of other harebrained products that any sane person knew would blow sky high and eventually did.

Source: Bank of Canada: Why Follow a Failed Policy?