When is a bailout not a bailout?

TimG · May 2, 2012

I'll tell you one thing, I'm in the wrong business. I need to get into banking. You can make all the worst decisions possible, but the government cannot let you fail.

Wrong. Individual banks fail all of the time (think Lehman or the S&L crisis). The only time the government steps in is when there is a risk of a systematic loss of confidence. On top pf that, as a result of the crisis, governments have put new rules in place that require shareholders to start taking haircuts before the crisis hits.

PIK · May 2, 2012

The media did NOT miss it. CBC tried to jump all over it and it was in all the papers - it went nowhere because it made good sense. It's a three year old story. There was no bailout. The Government "bought" some mortgages from the banks so that the banks could then continue to give credit to both small and large businesses during the recessions. And the government received interest on the mortgages that it bought. When things settled dow, the Government "sold" the mortgages back to the banks. It's pretty simple....and it made a lot of sense. Very smart.

Why this Left-wing "think" tank even published this report at this time - after almost 3 years - is puzzling at best.

Now I don't know what happened or if it was good or not. BUT I run a small business and when the recession hit, the royal bank brought in a gunslinger from the outside and he came to us owners and said your credit line is frozen at what you owe now and if you have any checks out there now ,we will bounce them, so you better get out and find the money or else. It was not fun.

dre · May 3, 2012

The fractional reserve banking system means that every dollar created for a loan is matched by an asset. So if debt grows then so do assets. It is not clear why you insist on ignoring the other side of the balance sheet.

Im not ignoring that, but thats not a relevant reply to what you quoted there.

TimG · May 3, 2012

Im not ignoring that, but thats not a relevant reply to what you quoted there.

You said:

And the present system makes it almost impossible to balance the books and maintain price stability at the same time because the economy cant grow unless the money supply grows and the money supply cant grow unless debt grows.

Your statement completely ignores the fact that growing the money supply increases *assets* as well as debt. The system is stable as long as the people taking loans can create new assets that allows them to pay back the loan. Edited May 3, 2012 by TimG

dre · May 3, 2012

You said:

Your statement completely ignores the fact that growing the money supply increases *assets* as well as debt. The system is stable as long as the people taking loans can create new assets that allows them to pay back the loan.

Again, im not ignoring that at all. You probably were ignoring it when you talked about "balancing budgets" though. I just explained why theres an institutional predisposition in the system towards unbalanced budgets.

Bryan · May 3, 2012

Now I don't know what happened or if it was good or not. BUT I run a small business and when the recession hit, the royal bank brought in a gunslinger from the outside and he came to us owners and said your credit line is frozen at what you owe now and if you have any checks out there now ,we will bounce them, so you better get out and find the money or else. It was not fun.

The opposite happened to me, and to many people I know: RBC called us up and offered us substantially expanded lines of credit.

TimG · May 3, 2012

I just explained why theres an institutional predisposition in the system towards unbalanced budgets.

The disposition towards unbalanced budgets comes from one thing: the tendency of people to demand programs and then refuse to pay the taxes required to fund them. The banking system has nothing to do with it. Edited May 3, 2012 by TimG

cybercoma · May 3, 2012

The opposite happened to me, and to many people I know: RBC called us up and offered us substantially expanded lines of credit.

Same experience for my wife and others we know.

dre · May 3, 2012

The disposition towards unbalanced budgets comes from one thing: the tendency of people to demand programs and then refuse to pay the taxes required to fund them. The banking system has nothing to do with it.

It has quite a lot to do with it actually. You cant grow the economy without growing the money supply if you want to maintain price stability. You cant grow the money supply without increasing debt. Thats how the system works.

eyeball · May 3, 2012

Same experience for my wife and others we know.

I know many who are up against the wall and they're being offered even more credit as we speak.

Michael Hardner · May 3, 2012

There was an economist Stephen Gordon on CBC Radio 1 this morning, and he pretty much laid this out as a propaganda missile from the CCPA. They also had David Mcdonald from the CCPA and he concurred that the issue was about secrecy, and the fact that the government did not reveal which banks received which funds.

However, this is NOT a bailout. No money was given. The banks were as solid as any in the world, but if a once-a-century liquidity crisis hits, then yes governments have to do something to step in. The government made a profit on their transactions with the banks, to dissuade the banks from doing this in the future.

There was no gift - it was a business transaction (a SALE if you will) between government and banks.

Shame on the CCPA for spreading disinformation with this headline. The word 'bailout' was used irresponsibly, and misunderstood as evidenced by many sensible posters on this very thread. We should be doing better than this, and the CCPA has diminished in my eyes from this campaign.

Press Release

Canada’s secret bank bailout revealed
April 30, 2012

OTTAWA—A study released today by the Canadian Centre for Policy Alternatives (CCPA) estimates the previously secret extent of extraordinary support required by Canada’s banks during the financial crisis.

Michael Hardner · May 3, 2012

It has quite a lot to do with it actually. You cant grow the economy without growing the money supply if you want to maintain price stability. You cant grow the money supply without increasing debt. Thats how the system works.

But if you increase assets at the same time... and the debt goes away then ?

Michael Hardner · May 3, 2012

Further to my note above, this has nothing to do with executive salaries, or the system in general. If CEOs were paid a more reasonable amount, and banking was where it was in the 1950s - with the exception of the subprime trap - we'd have had the same thing happen.

GostHacked · May 3, 2012

There was an economist Stephen Gordon on CBC Radio 1 this morning, and he pretty much laid this out as a propaganda missile from the CCPA. They also had David Mcdonald from the CCPA and he concurred that the issue was about secrecy, and the fact that the government did not reveal which banks received which funds.

I listed to that on my way into work this morning as well. When Anna-Marie asked him if there was a problem regarding the secrecy, McDonald shrugged it off somewhat. He also does not call it a bail out when it clearly was a bail out..... Anna-Marie pressed on with it, and McDonald kept giving a non-answer.

However, this is NOT a bailout. No money was given.

Then you must have been listening to a different broadcast this morning.

A total of about 110 Billion was given to the banks .. and all of the 5 majors here in Canada got some of that money. Money came from three entities. The Canadian Bank, The Federal Reserve (USA) and the CMHC (Canadian Mortgage and Housing Corporation) ....

But the fact this was all secret, gives you the chance to say that no money was given. And if it's not a bailout, let's see those secret numbers.

A war is not a war and a bailout is not a bailout. That is how it is with the new doublespeak.

The banks were as solid as any in the world, but if a once-a-century liquidity crisis hits, then yes governments have to do something to step in. The government made a profit on their transactions with the banks, to dissuade the banks from doing this in the future.

If they were solid, why was the money offered, and why did the banks take them? If they were solid they can withstand any crisis.

There was no gift - it was a business transaction (a SALE if you will) between government and banks.

Paid with taxpayer money from Canadians ... AND taxpayer money from Americans. .... does that seem right to you? And if the government made money on this deal, why don't Canadians see the benefit of that extra money? Where did it go? Towards the national debt??? AHAHAHHAHAHHAHHAH .... delusional.

Shame on the CCPA for spreading disinformation with this headline. The word 'bailout' was used irresponsibly, and misunderstood as evidenced by many sensible posters on this very thread. We should be doing better than this, and the CCPA has diminished in my eyes from this campaign.

Oh please ... they want to avoid the term bailout because they want to cover up the true nature of the banks situation. And well, this tells me that things are not going so well.

Michael Hardner · May 3, 2012

I listed to that on my way into work this morning as well. When Anna-Marie asked him if there was a problem regarding the secrecy, McDonald shrugged it off somewhat. He also does not call it a bail out when it clearly was a bail out..... Anna-Marie pressed on with it, and McDonald kept giving a non-answer.

Right. Given that his own organization launched this story with that very term, don't you think it's odd that he was recoiling from using it again ?

"Bailout" means "gift" in most people's minds. It wasn't a gift.

Then you must have been listening to a different broadcast this morning.

Seems that way.

A total of about 110 Billion was given to the banks .. and all of the 5 majors here in Canada got some of that money. Money came from three entities. The Canadian Bank, The Federal Reserve (USA) and the CMHC (Canadian Mortgage and Housing Corporation) ....
But the fact this was all secret, gives you the chance to say that no money was given. And if it's not a bailout, let's see those secret numbers.

A war is not a war and a bailout is not a bailout. That is how it is with the new doublespeak.

If I sell you something for more than its worth, am I bailing you out ?

If they were solid, why was the money offered, and why did the banks take them? If they were solid they can withstand any crisis.

You can't make a system that can withstand any crisis. If people stopped believing in money somehow, then the system would fall apart overnight.

Paid with taxpayer money from Canadians ... AND taxpayer money from Americans. .... does that seem right to you? And if the government made money on this deal, why don't Canadians see the benefit of that extra money? Where did it go? Towards the national debt??? AHAHAHHAHAHHAHHAH .... delusional.

Where did it go ? To the national coffers, to general revenues, so yes to the debt or to programs.

Oh please ... they want to avoid the term bailout because they want to cover up the true nature of the banks situation. And well, this tells me that things are not going so well.

You really seem to think that the government people gave money to the banks, when it was stated over and over again in the program that this was not the case. This is why David McDonald stepped back from using the word bailout.

You are not a stupid person, so your misunderstanding of all of this proves the point that the CCPA was irresponsible here.

dre · May 3, 2012

But if you increase assets at the same time... and the debt goes away then ?

No... Regardless of what assets you aquire through debt, all debt is a claim on future labor / production, and by extension resources.

If that wasnt true, we would simply make enough money and debt for everyone in the world to be rich. THe problem is that allows for lots of consumption now but it guarantees poverty later, which is why debt money systems crash after a while... not sometimes, but every single one in history. It works good for a while... you get to enjoy the benefits of future production and labor. But when the future roles around, eventually you become the people with all those claims against your labor and production, and consumption dries up as more and more of your production is consumed by debt.

GostHacked · May 3, 2012

Right. Given that his own organization launched this story with that very term, don't you think it's odd that he was recoiling from using it again ?

"Bailout" means "gift" in most people's minds. It wasn't a gift.

Neither were the bailouts in the USA regarding the banks and entities like GM. GM apparently paid back the money. It was a bailout ... it's as simple as that. Again, the terminology is used to try and pull a fast one over the public and to ease their minds and for the banks to save face and have the public remain confident in the banks.

In other threads I asked why the Canadian banks were doing good, that the financial crisis did not seem to affect Canada as much. Now we know why .. they did NOT get a bailout .... the logic you are following is flawed.

If I sell you something for more than its worth, am I bailing you out ?

No, you are ripping me off. Those loans come with a hefty price, with the savings (ahahahah) passed on to the customer in higher fees ect .....

You can't make a system that can withstand any crisis. If people stopped believing in money somehow, then the system would fall apart overnight.

Money is the root of all evil. If the system fails and falls apart, is because the system is flawed. Removing the Glass-Steagle Act in the USA allowed the banks and financial companies to go for broke.... and many did. Removing regulations that prevent this kind of widespread fraud does not help your argument. The system (for the USA in this instance) was sound, and then with those regulatory removals, the system fell apart, and 3-4 bailouts later ... the crisis is far from over.

Where did it go ? To the national coffers, to general revenues, so yes to the debt or to programs.

Maybe it can go towards the purchase of the F-35s !!!!!!!!!

You really seem to think that the government people gave money to the banks, when it was stated over and over again in the program that this was not the case. This is why David McDonald stepped back from using the word bailout.

He backed away due to pressure and nothing more. Call it what it is .. a bailout. But one done in secrecy.

You are not a stupid person, so your misunderstanding of all of this proves the point that the CCPA was irresponsible here.

Along with the Bank of Canada, CMHC and the Fed, all of them irresponsible.

Question - Why did the Federal Reserve in the USA give (sure sure 'borrow or lend') money to Canadian banks?

Michael Hardner · May 3, 2012

If that wasnt true, we would simply make enough money and debt for everyone in the world to be rich. THe problem is that allows for lots of consumption now but it guarantees poverty later, which is why debt money systems crash after a while... not sometimes, but every single one in history.

But they recover from crashes too ? What human endeavor does NOT fail at some point ?

dre · May 3, 2012

There was an economist Stephen Gordon on CBC Radio 1 this morning, and he pretty much laid this out as a propaganda missile from the CCPA. They also had David Mcdonald from the CCPA and he concurred that the issue was about secrecy, and the fact that the government did not reveal which banks received which funds.

However, this is NOT a bailout. No money was given. The banks were as solid as any in the world, but if a once-a-century liquidity crisis hits, then yes governments have to do something to step in. The government made a profit on their transactions with the banks, to dissuade the banks from doing this in the future.

There was no gift - it was a business transaction (a SALE if you will) between government and banks.

Shame on the CCPA for spreading disinformation with this headline. The word 'bailout' was used irresponsibly, and misunderstood as evidenced by many sensible posters on this very thread. We should be doing better than this, and the CCPA has diminished in my eyes from this campaign.

Press Release

There was no gift - it was a business transaction (a SALE if you will) between government and banks.

I think this is all just splitting hiars. Tarp was a sale as well... as was the money given to companies like GM and Chrysler.

And I dont think that these bailouts are ever just about the direct recipients. When the government puts money into the economy with the aim of stimulating the economy, or maintaining liquidity its a bailout of the entire financial system, and every single entity in it. Easing benefits banks, but it also benefits businesses, workers, homeowners, and just about everyone else.

It doesnt really matter what you want to call it. In the short term EVERYONE benefits if there is ample synthetic money in the system. In the long term everyone is hurt by it.

Michael Hardner · May 3, 2012

Neither were the bailouts in the USA regarding the banks and entities like GM. GM apparently paid back the money. It was a bailout ... it's as simple as that. Again, the terminology is used to try and pull a fast one over the public and to ease their minds and for the banks to save face and have the public remain confident in the banks.

In other threads I asked why the Canadian banks were doing good, that the financial crisis did not seem to affect Canada as much. Now we know why .. they did NOT get a bailout .... the logic you are following is flawed.

Well, "bailout" is commonly thought to mean aid - or corporate welfare - I think. When I google bank bailout wiki, I get this page:

http://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008

In the US case,

authorizing the United States Secretary of the Treasury to spend up to US$700 billion to purchase distressed assets, especially mortgage-backed securities, and give cash directly to banks

This is entirely different from what was done in the Canadian case.

No, you are ripping me off. Those loans come with a hefty price, with the savings (ahahahah) passed on to the customer in higher fees ect .....

You're trying to have it both ways... giving the banks money is bad because the Canadian taxpayer pays for that. Charging the banks is somehow also bad because they charge their customers ?

The rest of your post is about the system, generally.

If you want to use "bailout" to mean "help" then really every government cheque is a kind of bailout... welfare, EI, all of it...

bush_cheney2004 · May 3, 2012

..In the US case,

This is entirely different from what was done in the Canadian case.

There is hope after all if you can make such a distinction, even if Canadian banks received bailouts from both the US and Canada. I encourage more Canadian content in such dialogue.

GostHacked · May 4, 2012

Well, "bailout" is commonly thought to mean aid - or corporate welfare - I think. When I google bank bailout wiki, I get this page:

http://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008

In the US case,

This is entirely different from what was done in the Canadian case.

The money comes from the same place .. the taxpayers. Your money is used to bail them out. The money would have been better going to you, in order to buy the service or product from these banks/companies that were in trouble.

You're trying to have it both ways... giving the banks money is bad because the Canadian taxpayer pays for that. Charging the banks is somehow also bad because they charge their customers ?

I am not the one trying to have it booth ways. You asked, that if you are selling me something for MORE than it's worth, why would I buy it?

If you want to use "bailout" to mean "help" then really every government cheque is a kind of bailout... welfare, EI, all of it...

Essentially that is correct and that is the way I see it.

Michael Hardner · May 8, 2012

The money comes from the same place .. the taxpayers. Your money is used to bail them out. The money would have been better going to you, in order to buy the service or product from these banks/companies that were in trouble.

Lame argument. Under that definition, if the banks were selling the govt. gold at $1 an ounce, it would still be a bailout.