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May 26, 2012 - No. 21 Canada's Secret Bank Bailout Revealed • Canada's
Secret Bank Bailout Revealed Canada's Secret Bank Bailout RevealedDuring the recent global financial crisis, the
disinformation was spread by the Harper government and the financial
elite that management of Canada's banking system was such that it was a
safe haven for investment, somehow immune to the turmoil affecting the
rest of the world. It has now come to light that in fact a massive
amount of public funds was paid to bail out Canadian banks. It exposes
the motives of governments in service of the monopolies, which claim
the need for so-called austerity measures, imposed as a pretext to
attack public services and social programs, the living and working
conditions of workers who provide them and the well-being of the entire
society. The Canadian Centre for Policy Alternatives (CCPA) estimates the previously secret extent of public funds given to Canada's banks during the economic crises of 2008-10 reached $114 billion. "At some point during the crisis, three of Canada's banks -- CIBC, BMO, and Scotiabank -- were completely under water, with government support exceeding the market value of the company," says CCPA. "Between October 2008 and July 2010, Canada's largest banks relied heavily on financial aid programs provided by the Bank of Canada, the Canada Mortgage and Housing Corporation (CMHC), and the U.S. Federal Reserve -- all at the same time. "Over the entire aid period, Canada's banks reported $27 billion in total profits between them and the CEOs of each of the big banks were among the highest paid Canadian CEOs. Between 2008 and 2009, each bank CEO received an average raise in total compensation of 19%," CCPA writes in an April 30, 2012 press release introducing the study, The Big Banks' Big Secret -- Estimating government support for Canadian banks during the financial crisis by David Macdonald.[1] The CCPA study "[e]stimates the value of government support by combing through data provided by CMHC, the Office of the Superintendent of Financial Institutions and the Bank of Canada, as well as quarterly reports of the banks themselves." CCPA writes, "Throughout the 2008-2010 financial crisis, Canadian banks were touted by the federal government and the banks themselves as being much more stable than other countries' big banks. Canadians were assured that our banks needed no bailout. However, in reality, Canada's banks received billions in cash and loan support during the 2008-2010 financial crisis -- and the Canadian government has remained resolutely secretive about the details." Note 1. The full report is available
for download at the CCPA website.
Canada's Banking OligopolyThe big banks in Canada are a state-organized oligopoly. Together they dominate the banking sector as politicized private enterprises. They represent a corrupt use of public governmental power serving private interests or what has become known officially as public-private-partnerships (P3s).
The extent of the power of the big banks and their survival in the face of global competition and successive economic crises has been achieved because they are state-organized private enterprises with links to the ruling oligarchy in all regions and sectors of the economy and internationally especially in the U.S. The ruling financial oligarchy representing all business sectors exercises dictatorial control over the socialized economy, government and working class. The Canadian state has given the banks privileged banking charters that allow them to act as an oligopoly without significant internal or external challenge. The exclusive government charters have allowed the main private owners of banking enterprises to maintain and grow their private empires of wealth and class privilege to the extent that they have become entangled with the U.S. financial oligarchy making them champions of a Canada annexed into the U.S. Empire of global monopolies. Their loans, assets and interlocking investments throughout the economy and abroad mean the main banking owners, directors and executives are intimately linked with the entire ruling financial oligarchy in business and government, especially within Canada and the U.S. Through their social, business and political connections they engage in risky adventures for big scores without worry of complete collapse knowing that the full resources of the state can be marshalled to save their private enterprises even from their most corrupt, risky and dangerous practices. Such was the case in the economic crises that began in earnest in 2008 and continue to this day throughout the imperialist system of states. One crisis falls into another as evidenced with the collapse of the Greek and Spanish economies and the recent disclosure of a "sudden" $2 billion loss at the U.S. financial enterprise JPMorgan Chase, which is eerily similar to the "sudden" losses announced at Lehman Brothers in September 2008. Funneling Public Funds to the Big Banks
CCPA writes in its study on the bank bailouts, "CMHC's Insured Mortgage Purchase Program did the heaviest lifting. In contrast to the loans of the first two programs [Bank of Canada and U.S. Federal Reserve], CMHC was providing direct cash infusions to Canada's banks.... The program provided its first cash to the banks in October 2008. Within four months' time, Canada's big banks requested and received a whopping $50 billion in cash in exchange for mortgage-backed securities. By March 2009, government supports to Canada's banks peaked at $114 billion. At this point, support for Canadian banks was equivalent to 7% of Canada's 2009 GDP." Alluding to another feature of the politicized nature of the private banking oligopoly CCPA writes, "In the U.S., the underlying mortgages were considered 'troubled.' However, in Canada, all of the underlying mortgages were insured by CMHC so whether they were 'troubled' or not, the banks were never on the hook." The insuring of mortgages through the public CMHC is another feature of the politicized privileged status of chartered banks. In Canada not only mortgages are insured by a public institution, bank deposits are insured through the public Canada Deposit Insurance Corporation, which insures deposits up to $100,000. The ballyhooed conception that the big five banks are "too big to fail" together with the government insurance of deposits create an element of public or governmental security in the minds of Canadians. They tend to see the banking oligopoly, other private oligopolies such as in the auto or energy sectors as quasi-public institutions that must be protected or saved at all costs or Canada's collective security will be lost, and the economy will collapse. No alternative, such as truly public enterprises serving the public interest under the control of the people, is allowed to form in the minds of Canadians much less as something to be developed through practical politics. The constant praising of Canada's big banks by politicians, economists and monopoly-controlled media reinforces the conception that the banking oligopoly belongs to all of us and it somehow serves our collective interests even though the banks are private entities serving their private interests and using public institutions and funds to further their narrow aims completely outside the control of the people and in contradiction with nation-building and the public interest. The CCPA also remarks of a further feature of the state-organized nature of Canada's banking oligopoly writing, "Participants in the Bank of Canada's bank [bailout] programs had to be either Primary Dealers of Government of Canada bonds/treasury bills or be part of the Large Value Transfer System (LVTS)." Both these programs are private clubs of the largest financial institutions operating in Canada. A primary dealer is a financial enterprise that has the legal right to buy Bank of Canada treasury bills or bonds and resell them to others. Participants in the LVTS send large electronic money transfers throughout Canada and the world using the facilities of the Bank of Canada. (See endnote for list of Primary Dealers and participants in the LVTS.) The five biggest members of the banking oligopoly are operationally headquartered in Toronto. They employ around 300,000 workers (full-time equivalent positions) throughout Canada and abroad. They jointly control $1.88 trillion worth of deposits in Canada (2011). Unlike most countries within the imperialist system of states, the government does not enforce any reserve requirement on Canadian banks. They can lend out as much money as they want, which in theory could exceed the amount they hold in deposits as they have access to other borrowing and Bank of Canada treasury bills and bonds. Bank of Canada reports Chartered Banks held outstanding loans worth $1.541 trillion as of March 2012. This does not include several categories of loans securitized by the banks. Corruption Within the Ruling OligarchyLehman Brothers, an investment bank in the U.S., prior to its 2008 collapse was reported to have loaned out 44 times the amount it held as cash. (The big five Canadian banks are both full service and investment banks.) Corruption within the ruling oligarchy is broadly hinted at in an interview with Anton Valukas on the U.S. public affairs TV show 60 Minutes. Mr. Valukas was the Chief Examiner and author of the official government investigation into the Lehman collapse called "Lehman Brothers Holdings Inc. Chapter 11 Proceedings Examiner Report." The 60 Minutes' introduction said, "The Valukas team spent a year and a half interviewing hundreds of former employees, and poring over 34 million documents. They told of how Lehman bought up huge amounts of real estate that it couldn't unload when the market went south -- how it had borrowed $44 for every one it had in the bank to finance the deals -- and how Lehman executives manipulated balance sheets and financial reports when investors began losing confidence and competitors closed in." Without going into detail, the following exchange excerpted from cbsnews.com gives some indication of the corruption: "Anton Valukas: They'd fudged the numbers. They would move what turned out to be approximately $50 billion of assets from the United States to the United Kingdom just before they printed their financial statements. And a week or so after the financial statements had been distributed to the public, the $50 billion would reappear here in the United States, back on the books in the United States. "Steve Kroft (60 Minutes): And then the next financial statement, they would move it overseas again, and file the report, and then move it back? "Anton Valukas: Right. "Steve Kroft: It sounds like a shell game. "Anton Valukas: It was a shell game. It was a gimmick." The interview continues involving Valukas as well as Mathew Lee, a Lehman accountant fired for not signing off on an end of fiscal year report that he believes was fraudulent. The accounting firm Ernst & Young was the lead partner on the Lehman audit. Its position was similar to that held by the accounting firm Arthur Andersen, which was involved in the fraud at U.S. energy trader Enron Corporation. Canadian workers are well aware of Ernst & Young as it has long been at the centre of corporate bankruptcies in Canada and other anti-worker anti-national scandals such as the 2004-06 CCAA Stelco bankruptcy fraud, which occurred while the company was making record profits. "Matthew Lee: November 30th, 2007 was the end of our fiscal year. And I fully expected us, you know, to make a loss that year like everyone else. And when I saw we made money -- it was a record year, in fact -- I thought, 'That doesn't sound right.' You knew the markets were doing badly, so why wasn't Lehman doing badly? And every time I found something and I went to my boss or whoever, no response. "60 Minutes: "That was 10 months before Lehman Brothers went bankrupt. Lee's position required him to sign off on the accuracy of the firm's accounting practices every quarter. But in November of 2007 he declined to do it. "Steve Kroft: By refusing to sign it, you were saying that you didn't believe the numbers. "Matthew Lee: Correct. "Steve Kroft: That this wasn't a fair and accurate representation of the financial condition of Lehman Brothers. "Matthew Lee: Right. 'Something's up here. Why can't people answer my questions?' You know, 'Why has Repo 105 doubled? Give me an answer.' You know, nothing was said. [Repo 105 is an accounting manoeuvre where a short-term loan is classified as a sale. The cash obtained through this "sale" is then used to pay down debt, allowing the company to appear to reduce its leverage by temporarily paying down liabilities -- just long enough to reflect on the company's published balance sheet. After the company's financial reports are published, the company borrows cash and repurchases its original assets.... Repo 105 was used by investment bank Lehman Brothers three times according to a March 2010 report by the bankruptcy court examiner. The report stated that Lehman's auditors, Ernst & Young, were aware of this questionable classification.... In response to the report New York attorney general Andrew Cuomo filed charges against Ernst & Young in December 2010, alleging that the firm "substantially assisted a massive accounting fraud" by approving the accounting treatment. The Wall Street Journal drew attention to the increasing levels of fees that Ernst & Young had been paid by Lehmans from 2001 to 2008. (Note from Wikipedia)] "60 Minutes: Lee continued to press people for more information, but nothing changed. And four months before Lehman collapsed, he sent this letter to Lehman's top executives. "Matthew Lee: 'I've been telling you all year. I've been banging my head against the wall. I'm now putting it in writing.' "Steve Kroft: [The letter] says, 'It requires me to bring to the attention of management conduct and actions on the part of the firm that I consider to be possibly unethical and unlawful.' "Matthew Lee: Yeah. "Steve Kroft: What were you talking about specifically? "Matthew Lee: Well, in that particular letter, I was general. There were so many specifics. I could have written laundry lists. "Steve Kroft: What kind of a response did you get from this letter? "Matthew Lee: It's like throwing a grenade. I wanted to wake somebody up, at least to address the topics. "60 Minutes: It worked. Six days after he sent that letter, Matthew Lee was downsized, let go after 14 years. But Lehman executives couldn't ignore the letter and asked their accountants from Ernst & Young to interview Matthew Lee. "Anton Valukas: And in those interviews, we have the notes -- which are part of the report -- he says very specifically $50 billion, Repo transactions, moving money off the balance sheet at quarter end. So our conclusion was Ernst & Young certainly knew it as of that time, and did nothing with it. "60 Minutes: Valukas says Ernst & Young was legally bound to make sure that Lehman's audit committee and its board of directors knew about Lee's allegations of unethical and unlawful accounting practices. But they never did." 60 Minutes jumps to the unwarranted conclusion, "But they never did." Such an assumption suggests Lehman's Board of Directors did not know of the corrupt practices leading to the collapse. This is hardly believable given every large financial enterprise active in the U.S., including Canada's big banks were engaged in similar practices and faced similar losses when their schemes fell apart and the inevitable crisis broke out. Besides, during the years prior to the economic crisis while Ernst & Young was their accounting firm, Lehman along with most other financial enterprises were declaring record profits, their stock market prices were soaring and executive managers and directors were receiving record payouts. That precisely is the aim of monopoly capitalism so why would directors, auditors or any other person in authority do anything to rock the boat. They are American pragmatists after all -- the end of making the most money in the fastest possible time justifies the means. The end not only justifies the means but clouds judgment in the present. When things are going well, which mainly means money is pouring in then nothing or no one is allowed to disturb the party. When the inevitable crisis erupts then fingers are pointed and certain people are accused of this and that but the fundamental direction, aim and principles of the economy are not questioned. No comparable investigation or interview has been conducted in Canada where politicians, experts and the monopoly media continue to speak of the big banks in hushed reverent tones. The government has kept the details of its role in the estimated $114 billion bailout completely secret even though public funds were directly involved. However, Harper could not keep secret the U.S. government portion of the bailout given to Canada's banks. At the height of the bailouts on February 23, 2009 Prime Minister Stephen Harper said in an interview on the CNBC Kudlow Report, "It is true, we have the only banks in the western world that are not looking at bailouts or anything like that and we haven't got any TARP money." Harper's assertion is disputed by the facts that have subsequently become known. CCPA writes, "Despite the U.S. Federal Reserve preference to keep its loan details secret, it has been far more transparent than the Canadian government -- in large part due to enterprising journalists and a two-year legal battle to make the details public. U.S. Federal Reserve bailout details, broken down by bank, are available online. (All lending, including to Canadian banks is available at http://bit.ly/Bloomberg-Fed-Data.) "At their peak, Canadian banks borrowed $33 billion from the U.S. Federal Reserve in December 2008.... All five of Canada's big banks dipped into the U.S. Fed programs between September 2008 and April 2010 -- some more than others." It would be unthinkable that Harper did not know the details of the U.S. public bailout of the big five Canadian banks. Both governments made a huge fuss of how they were working together to deal with the economic crisis especially on the banking, auto and real estate fronts. CCPA continues, "The official story of the 2008 financial crisis goes like this: American and international banks got caught placing bad bets on U.S. mortgages and had to be bailed out. But not in Canada. Through the financial crisis, Canadian banks were touted by the federal government and the banks themselves as being much more stable than other countries' big banks. Canadian banks, we were assured, needed no such bailout. "However, in contrast to the official story Canada's banks received $114 billion in cash and loan support between September 2008 and August 2010. They were double-dipping in not only two but three separate support programs, one of them American. They continued receiving this support for a protracted period while at the same time reaping considerable profits and providing raises to their CEOs, who were already among Canada's highest paid. In fact, several banks drew government support whose value exceeded the bank's actual value. Canadian banks were in hot water during the crisis and the Canadian government has remained resolutely secretive about the details." In November 2008, Jim Flaherty, Minister of Finance is quoted in the Financial Times concerning the U.S. bailouts and the denial of the Canadian government that it was providing public funds to Canadian banks, "Without wanting to appear arrogant or vain while our system is not perfect, it has worked during this difficult time, I don't want the government to be in the banking business in Canada." Flaherty is disinforming the people. He knows very well that government is intimately "in the banking business." However, government is "in the banking business" not to serve public interests but the private interests of the banking oligopoly and ruling class generally, to maintain and expand their private empires, their public-private-partnerships. The banking oligopoly is a politicized private entity using public funds and the power of the state to serve private interests in opposition to the public interests. The banking oligopoly is in effect another of the ubiquitous corrupt public-private-partnerships. Politicized private banking is a source of corruption serving greed and class privilege. An important feature of corruption is the control and use of public wealth and state power for private interests. Politicize Public Banking!
The big banks regularly report enterprise profit and reward their executive managers and directors with enormous payments and privileges. The source of those private claims is a mix of onerous user fees, compound interest on loans to business and individuals, stock and commodities' trading and schemes for big scores around the world that are usually kept secret from Canadians such as the infamous U.S. subprime mortgages and related asset-backed commercial paper (bonds) that collapsed in 2008. Compound interest itself is a medieval relic that should be thrown in the dust bin of history along with serfdom and slavery. Also obsolete and damaging to the people and economy are the exorbitant user fees for financial services including private banking, credit card, investment and insurance fees. They are all corrupt practices of the financial oligarchy that drain wealth from the economy and block development. Such outmoded practices should not be part of a modern socialized economy. They all reflect the parasitism and decay of the banking oligopoly and ruling oligarchs. The biggest block to bringing the financial services industry into the twenty-first century is the power of the capitalist state, the public/private empires of wealth and class privilege and the lack of control of the people. The big private banks that comprise the banking oligopoly are politicized private institutions serving their particular private owners and finance capital in general. Their control of investment funds is anti-social and against the public interest. The private savings of Canadians once pooled become public in their nature. The current banking system is rooted in the corrupt practice of state-organized private control of the pooled public savings of most Canadians in their bank accounts and mutual and pension funds. Through the state-organized private control of the pooled public assets of Canadians, member private enterprises of the banking oligopoly, besides claiming huge amounts for their private use, exercise enormous power and control over where those public assets are invested and over the entire financial services industry. State-organized private banking perpetuates class privilege and the rule of the financial oligarchy over Canadians and their economic, political and social affairs. It stands in the way of building a diverse self-reliant prosperous economy in all regions of the country. The issue of who controls investment and for what purpose is central to modern nation-building. State-organized private investment of public assets is a source of corruption perpetuating class privilege. It is a leading factor causing economic crises, as it takes more out of the economy than it puts in. The working class must take the lead in proposing and fighting to implement an agenda to replace the banking oligopoly with a modern system of public financial enterprises with mechanisms whereby the working class can exercise control over their pooled savings and where it is invested. The working class as the leading and most numerous class has the social responsibility to transform the entire financial services industry into a truly public service sector that does not drain wealth from the economy to private interests but assists the economy to grow and prosper and serve the public interest. The banking system and its offshoots in insurance and other financial services should be seen as a public service to aid in the development of the country and not a means to gouge the people and their economy and drain it of its strength. In general, the people should come to see the use of public assets for private profit as profoundly corrupt and criminal. Public financial enterprises would pool the private savings of Canadians and make them available as public loans, without compound interest, for the building of infrastructure, public services, social programs, manufacturing, commercial development and individual use charging only the cost of managing and providing the service. The same should be true for all government securities making it a serious crime for private interests to intervene and use federal, Quebec or provincial treasury bills or bonds or any public asset for private gain. This includes the abolition of any notion or practice of a public debt to private interests at any level of government. The working class has to take the lead on every front in society. Workers must hold governments to account for the safekeeping and use of their savings, to ensure that their savings and all public assets are secure and assist in the development of the nation and are not siphoned off to enrich a small minority of private interests in opposition to the public good. Workers should seize the moment and discuss a new direction for the economy with the human factor/social consciousness at the centre and not capital and its anti-conscious greed and corruption. Endnote Primary Dealers Treasury Bills: Note: The primary dealers' aggregate competitive bidding limit is 250 per cent of auction amount per tranche. Bonds: Note: The primary dealers' aggregate competitive bidding limit is 285 per cent of auction amount. Large Value Transfer
System Participants On 4 February 1999, the CPA launched the Large Value Transfer System (LVTS), an electronic system for the transfer of payments. LVTS participants are members of the Canadian Payments Association (CPA) which participates in the LVTS and maintains a settlement account at the Bank of Canada. In July 2011, there were 15 LVTS participants in addition to the Bank of Canada: - Alberta Treasury Branches (Source: Bank of Canada) Read The Marxist-Leninist Daily
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The pooling of Canadians'
savings within the big banks' coffers and
the subsequent lending of this money to business and individuals has
allowed
banks to gain influence over all sectors of the socialized economy
including
where and when investments are made. The scale of the funds they
control is massive. Their exclusive private access to government
treasury bills and bonds, the
scrutiny of the business and personal accounts of those to whom they
lend
money, and the banks' interlocking investments, holdings and influence
in
virtually every cell of the Canadian economy and globally have meant
banking
capital has merged with industrial and commercial capital into a
homogeneous
entity called finance capital exercising dictatorship over the economy
and
working class.
The Canadian
Centre for Policy Alternatives (CCPA) estimates that the five biggest
members
of the Canadian banking oligopoly RBC, TD Bank, BMO, CIBC and
Scotiabank collectively received at least $114 billion from Canadian
and U.S.
state institutions to save them from collapse in the wake of the losses
from the
economic crises. Corrupt schemes for big scores centred on the U.S.
housing
market were a feature of the 2008 crisis and the five Canadian banks
were
eager participants. To see them through the economic storm, the banking
oligopoly received Canadian and U.S. public funds from the Bank of
Canada,
the Canada Mortgage and Housing Corporation (CMHC), the U.S. Federal
Reserve and the U.S. Treasury Department's Troubled Asset Relief
Program (TARP).
The Workers' Opposition
must hold governments to account to
politicize public banking and remove private interest from what is
essentially
a crucial public function of securing and utilizing the savings of
Canadians in
the public interest. The savings of Canadians, especially those of the
working
class, should be available to the economy for guaranteed investments in
social
programs, public services, infrastructure, manufacturing, individual
needs and
other works that public institutions deem necessary.