# Mark Carney leaves Bank of Canada to lead Bank of England



## andrewf (Mar 1, 2010)

Despite his protestations to the contrary, Mark Carney is skipping out on the rest of his term as Governor of the BoC to lead the Bank of England.


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## HaroldCrump (Jun 10, 2009)

Ha, he had been denying it a little too vehemently, so that ought to have been a clue that he intended to accept the offer.
IMO, this is a loss for us.
I am worried about who the replacement is going to be, and whether that individual can take a long term view and rise above short term politics to do the right things.


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## Robillard (Apr 11, 2009)

I hope he's up to the challenge of running the Old Lady of Threadneedle Street. The UK economy certainly needs some help. Inflation has been running higher, but without the expected secondary effects of increased nominal GDP growth. While I think the European economy is certainly a contributing factor (something Carney can't do much about), it doesn't seem to be the whole story.


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## Jungle (Feb 17, 2010)

Good timing on the move. If housing crashes, he won't have to answer to that.


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## sags (May 15, 2010)

If the housing market crashes, Carney and Flaherty will be front and center for the blame.

Not really all that fair though, as Carney had little to do with amortization schedules and down payments.

I don't understand all the accolades though. He did what every central banker around the world is doing.

Keep interest rates as low as possible and hope for a recovery.

To his credit, he did cut Jamie Dimon down to size on the need for regulation of the financial industry and appropriate capital requirements.

I think he was an honest guy, doing good work, who calmed the markets............but not really extraordinary.

It isn't all rainbows and unicorns just yet.


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## james4beach (Nov 15, 2012)

The mainstream media has given Carney a very easy time. They love him... but here's what I saw from this Goldman Sachs veteran:

* He kept historically low rates for a long time, encouraging household debt-to-income ratio to get up to 165%... higher than US and UK went!

* He helped inflate the largest Canadian real estate bubble in at least 2 decades (some say the largest Canadian RE bubble in the country's history)

* He orchestrated *stealth bailouts of all large Canadian banks* through Fed cooperation, and direct BoC liquidity injections... and did a good job in not getting any media coverage of this!

The big five bank bailouts:

a) BoC gave $45 billion temporary liquidity to big five
b) BoC + Fed gave $111 billion through TAF to big five
c) there was actually more federal. $65 B from IMPP + $ 4 B from CPP
d) that's total federal government money of $225 billion [1]

Focusing just on the central bank part, that's $156 billion given to the big five banks. The entire tangible common equity of the Canadian Banks in 2008 was $68 billion [2].

The central bank's money injection amounted to more than 2x the entire tangible common equity of the Canadian banking system!!!

Hey that's pretty good for the 'most sound financial system in the world that didn't need any 2008 bailouts'. Could you imagine if they actually "needed" bailouts?

Carney's a liar, and what's most damaging is that he's fostered this belief that the Canadian system is incredibly strong and didn't need bailouts in 2008. All wrong... they were bailed out, with very substantial amounts from federal gov + BoC + Federal Reserve.

[1] References. The first $114 was relatively well known
http://business.financialpost.com/2012/04/30/did-canadian-banks-receive-a-secret-bailout/

The other $111 TAF wasn't well reported. Remember how hard the Federal Reserve fought to keep this data secret.. eventually it was revealed that many foreign banks, Canadian ones too, borrowed tons.
http://www.greatponzi.com/reports/cdn-credit/health-20101208.html

So that sums to $225 total bailouts, or 3.3x total Canadian banking system tangible equity

[2] Google: Sprott 2009 Don't Bank on the Banks. Note that this article came out before TAF was revealed


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## Robillard (Apr 11, 2009)

On the issue of bailouts, people may define this differently. I define it as the government either loaning funds or recapitalising a bank when it is unable to meet its obligations, either because the bank is illiquid or insolvent. If the bank is not facing a liquidity crisis, or insolvent, then I would not consider the government intervention to be a bailout.

Banks are in the business of borrowing and lending money, even from and to governments. Suppose the government simply decided that the best use of a chunk of the taxpayer's money would be to deposit it at a bank and earn interest. Would that necessarily be a bailout? By the same measure, when I, and millions of other depositors decide to loan money to banks as deposits, are we bailing out the banks? I would say no. The defining characteristic of a bailout, in my opinion, is the inability of a bailed-out bank to meet its obligations absent the government loan or recapitalisation.

It is my understanding that the Canadian chartered banks were not in a position to fail to meet their obligations without government intervention at any time during the 2008-2009 financial crisis, therefore I don't consider the loans made by the Bank of Canada or the Government of Canada to the chartered banks to be bailouts.


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## andrewf (Mar 1, 2010)

To classify those as bailouts, I would say there'd need to be a credible risk of loss of capital. I don't think there was such a risk. Buying CMHC insured mortgages from the banks does not expose the federal government to any additional risk, for instance.


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## Cal (Jun 17, 2009)

A few years down the road he may get compared to Greenspan in regards to keeping rates low for a longer period of time. There are also similarities with RE values and household debt levels while both were in control of the BOC and the Fed.

Interestingly enough the media has been pretty easy on Greenspan as well.


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## MrMatt (Dec 21, 2011)

james4beach said:


> * He kept historically low rates for a long time, encouraging household debt-to-income ratio to get up to 165%... higher than US and UK went!
> 
> * He helped inflate the largest Canadian real estate bubble in at least 2 decades (some say the largest Canadian RE bubble in the country's history)


Canada can't afford rates substantially higher than the rest of the world. I don't see a widespread real estate bubble, just a few heavily overpriced markets. I think the new rules were a reasonable way to slow down the market.

It's easy to put the credit/blame on the man "at the top", but really we are lucky to have reasonably capable organizations that made these things happen. 

I think Carney has put on a good show in his position, and putting on the right show for the worlds financial markets is a BIG part of the job. I think it's actually a win for Canada, we have a good talent pool to draw from, it isn't like we will be left high and dry.

The benefits for us, is if he does well it will look good on us, and quite honestly fixing up the English banking system is more important to a healthy globe than a relatively minor financial player like Canada. A strong global economy and banking system will end up benefiting us substantially.


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## HaroldCrump (Jun 10, 2009)

MrMatt said:


> I don't see a widespread real estate bubble


Yeah, like this guy kept saying : _I am alright. I don't know what you guys are talking about._


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## james4beach (Nov 15, 2012)

I appreciate the follow up comments, thanks everyone.



Robillard said:


> If the bank is not facing a liquidity crisis, or insolvent, then I would not consider the government intervention to be a bailout.


Well it gets tricky here. There is no transparency, no way to tell how close to the brink a bank gets. If you ask the banks or Bank of Canada, they say the Big Five didn't need it. I don't believe them.

You said "if a bank is not facing a liquidity crisis"... well IMPP was specifically created to address liquidity problems at banks, that's directly in the wording from CMHC . That's why it was created! Not only that but it actually exposed taxpayers to significant risk of loss, as a result of risk transfer to government (see 2011 CMHC annual report).

TAF is even more damning. The Fed wrote: “many banks were reluctant to borrow at the discount window out of fear that their borrowing would become known”. And thus the TAF was created, and kept secret so that it could not be stigmatized. All the Big Five borrowed billions from this. TAF was to provide liquidity to “institutions whose disorderly failure could have severely stressed an already fragile financial system” (that's wording direct from the Fed). TAF was a facility specifically created for large banks on the brink of collapse!

I really think the Canadian banks were bailed out (and Carney was dishonest about all of it). And I think they needed it (i.e. they had serious liquidity and solvency problems) because if they didn't need it, why would they borrow billions from all these facilities and face the stigma of "emergency life support lending"?

Surely, if you are a bank that is truly solvent and not in danger of collapse, the strongest way to demonstrate this is _to not_ suck from the teet of government assistance. Then you can proudly say, "in 2008-2009 we didn't even have to borrow from central bank facilities... we stood on our own, and were never in danger of collapse".

But the Canadian banks can't say that. They didn't just suck at the teet, they gulped down and drained the mother dry. And they did it secretly, because TAF went unreported. And then after the big meal at the taxpayers expensive [liability-wise], they bragged that "they were never in danger of collapse and they're the strongest in the world".

Hilarious, imo. And Carney made it all happen.


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## james4beach (Nov 15, 2012)

andrewf said:


> To classify those as bailouts, I would say there'd need to be a credible risk of loss of capital. I don't think there was such a risk. Buying CMHC insured mortgages from the banks does not expose the federal government to any additional risk, for instance.


According to this article, there was indeed risk exposure to government (i.e. YOU) from that particular program. So does this change whether you think it was indeed a bailout?



> From http://www2.macleans.ca/2012/05/24/the-real-canadian-bank-bailout/
> 
> The report labeled the IMPP a “bailout,”but banks were quick to point out that this program presented a zero net increase in taxpayer liabilities as these mortgages were already insured by Canada Mortgage and Housing Corporation.
> 
> However, the 2011 CMHC annual report reveals clear evidence that taxpayers did in fact take on significant risk in propping up the mortgage market during the financial crisis and Ottawa owes Canadians some answers on exactly why this was allowed to happen.


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## Robillard (Apr 11, 2009)

james4beach,
In fact, you can tell how close a Canadian bank gets to insolvency because OSFI requires each chartered bank to file monthly balance sheets and reports on their capital adequacy with them every month. This information is publicly available here: http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=554. A bank's liquidity position can be partially inferred from its balance sheet information, but we are not yet at a point where off-balance sheet liquidity sources are public knowledge. 

The financial crisis of 2008-2009 was ultimately a liquidity crisis driven by a lack confidence in the solvency of financial institutions. At a glance, it was not clear which institutions were solvent, which ones had poor liquidity but were essentially solvent, and which ones were actually insolvent. This was because it was not clear what was the extent of losses on subprime mortgage-backed securities was. Moreover, because of the interconnectedness of financial institutions, a failure of one bank would have ripple effects, causing potentially significant losses in others. The crisis was exacerbated by this uncertainty, as the institutions that were actually insolvent, or that had poor liquidity were reluctant to admit to their own failure. The lack of confidence that financial institutions had in each other became a self-fulfilling prophecy. Because banks refused to lend to each other, there were basically no wholesale sources of liquidity banks could tap other than central banks. The solution, from a publicly policy perspective, was to make accepting liquidity from the central banks (and possibly capital injections from government agencies) "socially acceptable" by forcing all banks, regardless of their actual financial situation, accepting credit lines (and possibly capital injections) simultaneously. This was how the TARP worked. In Canada, I don't think the TAF involved capital injections (in the form of the government buying preferred shares). 

The point I'm trying to make is that the emergency programs of central banks and governments during the financial crisis were deliberately designed so that ALL banks were more or less obliged to participate. That way, there wouldn't be hold outs that would make the banks participating look like failures, even if they were not. Maybe the big 5 banks could have gotten by without the government intervention. I'm inclined to think that they would have. We will never really know because we don't have a counter-factual to which to compare.


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## andrewf (Mar 1, 2010)

Post the excerpt from the CMHC report. It's not clear to me what risk would have been taken on.

Edit: I reread the Macleans piece. He wasn't referring to the mortgage buying program. He was referring to the expansion in portfolio insurance for low ratio mortgages. It's not really a bailout, unless you consider CMHC as a whole to be a continuous bank bailout (some people do).


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## timelessfinance (Aug 24, 2012)

HaroldCrump said:


> Yeah, like this guy kept saying : _I am alright. I don't know what you guys are talking about._


lol exactly. $800 billion in subprime mortgages (much of it 0% down, 40 year amortizations). Highest consumer indebtedness in the G8. Years of condo inventory sitting empty. Only a Realtor could ignore the stark realities facing our housing market. The CMHC, a massive subsidy for the Banksters and home cartels, has about the same equity as Fannie Mae and Freddie Mac did when the good times were rollin' in America. Canada's national lie is that we were so remarkably prudent that we didn't experience the GFC in its full fury; that's only because our debt bubble has yet to pop.

Carney jumped ship. You leave a job before all the fools and media realize you screwed it up, not after. In Ontario, the only economic saving grace has been housing -- record construction, healthy consumer spending despite horrible unemployment --and that's about to implode. You can almost imagine the horrified conversation that Flaherty had in a backroom when he found out Carney was going to bail.


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## james4beach (Nov 15, 2012)

timelessfinance said:


> The CMHC, a massive subsidy for the Banksters and home cartels, has about the same equity as Fannie Mae and Freddie Mac did when the good times were rollin' in America.


Well I agree. I think that CMHC (and Carney, low interest rates) have been juicing the Canadian market for years. CMHC balance sheet as % of GDP has gone from around 17% in the late 90s, to currently 34% of GDP. 

Have you looked at who _runs_ the CMHC? Go to their web site and take a look at their audit committee, you won't believe it. The CMHC is run by people with total conflicts of interest, these are real estate speculators who directly gain from inflated home prices.

1. Joncas: prof in economics, experience in construction & RE firms
2. Johnston: active COO of a homebuilder in the GTA and Calgary
3. Gendron: part owner of Alberta-focused private equity RE company

LOL !!! This is ridiculous... can't we get a few more homebuilder CEOs or leveraged RE speculators on the board??


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## Argonaut (Dec 7, 2010)

My perfect replacement for Mark Carney..

Ed Clark.

Won't happen though, unless he's interested in taking a pay cut for some prestige and power.


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