Two, countries that are hovering on the sidelines of a property and bank crash are Australia and Canada.
It is an under-reported fact that the Canadian banks already got $75 Billion (canadian dollars) bail out over a year ago. That $75 Billion was given to Canada’s commercial banks in exchange for mortgages. To be specific a government company, the Canada Mortgage and Housing Corporation (CMHC), much like the US’s Fannie and Freddie, paid $25 Billion, and later in the year another $50 Billion, for ‘insured mortgage pools’. That is bunches of mortgages.
The insurance makes it sound almost OK. After all, someone has insured them against loss right? Sadly the person who insured them was …the government.
So first the government insured them and then felt compelled for some reason to also buy them. The insurance should have made them loss proof. You might wonder why did the banks needed to be rid of them if they were insured?
The Canadian government described the purchases as a ‘transfer of assets to the CHCM’. You almost have to admire such brazen lying.
$75 Billion is BIG money for Canada -about 4.6% of Canada’s GDP! It was all paid for by selling debt. Which means this single ‘transaction’ resulted in Canada suddenly adding 4.6% to its national debt! The CHCM itself has about $500 Billion is liabilities due to its insurance and guarantees backed by ONLY about $8 Billion in assets. Sounds stable doesn’t it?
Since then the housing bubble has continued. Even as Canadian banks are beginning to post losses.
Then there’s Australia. Debt to income levels are frightening. Australians owe over a Trillion OZ dollars. This month saw an unexpected and large drop in building finance. Could be nothing. Could be the start of the parabolic rise in prices and building, finally topping. If so, look out below. What has kept Australia bubbling so far, has been China. China buys its minerals and Chinese speculators funnel both private and government cash (illegal cash siphoned off from property speculation and local government stimulus) to Oz property.
If this stops or slows, which it might do, if chinese bank and monetary tightening ever gets a grip – then like Mr W. Coyote it will be a brief moment hanging dumbfounded in mid air, before a look to camera and a plunge to destruction below.
The 75 billion "bailout" was probably under reported because no such thing happened.
The government, as an economic stimulus measure, bought *already insured mortgages* from the banks to free up lending capital so they could maintain credit flow in a tough recessionary environment. That is not a "bailout".
And the banks DIDN'T need to get rid of the mortgages… as you pointed out then proceeded to ignore, they were *already insured*. They carried no risk for the banks. The government WANTED them to get rid of them so they could free up more capital and the banks agreed. The fact that you answered your own question then pretended as if the answer didn't count is just sad.
gcomeau,
Sorry we will have to disagree on this one.
We can disagree on what the money was for or what to call it – I say 'bail out', you say to 'free up lending capital' – but the FACT remains that the Canadian tax payer took on a $75 Billion debt so the banks could have that much new cash. Call it what you want, the money doesn't care, and the debt has to be paid by the tax-payer.
And the banks 'need' for free money injections continues as I think you are aware. The Canadian government has said it will backstop more than $200 billion in interbank lending so banks can boost their lending capacity." (Toronto Star, December 13, 2009). WHY?
MAybe we are at cross purposes on terminology and you don't think I should apply 'bail-out' as a term to Canada. OK. Maybe it's too lose a term for the Canadian situation.
So let me put it this way. Canada has a monstrous housing bubble. House prices to income at roughly seven times median income. The government now insures more than a trillion from GE financial CMCH and others.
The mortgages the banks are issuing and the government is insuring are insanely imprudent. In 2007 the average was only 6% equity.
Call it providing liquidity if you feel this is more accurate than bail-out. It doesn't alter what is happening. There is a housing bubble concocted by banks and politicians which is now having to be subsidized by the tax payer and will burst with catastrophic consequences for Canadians. Just my opinion of course.