Canadian Banks were bailed out by the Government/Taxpayers
May 31st 2010, 8:41 pm
#1
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Canadian Banks were bailed out by the Government/Taxpayers
Canadian Banks were bailed out by the Government/Taxpayers just hidden in the CMHC ponzi scheme.
Or were they just clever keeping it of the books?
The sorry spectacle of Conservative cabinet ministers flying around the world defending banks from a tax to cover their next, inevitable, meltdown is bad enough. What is perhaps worse is that it is being largely justified by the perpetuation of the myth that Canada did not have to bail out its banks. Wrong. We are, according to the IMF, the third worst of the G7 countries, behind the U. S. and Britain, in terms of financial stabilization costs.
First, we put up $ 75 billion to buy up iffy mortgages from the Big Five banks, through the Canada Mortgage and Housing Corporation, taking them off the banks’ balance sheets. That is almost the exact equivalent of the U. S. bailout – it spent 10 times as much, $ 700 billion, and its economy is about 10 times as large.
Second, the Harper government established a fund of $ 200 billion to backstop the banks – money they could borrow if they needed it. The government had to borrow billions – mostly from the banks – to do it. It’s euphemistically called the Emergency Financing Framework – implying that our impeccable banks might actually face an emergency. It is effectively a line of low-interest credit and while it has not all been accessed, it’s there to be used. Could it help explain why credit has not dried up here as much as it has in the U. S.?
Third, the government now insures 100 per cent of virtually all mortgages through CMHC eliminating risk for the banks – and opening the door to the ridiculous flood of housing loans we have seen over the past few years. The result: housing has become unaffordable for tens of thousands of Canadians and new rental housing has dried up. Why all this extraordinary effort? If Canadian banks are such paragons of conservative virtue and prudent behaviour, why did the federal government have to relieve them of mortgages that, presumably, were all carefully vetted and the borrowers scrutinized?
And why is Finance Minister Jim Flaherty not making any connection between the growing housing bubble ( which he now reluctantly acknowledges) and the banks which lend virtually all the money ( backed by CMHC) that is growing that bubble?
One of the reasons that Canadians ( and international commentators, other finance ministers and global financial institutions) buy this Canadian banking fairy tale is the way the government accounts for the money borrowed to support the banks.
As Bruce Campbell of the Canadian Centre for Policy Alternatives explained in 2009:
“ These measures are considered ‘ non-budgetary’ or ‘ off book.’ They do not show up as expenditures, which increase the federal deficit and debt. Rather, they appear on the books of CMHC and the Bank of Canada. But they have increased the government’s borrowing from $ 13.6 billion in 2007’ 08 to $ 89.5 billion in 2008-’ 09, or double the fiscal deficit now projected for 2009.”
Not only has the Harper government felt it necessary to prop up Canadian banks, it was this same government that created financial system risk in the first place.
In 2007, the Harper government allowed U. S. competition into Canada, which prompted the CMHC to dramatically change its rules in order to compete: it dropped the down payment requirement to zero per cent and extended the amortization period to 40 years. In August 2008, Flaherty moderated those rules in response to the U. S. mortgage meltdown. CMHC then “ securitized” an increasing number of its loans into bond-like investments ( if you have a typical Canadian mutual fund, you’ve got some.)
http://www.vancouversun.com/opinion/Bel ... story.html
Or were they just clever keeping it of the books?
The sorry spectacle of Conservative cabinet ministers flying around the world defending banks from a tax to cover their next, inevitable, meltdown is bad enough. What is perhaps worse is that it is being largely justified by the perpetuation of the myth that Canada did not have to bail out its banks. Wrong. We are, according to the IMF, the third worst of the G7 countries, behind the U. S. and Britain, in terms of financial stabilization costs.
First, we put up $ 75 billion to buy up iffy mortgages from the Big Five banks, through the Canada Mortgage and Housing Corporation, taking them off the banks’ balance sheets. That is almost the exact equivalent of the U. S. bailout – it spent 10 times as much, $ 700 billion, and its economy is about 10 times as large.
Second, the Harper government established a fund of $ 200 billion to backstop the banks – money they could borrow if they needed it. The government had to borrow billions – mostly from the banks – to do it. It’s euphemistically called the Emergency Financing Framework – implying that our impeccable banks might actually face an emergency. It is effectively a line of low-interest credit and while it has not all been accessed, it’s there to be used. Could it help explain why credit has not dried up here as much as it has in the U. S.?
Third, the government now insures 100 per cent of virtually all mortgages through CMHC eliminating risk for the banks – and opening the door to the ridiculous flood of housing loans we have seen over the past few years. The result: housing has become unaffordable for tens of thousands of Canadians and new rental housing has dried up. Why all this extraordinary effort? If Canadian banks are such paragons of conservative virtue and prudent behaviour, why did the federal government have to relieve them of mortgages that, presumably, were all carefully vetted and the borrowers scrutinized?
And why is Finance Minister Jim Flaherty not making any connection between the growing housing bubble ( which he now reluctantly acknowledges) and the banks which lend virtually all the money ( backed by CMHC) that is growing that bubble?
One of the reasons that Canadians ( and international commentators, other finance ministers and global financial institutions) buy this Canadian banking fairy tale is the way the government accounts for the money borrowed to support the banks.
As Bruce Campbell of the Canadian Centre for Policy Alternatives explained in 2009:
“ These measures are considered ‘ non-budgetary’ or ‘ off book.’ They do not show up as expenditures, which increase the federal deficit and debt. Rather, they appear on the books of CMHC and the Bank of Canada. But they have increased the government’s borrowing from $ 13.6 billion in 2007’ 08 to $ 89.5 billion in 2008-’ 09, or double the fiscal deficit now projected for 2009.”
Not only has the Harper government felt it necessary to prop up Canadian banks, it was this same government that created financial system risk in the first place.
In 2007, the Harper government allowed U. S. competition into Canada, which prompted the CMHC to dramatically change its rules in order to compete: it dropped the down payment requirement to zero per cent and extended the amortization period to 40 years. In August 2008, Flaherty moderated those rules in response to the U. S. mortgage meltdown. CMHC then “ securitized” an increasing number of its loans into bond-like investments ( if you have a typical Canadian mutual fund, you’ve got some.)
http://www.vancouversun.com/opinion/Bel ... story.html
May 31st 2010, 9:00 pm
#2
Joined: Aug 2005
Posts: 14,227
Re: Canadian Banks were bailed out by the Government/Taxpayers
Were they ... amazing, who'd have guessed.
Sarcasm aside, CMHC underwriting mortgages (ultimately with taxes), ZIRP etc have always been about transferring cash from tax payers to banks. I've been saying it for ages on this forum despite the usual canadian banks are well capitalized and well run meme that exists throughout Canada (and on BE, but I've noticed more bears on hear recently)
I note that GDP for the first quarter in canada was up 6% annualized. When you realize that pretty much all that growth has come from borrowing you'll know it's not a good sign. The next few years are going to be all about debt and what the steps are to repay it.
<and your link doesn't work>.
Sarcasm aside, CMHC underwriting mortgages (ultimately with taxes), ZIRP etc have always been about transferring cash from tax payers to banks. I've been saying it for ages on this forum despite the usual canadian banks are well capitalized and well run meme that exists throughout Canada (and on BE, but I've noticed more bears on hear recently)
I note that GDP for the first quarter in canada was up 6% annualized. When you realize that pretty much all that growth has come from borrowing you'll know it's not a good sign. The next few years are going to be all about debt and what the steps are to repay it.
<and your link doesn't work>.
