Throughout the recession years in Canada, we prided ourselves on the fact that our economy was doing so much better than that of most of the world’s. Our Canadian and Toronto mortgages weren’t in as much trouble as they were down south, and our banks didn’t need the bailout that they also did in the United States. But wait just one minute. Is that last statement true? Not according to David MacDonald, who’s recently written and performed a study for the Canadian Centre for Policy Alternatives. He says that Canada’s banks did in fact receive a bailout during the recession, and that it was hidden by those in Ottawa.
“We’ve had a false sense of security,” said MacDonald. “Ever since the global financial crisis struck in 2008, Canadians have been subjected to a constant refrain: Canada has the ‘most sound banking system in the world.’ During the worst of the crisis – 2008 to 2010 – the official line was that Canada’s banks did not require the extraordinary bailout measures that were being offered in other countries, particularly the U.S. At its peak in March 2009, support for Canadian banks reached $114 billion.” He continues on to say, “The federal government claims it was offering the banks ‘liquidity support’ but it looks an awful lot like a bailout to me.”
But what bailout is MacDonald talking about? The government did step into our housing and banking market during the recession, but they do that any time policy changes are made. When people started gobbling up mortgages in this country like they were the last ones ever to be offered, the government stepped in and made changes to mortgages in Ottawa. Now that our household debt is climbing, the Bank of Canada Governor is most likely going to increase interest rates – to stem the bleeding of cash flow and again, help our economy. During the years that MacDonald is talking about, the government stepped in and bought mortgage-backed securities from the bank and offered them short term loans in order to keep them in business and keep our economy chugging along. Those loans are part of the bailout that MacDonald is accusing the government of. And by the way, they’ve all been repaid in full.
Barry Allen, chief executive of Marret Asset Management Inc. doesn’t believe our government took part in a bailout either – secretly or otherwise. “It’s not a secret,” says Allen. “I don’t know where that came from. Did the Canadian banks have liquidity issues back in 2008? Sure they did, but so did every single bank in the world. When the entire interbanking lending system breaks down, that’s a liquidity issue, not a solvency issue.”
Once again, Finance Minister, Jim Flaherty’s office weighed in on the matter, but kept it short saying simply, “To be clear, despite conspiracy theories to the contrary, there was no secret bailout,” said Chisholm Potheir from the Minister’s office.
