Bailing Out Banks in Canada and Abroad-Myth and Reality
Wednesday, June 13, 2012 @ 3:45 AM
By Peter Ewart
A fight has broken out between the Harper government and the NDP and Liberal Opposition parties regarding Canada’s participation in the bailing out of Spain’s troubled banks. On the one hand, the Harper government is saying to Spain and Europe “don’t pass the plate,” that Canada will not contribute to the bailout of European banks. On the other hand, the NDP and Liberals are indicating that Canada should participate as part of its international obligations.
But is all of this just a case of the pot calling the kettle black? Do both the federal government and these two Opposition parties – each in their own way – support bank bailouts? Facts would suggest so.
Since 2008, Prime Minister Harper and Finance Minister Flaherty have been sanctimoniously lecturing the world about Canada’s robust banking sector which, unlike European and American banks, was supposedly not bailed out by the government. “We have not had to put any taxpayers’ money into our financial system in Canada,” Flaherty claimed, “nor do I anticipate that we’ll be obliged to do so.” For his part, Harper boasted that “we have the only banks in the western world that are not looking at bailouts or anything like that … and we haven’t got any TARP money.”
However, as a recent report by David Macdonald, of the Canadian Centre for Policy Alternatives, has pointed out (1), none of what Harper and Flaherty have claimed is true. In 2008 and 2009, the big Canadian banks received the colossal sum of $114 billion in support from the U.S. Federal Reserve, the Bank of Canada and Canada Mortgage and Housing Corporation (CMHC), the latter two of which are crown corporations of the Canadian government. The per capita amount of the bailout adds up to $3,400 “for every man, woman and child in Canada.”
This bailout engineered by the Harper government took the form of massive loans to both Canadian and foreign banks, as well as – similar to the U.S. government TARP program – the buying up of vast amounts of mortgage-backed securities held by the banks. Indeed, as the report notes, the “real heavy lifting” was done by the crown corporation CMHC, which provided over $69 billion in cash infusions to Canada’s big banks.
Contrary to Finance Minister Flaherty’s current posturing about not bailing out “sumptuous euro welfare-state countries” (2), the Canadian government did provide bailout funds in 2008 – 2009 to a number of European- based banks with branches in Canada, including Deutsche Bank, BNP Paribas, HSBC, and ING. And contrary to what Harper has claimed, Canadian banks did access U.S. government TARP money.
Just how much trouble were the Canadian big banks in? It appears a lot more than is being admitted. For example, three of the Canadian banks (Scotiabank, Bank of Montreal, and CIBC) received tens of billions of support from the Canadian taxpayer amounting to (at peak) more than the total value of each bank. As the CCPA report notes, “it would have required less money in February 2009 to have bought every single share of Scotiabank than to provide the emergency aid that the bank received.” Even that pillar of Canadian finance, the Royal Bank of Canada, received $25 billion at its peak, amounting to 63% of its market cap. The banks have paid back their loans since then, but nonetheless, a bailout is a bailout.
So, while workers were losing their jobs by the thousands in 2008 / 2009 and many small and medium businesses were going bankrupt as a result of the severe recession, it is not surprising that the Canadian big banks were still raking in big profits as a result of these taxpayer-funded bailouts. For example, TD Bank, the second largest bank in Canada, showed $6.6 billion in profits “from the fourth quarter 2008 to the second quarter of 2010.” And other big Canadian banks showed similar gains.
It is interesting that the CEOs of the U.S. banks are routinely criticized and pilloried by politicians and the establishment media for receiving multi-million dollar salaries and bonuses while their banks were teetering on the brink of catastrophe and sucking up billions of dollars of taxpayer funds. Yet in Canada, little is said about the salaries of Canadian bank CEOs who took their banks to the edge of disaster during the same period. For example, Gordon Nixon, CEO of Royal Bank, had his salary increase from $9.6 million in 2008 to $12.1 million in 2009. Then there is Edmund Clark of TD Bank, who went from being the 14th highest paid CEO in the country (at $11.1 million) in 2009 to the 4th highest paid (at $15.2 million) a year later.
Flash forward to 2012. In the case of the Spanish bank bailout, the Harper government is attempting to conceal its past practice and present itself as the “anti-bailout” party. It is well aware that many Canadians are against shovelling more money into the coffers of billionaire bankers, and it is trying to paint the Opposition NDP and Liberals into a corner on the issue.
However, while the Harper government is supplying the bucket of paint, these two Opposition parties are surely providing the brush to paint themselves in. For example, the NDP’s deputy finance critic has indicated that the party supports using Canadian taxpayer money to contribute to a proposed global bailout fund (from which the Spanish bank bailout would be presumably drawn). Not to be outdone, the Liberal Party’s John McCallum (a former Royal Bank chief economist) has called for the government to pledge massive funds to “backstop” global markets and financial institutions.
What is clear from all of this is that both the Canadian government and the NDP and Liberal parties – each in their own way – support the propping up of the Canadian big banks and the international financial oligarchy, no matter what they do. And the financiers are very well aware of this. In effect, these private banks have become giant P3s (public – private partnerships), with a blank cheque back-up provided by Canadian taxpayers.
What kind of message is it to send to these privately-owned financial institutions that, no matter what speculative, risky or irresponsible activities they participate in, that government will support them? Canada is one of the few countries in the world that doesn’t even require its banks to maintain reserve funds. This is a recipe for disaster, as the 2008-2009 crisis has shown. And it is a recipe for financial serfdom for ordinary Canadians.
For their part, the NDP and Liberals are not providing any real alternative to the Harper government’s bailout policy that pillages the public treasury.
An unprecedented shifting of risk and debt has been taking place throughout much of the world in the last several years – a shift from financial institutions onto the backs of the public. In Canada, this has been facilitated by the federal Conservative government with the assistance of the NDP and Liberals. As a result, finance capital dominates our society like never before.
So what should be done? How can the power of finance capital over society be diminished? Is it simply a matter of more stringent regulation as some suggest? Should big banks be allowed to fail and new ones arise from the ashes? Or should the financial sector be transformed into a kind of publicly-owned utility that operates on a non-profit basis? What role might the pension funds of Canadians play in all of this? Canadians need to discuss alternatives.
(1) Macdonald, David. “The Big Banks’s Big Secret.” Canadian Centre for Policy Alternatives. April 2012. http://www.policyalternatives.ca/publications/reports/big-banks-big-secret
(2) Curry, Bill. “Don’t ‘pass the plate,’ Flaherty tells Europe.” Globe and Mail. June 10, 2012.
Peter Ewart is a columnist and writer based in Prince George, British Columbia. He can be reached at: peter.ewart@shaw.ca
Comments
Aren’t 3Ps’ wonderfull for a very few people with heigh financial clout? This 3ps’ situation as well as the false need for hydro in BC has to end and the sooner the better. Canada needs to become financialy secure to ensure a future for Canadians.
$3400 for every man ,woman & child in Canada!!! Sweeeeet!
How are you going to pay out anything from Pension Funds if banks are “turned into a kind of publicly-owned utility that operates on a non-profit basis”?
Lets face the REAL problem here, people. Which is NOT the greed of banks, nor the over-bloated salaries of their CEOs, nor the size of their profits, nor that they are mainly privately owned. Nor that their lending, in Canada at least, is based on a ratio of loans to Capital now, instead of just their Reserves.
Which they are still required to maintain, by the way, or they wouldn’t be able to settle their daily cheque clearings with other banks.
The REAL problem is that the whole financial system, as presently constituted, is NOT fully ‘self-liquidating’. Nowhere, in every modern industrial economy. There is a widening macro-economic “gap” between the overall rate that the Costs of Production become Prices at the point of final retail, and the rate that overall Incomes are distributed to meet those Prices, and move that ‘production’ into ‘consumption’.
Currently there are TWO main ways by which this “gap” is closed. By the further expansion of Loan credit, recorded as more DEBT, in all its forms. Or by the gaining of Export credits, (the purchase of new Canadian ‘credits’, created as Canadian money by the Bank of Canada, FOR SPENDING IN CANADA, in exchange for credits created by the central bank of whatever country we have a surplus trade balance with.)
Both methods have problems. The first presupposes that there will always be a market, somewhere, for the additional production an expansion of Loan credit enables. And that such production can always be sold at a price greater than the costs of its making.
This is a major fallacy on both counts. While an increase in ‘productivity’ definitely does lower the cost of each article being produced, it is the TOTAL costs of ALL the articles (the things we’ve just produced MORE of), that has to be fully recovered in Price.
Since any increase in ‘productivity’ anywhere, posits LESS labour input (and overall LOWER labour wage costs) for MORE product output, yet the purchase of the greater production still has to be made mainly from labour Incomes, how do we, or anyone else, anywhere else, ever BUY the totality of MORE and pay for it fully with the totality of LESS? It is a mathematical impossibility! Unless loans continue to be made that are NEVER going to be repaid. And they are, and that’s the whole inanity that’s got the world into the financial mess it is today. The one that no one wants to admit.
When this has happened before, and it has, world wide, we’ve turned to war to try to modify the ‘facts’ rather than ever question the ‘figures’ that are supposed to be capable of numerically REFLECTING them. Will we be that stupid again?
Peter, taking the CPAC at face vaue is like listening to the Suzuki foudation on the oilsands. Self serving bias is not facts. CMHC buying mortgages is not a bailout. These mortgages have value. As for tarp funds, Many institutions accessed these funds that actually didn’t need them. If the Fed is offerring virtuallty free money, What instituition would not take it? Tarp funds were paid back. At the end of the day Harper did a great job for Canada in the worst crises since the depression. We are light years ahead of Europe and the US. Thoses facts won’t change because CPAC conjured up some BS.
I don’t really view what happened in Canada as a “bailout” per se, but rather just the Government ensuring there was enough liquidity in the economy to keep it from stalling. This was the responsible thing to do. What we understand now is that great financial calamities are preceded by a contraction of the money supply.
The banks backed these “loans” with value backed assets. The risk to the government and us was quite low. The money has not only been returned as well, it was returned with interest earnings I believe. We have yet signed onto the kind of nonsense that is going on in Europe, whereby they’re in so much trouble, monetizing debt is the only tool left in their toolkit to keep their economies going. We should not wade into this.
No, I think we fared quite well and the government acted quite reasonably in this instance. That said, I think our banking regulations need tightening and tweaking. Finance has too much power actually, I view their powers as legislated theft. They need to be reigned in.
Prime example of what i posted re one taxpayer…
While it is true that there is but one taxpayer, tax moneies are collected by three different levels of government. As most are aware, we are currently under the governance of leaders who are following an extremely damaging and faulty ideology called neo-liberalism. In a quick but no means complete explaination of what this ideology comprises the basic goalis to increase the wealth of the one percent at the cost to the 99 percent.This is so effective that the top one percent earners have collectively doubled their wealth at the cost of the other 99 percent.
Neo-liberalism goals are todecrease government overview of society to allow the wealthy to increase their greed.This results in less money collected federally which results in a decrease in funds available to be shared with provincial governments. Thus costs are downloaded from federal to provincial governments.
Provincial government (caught upin their own misguided downsizing, ie B.C. Liberals), must download costs to municipal governments who now find an acute shortage of finances previously received from the provincial government.
Municipal governments have no one to download the cost to but the individual citizens. Should anyone in the provincialor municipal government actually point this out to the voter and the governmnet layer abover will punish them by cutting off the pursestrings even further. Therefor, no politician can point out to the citizens that “the emperor has no clothes”
continued next…
Further to this the neo-liberal has misguidedly cut taxation to corporations resulting in a shortage of available funds at the federal level, provincial level and municipal level.
There may be but one taxpayer, but corporations are a part of this group and they are being given huge tax breaks while the citizen must have their taxation rate increaded to fill in the void created by corporate welfare.
The result is we are seeing the loss of the ability of municipal governments to maintain their infra-structure.
To point out that their is but one taxpayer is great but let us not forget that today these taxpayers have entire groups that have been given a pass on their responsibilities and we the people are left to try and fix the huge damage that is being created.
Look to europe where these same policies have resulted in their financial crisis and as per neo-liberal ideologies, once again the individualis being forced to pay for the folly of unfair and misguided governments who support the rich and punish the poor. We will be the next to be told by neo-liberal institutions, like the world bank, to tax the citizen to make up for the greed of the wealthy.
This is what the 1% protests were about and continue to be about. Only when the people unite and reaize that we are the ones with powewr, will this stop. In order to work the citizens must snapout of their appathy and start to stand up for themselves. Good luck to all.
“The economy is here to support the people, the people are not here to support the economy!!!”
Well said REALIST!
“The economy is here to support the people, the people are not here to support the economy!!!”
HUHH?? Ask Russia how that worked.
Typical when faced with the truth we see screams of communist. Makes it easy to spot those who value money before people but what else to expect from someone named after a stock market!
Your version of the truth deserves as much credence as a prtotesting Quebec student. Your utopia dosen’t and will never exist. Time come back from Fantasy island.
Dear realist,
Do you actually know what the definition of neoliberalism is, or have you at one time even read it from a book and not the internet? Your interpretation is wrong and pretty shallow. I wish young people in particular wouldn’t rely so heavily on the information they find on the internet.
I think you’re confusing the tendency toward privatization and unregulated markets with corruption. Now that said, there is some systemic corruption in our political systems, always has been, because of the common denominator within them — human beings.
We agree on one thing though, and that is that people have become apathetic. In order to be of any use, one has to arm themselves with the right information. Just being a reactionary that spouts slogans of innuendo and half truths doesn’t really do anything except make a fool out of you.
University educated, so i guess books, internet, journals and personal instruction would be all a part of my education. Socialpolicy does use a multi-disiplinary approach to education. As for you I’m sure that your education is a match for mine. Perhaps during education your personal idiology formed the material into your own particular bent, just as I’m sure being a humanitarian affected mytake on what i was being instructed. Guess that’s why opinions vary just as experience does as well. It does seem that many neo-liberals seem tocome from wealthy background which feature very little in life trauma that leads to personal growth and the developement of a conscience.
I must agree with Realist and his definition of NEOLIBERALISM because Realist’s definition is a close match to my own. My schooling is limited but I learn by just living and paying attention to my environment. Sine Nomine I believe your interpretation to be flawed. It could be gthat you have taken your education too litteral.
Realist, a functioning economy is the backbone of all societies. Always has been and always will. You might have missed that class, but I suspect the coming economic shit storm will blow up everyones “truths” .
Our political class gave up on free enterprise… lately our premier musses about changing the name of the BC liberals to a free enterprise name to try and gain political capital, but this will still be a monopoly capitalist party just under a wrong label for knavish reasons.
The banks are hypocritical in that they demand we all live by the law of the markets, but they themselves do not. In Spain the banks speculated and made nice profits for their principles speculating, and then when their ponzi scheme ran out of steam they get a $115 billion Euro bailout of tax payers capital to pay bank debts 100% on the total. Investors who took the risk took no haircut on their bad investments… now the government in Spain is bankrupt and the only solution they have is austerity and more taxes for the middle class. Its the global bankster model.
In recent years we have heard about green shoots in the economy and the slow recovery… in reality GDP is mostly made up of financial wealth now and no longer actual main street production… TARP and QE1&2 essentially printed money for banks to continue a market ponzi and create the illusion of wealth returning, while they simultaneously finished looting the system before its complete collapse. The real economy has been exported through globalization to countries like China and Mexico and won’t be returning anytime soon to save the next generation… the next generation will be slaves to bankers and their corporate proxies is the current plan.
I agree we need a public crown owned currency and regulations to govern who creates currency and how (ie derivatives and stock manipulation). Banks need to be run like businesses and held accountable to the markets like everyone else. The banks should have been allowed to fail and a government crown corporation should have been set up to ensure the real economy remained liquid until more responsible banks could fill the void.
The only long term solution though is a return to real free enterprise values with a flattened power structure in the economy as well as politically. It won’t be easy in an era of monopoly capitalists and socialists crowding out the debate.
Corporations being legal persons is the root of our political corruption today. Corporations never die and they are built towards monopolist end goals. Nowadays corporations are a mix bag of national interests with shareholders and managers having loyalty to any number of foreign countries, yet their influence in domestic politics is almost complete. Limiting liability is one thing, but giving corporations the rights to influence politics is a danger to our democracy.
Net Neutrality… the last sanctuary of free enterprise is likely the final battle for mankind to retain his freedoms. Retaining net neutrality and taking its lessons to include things like our roads, health care, education, and yes even our banking sector are the key to future prosperity for future generations.
The world will see success through greater diversification and flatter more horizontal power structures and not through greater silos of concentrated wealth and power.
The middle class will grow and bring up all boats only through the highest standards for workplace safety and environmental protection. The health of any economy should be measured in the health of the middle class.
In America in the last three years the middle class has lost 40% of its net wealth. The median net wealth went from $120,000 to under $70,000. Yet in this same time frame stock markets have seen record increases… and unemployment is still at record highs. GDP does not equate to economic wealth for the middle class and increasingly less so as it more and more measures wealth of the banksters and their foreign corporate prozies.
A successful economy needs its government to build and maintain essential infrastructure so that businesses can focus on their core competencies… this means public roads, public education, and public health care should be some of the founding blocks to a free enterprise economy.
How can an economy compete when its government sells its energy reserves on the global market for global market prices that it imposes through inflation on its domestic markets? Dutch disease takes hold and eventually you have the unemployed and you have the energy sector.
A government of and for the people would ensure energy is taxed at its point of export so as to ensure the domestic economy retains its competitive advantage.
A government of and for the corporations would push free trade in energy exports on world markets.
GDP/GNP is/are such 20th century concepts. Any thought on adopting the GPI (Genuine Progress Indicators) model to this equation?
Why are we still discussing banks when we have Credit Unions?
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