# Bailouts For Canadian Banks Were Also There



## dogcom (May 23, 2009)

http://www.youtube.com/watch?v=9K_N0uOXkQA&feature=player_embedded#!

Why won't they come clean to the public? The total bailout was worth more then the total shares of Canadian banks and went on for 1.5 years, with two countries and three programs involved. Forum buddies you are being lied to in the market, but where does it end up who knows.


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## HaroldCrump (Jun 10, 2009)

Yes, this story was first broken by an analyst from the Center for Policy Alternatives several months ago (last Summer, I think).
We have discussed this on CMF, I recall.
Just search for posts by James4Beach and you will find that thread sooner or later 

Does it really matter any more?
Since 2008, we have been living in an environment of artificially low interest rates, bulls*t official metrics incl. inflation, unemployment, etc.

Both us, and our cousins south of the border, are bailout nations now - State Capitalism.
Bailouts for auto sector, their unions, the public sector, and many other "commanding heights of the economy".

If the US had not done the TARP bailout, the entire western financial sector would probably have disintegrated.
Ours would have followed suit.

If inefficient and parasitic auto companies can be bailed out using tax-payer money, why not the banking system.

We should take a small amount of consolation from the fact that in Europe, the entire financial system is essentially stated owned now.
RBS, Irish National, UBS, even the venerable Lloyds Bank dating back to the 17th century - are almost entirely state owned now.

Do you want the banks to control the state, or do you want the state to control the banks - pick your poison.


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## MrMatt (Dec 21, 2011)

What is to come clean about?

The central banks ensured liquidity during the financial crisis. Everyone knew they were doing this.
It wasn't secret and that's not quite a bailout, it isn't like the government handed over suitcases of money in a parking lot.


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## dogcom (May 23, 2009)

Thanks Harold didn't know James4Beach already covered this. MrMatt you are correct that everyone was being offered liquidity during the crisis which is no secret but it would still be good to know the extent of it.


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## kcowan (Jul 1, 2010)

Just keep in mind that all the metrics no longer carry the same meanings that they did prior to the bailouts.

So celebrating Dow 15000 needs to be done in the context of the trillions of money printed by The Fed! It is not real by our old standards.


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## Rusty O'Toole (Feb 1, 2012)

They already fixed it. The next time, the banks will grab the depositors' money - no taxpayer money required.

It's called a "bail-in". If you think they won't do it, they already did it in Cyprus. If you think they won't do it here, the latest budget endorsed it.


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## Robillard (Apr 11, 2009)

Just to be clear, there are two kinds of crises at banks that might prompt government intervention.
1. Liquidity crises
In a liquidity crisis, the bank does not have enough liquid assets, such as T-bills, or deposits at the central bank or other commercial banks, to liquidate and pay out depositors' cash. Banks are in the business of borrowing money short-term from depositors, and lending it out long term in loans and mortgages. So, of course, the natural state of a bank is to have a relatively small proportion of its assets in highly liquid assets that pay low returns. Liquidity crises typically happen when there is a bank run. During the financial crisis, the UK bank Northern Rock was one that was caught up in a liquidity crisis (it became insolvent too).

The central bank might intervene in a liquidity crisis by loaning cash to a bank with a major shortage. This can tie over a cash-strapped bank until it can collect enough cash from selling assets to meet demands, or until the bank run ends. You can call this a bailout, but for central banks, loaning money to commercial banks is part of their standard tool kit. In general even without a crisis, central banks stand ready to loan money to banks at any time, assuming that the borrowers have good assets to post as collateral. Moreover, making loans to (or placing deposits at) commercial banks is a lever by which the central bank can control the money supply, which they do from time to time. 

An alternative approach to loaning funds directly would be for the government to temporarily guarantee the debts of the cash-strapped bank, allowing it to secure funding from other banks, who might otherwise be twitchy about lending to a bank suffering a liquidity crisis. IMHO, this kind of extraordinary intervention has more of a bailout-feel, as technically taxpayer money is at risk; if the move fails to inspire enough confidence and the cash-strapped bank can't secure enough funding, then the government may have to make some lenders whole. Generally governments won't guarantee debts for free, and instead demand that the cash-strapped bank pay guarantee fees. To the extent that guarantee fees charged exceed the expected losses, I don't think we should be too upset about this move.

2. Solvency crises
In a solvency crisis, basically the value of the bank's liabilities exceeds its assets, and the bank goes bankrupt. Solvency crises are typically prompted by banks taking losses on assets. If the losses exceed tha bank's capital, then the bank can become insolvent. In 1995, the Barings Bank failed spectactularly when it was revealed that the bank had incurred massive losses on derivatives trades in Singapore, which had been covered up. In the financial crisis, almost all banks took writedowns on mortgage-backed securities. Coming into the financial crisis, major American banks had very little capital, so they were pushed to the brink of or into insolvency. Washington Mutual was a bank that became insolvent in the financial crisis. It was seized by the FDIC, and most of is assets were sold to JPMorgan Chase.

The only solution to an insolvency situation is for investors to inject new capital. The alternative is generally dissolution and liquidation of the insolvent bank. If the government is the one that puts up the capital, then it is definitely a bailout. TARP was set up to temporarily inject capital into many of America's big banks through the purchase of preferred shares, and by doing so, it aimed to restore confidence in the solvency of the banks.


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## HaroldCrump (Jun 10, 2009)

Robillard, a liquidity crisis is in fact a solvency crisis that hasn't come out of the closet yet.
It is the same thing, at least where large global financial institutions are concerned.

I can understand a pure liquidity crisis for some small, regional bank or credit union.
But in the case of global (or even national) institutions, a liquidity crisis is like an attempt to put lipstick on a pig.

Do you recall the very early days of global financial crisis, which started in Iceland as early as 2006-7?
Recall how the Icelandic government kept insisting for months that it is a liquidity crisis and not a solvency crisis?
Those were the exact terms they used.

The reason they are one and the same thing is because in this day and age of highly liquid global credit markets, a true liquidity crisis is rare (except for small regional banks as I said above).
What is perceived as a liquidity crisis is in fact a loss of confidence in the valuations of the derivative positions held by the FI.
Such as the futures contracts, the CDSs, the CDOs, etc.
The market is essentially saying, we do not believe the valuations you have on your books.
i.e. there is no way to "mark to market" those assets with any degree of accuracy.

No other FI is willing to offer a bid at any price.
The counter-party risk is assumed to be too large.

A FI that has a lot of such "assets" on its balance sheet for which there is no true "mark to market" price is essentially insolvent.
It is not a liquidity crisis, but a solvency crisis.

For e.g. I still have some paper share certificates of Bre-X and Nortel.
The value of those is equal to my liabilities.
Those securities are not trading on the stock exchange any more.
Would you accept them as collateral against a loan?
Is that a liquidity crisis or a solvency crisis?

That being said, a powerful central bank such as the ECB and the Fed can indeed rescue this situation by accepting such worthless paper as collateral (essentially, a de jure bailout).
This is what the Fed did between 2009 and 2010, and the ECB has been doing since 2011.
By accepting such frozen paper as collateral, the central bank is making a market for that paper.
It is saying that we will redeem this paper for its original face value (or the last recorded price).

The plan of such a central bank is that, over time, the FI in question will be able to reduce its other liabilities and boost its assets.
Then such paper is no longer a large % of its balance sheet and can safely be buried in the trillions of $$ of printed money.
That piece of paper will become irrelevant after that point.

These are all solvency crises that we are witnessing now.


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## andrewf (Mar 1, 2010)

Rusty O'Toole said:


> They already fixed it. The next time, the banks will grab the depositors' money - no taxpayer money required.
> 
> It's called a "bail-in". If you think they won't do it, they already did it in Cyprus. If you think they won't do it here, the latest budget endorsed it.


As long as this keeps coming up, I'll continue to rebut it: this is total nonsense. There are no plans to seize deposits to bail-in banks. Any statements to the contrary are deliberate misrepresentations of what the government has said and are an attempt at sowing fear and distrust.


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## andrewf (Mar 1, 2010)

Harold, if all liquidity crises and really solvency crises, how do you explain how TARP worked out? The US government did not lose much or possibly made money on the exercise.


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## fatcat (Nov 11, 2009)

i have to throw in with andrew here also
everyone in cyprus knew that the game was rigged
they knew long ago that the banks were stuffed with funny money

things will be very, very, very bad before the government of canada starts to shear depositors in cdic banks

ps. i do think that there is at least a small (<5%??) chance that such a scenario might come about


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> Harold, if all liquidity crises and really solvency crises, how do you explain how TARP worked out?


"Worked out" is a matter of perspective.
It sure worked out for the banksters that were able to offload their riskiest assets to the Fed's balance sheet.

As a result of TARP (which is a fiscal measure), then followed by ZIRP and Q/E (which are monetary measures), the financial institutions and investment banks were able to (slowly) transfer their frozen assets and ABPs to the Fed.
This freed up frozen capital for them and enabled them to get back into the market.
If this hadn't happened every single one of them would have gone the way of AIG and Lehman.

Every single one of them was insolvent.
It was not a liquidity crisis, but a solvency crisis.

Robillard's descriptions above are pretty accurate, actually.
The US financial crisis, and the current EU crises, are pure insolvency crisis, not a liquidity crisis.
Is Greece insolvent or merely illiquid?

All I am saying is that these days, there are no liquidity crises in the global financial system because as long as there is a bid for an asset or derivative, you have liquidity.
If you don't have a bid for an asset or derivative, it is not because there is a liquidity problem in the system, but simply because that asset is so worthless and/or so risky that no one will buy it at _any_ price - except the govt./central bank.

That is what happened.

Look at Citibank - them buggers have been slowly deleveraging their balance sheet by selling all their previously worthless assets to the Fed. at or close to face value.

The Q/E ensured that the housing market stopped its downward spiral, bottomed, and slowly started inching its way upward.
That brought back to life some of the previously frozen ABPs.

Iceland kept insisting up until the very end that they had a liquidity crisis and not a solvency crisis (those very terms were used).
If only they could get another billion $ and another month of time, while the markets freed up.
Just like a bankrupt businessman who keeps asking the loan shark for another week to pay his debts : _just one more week, please, I have a liquidity crisis, not a solvency crisis_


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## andrewf (Mar 1, 2010)

Greece is insolvent--its economy cannot bear the crushing burden of debt and won't be able to repay. 

The TARP assets were illiquid because the demand for risky assets disappeared. The portfolio still had value, as demonstrated by the fact the government did not lose out on TARP. I don't condone government intervention of that sort, just stating a fact. I think it's preferable in future to require banks to have contingent capital so that liquidity crises in the future can be addressed by converting debt to equity.


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## james4beach (Nov 15, 2012)

andrewf said:


> The TARP assets were illiquid because the demand for risky assets disappeared. The portfolio still had value, as demonstrated by the fact the government did not lose out on TARP.


There are many people who are skeptical about that claim by the government. First of all, it's not even clear where all the TARP (and TALF, etc) money went. Even the FBI put out a news release shortly after TARP, warning that with this much money flooding unchecked into banking that there will likely be much fraud and embezzlement.

The government is claiming that its holdings went up in value after the bailouts. They are excluding all the other miscellaneous TARP spending, of which there's a lot... I mean a lot of this money just ended up getting paid out to executives as bonuses. My friend's sister (a VP at Citigroup) got a 99% raise shortly after TARP. There's no way in hell the government _made _money, after showering all the banksters with extra money that went to bonuses, etc.

Secondly, the US treasury and Federal Reserve together "became the market" in these securities. That's not a market! So what are the securities really worth? Who knows... you've got players A (treasury) and B (Federal Reserve) creating the price of a security. Player B buys the securities at ridiculously inflated prices from Player A. Then player A tells you he made money on the securities and player B also says the value of the securities has gone up... um really?? No -- they're setting the prices themselves, it's silly.

The only thing we know for certain is that the Federal Reserve bought a ton of bad assets, without full disclosure, and has put them on their balance sheet -- again, with no disclosure. It's a very nice shell game but it's not the end of the story and there is no definitive answer (yet) on whether the bailout will incur a loss for the USA


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## james4beach (Nov 15, 2012)

Let me also point out that Canadian bank executive all enjoyed massive raises, shortly after the joint Government of Canada & Bank of Canada bailouts of the Big Five banks. From the Canadian Centre for Policy Alternatives document on the bank bailouts, page 7

"at the height of government support between 2008 and 2009 each CEO of each [Canadian] bank received raises in total compensation. For instance, Edmund Clark of TD Bank saw his overall compensation jump from $11.1 million in 2008 to $15.2 million in 2009."

These guys took home extra pay while they ran their banks into the ground, and while they took bailout money from the government. Their companies did not have extra money to pay out in compensation... this means the compensation came from federal assistance. That's government cash that was paying Ed Clark and the other bank CEOs, because it sure as hell wasn't earnings cashflow. Am I supposed to be stupid enough to believe our government turned a profit even after paying millions$ of extra compensation to the CEOs and other executives?


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## fraser (May 15, 2010)

I have been a shareholder in National Bank, Scotiabank, and Royal Bank.

As long as my investment appreciates, through stock price and dividends, I am happy. And I have been. I believe that the compensation is a matter for the shareholders and the Board.


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## andrewf (Mar 1, 2010)

This is why it's important that we put in place a contingent capital regime for bank resolution. Really, all firms should be set up this way: when a firm becomes insolvent, the shareholders are diluted, bondholders are converted to equity and other creditors take a haircut. Long protracted bankruptcies are bad for the economy and can cause needless destruction of productive assets. If the bondholders decide to liquidate instead, they can always sell their new equity stake for whatever it is presently worth.

In finance, the moral hazard is particularly large due to the highly leveraged balance sheets. Bondholders need to feel the sting of defaults, rather than treating bank debt as government guaranteed. In the interests of system stability and keeping deposit insurance costs low, deposits should be treated as the first in line in the capital structure.


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## james4beach (Nov 15, 2012)

Good points, andrewf.

It probably comes across in my post, but I'm really angry that Big Five bank executives got paid so much even while their companies were insolvent/illiquid. In what form of capitalism do you get compensated while your company disintegrates under your watch? And the high salaries during the crisis really are a direct transfer of money from public (taxpayer) to the banks.

Employees of the big banks are the best paid government workers in Canada. Personally I feel that as long as they have CMHC or any government support, as they certainly have now, employees of the banks (including the CEO) should be subject to the standard civil servant pay schedule.

The banks always respond to this by saying that if they can't pay top dollar, they can't retain the best & brightest talent. Hilarious. My response: well fine then, impress us all, go run a solvent bank without requiring government money. Do it and make us proud, and earn as much salary as you want.

But... they can't. Because they're parasites and their business model requires free money & guarantees from the state, until we (voters) force otherwise.


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## james4beach (Nov 15, 2012)

fraser said:


> I have been a shareholder in National Bank, Scotiabank, and Royal Bank.
> 
> As long as my investment appreciates, through stock price and dividends, I am happy. And I have been. I believe that the compensation is a matter for the shareholders and the Board.


You're a part owner of Royal. When your company became insolvent and needed urgent money, they didn't even tell you... there was no disclosure to you and other shareholders. All the money they obtained was done secretly and without disclosure of their financial situation. In fact for a long time they all claimed they didn't need any money in '08-'09, until the Supreme Court forced the Federal Reserve to disclose bailout monies. And then the details started coming out in 2010... e.g. Royal Bank borrowing $44 billion from Fed's TAF.

Details of the money they borrowed in Canada still hasn't been fully disclosed! Does that really make you comfortable? You're a shareholder in a company that nearly collapsed, then secretly obtained government money, didn't tell you about it, and STILL refuses to tell you about it.

Personally I don't think you should be so complacent and oblivious to this whole thing, because as an equity holder you are #1 in line to suffer losses if the bank cannot recouperate all losses. Equity holders in many American banks -- even those who were bailed out (e.g. Citigroup) -- suffered enormous losses


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## andrewf (Mar 1, 2010)

I don't think the Canadian banks were close to collapse. They may have been forced to raise equity at unfavourable prices, but I think they would have made it through 2008. The measures the government took ensured that they did not have to do anything that would hurt shareholders, leaning on the government's balance sheet.


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## dogcom (May 23, 2009)

James4beach and andrewf I agree with what you guys are saying.

It bugs the hell out of me when executives and CEO's earn big money for any company that is failing or not doing well. It bugs me that people are up in arms to hear teachers and union workers get decent but not great pay and yet say nothing when CEO's and executives earn obscene amounts of money beyond any reason. People worry about their tax dollars yet are willing to give big chunks of their investments to these way overpaid people. How can people on this board argue about the regular Joe getting a few extra dollars and yell at politicians to do something about it and yet not scream and yell to their politicians about these wildly over paid CEO's and executives.


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## Eclectic12 (Oct 20, 2010)

dogcom said:


> ... How can people on this board argue about the regular Joe getting a few extra dollars and yell at politicians to do something about it and yet not scream and yell to their politicians about these wildly over paid CEO's and executives.


Because if the politicians do something about the CEO's and executives - they will be meddling with the economy. People should be complaining to the the company boards.

Civil servants are employees that the politicians have direct influence over the contracts.

Now why people aren't complaining about the generous pay/benefits of the politicians (ex. $1 towards pension by politician, $24 towards pension by the tax payer) is also puzzling.


Cheers


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## dogcom (May 23, 2009)

So government bailouts of banks directly allowing a CEO to get an enormous bonus is fine.


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## andrewf (Mar 1, 2010)

The problem is the bailout, not the bonus.


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## dogcom (May 23, 2009)

I also have a problem with unions making to much money but I also have a problem with the ultra over paid in governments and private corporations that can hurt my investments.


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## doctrine (Sep 30, 2011)

I don't have a problem with CEO pay as long as he/she is doing a good job and it is proportionate to earnings. Usually stock options to all directors/employees will far outweigh CEO salary+options alone, i.e. CEO pay/bonus is only a small portion of most stock dilution.


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## Eder (Feb 16, 2011)

andrewf said:


> The problem is the bailout, not the bonus.


I'm pretty happy about the banks getting liquidity from our government...people had a spine and made the tough decisions that weren't made when McKenzie King was prime minister. The system is working correctly.

I wont get into CEO payscales or we have to include entertainers,actors,pro sports,Al Gore,David Suzuki...it would never end until we have a Russian revolution to change things and really screw ourselves.

If there is another crisis I expect the government to do its job again.


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## fraser (May 15, 2010)

As long as I am not a shareholder, I do not care what a failing company pays its CEO. Not my concern or my business.
As a shareholder I have no problem paying for performance. 

Let the market determine the salaries. Everything is relative. The rest is up to the shareholders and the Board. No one forces anyone to buy equities.


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## andrewf (Mar 1, 2010)

Eder, if we're going to socialize the losses, we should socialize the profits, too. Deposit taking could easily be done by the Bank of Canada, with all remaining banking being not backed by the government. I'm not a communist though, and I hope you aren't either.

It's easy enough to keep the losses private and maintain the rigor of the market controlling and managing risk. All you need is contingent capital, and if the banks are wreckless in the future, shareholders get burned and bondholders take over. That's as it should be in a market economy.


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## Eclectic12 (Oct 20, 2010)

fraser said:


> As long as I am not a shareholder, I do not care what a failing company pays its CEO. Not my concern or my business.
> As a shareholder I have no problem paying for performance.
> 
> Let the market determine the salaries. Everything is relative. The rest is up to the shareholders and the Board. No one forces anyone to buy equities.


Some of the Nortel shareholders would question whether it was pay for performance when the head in the sand CEO was on booted out but was able to be on a year leave while collecting something like a $12 million salary plus perks. The replacement CEO tasked with turning around the company was being paid something like $300K.

Then too - is it really the market that is determining the salary or a few members of the compensation committee with the board rubber stamping it?

Certainly the shareholders were upset at the annual meeting when told the specially recruited US CEO who was booted after nine months was being paid several million in severance.


Cheers


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## dogcom (May 23, 2009)

Electric is right it is not about free market but the few exploiting everyone else. I am for free markets but how can you call anything today as being a free market with all the printed money being directed around. The system right down to lobbyists buying the government in the US is filled with people getting what they shouldn't get and we all suffer for it. Far to much money gets paid out to the few and shareholders do suffer in performance.

However people like Warren Buffet has earned their keep and deserve the money they make due to their great performances over the years.

On hockey players I agree they make far to much money and people shouldn't waste their tax dollars going to games making them poorer while people who don't need the money make even more. But this is the function of stupid people so they get paid what they get.


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## 1.5M (Apr 21, 2012)

Banks were and still are subsidized by the government through policies like insuring mortgages and controlling interest rates. Those subsidies cost taxpayers more than direct bailouts, but they are hidden better. Cynically, that's why investing in banks is a good investment, probably the same risk as government bonds in long run with much better returns. It's also a way to collect money from people buying larger houses than they need/afford and those living on credit.


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> Because if the politicians do something about the CEO's and executives - they will be meddling with the economy. People should be complaining to the the company boards.


But the government DOES meddle directly with the economy, specifically in banking. The government backstops the banks, offers CDIC insurance, permits the Bank of Canada to provide unlimited loans to banks, and CMHC also purchases mortgages. These are tremendous meddlings with the economy.

All of these things the government does completely changes the economics of banking. The government is wholly involved in Canadian banking.

I'm not saying the government should affect CEO salaries of regular companies... I'm saying specifically with banking. It's totally unfair on one hand to have the public provide all these facilities to the banks, and then on the other hand allow the bank executives to walk home with the profits as if they made the profits themselves.

The banks did NOT make those profits themselves. They made those huge profits because of the existence of government facilities and loan programs. If you doubt me, conduct a thought experiment in which there is no CDIC, no CMHC, no Bank of Canada. You think TD and Royal would have great profits?


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## james4beach (Nov 15, 2012)

To make it clear, I'm a capitalist at heart and a free markets guy. I think companies should live or die by their own success, and I applaud profitable companies. I don't think the government should be meddling in banking, that is, in my ideal world the Canadian government would leave the banks alone to be pure capitalist businesses -

1. No Bank of Canada providing loans, defining 'interest rates' (an overt manipulation)
2. No CMHC
3. No CDIC insurance

But I can see that's not going to happen. As a society we have decided (apparently) that the 3 things above are vital pillars of Canadian banking. And if that's the case then I say FINE, but -- you can't allow the bank to take home profits when all the drivers of its profits are public facilities.

The public, the nation, is really sticking its neck out with those 3 facilities above. There are various forms of 'costs' (including future tax burden). In the present situation, the banks and their employees are allowed to reap all the immediate benefits of those 3 facilities and take home the pay. That's just not fair ... I'm funding this through higher taxes (and depreciating currency), just so these guys earn more money?

This system, with our banks, is not capitalism.
It's not communism either.
It's a weird hybrid that greatly benefits the banks. I call it 'banksterism'.


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## MrMatt (Dec 21, 2011)

james4beach said:


> 1. No Bank of Canada providing loans, defining 'interest rates' (an overt manipulation)
> 2. No CMHC
> 3. No CDIC insurance
> 
> But I can see that's not going to happen. As a society we have decided (apparently) that the 3 things above are vital pillars of Canadian banking. And if that's the case then I say FINE, but -- you can't allow the bank to take home profits when all the drivers of its profits are public facilities.


#1 is a bit big to tackle in a short post.

#2 CMHC insurance is paid for by some customers, there is also private competition here. Really the purpose of the insurance is to protect the bank. But with adequate private services, I think it's time this could go away. The other programs should be moved to other organizations.

#3 CDIC is just one of many insurance plans, I think it's a good idea. It's paid for by and benefits the average citizens. It's also optional, you don't need to use a CDIC insured account if you don't want to. There is also is private competition.

In short I don't actually see your tax money being used in #2 & #3, and I don't see how the banks profit unfairy, they seem to do just fine using the private competition. FWIW I also include non-bank institutions that provide similar services.


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## Dmoney (Apr 28, 2011)

dogcom said:


> It bugs the hell out of me when executives and CEO's earn big money for any company that is failing or not doing well. It bugs me that people are up in arms to hear teachers and union workers get decent but not great pay and yet say nothing when CEO's and executives earn obscene amounts of money beyond any reason. People worry about their tax dollars yet are willing to give big chunks of their investments to these way overpaid people. How can people on this board argue about the regular Joe getting a few extra dollars and yell at politicians to do something about it and yet not scream and yell to their politicians about these wildly over paid CEO's and executives.


Does it bug you that Leafs players make millions, but only reach the playoffs once a decade?
Does it bug you that Eddie Murphy made $20,000,000 for his role in a movie that grossed $7,100,000 globally at the box office?
Does it bug you that Clifford Etienne got paid $1,000,000 for losing to Tyson in 49 seconds?
Does it bug you that Justin Bieber made $55,000,000 last year?

None of the above bother me, because it's not my money. I have a choice not to watch the Leafs, crappy movies, boxing, or a Bieber concert.
I don't have a choice with respect to paying taxes. I want accountability for the way in which my tax dollars are spent, because I have no say in paying them.
I don't care about overpaid executives, athletes or entertainers since I don't pay them, or if I do, it's by choice.

Now if the company is getting government bailouts, that's another story entirely. I fully agree that any company with significant government support (definitely an argument against the banks here with CMHC-insured mortgages) should not have a CEO making millions. Carney was making $400-500K/year as the Governor of the Bank of Canada. The "attract talent" argument doesn't hold water for government positions. You don't get a much better pedigree than Carney, who took a massive pay cut to take the position.

No way in hell the heads of Ontario Power Generation and Hydro One should be making north of $1Million. 
But, the only reason that I care is that this money is earned off the backs of taxpayers with no say in the matter.


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## dogcom (May 23, 2009)

Actually what I said above is it is stupid for people to waste tax dollars buying really expensive tickets and making these guys extra rich. It is better for the economy if people were to use this money doing other things so it spreads around the economy more then just in the hands of a few. Sure these players and such also spend money but not like a bunch of people and businesses getting the money instead.

So yes it is a choice but it just bugs me that people would make the choice to support it.


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## My Own Advisor (Sep 24, 2012)

I'm with 1.5 comment above.

Because the banks are still subsidized to a degree by the government; they make a good investment. If they go down, everything else goes with it.


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## MrMatt (Dec 21, 2011)

Dmoney said:


> I fully agree that any company with significant government support (definitely an argument against the banks here with CMHC-insured mortgages) should not have a CEO making millions.


I don't get your argument that CMHC insured mortgages are somehow "government support".
Can you elaborate on this? When I bought my house, I used private insurance.


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## andrewf (Mar 1, 2010)

MrMatt said:


> #2 CMHC insurance is paid for by some customers, there is also private competition here. Really the purpose of the insurance is to protect the bank. But with adequate private services, I think it's time this could go away. The other programs should be moved to other organizations.


Genworth is just a thin sliver of capital between the banks and CMHC. CMHC guarantees 90% of the mortgages guaranteed by Genworth, it's just that Genworth takes losses first.



> #3 CDIC is just one of many insurance plans, I think it's a good idea. It's paid for by and benefits the average citizens. It's also optional, you don't need to use a CDIC insured account if you don't want to. There is also is private competition.


Insurance only works for relatively independent insurable events. But it's quite likely that if one bank fails, many banks fail. This is why a government guarantee is necessary for the insurance to be credible.




> In short I don't actually see your tax money being used in #2 & #3, and I don't see how the banks profit unfairy, they seem to do just fine using the private competition. FWIW I also include non-bank institutions that provide similar services.


[/quote]

Quite the contrary. Without government guarantees, taxpayer funded bailouts would eventually be required or total collapse of the financial system would periodically occur. I think that the government guarantees are fine, but that does give the government the right to dictate and enforce macroprudential regulations to the firms that operate under that guarantee. That should include significant portions of contingent capital: that is, bonds that can be converted to equity to return the institution to solvency.


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## HaroldCrump (Jun 10, 2009)

Dmoney said:


> No way in hell the heads of Ontario Power Generation and Hydro One should be making north of $1Million.
> But, the only reason that I care is that this money is earned off the backs of taxpayers with no say in the matter.


That is all a part and parcel of the government's role in maintaining employment levels by creating fake jobs and fake (overblown) compensation programs.
Kinda like a perpetual stimulus program.

Although the recession of '08 has been officially "over" for nearly 4 years now, the government's fake job creation continues.



> The public sector added 34,200 people in April while the private sector shed 20,000 positions.
> The number of self-employed was little changed.
> Over the past year, virtually all of Canada’s job gains have occurred in the public side while employment at private companies has been flat.


http://www.theglobeandmail.com/repo...stly-but-jobless-rate-static/article11847191/


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## Eder (Feb 16, 2011)

andrewf said:


> Eder, if we're going to socialize the losses, we should socialize the profits, too. Deposit taking could easily be done by the Bank of Canada, with all remaining banking being not backed by the government. I'm not a communist though, and I hope you aren't either.
> 
> It's easy enough to keep the losses private and maintain the rigor of the market controlling and managing risk. All you need is contingent capital, and if the banks are wreckless in the future, shareholders get burned and bondholders take over. That's as it should be in a market economy.


Hi andrew....my post was not in defense of idiot banks but in defense of Canada....this time our government understood we needed liquidity rather than belt tightening like in the 30's and the worst was blunted. Therefore my point is that our government did its job as it is supposed to do. No one needs another depression.


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## 1.5M (Apr 21, 2012)

Eder said:


> Hi andrew....my post was not in defense of idiot banks but in defense of Canada....this time our government understood we needed liquidity rather than belt tightening like in the 30's and the worst was blunted. Therefore my point is that our government did its job as it is supposed to do. No one needs another depression.


"We" needed liquidity? So, you are a bank, not a person? 
I, as a person, haven't received any liquidity from the government. But some of my liquidity is flowing from me to gov and from there to banks and other "private" enterprises.


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## Dmoney (Apr 28, 2011)

dogcom said:


> So yes it is a choice but it just bugs me that people would make the choice to support it.


I get where you're coming from.
Jersey Shore cast gets something like $150,000 per episode. I'll admit it's a little irritating that the only thing I can do is not watch them... 
The only thing that keeps me sane is knowing that I'm not supporting it. 
That's why something like the Ontario power plants, Ornge, the Sunshine list pisses people off. That's my and everyone else's money, and it's just being thrown away for pet projects, fraud, or outrageous salaries.


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## Eder (Feb 16, 2011)

1.5M said:


> "We" needed liquidity? So, you are a bank, not a person?
> I, as a person, haven't received any liquidity from the government. But some of my liquidity is flowing from me to gov and from there to banks and other "private" enterprises.


liquidity....Availability of cash over short term: ability to service short-term debt

It is necessary that people & businesses are able to borrow money, I don't see a big hurdle here.


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## kcowan (Jul 1, 2010)

> In the event of significant residential housing price declines, we think Toronto-Dominion Bank (TD) and Bank of Montreal (BMO) will be the least affected, while National Bank of Canada (NTIOF.PK) and Canadian Imperial Bank of Commerce (CM) will be the most affected. As long as interest rates stay low, we think investors will still benefit from the strong dividend yields currently paid by Canadian banks. However, we think there is little upside to owning most of these companies.


When the bubble pops
Interesting read.


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## james4beach (Nov 15, 2012)

MrMatt said:


> #2 CMHC insurance is paid for by some customers, there is also private competition here. Really the purpose of the insurance is to protect the bank. But with adequate private services, I think it's time this could go away.


Yes it could go away. It can be done privately... I don't like the government being involved so significantly in the mortgage market. It's too Fannie Mae-ish and now Fannie has been costing the USA billions in ongoing losses.



> #3 CDIC is just one of many insurance plans, I think it's a good idea. It's paid for by and benefits the average citizens.


I like CDIC insurance too, but the reality is that it creates a huge advantage for the big banks and skews the economy. Credit unions can never attract as much deposits as the big banks, because credit union insurance is inferior to CDIC insurance. So this is a government program that gives an unfair advantage to to the Big Six. Privately done, or provincial, deposit insurance can't achieve anything like CDIC because it's not CDIC's tiny "pool" that provides the protection... it's the limitless funding of the Government of Canada that can fund CDIC losses.

In case you're not aware, CDIC is by no means fully funded. Not even close!



> In short I don't actually see your tax money being used in #2 & #3, and I don't see how the banks profit unfairy, they seem to do just fine using the private competition.


The cost to the nation is not so obvious. Bank of Canada setting interest rates creates a cost in the form of currency devaluation, and dilutes the real value of every asset you own. It's also not clear what happens to bad assets put on the Bank of Canada's balance sheet... does that become a government liability? Eventually, likely yes.

The costs to you & me are easier to illustrate with the other facilities -

CMHC has about $600 billion of mortgage debt on the government balance sheet. This is an enormous RISK for Canada. It may not be costing the taxpayer anything today, with low losses, but it could cost a hell of a lot in the future. Just look at Fannie Mae... nobody was complaining back in 2000 when there were no losses. A few years later, Fannie Mae virtually bankrupts America and becomes an ongoing burden with almost perpetual losses.

Just today I read an article in the National Post about a discussion that's emerging about how the banks may have to bail out the government/CMHC for future mortgage losses. The point is that CMHC does create a huge liability for Canada, and could lose a lot of money.

Similarly, CDIC insurance could have an enormous cost to the country in the future. If a big institution actually fails, it costs the government a lot to make good on those insured deposits.

The hit to the taxpayer from CMHC & CDIC promises could be enormous. It hasn't yet, but that doesn't make it OK.


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