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Our banks don't stank

By: 
John Bell

November 20, 2011

Of all the feeble arguments used to undermine and ridicule the Occupy movement in Canada, the one that annoys me most is this: Canadian Occupy protesters are just mindless copycats because Canadian banks are not evil or corrupt like US banks.

To hear our media tell it, the Canadian banking system is a cross between Ward Cleaver and Mother Teresa: firm but fair and beloved by all.

We are told that the Canadian economy, and in particular Canada’s banks, were largely immune to the massive slump of 2008. I suspect it was this claim, loudly trumpeted by Harper and his crew, which won him his majority.

There is a tiny grain of truth to this myth. To appreciate it we have to set the stage by reminding ourselves of just how bad that slump was.

When the world economy went down the dumper in the fall of 2008, blame was laid on banks around the world dealing in speculative bubbles, like the US housing market. They were inventing new banking “products” to sell, and were leveraged far beyond their assets.

Almost overnight the economy went from exuberant optimism–suggesting that capitalism had ironed out all the kinks and we would have economic growth without crisis forever and ever amen–to absolute panic.

The Great Recession of 2008-9, after all, was the deepest and longest downturn experienced by global capitalism since the catastrophic slump of 1929-32. World industrial output fell 13 per cent; international trade dropped by 20 per cent; and global stock markets plunged 50 per cent and jobless rates jumped two-thirds higher on average. The largest wave of bank failures in 80 years shook the financial system.

One analyst declared it was “the end of capitalism as we knew it.”

Governments in Europe and the US funneled thousands of billions of dollars to prop their financial sectors (in the US alone the Troubled Asset Relief Program–TARP–totaled $700 billion) or outright nationalized them (the take over of mortgage giant Fanny Mae alone cost US taxpayers an additional $200 billion).

Relative to the world’s financial sector, Canada’s somewhat regulated banks looked good, a Dexter among serial killers.

Mortgages

Here is a description of what happened behind the scenes, from the newsletter of investment group Wellington Financial:

“Between September 2008 and March 2009, Canadian banks reduced their holdings of domestic residential mortgages from $486.1 billion to $434.9 billion according to Bank of Canada stats; on a net basis.

“Where did those mortgages go, you ask? Did 10 per cent of Canadian homeowners sell their homes and move into rental accommodation en masse during a six-month period?

“Of course not. The federal government created a unique program through CMHC specifically targeted at allowing Canadian chartered banks to move tens of billions of dollars of assets off of their balance sheets.

The reason? Canadian banks couldn’t raise sufficient and/or cost-effective funding from their traditional sources–primarily other global financial institutions–and needed Crown intervention to keep the wolf from the door. By mid-November 2008, the federal government had agreed to take $75 billion of mortgages from Canadian banks.”

It wasn’t a bailout, it was a “unique program.” A few months later a slightly less unique $50 billion of taxpayers’ money was added to the pile.

Canadian banks do not just operate inside our borders, however. Denied the ability to belly up to the unregulated trough here, they massively increased their operations in the US just in time for the crash. Canadian banks have received $111 billion in bailout money from the US government. That didn’t make headlines here, but I guess what happens in Vegas stays in Vegas.

If you are keeping score, that brings us up to $236 billion (give or take depending on the exchange).

Bailouts

By the way, bailing out the banks is nothing new in Canada, but it is always done through “unique programs.” Throughout the Chretien/Martin years, the government reduced the “debt” by $49 billion. In other words, they cut our public services to the bone to transfer billions to the big banks and other corporations. At the same time, they cut taxes on the banks from 41.9 per cent to 30.4 per cent.

Almost every year of the past two decades, Canadian banks have set new profit records. We are supposed to be proud of this. Bill Robson, head of the right-wing C.D. Howe think-tank, says we should be grateful: “Hands up if you want higher banking fees. Sign here if you want to pay more to manage your mutual fund.”

It is hard to imagine higher banking fees, especially for low-income Canadians who cannot keep the hefty minimum balance in their accounts. If you pay your bills at an ATM or use your card rather than cash–and Canadians lead the world in debit-card use–fees can easily run over $50 per month.

Through it all, Canadian financial institutions have presented the world with a stable edifice, stability paid for–in one way or another–with hundreds of billions of taxpayer dollars.

And through it all Canadian bankers congratulated themselves, in the form of massive bonuses, for a job well done. In 2009, in the midst of the worst global economic meltdown since the Great Depression, bonuses to bank executives totaled $8.3 billion, an all time record. That year the CEOs of the six big Canadian banks got average raises of 10 per cent; both Gordon Nixon (RBC) and Ed Clark (TD) took home more than $10 million. That trend continues.

I suppose our hearts are supposed to swell with pride. Personally, it makes my blood boil.

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