Canadian Banks are NOT being 'bailed out'

[eyeball]

Please try to think this through.

1. The bank holds a mortgage loan.

2. The homeowner owes the bank money on the loan.

3. If the homeowner does not pay, the loan is paid off by CMHC, who insured it.

...

4. The government buys the mortage loan from the bank. Now the government owns it.

5. Just like before, the homeowner owes money on the loan, but now they are paying the government who owns the loan.

6. Just like before, if the homeowner does not pay, the loan is paid off by CMHC, who insured it.

How is this bad for the government and/or the taxpayer?

Oh...Oh...Oh...pick me pick me...I know the answer to this one...

The same way it was for the bank?

So who bails out, sorry, who buy's out CMHC? Oh...wait minute...oh...right...now I get it.

So...again I ask we need banks, why?

[Kitchener]

The people and the government benefit because they take on no increase in risk and will most likely make a profit on this whole thing.

As I understand the argument for why this is A Good Thing: The CMHC insures mortgages so that banks don't entirely take the hit if homeowners can't pay. It's basically backed by the taxpayer already. So the government, in the broad sense, is already on the hook for these mortgages. In the worst case, taxpayers are already committed to ponying up for them. This way, in the best case the public may actually make some money off them. The reason there's "no increase in risk", basically, is because the government is already arse-deep in risk on these things by way of the CMHC.

The situation is really very different from the American one. Which is, in case you're interested, summarized from an insider's point of view here, in this excellent article by Michael Lewis. Lewis wrote Liar's Poker, a great book about 1980s Wall Street.

[Wilber]

It benefits no one other than the banks, who risk seeing a dip in their profits due to their financial connection to bad US loans. This solves nothing in terms of boosting consumer spending.

Thats what gives Flaherty means by levelling the playing field. His Flatulence is full of gas

Lets see.

Old way. CMHC backs mortgages. Banks take all profits but CMHC assumes any risk with no prospect of profit other than its mortgage insurance premium.

New way. CMHC still assumes risk but now also takes all profits from said mortgages.

The CMHC sets the lending criteria for all mortgages they back so they are not assuming the bank's mistakes, only their own.

And the problem is?

[Sir Bandelot]

Because they know what's comin-

Sept. 24 2008

"Canadians should prepare for a drop in average home prices of between 15% and 40%, depending on the market" says Turner. Turner also points out prices in some markets, such as Calgary and Edmonton, have already plunged by more than $40,000, while the number of homeowners trying to unload their properties has soared.

“Today’s report by Merrill Lynch economists David Wolf and Carolyn Kwan is just further tangible evidence,” Turner says. “Canadians have taken on a personal debt load which is simply unsustainable, and has been encouraged by government policies in this country no better than those which allowed the subprime mess and the credit crisis in the States to develop.”

http://www.garth.ca/weblog/2008/09/24/media-release-14/

---

Canadian banks are trying to convince consumers to lock in their mortgage rates because more than 20% of the home loans they have negotiated have become unprofitable, according to industry sources.

Last week, the Bank of Canada lowered interest rates by 50 basis points only to see the major banks cut their prime lending rate by half that amount. Joan Dal Bianco, vice-president of real estate-secured lending with Toronto-Dominion Bank, said the banks were reluctant to pass on the full 50-point rate cut because they were losing money on variable-rate products.

"At the prime minus rates we were basically earning zero or negative. We kept holding off [cutting the discount]," said Ms. Dal Bianco, adding that in the past year 50% of her bank's new mortgages were variable-rate products.

With a cost of funds generally above 4% because of the lack of liquidity in the market, the mortgages previously negotiated ended up below water after the latest rate cut.

http://www.nationalpost.com/news/story.html?id=879937

---

Yeah last week some of you guys trying to call me stupid, saying I don't know what I'm talking about... what interest rates didn't get cut you said. Because they can't go any lower, they are losing money...

[Sir Bandelot]

And here's another clue to the real problem-

U.S. regulators plan action against Royal Bank of Canada

September 25, 2008

U.S. federal enforcement officials are turning their sights to the Royal Bank of Canada as they crack down on financial institutions amid mounting public anger over a plan to bail out banks exposed to the credit crisis at the expense of taxpayers, according to officials.

The regulator is actively pursuing a case against RBC after previous investigations found firms dealing in auction-rate securities misled customers into believing the financial products were safe and highly liquid investments comparable to cash deposits, according to an enforcement officer.

An RBC executive said the bank was working with regulators, and indicated management at the bank's capital markets operations expected to reach a comprehensive settlement with U.S. authorities.

The bank faces an estimated payout of $1 billion based on precedent-setting agreements negotiated with other U.S. and international institutions by state and federal authorities to buy back securities held by individual customers, charities and small businesses, and to reimburse those clients for damages.

RBC is also the target of a class-action law suit from customers of the bank alleging there was mis-selling of the securities pursuant to "top down management directives", according to a filing submitted to in a U.S. District Court by law-firm Girard Gibbs.

The filing and the wider probe by federal authorities is also investigating the extent to which dealers continued to market auction rate securities as liquid investments even after it became clear the system for maintaining cash flows could collapse.

http://www.canada.com/topics/news/story.ht...1c-579768e771bb

Edited November 17, 2008 by Sir Bandelot

[Sir Bandelot]

Looks like these banks have problems too-

Published September 22, 2008

"Dundee Securities suggested long-term investors should stick to those banks with strong domestic franchises. But it remains negative on Bank of Montreal and CIBC, and warns that Scotia is vulnerable to the U.S. economy through its operations in Mexico, Latin America and Asia."

Link

Edited November 17, 2008 by Sir Bandelot

[Sir Bandelot]

Nov. 13 2008 (Bloomberg) -- The U.S. government's $700 billion Troubled Asset Relief Program is a sugar boost that won't solve the financial industry's problems, Toronto-Dominion Bank Chief Executive Officer Edmund Clark said.

In three years, the U.S. will "have discovered the government didn't socialize losses, it just allowed the institution to have a longer life, hoping that things would get better.''

Canada's second-biggest bank, which operates more than 1,100 branches in the U.S., isn't eligible for the aid program because it's a foreign-based lender. Clark said the bailouts may only buy time for troubled U.S. banks.

"Toronto-Dominion is the only large Canadian bank to have avoided debt writedowns in the financial crisis after shedding a structured products business in 2005, which included collateralized debt obligations."

http://www.bloomberg.com/apps/news?pid=206...mp;refer=canada

This article has some serious implications for the financial future!

[Wilber]

Because they know what's comin-

Sept. 24 2008

"Canadians should prepare for a drop in average home prices of between 15% and 40%, depending on the market" says Turner. Turner also points out prices in some markets, such as Calgary and Edmonton, have already plunged by more than $40,000, while the number of homeowners trying to unload their properties has soared.

“Today’s report by Merrill Lynch economists David Wolf and Carolyn Kwan is just further tangible evidence,” Turner says. “Canadians have taken on a personal debt load which is simply unsustainable, and has been encouraged by government policies in this country no better than those which allowed the subprime mess and the credit crisis in the States to develop.”

\

CMHC has already insured these mortgages. The were already liable should they default. The banks would lose nothing no matter who holds them. Why is this so difficult for you to comprehend?

Time for you to do a little research on the CMHC and the reasons why it was set up and operates the way it does, before you stick your foot in it any deaper.

[Sir Bandelot]

\

CMHC has already insured these mortgages. The were already liable should they default. The banks would lose nothing no matter who holds them. Why is this so difficult for you to comprehend?

You entirely miss the point of what I say is going on here. Go back and read some more

[madmax]

Nothing is being bailed out. This is to ensure continued liquidity. It hurts no one and benefits everyone.

I disagree with the whole process. I put money in the bank so they can lend it out. I do alot of business with the bank. They hold my money, and do very well by me. There is no reason for my tax money to go to the bank. They are functioning just fine. They are squeezing small business, and it has nothing to do with anything other then risk aversion, and being tight.

If we are told our financial institutions are strong, then we shouldn't be getting into the mortgage business with my tax money.

Just look at the Profit the Record Profit of RBC and ask yourselves, how does a company with a 5 Billion Dollar profit last year have a liquidity problem today.

Here is all the risks they held and was already accounted for last year during the record profit.

Analysts also grilled the bank's executives about its exposure to the credit crunch on the earnings conference call.

The bank said it does not originate U.S. subprime loans, but has $216 million of net exposure to U.S. subprime collateralized debt obligations of asset-backed securities.

It also has $388 million of exposure to U.S. subprime residential mortgage-backed securities.

"Combined, these amounts represent less than 0.1 per cent of our total assets," Nixon said.

So why are we doing this again?

[Wilber]

You entirely miss the point of what I say is going on here. Go back and read some more

You entirely miss the point. CMHC and the Canadian tax payer is not assuming any liability they don't already have. Liability they took on willingly in order that Canadians who did not meet the bank's lending criteria could still buy a home. The banks are not being bailed. These are mortgages they would never have taken on in the first place if they had to take liability themselves. The banks lent this money only because the government backed the loans.

They are being put in a position where they are more able to provide the credit our system requires to operate. Why they may need to be is a whole other issue and not really relevant to the present situation. We are where we are and have to deal with it regardless of how we got there. Bottom line is the Canadian taxpayer is not bailing anyone and in fact stands a decent chance to make a profit over the long term.

Do some research and find out how the CMHC came to exist and why.

[M.Dancer]

I disagree with the whole process. I put money in the bank so they can lend it out. I do alot of business with the bank. They hold my money, and do very well by me. There is no reason for my tax money to go to the bank. They are functioning just fine. They are squeezing small business, and it has nothing to do with anything other then risk aversion, and being tight.

If we are told our financial institutions are strong, then we shouldn't be getting into the mortgage business with my tax money.

Just look at the Profit the Record Profit of RBC and ask yourselves, how does a company with a 5 Billion Dollar profit last year have a liquidity problem today.

Here is all the risks they held and was already accounted for last year during the record profit.

So why are we doing this again?

Suffice to say not because of their exposure to the Sub Prime Fiasco. That is a red herring.

[madmax]

Suffice to say not because of their exposure to the Sub Prime Fiasco. That is a red herring.

Ok.

What is this about? Help me understand.

[M.Dancer]

Ok.

What is this about? Help me understand.

The sub prime fiasco created a global credit vacuum, billions of dollars in paper were wiped out. The major victims were the investment houses....with all that liquidity gone all banks now have a choice, pull back from lending, or is they can, sell assets to raise funds in order to have money to lend.

If the banks choose to hold on to their notes annd withdraw from lending, they will not go broke, collapse or anything like that,,they will weathe the storm...BUT....the economy is driven by expansion and their can be no expansion without ready capital to lend. So in order that we don't plunge headlong into a recession the Bank of Canada has bought the mortages from the banks. The Banks aren't losing money on the deal but they are going to make as much as they would if they held the notes...on the otherhand they stand to make money on lending out the new capital they now have onhand.

[Sir Bandelot]

Do not listen to the Harperite mouthpieces here, thats not what this is about... the banks are not low on cash because of too many morganges, its because they made bad invsetments in the US markets and they are under criminul investigation and may be forced too pay back billions. the banks cannot loan out money unless they have a certan amount of real capital to back it up. What they have done is too made too many speculative investments. They don't want to lona money to consumers because the interest rates are too low, but they can't continue loaning to speculators. So what the government did is offload they're mortgages, freeing the banks too make more insestments on speculative loans.

- There is no law saying they have to lon any money too small businesses and consumers, no guarantee they would even do that!

All this does give them freedom to spread more wealt too their investment!

Second problem is the housing market became so hot, the prices are inflated and will sone fall. people are in not buying homes at these rediculus prices, as MLS reported harper already knows. Prices have started dropped in the past few months BC, they have fallen 10% in October alone. If there was any money to be made you think you would they give it way? Thats why the banks want out of real estate\

Edited November 17, 2008 by Sir Bandelot

[M.Dancer]

There is no law saying they have to lon any money too small businesses and consumers, no guarantee they would even do that!

Quite right nor should there be, not that that is germane to the subject or the least bit relevant.

Edited November 17, 2008 by M.Dancer

[M.Dancer]

They don't want to lona money to consumers because the interest rates are too low, ....

That is pure innaccurate speculation. Banks loan 100s of thousands to consumers everyday.

Ever hear of Visa or Mastercard?

[M.Dancer]

All this does give them freedom to spread more wealt too their investment!

Poor spelling aside, you are right. It does give them the freedom to spread their wealth...which is the point.

[Sir Bandelot]

That is pure innaccurate speculation. Banks loan 100s of thousands to consumers everyday.

Ever hear of Visa or Mastercard?

Right, my point exactly, at 18%! It is german!

[M.Dancer]

Thats why the banks want out of real estate\

who said the banks want our of real estate?

Certainly not the banks...

Have another drink...

[Sir Bandelot]

Poor spelling aside, you are right. point.

Thank you

[M.Dancer]

Right, my point exactly, at 18%! It is german!

Your point was, that banks don't want to lend to consumers because the rates are too low...

1) Unsecured comnsumer loan rates aren't low

2) Banks loan money by the minute

You don't have a point....

[craiger]

Never believe or trust a man who can't write more than one sentence or ever think they are smarter than you.

[Wilber]

Second problem is the housing market became so hot, the prices are inflated and will sone fall. people are in not buying homes at these rediculus prices, as MLS reported harper already knows. Prices have started dropped in the past few months BC, they have fallen 10% in October alone. If there was any money to be made you think you would they give it way? Thats why the banks want out of real estate\

So what, these are CMHC secured mortgages, the banks would have never made those loans at those rates if they weren't because the buyers didn't meet their lending criteria.

[Sir Bandelot]

Your point was, that banks don't want to lend to consumers because the rates are too low...

mortgages... think mortgages