The Nature of Post Crisis Urban Poverty in Canada

In the global financial crisis of 2008 to 2009, most world economies were hugely affected. Economists have rated the 2007 to 2009 economic periods as the most significant economic downturn since the great depression of last century. Canada, like most other developed countries, was affected by the rapid deterioration of major shares and securities following the collapse of the US securities held in form of Collateralized Debt Obligation (CDOs) in late 2008 (Price 1). The US housing financial bubble, which had accelerated between 2002 and 2005, and peaked in 2006, had resulted in rise in securities related to the housing sector to as much as five times their values by 2006. The subsequent collapse of the financial markets led many to lose their savings and property (Price 1). This paper will present an analytic approach to the aftermath of the global financial crisis in Canada, with specific focus on the urban poverty in modern Canada. Particular urban outcomes of the study will include health issues, crime and food situations.
The Global Financial Crisis and its Effect
The global financial crisis began with the announcement by leading investment banks and insurance companies that they had gone bankrupt. These included Merrill Lynch, Lehman Brothers, Citigroup, Fannie Mae, and Washington Mutual among others. In addition , the global insurance conglomerate AIG was placed under receivership of the US government when it collapsed under the weight of claims made on it by insurance policies it had issued, and which were high risk financial derivatives wrongly rated AAA by compromised risk agencies (Price 1).
In the period preceding the global financial crisis, uncontrolled subprime lending had flooded the US markets with easy debts whose security and repayment plans were pegged on the housing investments that the financers authorized. This period had coincided with the rise of the financial innovation age during which various financial instruments were developed to cover an individual borrower`s debt obligation, such as recovery in case of a credit default. Collateralized Debt Obligations (CBOs) were consolidated financial products which contained several types of loans such as credit card loans, mortgages, and student loans among others (Cipriani and Guarino 38)
Institutions which lent out subprime mortgages were aware of the risks involved, and therefore consolidated them and sold them out to high risk investors as a form of insurance. In the event of failure or default by the borrower, the insurance would pay the borrower (The Canadian Council on Social Development). On the other hand if the loans given out to borrowers were not defaulted, the insurance would pay a determined amount to the lending banks. The complex system of financial securitization through such derivatives as CDOs was a luring scheme for investors, and the temporary security offered by the scheme to investors made them relax on securing their investments, a situation which led them to be caught unawares during the collapse of the securities market in quarter three, year 2008 (Price 1). Major financial institutions in other continents were also affected by the crisis.
Canada`s Reaction to the Crisis
Even though Canada was equally exposed to the crisis, it is important to note that the crisis` effect on the Canadian economic system were less pronounced than in most other major economies. Canada`s most significant buffer during the crisis was its government policy on bank activities regulation, which controlled investment in securities by Canadian banks. Subprime borrowing, one of the major causes of the rapid devaluation of US currency during the crisis, was regulated in Canada through a government requirement that any mortgage purchaser unable to raise above 20% of the mortgage value must purchase an insurance to cover them in case of default. Canadian banks, with certain exceptions, follow the capital asset pricing model that emphasizes on investors being risk averse, and thereby operating in the optimal situation of maximizing profit while avoiding risk. Canada, however, was not totally immune to the crisis (Statistics Canada 17). For instance, the ABCP crisis, one of the most severe crises in Canada`s financial history, occurred during this period, threatening to bring down the economy were it not for timely, prudent measures taken by the government.
The ABCP crisis
The Asset Based Commercial Paper (ABCP) crisis in Canada represented the closest equivalence to the US securitization food chain which led to the collapse of the economic system. The crisis was fueled partly by its weak structure and inherent vulnerabilities in its design and control, as well as by flaws in the “originate-to-distribute” principle on which it was founded (Tedesco 1). This later factor required that all stocks in the system originate from the system, but was manipulated by holders to accommodate non-bank stocks in form of US originated financial derivatives into the distribution channel so as to increase of non-bank originated ACBP to 48% as at the end of 2006 (Price 1). In addition, rating agencies such as Standard and Poor`s as well as Moody`s initially gave a high rating to ACBP trusts, even though they were made up, almost to half, of risky US based derivatives. This led to a freeze on ABCP valued at $35billion in 2008. The Canadian government intervened by injected $125billion in mortgages already purchased in order to avoid a financial meltdown (Tedesco 1).
The History of Canadian Urban Poverty 1990- 2000
Canada, like most other developed nations, has a high percentage of its population living in urban centers. According to data collected and analyzed by the Canadian Council on Social Development (CCSD), poverty level in Canadian urban centers, locally designated as Census Metropolitan Areas (CMAs), had gone through dynamic shifts in the years since 1990, with an increasingly larger population percentage residing in urban centers. The council defines urban poverty as the situation in which an urban household spends more than 56% of its gross income on basic necessities such as housing, food and basic health (The Canadian Council on Social Development). According to CCSD, in the year 2000, 64% of Canada`s population was urban based, and 70% of the national wide poor were within this 64% urban population.
In addition, the number of people living in urban centers grew rapidly between 1990 and 2000. In particular the number of poor living in urban areas grew faster than the number of people in the population living in towns, meaning that urban dwellers within towns, which were previously financially stable, were degenerating into poverty at a higher rate than rural dwellers were moving into towns (The Canadian Council on Social Development). The table below illustrates this fact.
(The Canadian Council on Social Development)
The figure clearly indicates a net growth in poverty levels the Census Metropolitan Areas (CMAs) between 1990 and 2000, with a rapid increase in the first half of the period to reach 21.6% in 1995, and a gradual decline to 17.6% as at year 2000. The non CMA designated areas, on the other hand, registered an average decline in poverty levels for the same period. The poverty level was 15.2% in year 1990, which increased significantly to 16.5% in the five years ending in 1995, before decreasing remarkably to 13.7% in year 2000 (The Canadian Council on Social Development). These two observations point to two trends in the Canadian rural-urban poverty situation that poverty has increasingly become an urban scenario, and that in the future, people might feel obliged to make urban-rural migration as a measure to combat poverty and improve living standards, unless measures are put in place to reverse the situation.
In addition, the council found that large metropolis (above 500 000 people) were home to higher numbers of poor people than small metropolis. In the year 2000, it was estimated that large CMAs had 18% poverty levels, compared to 13% poverty levels found in middle sized towns (between 250000 and 500000), and 17% in small metropolis (below 250,000 people).
(The Canadian Council on Social Development)
While the overall poverty average in urban categories are highlighted above, the poverty levels exhibited significant deviation from the average, with some metropolis such as Montreal, one of the larger CMAs, exhibiting poverty levels upward of 22%. Oshawa had the least average throughout the decade of only 9%, a factor of less than half compared to Montreal. The three largest urban centers in Canada including Montreal (3.4 million people ), Toronto (5.1 million people) and Vancouver (2.1 million) appear in the top half of CMAs with high poverty levels at 22%, 15% and 17.9% respectively (The Canadian Council on Social Development). This trend shows a correlation between geographical sizes of towns and poverty levels in them. The factors that attract people to large CMAs will be discussed below. In addition, the reasons why a significant number of people living in urban centers degenerate into poverty will be explored (The Canadian Council on Social Development).
In the 1990-2000 decade, Canada recorded an average rural-urban migration of 13%, while poverty levels in urban centers rose by an average 18% for the same period. This duration was affected by two major events the financial crisis that rocked Canada in the early 1990s as well as the internet bubble of year 2000. Both events negatively affected Canada, as it did most other economies, and worsened the financial situations of many people. The 1990- 2000 period serves as an important indicator of the rural-urban trends in Canada before the global financial crisis of 2008-2009, which had roots in the 2002-2006 US housing sector and the financial derivatives deregulation practices of both the US government and the Canadian authorities (The Canadian Council on Social Development).
(The Canadian Council on Social Development)
Canada Urban Poverty Situation in the Period 2001 to 2008
This economic period started on a low note as most major economies recovered from the internet bubble which was caused by the collapse of the financial markets following the rapid devaluation of IT based stocks. Speculation on the future dominance of shares of internet based firms and IT companies had forced the share prices to go unrealistically up, and when the bubble burst in end of 1999, most investors lost their savings. In addition, this period marked the inflation of house prices in US and several other major markets following the advent of sub-prime mortgage lending by major investment banks in US which flooded the markets with easy money. Canada was linked with this situation through its Asset Based Commercial Paper (ABCP) system which largely drew from the US securitization tools, so that the collapse of the US housing bubble had almost immediate disastrous results for ABCP.
It cost the Canadian government $120 billion in bail out to prevent total collapse of the ABCP scheme at the height of the global crisis in 2008. In addition, the near collapse of the New York Stock Exchange, largely controlled by the Wall Street, caused major ripples in the international securities exchange platform, affecting most other internationally traded stocks in most other markets. In this respect, Canada, like most other regions, was affected as a secondary dependant on the financial markets (The Canadian Council on Social Development). This section will focus on the effects that the activities of the period 2001 -2008 had in the Canadian urban poverty situation.
The Canada Library of Parliament publications of poverty levels in Canadian families between year 2001 and 2007 indicated that during the period, 40% of all families reported having lived in low income status at least in one year, while 21% admitted to having lived in low income for 2 years (Collin and Jensen 5) . The chart below shows the results.
(Collin and Jensen 5)
It is important to note that 11% lived in low income for the entire duration. This figure is reflective of the entire population, and the actual figure for urban based population is expected to be higher. The study observed that certain groups were particularly vulnerable to poverty, including children, the aged, and persons with disabilities, aborigines as well as the working poor.
(Collin and Jensen 6)
According to the chart, the general poverty levels in Canada declined from a record high in 1994 and were at the lowest in year 2000, just before the internet bubble. The levels started to rise steadily to about 15% in 2004, and then declined to a record low of less than 10% in 2006, a time which corresponds to the peak year of the sub-prime lending in the US market. When the first signs of collapse of the financial markets in the US started to hit the system in 2007, joblessness increased and poverty levels began to rise in Canada, as shown in the figure above. The Canadian ABCP system was frozen as analysts began to reveal its huge dependence on the US economic systems, leading to massive investment losses and joblessness (Collin and Jensen 7). By the close of 2007, poverty levels had risen above the 12% mark and were continuing to rise.
Urban Poverty in the Period 2001-2007
Urban poverty during this period was significantly higher than the general poverty levels. This fact was further worsened by the high nature of rural urban migration. CCSD noted that, while there was marked concentration of poor neighborhoods in the US, the Canadian situation was quite different, and tended to feature a more mixed neighborhood with both low income and middle income people. In the year 2001, 65% of people living in large CMAs were living in areas of less than 20% poverty levels, and only 5.4% were residing in areas of high poverty (Collin and Jensen 10). Out of 46 large cities studied in 2001, fifteen had poverty levels which were above the national average of 5.4%. In conclusion, the CCSD report published in 20007 noted that poverty was mainly an urban problem. The urban poor were concentrated in the larger cities where poverty levels rose up to 20% in Montreal, and similarly large numbers for other major cities such as Toronto and Quebec. This trend progressed through the larger part of this period, but with an overall decline of the total poor to just less than 9% in 2007.
Post Crisis Urban Poverty Levels in Canada
This section seeks to explore how the urban poverty situation changed during and after the 2008-2009 global financial crisis. Of the more than 100 urban areas with above 23000 people in Canada, 31 are categorized as large urban areas, with more than 100000 people. The three provinces with the highest percentage of the national population are Ontario with capital Toronto (12.8million) representing 38% national population, Quebec with capital Montreal (7.9 million) representing 23.6% of national population and British Columbia (capital Vancouver (4.4 million) representing 13.1% of the national population (Statistics Canada). These urban areas received the highest number of immigrants in the post crisis period 2009-2010. According to statistics Canada, there has been net rural to urban migration in most major CMAs of young and middle aged persons. In the period 1990-2007, four in ten Canadians had changed their living place. Most senior citizens were moving towards the rural areas or smaller metropolis, while young people were flocking into the major cities. Three provinces of Labrador, Saskatchewan and Newfoundland had the biggest net losses in rural- urban migration, while Quebec, Ontario and British Columbia had highest immigration rates (The Canadian Council on Social Development).
The global crisis was preceded by the highest immigration period into urban centers experienced in Canada in over a decade. This was occasioned by the robust economic activity just before the global economy collapse in quarter three, 2008. Unemployment and poverty were at their lowest values in Canada since 1995, with an overall poverty rate of less than 7% in 2007. These factors had attracted millions of young job seekers into Canadian towns. When the financial crisis suddenly struck in early 2009, millions lost their jobs and hundreds of thousands were left homeless (The Canadian Council on Social Development). The most vulnerable groups in Canada poverty include children, unattached persons and women. According to the 2012 Ontario Association of Food Banks report, 882000 Canadians used the food banks aid, representing almost 3% of the total population. The 2012 average is the highest food bank usage by the local population in Canada`s history, reflecting the nature of urban poverty in Canada. Basic needs provision is costing the national government between $72 billion to $84 billion each year. In addition, 3.1 million households are estimated to be spending above 30% of their income on housing. This percentage is below the threshold for low-income cut off, thereby making them insecure (The Canadian Council on Social Development).
The state owned national medical scheme is incurring expenses upward of $7.6 billion per year to cater for health expenses of the local poor, most of whom are concentrated in urban areas. A Statistics Canada report for 2008 indicates that 1 out of 3 children now classified as living in poverty had at least one parent who was working full time during the global financial crisis but who was still classified as living in poverty (Canada Without Poverty). Among the most greatly affected groups in the post crisis urban poverty are the racialized groups who are not of Canadian origin. According to official government census reports, Canada is a metropolitan nation, accommodating at least 20 ethnic peoples. Native Canadians make 32.22% of the population, while English, Scottish, French, Irish and German nationals each have reached the 10% threshold in absolute percentage of the national population. The national population is just as diverse in terms of religious diversity. The Canadian Centre for Policy Alternatives (CCPA) reported in 2011 that despite legislation advocating for each opportunity employment, color coded employment arrangements are still evident across the job markets. The report states, for instance, that for every dollar paid to a non-racialized worker, a worker in the racialized category earns 0.82 dollars (Canada Without Poverty). In addition, while 19.8% of racialized communities live in poverty, only 6.4% of non-racialized communities live in poverty (Canadian Centre for Policy Alternatives). The section below will focus on post crisis urban poverty in accordance to the three urban outcomes of health, crime and food situations.
Urban Outcomes in Post Crisis Canada
Poor Health
According to News Caller media channel, Canada`s largest provinces, which also harbor the biggest urban populations and have the highest urban poverty rates, Ontario and Quebec, spent as much as 50% of their revenue on health care. In addition, a Fraser Institute estimate of health care budgets observed that four more provinces including Saskatchewan, British Columbia, New Brunswick and Alberta, could spend half of their budgets on health by 2017. The national budget allocation on health has increased at an average f 7.5% since 1975, while the national GDP has grown at less than 7% for the same period.
(The Canadian Council on Social Development)
The figure above shows the number of years it will take until various provinces in Canada spend half of their budgets on health care. Notable in the figure is the fact that highly populated areas have a relatively shorter duration till half of their budgets are used in health care. Quebec has already crossed the threshold, while Ontario, Alberta and Saskatchewan have less than 7 years (The Canadian Council on Social Development). Past discussion has shown that the highest urban poverty areas are also the most populous areas, and a correlation exists between urban poverty and province health care budgets. The Canadian medical scheme policy where the government is the chief insurer as well as controller of medical insurance is largely dependent on the tax payer, high poverty levels in urban centers translates to reduced revenue, while the health care needs continue to rise. It is therefore true to project that, if both Canada`s GDP and its healthcare bills continue grow at the present rate, then at one point the healthcare expenses will be unsustainable (The Canadian Council on Social Development).
Urban Crime
High concentrations of the poor in large urban centers have contributed to rise in cases of crime (Brennan and Dauvergne 9). The graph below shows the homicide trends in Canada over a 40 year period.
(Human Resources and Skills Development Canada 1)
The figure shows a progressive reduction in homicides between 1976 and 2008 in Canada, from 3 in 100000 in 1976 to 1.8 persons in every 100000 in 2008. However starting in the period of the crisis, the trend reversed from stagnation in 2008 and 2009 at 1.6 per 100000, to a sharp increase as one progresses into 2011 (Human Resources and Skills Development Canada 1). In addition, statistics indicate that urban areas are more likely to have higher crime rates. Small urban areas exhibited the largest increase in crime statistics, while large urban areas came second. Rural areas had the least crime statistics for the entire period. Property crime represented a larger percentage of overall crime as compared to violent crime (Brennan and Dauvergne 10). Handguns are the preferred weapons in large urban crimes, while rifles were the most common weapons in violent crimes. These crime trends have continued to rise as urban populations continue to adapt to the post global crisis economic situations (Human Resources and Skills Development Canada 1). The figure below shows the crime statistics in terms of rural or urban categorization.
(Human Resources and Skills Development Canada 1)
Food Security
Health Canada notes that during the global crisis in the 2008-2009 period, a total of 7.7% of national households were food insecure, with 5.1% of them moderately insecure and 2.7% severely insecure (The Canadian Council on Social Development). These figures were even larger in the post crisis period, as more people in the urban areas lost their jobs, savings.
(The Canadian Council on Social Development)
Food insecurity is more prevalent in children under the age of six, with 10.8% being classified food secure. In addition, families with more than 3 children have an even higher insecurity rating at 14%. The food situation is even direr for single parent families, as well as un-attached individuals living in large metropolis. The nature of urban food insecurity was 25% for families led by lone female parents, and that for families led by male alone parents was 11.2%. Households with both parents had a relatively low insecurity rating of 6.3%. These figures were significantly higher than the national average in all categories during the pre-crisis period on 2002 -2006. Similar statistics were evident with different other classifications, such as racial groupings, age-group among other distinctive categorizations (The Canadian Council on Social Development).
Families with social assistance as the main source of income exhibit the greatest insecurity at 55%, while those depending on insurance or other compensation had a rating of 25.3%. In addition, people with post-secondary education have showed lower food insecurity at 5.8%. Aborigines also exhibit greater vulnerabilities to food insecurities than other majority ethnic groups. These factors have affected the national economic growth of Canada in a negative way, and even though the net economic growth is positive, it is lower than it might have been if the global economic crisis had been averted (The Canadian Council on Social Development).
Conclusion
The 2008 to 2009 global economic recession affected, directly or indirectly, all economies in the world. The effects of the crisis were more severe in major economies which had greater ties with the international trade community and especially in financial markets. The effects of the crisis trickled down to smaller economies in terms of oil prices, demand and supply disruptions among other factors. Canada was affected by the crisis, though to a lesser extent than other major economies such as US, UK Germany and several other European economies. The Canadian situation was caused by failure of the ABCP paper markets. Canada`s government quickly moved to rescue ABCP and avoid a total collapse, a factor which would have serious consequences for Canada`s economy. However, a significant number of Canada`s working force is in private employment, a sector which was greatly affected by the economic downturn in 2008. The fact that the crisis immediately followed a period of high economic growth in which millions had been attracted into large urban areas in search of job worsened the 2008 shock in Canada, where hundreds of thousands of employees lost their employment. However, the large populations in urban areas could not immediately move to rural areas to cope with the recession effects, and mostly remained in urban areas.
Three major outcomes of this situation were in healthcare, food security and crime. Healthcare expenditure is quickly getting out of hand for Canada`s government. With projections showing that healthcare expenses are likely to account up to half of most province budgets in the next seven years. The government needs to implement policies that will reduce healthcare`s expenditure on the national budget, or create employment so as to boost earnings for local residents thereby growing the GDP and reducing the healthcare expenditure percentage in the national budget. The second outcome, food insecurity, is a localized phenomenon, with diverse groups showing different insecurity levels. One outstanding fact, however, is that 2012 showed a record food insecurity state in Canada, with up to 3% of the total population seeking food aid. Crime statistics showed a sharp rise between 2010 and 2011, a factor which was largely attributable to the global crisis.
Works Cited
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Cipriani, M. and Guarino, A.`Herd Behavior and Contagion in Financial Markets`. “The B.E. Journal of Theoretical Economics” 8(1) (Contributions), Article 24, pp. 1 – 54.2008. Print.
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Price, S. Real estate and the financial crisis: how turmoil in the capital markets is restructuring real estate finance. Real Estate Issues. Web. 2009. Accessed on 18 February 2013,

Statistics Canada, Income in Canada 2007, p. 17.2009.

Tedesco, Theresa. Op-Ed: `The Great Solvent North`, NY Times, 2009. Print. Accessed on 18 February 2013,

The Canadian Council on Social Development (CCSD). A Profile of Economic Security in Canada. Web. 2013. Accessed on 18 February 2013,