Canadian Bank Bailouts

[kimmy]

Like I said, I haven't heard anything about them taking risky mortgages. All I see in this thread is a bunch of opinion pieces. At the time, media outlets and governments both called the mortgages good mortgages. Because the mortgages were insured by the government, they had to meet CMHC approval. I don't know many people who would consider such mortgages to be risky.

...

He is right about Canadian prudence, moderation and policy in banking and government policy.

What happened in the US is the Government pursued a policy of easy credit. WE didn't. Even though you believe those $400,000 and $500,000 mortgages were given to people who couldn't afford them

there were more stringent guidelines than there were in the US where community activists picketed banks who wouldn't make loans to people who couldn't afford them.

All of this sounds like a great argument as to why the government shouldn't have bought these mortgages from the banks at all.

-k

[Smallc]

All of this sounds like a great argument as to why the government shouldn't have bought these mortgages from the banks at all.

-k

I don't see how. Nothing that was said in either my post or the one from Pliny says anything about the liquidity problem that existed when the government bought the mortgages. That was the primary (and really the only) motivator for the purchase. The purchase was, as far as I can tell, very necessary.

[Shady]

All of this sounds like a great argument as to why the government shouldn't have bought these mortgages from the banks at all.

-k

Yes, in a perfect world. Except that European and American banks were getting an unfair advantage over Canadian banks because of the actual trillion dollar bailouts America and Europe handed out.

[madmax]

It was an action to ensure liquidity in the Canadian market.

It was a handout. Plain and simple. Use whatever disguise you wish for cover. Banks have been rollinging profits nonstop both before, during and after the recession. Banks have been in worse financial shape because of their own misdoings prior to the meltdown.

The government played patsies to the banks desires.

We protect our banks. Its that simple. WE provide secure markets and welfare for our banks. And yes, it works. But it is Welfare and protection that keeps them in better shape.

The 2nd best thing for the Banks was that Harper has done an about face on their protection vs freemarkets.

[Smallc]

Madmax, it wasn't a handout. Not even close. The banks will actually probably lose money on the transaction.

Edited June 6, 2010 by Smallc

[dre]

This is a bailout in every sense of the word. The government basically took over a bunch of risky assets that one can only assume the banks were having a hard time selling to private investors.

Thats a bailout. If I have a product that I can't sell to my customers and the government steps in and purchases 50 billion dollars worth... thats a bailout. To say that it isnt is the worst case of splitting hairs imaginable.

[Smallc]

It isn't splitting hairs. To say it was a bailout ignores the circumstances under which this transaction occurred. The capital markets were frozen. No one could buy anything. Also, again, these weren't risky mortgages. They were fully ensured and met all CMHC guidelines. The government was already on the hook.

[dre]

It isn't splitting hairs. To say it was a bailout ignores the circumstances under which this transaction occurred. The capital markets were frozen. No one could buy anything. Also, again, these weren't risky mortgages. They were fully ensured and met all CMHC guidelines. The government was already on the hook.

Still splitting hairs. 50 billion tax payer dollars ended up in the pockets of banks. You can say it was a smart thing to do, or that it was justified but its still a bailout.

[Smallc]

Still splitting hairs. 50 billion tax payer dollars ended up in the pockets of banks. You can say it was a smart thing to do, or that it was justified but its still a bailout.

No, it's not a bailout. The banks were never in danger. The credit market was. The 'bailout' was a bailout of Canadians, not their banks.

[William Ashley]

You've already posted this topic before. You're a liar. There were no Canadian bank bailouts. Stop lying.

Be more informed. There were billions given to the banks - that were at the time stated as - funds to allow the banks to preform better in the credit market. - That same market was "failing" in the US due to the bubble collapse.

Dollar for dollar the conservatives spent the total of last years 56 billion deficit.

You are the only one spreading misinformation if you deny that.

Do realize Canadians banks ALL profited when the assets were given. They provided money so the banks had more, on assets the Canadian government had no need to have, based on backwards policies that safegaurd the banks mortgage industry to begin with by providing a profitable but unneeded mortgage insurance system. Meaning banks get money no mater what for every mortgage they give more or less.

To make a long story short the government fueled a selloff of government assets that went to the banks for paper that as far as I am aware hasn't yet materialized to pay off the losses the government occured for bank gains.

Correct me if you have sstatistics or documents showing otherwise.

But the Conservatives most certainly did "bail out" banks that had no water on board.

The end result was not only government losses but higher costs to the tax payer both on private and public processes. The mortgage rules that came into effect partially as a result closed the market to more people AND lowered government revenues from private asset transfer taxes.

The government borrowed money from the banks while giving them assets - this is not sound business operation with money loaned at interest by the banks even if it is only half a percent. The debt was set to be paid off by 2020 now that is set back by 10 years and based on future projections of more debt spending 20 years, well past the surplus range before mass retirement comes into effect.

Edited June 6, 2010 by William Ashley

[Smallc]

The debt was set to be paid off by 2020 now that is set back by 10 years and based on future projections of more debt spending 20 years, well past the surplus range before mass retirement comes into effect.

Ummmm, no, that was the net debt that was set to be paid off. We have a deficits now....it isn't really much our own fault, if at all.

[William Ashley]

Ummmm, no, that was the net debt that was set to be paid off. We have a deficits now....it isn't really much our own fault, if at all.

bad fiscal policy - denial is the first stage.

[YEGmann]

Be more informed. There were billions given to the banks - that were at the time stated as - funds to allow the banks to preform better in the credit market. - That same market was "failing" in the US due to the bubble collapse.

You are the only one spreading misinformation if you deny that.

Unfortunately you are not the only one spreading this nonsense.

The money was not GIVEN to the banks (like it was in the USA). The government BOUGHT a very good product from the banks. The banks got money but gave an equivalent amount of valuable assets. In no way this can be call a bailout. Yes, this helped the banks with continuing crediting. There is a huge difference from what happend in the USA. Our banking sector was not "failing." Can you name a Canadian bank that announced bankrupcy those days?

[William Ashley]

Unfortunately you are not the only one spreading this nonsense.

The money was not GIVEN to the banks (like it was in the USA). The government BOUGHT a very good product from the banks. The banks got money but gave an equivalent amount of valuable assets. In no way this can be call a bailout. Yes, this helped the banks with continuing crediting. There is a huge difference from what happend in the USA. Our banking sector was not "failing." Can you name a Canadian bank that announced bankrupcy those days?

wanna buy my candly for 1 million dollars?

Usually goods are based on them having a real value not a fictional value - the government buying assets they have no use for, and will cost money instead of generating it, ain't a very good buy.

You would have to be a moron not to understand the backwardness of the thing. You can gloss it up and try to pass it up all youd like but you are coming off as a very bad used car saleman trying to sell a rust bucket with no engine.

[YEGmann]

wanna buy my candly for 1 million dollars?

Usually goods are based on them having a real value not a fictional value - the government buying assets they have no use for, and will cost money instead of generating it, ain't a very good buy.

You would have to be a moron not to understand the backwardness of the thing. You can gloss it up and try to pass it up all youd like but you are coming off as a very bad used car saleman trying to sell a rust bucket with no engine.

Ha-ha-ha!

Banks all over the world for centuries have been making big money from mortgages (do you know what mortagage is?). As smalc has already pointed out these are good - insured - mortgages. Why in your head did a golden egg turn into a rusty bucket at the instance of changing hands? Or may be you are just from kindergaden if you compare value of a house to your candy...

Have you found a Canadian bank being on a brink of bancrupcy?

[geoffrey]

Here is the deal. All these mortgages were going to be bailed out my the government anyways if they failed. That's what CMHC is for. These were CMHC guarnteed mortgages, so the banks had no risk anyways. CMHC and eventually the government of Canada always had the risk.

Mortgage buyers pay insurance premiums when qualifying for CMHC mortgages. Unlikely Freddie/Fannie in the U.S., CMHC is a cash cow because it collects way more in premiums than it pays out, lowering your income taxes. But none the less, the government always had these mortgages as liabilities, now they have them as a cash cow asset too.

So the government is borrowing with 0.35% 3 month t-bills to buy 5.0% MBS that they had 100% exposure to ANYWAYS. Let's say this is $50B in mortgages? I believe that means that the government is making $2.3B on the carry trade right now. For you.

Hmmm... Harper should get a medal for that. Brilliant if you ask me. Plus it increases liquidity in the market so that hooligans like Topaz can get bank credit.

So everyone won with the deal. Anyone that claims otherwise is stupid or had an agenda.

[Leafless]

Here is the deal. All these mortgages were going to be bailed out my the government anyways if they failed. That's what CMHC is for. These were CMHC guarnteed mortgages, so the banks had no risk anyways. CMHC and eventually the government of Canada always had the risk.

And what happens if there is a serious downturn in the economy?

Hint--tax payers are left holding the bag.

The extent of the potential taxpayer liability is staggering. The Canadian government is heavily exposed in the mortgage market because 43% of all residential mortgages (or roughly 90% of all insured residential mortgages) are backed by the government through the federally-owned Canada Mortgage and Housing Corporation (CMHC).

As of 2007, the total value of the mortgages insured directly by the CMHC was approximately $350-billion. More recent statistics estimate that CMHC currently has about $480-billion of insurance in force due to rising prices and sales.

This means that taxpayers are potentially on the hook for almost a half trillion dollars if the housing market were to collapse and require the government’s full backstop.

Recent events in the United States are a warning for Canadians about the disastrous effects of misguided public policies in mortgage and housing markets and the real exposure of taxpayers when governments guarantee mortgage financing.

http://network.nationalpost.com/np/blogs/fullcomment/archive/2010/02/10/we-should-privatize-cmhc.aspx

[Smallc]

I can hardly imagine a scenario where all mortgages would default.

[Guest TrueMetis]

I can hardly imagine a scenario where all mortgages would default.

The end of the world?

[dre]

I can hardly imagine a scenario where all mortgages would default.

That doesnt matter. Speculating on securities is not a natural function of the government. In this case their decision to do so resulted in 50 billion dollars ending up in the pocket of financial institutions. Thats financial industry bailout whether or not those turn out to be good investments. Just like it would have been a bailout if they bought 50 billion dollars worth of vehicles from Ford and GM that they didnt need.

Again...you can argue these were prudent steps and that it was the right thing to do. But to argue that the government patronizing an industry for the purpose of increasing its cashflow is not a bailout is just silly.

[Smallc]

The end of the world?

Well, money probably won't matter much anyway then.

[Leafless]

I can hardly imagine a scenario where all mortgages would default.

Half a trillion is using the feds full backstop.

You mean a smaller amount, 50-100- 200 bilion as a tax payer would mean nothing to you Bigc?

[Smallc]

You mean a smaller amount, 50-100- 200 bilion as a tax payer would mean nothing to you Bigc?

That isn't going to happen....and in the long run, that isn't much money.

[eyeball]

Terms like cashflow, liquidity and bailing in the context of a bank make it pretty obvious that we're either pouring something into the bank or the bank is pouring something out. Pumping or draining are even more obvious descriptive terms. Leaking is yet another.

Of course it gets a little trickier if we start wondering is the bank like a vessel on an ocean or a tank on-board the vessel? If the bank is the vessel then bailing it out suggests we're saving the bank from sinking under the waves. OTOH pumping liquid into the bank conjures up an image of filling up its fuel tanks to make it go or filling up its ballast tanks so it can travel through the water more safely. i.e. with more stability - less rolling and pitching etc in heavy stormy seas. Why the banks can't fill their own tanks themselves given how healthy they're supposed to be does raise a question mark or two.

Bailing/pumping/draining/leaking etc is obvious enough...it's just a matter what direction the liquid/money is going.

So who really knows what's going on? I suspect we've either ballasted the bank's tanks so it can weather the storm or we've poured $75 billion into the ocean to help float it. In any case who's been doing all the pumping and pouring here seems pretty clear to me.

They've got a lot of gall telling us we can't siphon a little off now in hopes of floating our own boat...so to speak.

Another possibility is that the bank is leaking, it's fuel tank's are leaking fuel into the bilge and pumping or bailing out the bank is making a mess of the ocean. 3 guesses who picks up the tab for cleaning that up...the first two don't count.

[Topaz]

Here is the deal. All these mortgages were going to be bailed out my the government anyways if they failed. That's what CMHC is for. These were CMHC guarnteed mortgages, so the banks had no risk anyways. CMHC and eventually the government of Canada always had the risk.

Mortgage buyers pay insurance premiums when qualifying for CMHC mortgages. Unlikely Freddie/Fannie in the U.S., CMHC is a cash cow because it collects way more in premiums than it pays out, lowering your income taxes. But none the less, the government always had these mortgages as liabilities, now they have them as a cash cow asset too.

So the government is borrowing with 0.35% 3 month t-bills to buy 5.0% MBS that they had 100% exposure to ANYWAYS. Let's say this is $50B in mortgages? I believe that means that the government is making $2.3B on the carry trade right now. For you.

Hmmm... Harper should get a medal for that. Brilliant if you ask me. Plus it increases liquidity in the market so that hooligans like Topaz can get bank credit.

So everyone won with the deal. Anyone that claims otherwise is stupid or had an agenda.

Excuse me, hooligan, am I? I don't have to worry about getting any credit at my bank, they treat me royally. I posted this question and the article because I wanted to see what some of you thought. It has nothing to do with stupidity or having an agenda. You can say you're later.