Canadian government moves to address funding pressures at banks
In a move intended to “make loans more available and more affordable for Canadians and businesses,” Finance Minister Jim Flaherty announced today that the Canadian government would purchase $25 billion dollars worth of mortgages already insured by Canada Mortgage and Housing Corporation.
Flahrety insists that not a single Canadian bank is at risk of failing but that liquidity is the primary issue threatening the unimpeded flow of credit for Canadians.
“It is important to underline that Canada’s banks and other financial institutions are sound, well capitalized and less leveraged than their international peers,” he said.
Read the Globe and Mail story here
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Norm Fisher
Royal LePage Saskatoon Real Estate
There's 22 Comments So Far
October 10th, 2008 at 9:25 am
This link to the Ministry of Fiance helped untangle this for me a bit, but I’m still wary of this plan. I really do get that they need to increase liquidity to the banks for longer term lending, and this plan certainly apears to do that.
http://tinyurl.com/3l6v8w
As far as I can ascertain, this plan is (only?) buying loans were already insured by the CMHC, so it shouldn’t put the taxpayer at any greater risk tan they were already, no?
So they’re going to purchace “up to” $25 billion in insured mortgage pools/mortgage-backed securities to increase bank liquidity- I get that. What I don’t really get is how the government thinks it can make money on this deal. That seems to be assuming a whole lot. What if the value of the underlying asset (the mortgages) depreciates enough that they have to repriced? Or, heaven forbid, they default? Is the taxpayer now on the hook for both the mortgage-backed security loss and the mortgages themselves? If anyone can explain this to me, I’d really appreciate it.
October 10th, 2008 at 10:10 am
I have said this before, don’t trust the Canadian banks! Lending practices are stricter here than the US, but all Canadian banks have gotten their hands caught in the cookie jar (US credit crisis).
writedowns and distress
http://bankimplode.com/blog/category/writedowns-and-distress/
Crikey,
Some places in Canada will see drastic drops in property values and this will lead to many defaults. We seem to be 2 years behind the States. It won’t be as bad, but for some it won’t matter, they will default. This will affect the Canadian banks. But I wonder with our “bailout”, it will be the taxpayers who will be affected, not the banks.
October 10th, 2008 at 10:49 am
Hey George,
In the event of defaults on mortgages that are CMHC insured, I’m pretty sure it has always been the government (i.e. the taxpayer) who was going to backstop these. I’m just not sure if there is any additional liability now with the MBS’s. Any bankers/financiers out there?
October 10th, 2008 at 11:02 am
Crikey,
I highly doubt this was done for the benefit of the people. It is just the rich helping out the rich with smoke and mirrors.
On the bright side,being a taxpayers, we may get to pay for a property that you and I will never set foot in
October 10th, 2008 at 11:24 am
“I highly doubt this was done for the benefit of the people”
Well, I may be way too trusting here, but I think it was. The economy would grind to a halt without credit, and they know it. I’m quite certain they’re not selfless, however… they do earn interest on that borrowed money. Particularly over very long terms. They know that, too.
“On the bright side,being a taxpayers, we may get to pay for a property that you and I will never set foot in
”
Gee, thanks for pointing that out.
October 10th, 2008 at 1:34 pm
Scotiabank and BoM dropped a full quarter point.
http://globeinvestor.com/servlet/story/RTGAM.20081010.wtdrate1010/GIStory/
Crikey,
I think there will definitely be some exposure on the MBS’s. How could there not be? Hopefully the upside is better than the downside.
October 10th, 2008 at 1:56 pm
Crikey,
agreed, I was wrong with that statement. Here is why.
But I think the banks were TOLD to lower the rate, not asked.
TD lowers prime rate
http://www.reportonbusiness.com/servlet/story/RTGAM.20081010.wtdrate1010/BNStory/Business/home?cid=al_gam_mostview
St. John’s has biggest jump in new housing prices
http://news.sympatico.msn.ctv.ca/abc/home/contentposting.aspx?isfa=1&feedname=CTV-TOPSTORIES_V3&showbyline=True&newsitemid=CTVNews%2f20081010%2fhousing_prices_081010
“The cost in St. John’s rose 23.7 per cent as builders reported higher material, labour and land development costs.”
St. John’s builders must have used the same suppliers that Saskatoon used in 07-08 and Calgary used in 06-07:)
October 10th, 2008 at 4:41 pm
The meltdown’s silver lining – cheap oil
http://money.cnn.com/2008/10/10/news/economy/oil_prices/?postversion=2008101013
“I’m not going to rule out some extraordinarily low numbers, even $20 a barrel,”
Maybe we could see gas prices go below $1/liter with $20 oil:)
October 10th, 2008 at 5:37 pm
Credit watch hits GM, Ford
http://www.reportonbusiness.com/servlet/story/RTGAM.20081010.wrautos10/CommentStory/Business/home#comments
They are finished. They were in trouble 2 years ago, nevermind a credit crisis.
There is no magic bullet to fix this financial crisis. Every fix ( $700 billion bailout, coordinated rate cuts) has done absolutely nothing to plug the leaky dam. Governments and banks are running out of ammo.
It seems the world has lived on low interest rates, cheap credit and has stretched itself too far with debt. The party is over.
A part of me has a sick feeling that whatever is done by governments and banks just is not enough. Whatever they do will postpone the inevitable.
Inevitable = Great Depression 2?
The Dow over the last year
http://finance.yahoo.com/echarts?s=%5EDJI#chart1:symbol=^dji;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
TSX over the last year
http://finance.yahoo.com/echarts?s=%5EGSPTSE#chart1:symbol=^gsptse;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
They will study this period for decades.
October 10th, 2008 at 6:18 pm
George,
Don’t you think you’re taking this a bit far? Perhaps you haven’t heard that Saskatchewan will lead the nation for GDP this year?
October 10th, 2008 at 8:13 pm
Yeah, you are right. You gotta smile about the good things. We can’t live in fear. As long as we got food, shelter and water, everything else we have is gravy compared to the less fortunate in the world. And here I am worried my stocks.
If there is something close to a Great Depression 2, I think we can learn from the past to get out quicker.
The Depression’s history lessons
http://www.reportonbusiness.com/servlet/story/RTGAM.20081010.wrcover11/BNStory/Business/home
October 10th, 2008 at 8:44 pm
“You gotta smile about the good things.”
Atta boy, George.
We are not the first people who have headed into difficult times or uncharted territory, my friend, and chances are good that if you are reading this, you are a heck of a lot luckier than most of your fellow humans walking the Earth.
October 11th, 2008 at 12:20 am
On the Bright side of the Road:
Ask the bank if you can borrow at prime +5, make the banks feel good.
Call Norm to help you buy your new home – absolutley!
Makes him feel good.
If the Sask prices are too low for you come see me.
I’ll feel good.
Buy furniture.
Buy appliances.
Makes the store owner feel good.
New car, of course! Hell, buy BMW’S for the kids too.
They’ll feel good.
Holiday on your Visa – why not! Makes you feel good?
Vote a couple of times for the feds. Consider it your charity work. They’ll feel good.
Sing Bobby Mcferrin’s song “Don’t Worry Be Happy”
as you slip the bullet in the chamber.
Result: You won’t worry and you might just be happy. :>)
October 11th, 2008 at 7:29 pm
Crikey,
“you are a heck of a lot luckier than most of your fellow humans walking the Earth.”
Easy for you to say having converted your assets to cash.
Looks like I’m riding this thing to the bottom now.
We must be getting close to the bottom as some of these stocks are starting to look pretty good. I don’t know much about this stuff but when I see Royal Bank hit $39 it looks pretty appealing. Dividends of $2.00 per share and a fairly long history of raising them about 10% a year. An immediate return of 5% and growing from there if the share price sees no growth. In 10 years it’s paying about 12% a year in dividends. Is my thinking totally messed up? I need a rescue plan.
Larry,
Did you steal that from the GW Bush plan for financial freedom?
October 11th, 2008 at 10:12 pm
Italian Premier Silvio Berlusconi on Friday cited rumors that stock markets might be suspended in response to the financial meltdown
http://www.iht.com/articles/ap/2008/10/10/business/EU-Italy-Meltdown.php
This is a rumor but if the stock markets are suspended to rewrite the rules we could be close to a bottom. Scary to think what the rules could be. Russia has shut down their stock markets a couple of times the last month. I wouldn’t rule out a radical fix.
October 11th, 2008 at 11:41 pm
I have to say, I’m feeling pretty good about being mostly in cash right now. I took control of some pension funds about 2 months ago, that would have now lost 37% of their value. Yikes. Like they say, though, there’s nothing like selling at or near the bottom to lock in your losses. Sorry I can’t be of more help!
“We must be getting close to the bottom as some of these stocks are starting to look pretty good.”
I was watching in horrified awe yesterday as GMC was trading at $2.67 (from a 52-week high of $30.10), and Ford was trading at $1.88. I seriously never thought I’d see anything like that in my life. I now hear that there is now talk of GM and Chrysler merging to attempt to survive this:
http://tinyurl.com/523z9w
I’m not sure about bank stocks. I’d do as much research as you can. There’s talks about the US government buying stock in financial institutions now, as I’m sure you’ve heard. I’m pretty sure this is limited to US financial institutions, but I’m not sure. My question is- if the government owns stock in the company and is also injecting massive liquidity into it, how do you know what the stock is really worth?
Scary times.
October 12th, 2008 at 12:05 am
So long as the culture of greed and investment is considered acceptable, we will have these problems.
Stock markets and now the US bailout (and those of other countries) have been the primary tool to plunder the middle class.
Where does the money come from? Who is it going to?
Really – if someone is confused about this, they’re in some serious denial. It’s time for a paradigm shift.
October 12th, 2008 at 9:31 am
Crikey,
I met with my financial guy around the first of August and inquired about moving my stuff out of the stock market. Unfortunately, I was talked out of it. My best hope now is to stay in the market and hope to nail a few deals that might recover. I’m going blue chip all the way. A long history of strong assets, sales and profit is at the top of my list. Wish me luck.
Alex,
I heard an interesting comment on one of the news talk shows the other night. “At one time, fear of loss provided an excellent counter-balance to greed. These endless bailouts essentially remove fear of loss as a factor and promote greed.” (or something like that)
Hope you are well.
October 12th, 2008 at 5:44 pm
Of course I only wish you the very best of luck!
There’s been a dramatic change in the mood of the market in recent weeks. Right now the consequences of the “credit crunch” are affecting not only companies with large amount of debt and many speculative investments, but healthy ones, too. It seems every market “intervention” and economic “tweak” is just serving to make investors more nervous and serving to obfuscate risk. Confidence in the market will return at some point- I just don’t know when. Healthy, “recession-resistant” companies with solid track records will fare better long term in all of this, no doubt.
As for me, I’m quite good at seeing the potential negatives in any given situation, but not so good at seeing the potential positives.
Once the dust settles on this, there will be many innovative ideas and investors waiting to fill the vacuum. People such as yourself will be far more able to seek out new sources of potential investment than people like me!
Have a fantastic Thanksgiving.
October 12th, 2008 at 9:40 pm
Norm,
http://www.youtube.com/watch?v=MoSwkCog-Ro&feature=PlayList&p=02C71D0CDFF9F38B&index=4
This was made in 2006. A year before I started saying the same, 2 years before now.
None of this is rocket science. The only difference between what this guy is saying and what I’ve said is that he can afford to dress better than myself!
There is no such thing as a truly unbiased free market. What we are getting is corporate communism.
I hope everyone keeps their head on and votes ABC this election. It’s just that simple.
The more I hear, the more I fear for my own house purchase. But after hearing what this guy has to say – yeah – I probably don’t have much to lose in the end. I just have an attachment to my home now and have never planned on using it as a short term trade-up…
Canada is going to be back on track for social democracy soon and then everything can go back to normal.
October 13th, 2008 at 8:56 am
Alex,
Man, I would have loved to have gotten a look at the faces of all of those mortgage brokers as this guy was talking. Thanks for the link. Excellent foresight.
I wouldn’t spend too much time worrying about your place. You put a lot of thought into that and purchased something you know you could afford. You’ll be okay.
October 15th, 2008 at 1:54 am
Sounds like a $25 Billion bail out after Harper denied their was any problem with our economy, said our fundamentals were strong and suggested “staying the course”