When is a bailout not a bailout?

[dre]

Canadian Government Bought Bank Securities to Guarantee Liquidity

It was a once-in-a-generation banking crisis, not just a downturn. There were no IOUs...

No money was lent, no future debt was incurred, interest rates weren't changed....

Seriously, you should be more careful of what you write. I'm a complete neophyte in economics and I catch these things in your posts.

No money was lent, no future debt was incurred, interest rates weren't changed....

Horse shit. Youre the one that should be carefull what you write.

This shows the overnight rate plummet...

http://theeconomicanalyst.com/sites/default/files/article_inside/2010/12/rbc-bank-of-canada-interest-rate-projection-763778.jpg

This shows the effect on deficits and debt.

http://djsvoutqo4b1q.cloudfront.net/files/2011/03/Federal-Debt-EN11.jpg

Seriously, you should be more careful of what you write. I'm a complete neophyte in economics and I catch these things in your posts.

Why dont you just respond to the claims instead of resorted to this kind of idiotic personal stuff? I dont repond to your posts with crap like this?

Both my claims are 100% correct and easily verified.

Edited June 4, 2012 by dre

[Michael Hardner]

Horse shit. Youre the one that should be carefull what you write.

This shows the overnight rate plummet...

http://theeconomicanalyst.com/sites/default/files/article_inside/2010/12/rbc-bank-of-canada-interest-rate-projection-763778.jpg

This shows the effect on deficits and debt.

http://djsvoutqo4b1q.cloudfront.net/files/2011/03/Federal-Debt-EN11.jpg

I don't think we're talking about the same thing ?

Why dont you just respond to the claims instead of resorted to this kind of idiotic personal stuff? I dont repond to your posts with crap like this?

Both my claims are 100% correct and easily verified.

Don't take it so personally ! I do appreciate you taking the time to explain this stuff, but I heard an extensive interview with a Quebec Economics professor who explained this - and these were purchased securities, as KeepItSimple posted above ?

Not personal.

[dre]

I don't think we're talking about the same thing ?

Don't take it so personally ! I do appreciate you taking the time to explain this stuff, but I heard an extensive interview with a Quebec Economics professor who explained this - and these were purchased securities, as KeepItSimple posted above ?

Not personal.

Ok sorry for snapping at you.

If you look at my post I wasnt talking about the government loaning money to the banks. What I was alluding to is where do GOVERNMENTS get the money for all this stimulus?

Really this is just typical garden variety fiat monetary policy. This is quite simply the only tool in the Keynesian playbook. If you are worried about an economic downturn then write a shitload of IOU's against future labor and production, and dump them into the economy as "money", all the while keeping interest rates pegged at near zero.

The government is running a budget deficit so clearly this isnt money they had sitting in a safe somewhere...

So we were talking about something different but my post is pretty clear... I never said anything that conflicts with your narrative that... "these were purchased securities". Iv conceded that point all thread long.

[dre]

This is all just splitting hairs. Who cares what you call it.

Heres what Canadian Bankers wrote about their position in 2008.

due to the crisis of confidence in global credit markets, some funding sources that banks normally relied upon became unavailable

In other words much of the banks funding has dissappeared, and they faced a situation where they would be unable to keep lending to Canadian businesses and consumers if something was not done.

http://www.cba.ca/en/media-room/65-news-releases/618-canadian-bankers-association-statement-regarding-canadian-centre-for-policy-alternatives-ccpa-bank-report

And here you see the birth of this little semantic excersize right in the CBA's statement...

But here are the facts that the CCPA has ignored. Although the financial crisis did not begin here, Canada’s financial markets were impacted. During the global financial crisis, a number of large banks in other countries became insolvent, and either failed or received taxpayer-funded bailouts where the government bought part or all of those banks. For example, since the beginning of 2008, 436 banks in the US have failed. Due to the crisis of confidence in global credit markets, some funding sources that banks normally relied upon became unavailable.

Since the government purchased assets from the bank, but not an equity stake it wasnt a bailout! And the conservatives were more than happy to read from that script.

The Canadian Bankers Associating then went on to quote the dictionary definition of the word bailout. heh.

“The Oxford dictionary defines bailout as ‘financial assistance to a failing business or economy to save it from collapse,’” the CBA wrote Monday. “That definitely was not the case here: not one bank in Canada was in danger of going bankrupt or required the government to buy an equity stake under taxpayer-funded bailouts.”

And fine! I dont care what you call it. Stimulus, bailout, easing... its all the same thing. But lets break down that last statement. "Not one bank was in danger of going bankrupt or required the government to buy an equity stake". Again they conveniently define "bailout" as something a little different then what they actually did, but more importantly lets go back to liquidity! If anyone here can say with a straight face that a credit freeze up in Canada and the resulting economic consequences would not have damaged our banks I have a used bridge to sell them. ITs like these banks would have you believe that they were in such great shape that could have just sat pretty while the credit froze up, the realestate market collapsed, and the economy crumbled around them. Its absurd.

But we still dont have to call it a bailout! Lets call it salad, or a hubcap.

But what we DO know is that a crown corporation purchased a shitload of assets from banks to deal with the fact that the 30% of non-deposit funding that banks get from global credit markets to make loans had dried up.

Next point... The suggestion that the bank bought these securities at or below "market value". And on this point I really feel sorry for anyone dumb enough to have believed this. WHAT MARKET? Who were the other buyers willing to pay the bank more or the same for these securities, and if these buyers existed why didnt the banks sell these securities to them??? And if no buyers existed that were willing to pay this price then it bloody well wasnt MARKET VALUE now was it? The reality is you couldnt sell asset backed securities to anyone for anything in 2008.

And things get really fun here in this statement by the Canadian Bankers Association.

Under another program, the Insured Mortgage Purchase Program (IMPP), the government of Canada bought $69 billion of insured mortgages from the banks - only 55% of the total allocated amounted. Many of the mortgages were already insured and therefore, created no additional risk for the government. In instances where the banks had to obtain insurance for existing mortgages, these were low-risk mortgages.

Ahhh yes! No risk at all to the taxpayers since the mortages were insured!. Great news! Insured by who? The CMHC Oh Jesus what? You heard it right. The taxpayer was safe because they could simply make insurance claims against themselves.

But lets look beyond this silly excersize in hairsplitting and talk about something that actually matters....

Was this a smart thing to do? And what future economic recession will be created by all this easy credit... and by that I mean both the bailout/purchase and the historically low interest rates. All we did was keep our realestate bubble inflated...

With housing prices to income levels running 35% above historic norms, Mark Carney, governor of the Bank of Canada, had some words of advice to heavily indebted households, telling them Tuesday to use “prudence and caution” because borrowing costs can only go up.

And I couldnt help but notice this...

Household debt to disposable income is running at about 152.9.

http://business.financialpost.com/2012/04/24/carney-house-price-to-income-ratio-outstrips-norm-by-35/

Canadians families in terms of debt are in about the same shape as Greece!

“Household spending is expected to remain high relative to GDP as households add to their debt burden, which remains the biggest domestic risk.”

Biggest domestic risk? This was the whole god damn point of easing credit in the first place! It was your ENTIRE FOCKIN PLAN . They peg rates the floor, dump a shit-wack of easy credit into the system and now theyre worried we are borrowing too much

telling them Tuesday to use “prudence and caution” because borrowing costs can only go up

Ok... and what happens to Canadians carrying record ammounts of debt and who can barely make their payments then "borrowing costs go up"? Defaults. And what happens to our gigantic realestate bubble once theres a glut of forclosures? POP!

We would have been better off if we allowed the recession to run its course and allowed a natural correction in the realestate market. All they did is kick the problem down the road a little bit and make it bigger.

Edited June 5, 2012 by dre

[Michael Hardner]

If you look at my post I wasnt talking about the government loaning money to the banks. What I was alluding to is where do GOVERNMENTS get the money for all this stimulus?

Yes, that IS a bailout and your usual arguments apply. It's not related to the event in the OP, was my point.

[cybercoma]

When the government "frees up liquidity" of private enterprise it's a bailout, whether it's a bank or a car manufacturer.

[GostHacked]

Yes, that IS a bailout and your usual arguments apply. It's not related to the event in the OP, was my point.

Let's not call it murder, let's call it manslaughter. The result is the same, but depending on how you term it, there are different repercussions.

[dre]

Another quick point...

Per capita this was larger that TARP... most of which was also used to purchase assets. After all the talk about us responsible recession proof Canadians and our conservative banking system... our bailout (i mean our hacksaw! Sorry!) was actually bigger than Americas.

[Canuckistani]

Another quick point...

Per capita this was larger that TARP... most of which was also used to purchase assets. After all the talk about us responsible recession proof Canadians and our conservative banking system... our bailout (i mean our hacksaw! Sorry!) was actually bigger than Americas.

Thanks for that, did not know that. But, if the govt made its money back from it, and it save our banks, then this was a good thing. Something for the red meat conservatives to remember.

[dre]

Thanks for that, did not know that. But, if the govt made its money back from it, and it save our banks, then this was a good thing. Something for the red meat conservatives to remember.

Good short term, but bad long term. The result of all this easy credit is Canadian families in roughly the same fiscal position as Greece, and the 2nd most overvalued realestate market in the world.

These chickens will come home to roost over the next few years.

[Canuckistani]

Good short term, but bad long term. The result of all this easy credit is Canadian families in roughly the same fiscal position as Greece, and the 2nd most overvalued realestate market in the world.

These chickens will come home to roost over the next few years.

They didn't need to continue with easy credit once the banks were solvent again, but Carney, like everybody else is scared shirtless (what's the swearing policy here?) that things will go down again. Look at the move towards less austerity in Europe.

Sounds like you know a lot more about economics than I do. But what I see is a system based on ever greater consumption either by every greater numbers of people or everybody just spending more. I don't think that is sustainable no matter if we apply left or right policies to the economy. I think we have to find a way to create a sustainable economy, one that doesn't deplete resources and doesn't rely on every more numbers of workers/consumers.

[Fletch 27]

Move to "Less austerity"? Maybe you havent paid much attention to Spain in the past 2 days. Stuck to thier guns on austerity and it paying off... A sustainable economy consists of not replicating a snake eating its own tail (Hiring everyone in the country to be a Gov Employee ala Greece). There are 2 shining examples now for austerity.. Spain, And greece, Polar opposites of the spectrum for austerity. Only one of them is gaining now.

They didn't need to continue with easy credit once the banks were solvent again, but Carney, like everybody else is scared shirtless (what's the swearing policy here?) that things will go down again. Look at the move towards less austerity in Europe.

Sounds like you know a lot more about economics than I do. But what I see is a system based on ever greater consumption either by every greater numbers of people or everybody just spending more. I don't think that is sustainable no matter if we apply left or right policies to the economy. I think we have to find a way to create a sustainable economy, one that doesn't deplete resources and doesn't rely on every more numbers of workers/consumers.

[Canuckistani]

Move to "Less austerity"? Maybe you havent paid much attention to Spain in the past 2 days. Stuck to thier guns on austerity and it paying off... A sustainable economy consists of not replicating a snake eating its own tail (Hiring everyone in the country to be a Gov Employee ala Greece). There are 2 shining examples now for austerity.. Spain, And greece, Polar opposites of the spectrum for austerity. Only one of them is gaining now.

"Fiscal austerity alone is not enough. Recent fiscal targets have become too big to succeed," said Cliffe, who believes sticking to this path will simply lead to more defaults like Greece's.

http://finance.yahoo.com/news/europe-austerity-targets-too-big-125907724.html

Germans ease austerity pace for Spain, markets in turmoil

http://www.reuters.com/article/2012/06/01/us-eurozone-idUSBRE8500Z720120601

When has austerity ever worked?

The eurozone leaders seem unwilling or unable to change from their austerity policies, even as Greece and Spain fall apart and the core eurozone economies contract. Last week’s jobs figures confirmed that the US recovery is stuttering.

http://www.hindustantimes.com/News-Feed/ColumnsOthers/When-has-austerity-ever-worked/Article1-866566.aspx

[dre]

They didn't need to continue with easy credit once the banks were solvent again, but Carney, like everybody else is scared shirtless (what's the swearing policy here?) that things will go down again. Look at the move towards less austerity in Europe.

Sounds like you know a lot more about economics than I do. But what I see is a system based on ever greater consumption either by every greater numbers of people or everybody just spending more. I don't think that is sustainable no matter if we apply left or right policies to the economy. I think we have to find a way to create a sustainable economy, one that doesn't deplete resources and doesn't rely on every more numbers of workers/consumers.

[Argus]

Another quick point...

Per capita this was larger that TARP... most of which was also used to purchase assets. After all the talk about us responsible recession proof Canadians and our conservative banking system... our bailout (i mean our hacksaw! Sorry!) was actually bigger than Americas.

Of course TARP was used to purchase at-risk assets, lousy, unsecured mortgages. This was used to take quality mortgages which were not at risk off the bank's books. And wound up costing us nothing. In fact, we made a profit.