Bickering Over Bank Bailouts

Canada banks bailout money | BCBusiness
While some insist the federal government gave Canada’s largest banks secret bailout money, the government says it was merely a loan.

A recent study out of Ottawa insists that the federal government gave Canada’s biggest banks a “secret bailout” during the financial crisis of 2008-2009. Not quite, says the government: It was just a loan to create “liquidity support.”

Much after the fact comes support for the theory that Canadian banks didn’t exactly escape the “financial crash” of 2008 that drove the U.S. and Europe into recessions that they’re still climbing out of.

A recent report from the Canadian Centre for Policy Alternatives claimed there was a $114-billion “secret bailout” for the country’s biggest banks at the time. This, of course, puts the lie to the constant line we’ve been hearing about how strong and true and good our banks are because they didn’t need huge piles of cash to get them through the crisis.

Now, understand that the Canadian Centre For Policy Alternatives is a left-wing think tank; that’s kind of the yin to the yang that are the likes of Vancouver’s right-wing Fraser Institute. The institute wasn’t involve in the situation described in this report, but its friends in the banks and the Conservative government were.

(Interestingly enough, not long after the CCPA report was published it was “revealed” that Canadian bank heads were supposedly being consulted by the Bank of England on how to run things right. Counter propaganda? You be the judge.)

Anyway, the federal government says, Bailout, shmailout. There has been a conspiracy theory about a “secret bailout” for some time, but it was actually “liquidity support,” said a finance ministry spokesman.  

That sounds like complete government gobbledygook, but there is actually a meaning behind the term. The financial crises in the U.S. and Europe were so sudden and so severe that all credit was halted almost instantly. This credit, or “liquidity,” is the lifeblood of the entire world’s banking system, and when it dries up, there is indeed a crisis that ripples down through the system and hurts everyone from large corporations to small businesses – almost all of whom depend on credit to operate.

Ask any large company, real estate company, financial services provider or small business that depends on credit, and they’ll tell you it was beyond tough to get operating funds during that horrible year. There was no liquidity in the system.

So, essentially, the federal government became the short-term lender to the banks so the system could start working again.  

So, bailout or liquidity support? Pick your buzzword.

But since the loans have all been paid back anyway, does it really matter?