Bids, Box & Bluff

Enacted last week against the lively backdrop of current Ontario politics was a rapid little drama in which Ontario's dimple-chinned Premier Mitchell ("Mitch") Hepburn, who has been loudly promoting a provincial New Deal, played the hero and the bankers were cast as the villains. What gave this hoary theme a sudden and surprising twist, however, was the fact that the villains, instead of knuckling under as they had done in the U. S., cracked down on the hero.

In the best tradition of its southern neighbor, Ontario has a Power Issue. The cocky, up-from-the-"back concessions'' Premier was hard put to it to make the issue, for practically all power in his Province is distributed by a Government enterprise--Ontario's famed HydroElectric Power Commission. However, just before Depression, Hydro signed contracts with several big private companies across the border in Quebec, agreeing to purchase additional power on a vast and rising scale for years to come. Thus Hydro was soon faced with the prospect of paying millions for power it could not possibly use.

Rather than boost rates to consumers so that Hydro could honor these sour contracts, Premier Hepburn proposes by act of the Ontario Parliament to repudiate them as "illegal, void & unenforceable."

His legislation, which includes a ban on damage suits against the Government, was passed last spring but is not yet effective. Most Canadian quidnuncs suspected the Liberal Premier of trying to bluff the Quebec power companies into a speedy revision of the onerous terms but the mere hint of repudiation made conservatives throughout the British Empire raise their hands in holy horror (TIME, April 15). For these were no ordinary course-of-business contracts: solely on the basis of Hydro's promise to buy, the private companies sold bonds to the public to finance enormous expansions up & down the swift rivers of Quebec. For Ontario to disavow these power contracts was only one step removed from deliberately defaulting on a direct Provincial loan.

Since "Mitch" Hepburn's high-handed power policy threatened Ontario's credit at home & abroad, Dominion bankers were naturally incensed. Last week someone in the Hepburn Government blundered, and the bankers got their innings.

Though the power contracts have not been officially disclaimed, Hydro served notice that it would not accept certain big blocks of power scheduled for delivery in the next few months. That meant that the Hepburn bluff--if bluff it was--was going to be played to the last card. Hydro's announcement, however, was made just a few days before a $15,000,000 Ontario loan went on sale. And in Toronto last week, when officials in the Parliament Buildings opened the box where bond tenders are dropped, not a bid was found at any price.

Tipped off before the bidless box was opened, Premier Hepburn hopped back to Toronto by plane from the bush, where he had been fishing with--of all people-- President John P. ("Jack") Bickell of Mclntyre Porcupine Mines (gold), "richest bachelor in Canada," and Manhattan's legendary speculator, Bernard E. ("Ben") Smith, who is called a "money magnate'' in the Dominion Press. The Government's counter attack was planned at Jack Bickell's home located at Port Credit. "The financial interests undertook to discipline the Government of Ontario because of its stand on the power purchase question," thundered a Cabinet statement. "The challenge is not to the Administration but to popular government and to the people themselves."*

Dominion bankers denied a conspiracy, suavely hinting that underwriting of Ontario obligations was too risky a business. Nevertheless, Premier Hepburn promptly declared war. He spoke darkly of special, if not punitive, taxes on "surplus money," refused audiences to banking emissaries, threatened to withdraw all Provincial balances from commercial banks, announced plans for 30 new branches of the Government-owned savings bank system, upped the system's interest rate from 2% to 2 1/2%, to tempt deposits away from private institutions.

"They tried to bluff us today," cried the strident "Mitch" Hepburn. "And they found out we can't be bluffed. The Province of Ontario is too big to be bluffed. . . . We are going through with this business--all the way through with it."

*U. S. bankers who now hold about 52% of the national debt have never dared hold out on Treasury financing. But that possibility was one reason why the pending Banking bill was so drawn that the Government can finance itself through Federal Reserve Banks, which it will then control.

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