04) CANADA'S SECRET BANK BAILOUT REVEALED
When the U.S. housing crisis erupted into a full-blown global economic meltdown in the fall of 2008, Canada was in the midst of a federal election. The fear in people's eyes was evident at all-candidate forums, where voters demanded answers about the sudden drop in the value of their life savings.
The rising panic threatened to upset the careful electoral strategies plotted by Stephen Harper's Conservatives - particularly their claim to be trustworthy stewards of the economy. Since the Conservatives were in office during the first half of the Dirty Thirties, not to mention the 1990 recession which kicked off the "jobless recovery," many saw this as dubious. The old saying "Tory times are hard times," seemed closer to the mark, and the Conservatives were left with another minority.
One tactic used by Harper & Co. was the sweeping statement that since Canada's well-regulated banks were not affected by the crisis, our savings were "safe". Coming from a party which opposes regulation of corporations, this seemed contradictory, but it sent a signal that the Conservatives would not embark on a massive U.S.-style bailout of the banks.
"We have not had to put any taxpayers' money into our financial system in Canada, nor do I anticipate that we'll be obliged to do so," said Finance Minister Jim Flaherty. Then there was this quote from PM Harper: "We have the only banks in the western world that are not looking at bailouts or anything like that..."
However, a new study released by the Canadian Centre for Policy Alternatives (CCPA) exposes this claim as a fabrication. It appears that the previously secret extent of extraordinary support required by Canada's banks during the financial crisis reached approximately $114 billion at its peak. If this truth had been widely known at the time, the October 2008 election might have seen a different result.
The study, by CCPA Senior Economist David Macdonald, estimates that support for Canadian banks amounted to $3,400 for every man, woman, and child in Canada.
"At some point during the crisis, three of Canada's banks - CIBC, BMO, and Scotiabank - were completely under water, with government support exceeding the market value of the company," says Macdonald. "Without government supports to fall back on, Canadian banks would have been in serious trouble."
Between October 2008 and July 2010, says the study, Canada's largest banks relied heavily on financial aid programs provided by the Bank of Canada, the Canada Mortgage and Housing Corporation (CMHC), and the U.S. Federal Reserve - all at the same time.
Both the Federal Reserve and the Bank of Canada offered short-term collateralized loans which peaked at $41 billion and $33 billion respectively. CMHC was buying mortgages directly from the banks after they had been converted to mortgage‑backed securities. By the end of this program, CMHC had purchased $69 billion worth of mortgages.
But the banks were not suddenly losing money, and their executives were certainly not suffering.
Over this aid period, Canada's banks reported $27 billion in total profits, and only two banks saw a single quarter with losses. Meanwhile, their CEOs were among the highest paid in Canada, receiving an average raise in total compensation of 19%. Edmund Clark of TD Bank saw his overall compensation jump from $11.1 million in 2008 to $15.2 million in 2009.
"The federal government claims it was offering the banks `liquidity support' but it looks an awful lot like a bailout to me," says Macdonald. "Whatever you call it, Canadian government aid for the country's biggest banks was far more indispensable than the official line would suggest."
Macdonald calculated the value of government support by researching data provided by CMHC, the Office of the Superintendent of Financial Institutions and the Bank of Canada, as well as quarterly reports of the banks themselves.
But he says that because of government secrecy, the study raises more questions than it answers. He has called on the Bank of Canada and CMHC to release the full details of how much support each Canadian bank received, when they received it, and what they put up as collateral.
"A healthy and resilient banking sector cannot operate under the shroud of secrecy. Details of the massive taxpayer support Canadian banks received should be released in the name of transparency and accountability," says Macdonald. "Financial sector regulation should be strengthened to prevent the need for similar measures in the future."
Readers can download the full CCPA report at www.policyalternatives.ca.
(The above article is from the May 16-31, 2012, issue of People's Voice, Canada's leading communist newspaper. Articles can be reprinted free if the source is credited. Subscription rates in Canada: $30/year, or $15 low income rate; for U.S. readers - $45 US per year; other overseas readers - $45 US or $50 CDN per year. Send to People's Voice, c/o PV Business Manager, 706 Clark Drive, Vancouver, BC, V5L 3J1.)