Canada’s $275 Billion Bank Bailout: The Canadian Government’s Best Kept Secret

By Steve da Silva* – Toronto

For centuries, the imperialist countries of the world facilitated the first phases of capital accumulation and industrialization, through the ever-increasing exploitation and plunder of the “Third World”. Since the 1970s, a deeper exploitation of workers in the imperialist countries has been necessitated to maintain capitalism – the period we have come to know as “neoliberalism”. And now, with the greatest economic crisis since the 1930s, monopoly capitalism is confronted with the necessity of fashioning new parasitic methods to carry on with the process of capital accumulation. As trillions of dollars in fictitious wealth has disappeared in recent months and the poles of financial power are shifting, radically new measures are being taken to sustain and stabilize monopoly capitalism.

Over the last four months, while Canadians have had their sights set on the spectacle of Canadian politics – with the October 2008 elections, the prospects of an NDP- Liberal coalition, the British Crown’s representative to Canada Michaëlle Jean shutting down Parliament, and the anti-climactic drama of Jim Flaherty’s “leaky budget” in mid- January 2009 – the Canadian government has been bailing out Canadian banks to the tune of some $275 billion.

Days before the 2008 Federal Election in Canada, Prime Minister Stephen Harper announced that the Government of Canada, through the Canadian Mortgage and Housing Corporation, would purchase “$25 billion in insured mortgage pools as part of the Government of Canada’s plan, announced today, to maintain the availability of longer-term credit in Canada.”

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The funds for this program, named the Insured Mortgage Purchase Program, would jump to $75 billion a month later, with Bay Street nudging the Canadian government to up the ante by $200 billion more. In November 2008, the Canadian government announced that they would guarantee up to $200 billion more in debts held by Canadian banks. Unbeknownst to most Canadians, the wishes of Canada’s monopoly financial interests would be realized in the 2009 Federal Budget.

According to the “Extraordinary Financing Framework” announced in the budget, significant financial requirements are projected from 2008–09 to 2011–12, respectively of $103.7 billion in 2008–09, $101.2 billion in 2009–10, $30.7 billion in 2010–11, $11.4 billion in 2011–12, as well as financial sources of $3.9 billion in 2012–13 and of $47.3 billion in 2013–14. The requirements result largely from government initiatives to support access to financing under the Extraordinary Financing Framework (EFF).

The text of the budget document reassures Canadians that “the large increase in market debt associated with the Insured Mortgage Purchase Program (IMPP) does not affect federal debt or the federal government’s net debt levels as the borrowings and associated interest costs are matched by an increase in revenue-earning assets (my emphasis).”

Does this explanation not beg the following question: If these assets are generating profitable revenue streams, then why would the banks want to dispose of them? They would have us believe that it is the need for liquidity that is driving the IMPP and EFF programs, and that more liquidity is good for all us consumers who are in need of borrowing more money. However, it should be clear to Canadians from what has been unfolding in the U.S. over the last six months that these “cash for trash” swaps are thinly-veiled efforts to pass the costs of insolvent debts onto the public. The only difference in the Canadian context is how the Canadian government and banks have got away with it without the wave of popular indignation that unfolded in the U.S. (which, ultimately, was to no avail).

For decades, Canadians have been told that there is simply no money available for their tattered social safety net and public services. And so for decades, Canadians have had their public assets put on the chopping block for criminally low prices just so that the process of capital accumulation could continue to benefit the few at the top of society.

Over the same period, real wages have stagnated and the gap between the richest and the poorest has widened significantly. As of 2006, 50 percent of Canadians owned 3.2 percent of the country’s wealth, while the richest 10% owned nearly 60% of it, with a high concentration in the top 0.1%. At a time when working-class Canadians are most in need of a decent wage to support themselves in time of crisis, the real wage is set to come under serious attack. The auto bailouts passed by the U.S. and Canadians government in December 2008 specified that auto workers would have to make drastic concessions to their wages as part of the bailout package. With the Big Three automakers looking to lower the wages of autoworkers to $14/hr, workers in all other sectors will experience a downward pressure on their wages and suffer serious attacks in future rounds of bargaining.

In January 2009, the Canadian economy lost another 130,000 jobs, nearly double the number lost in November and December of 2008. Ontario alone accounts for most of these jobs losses, with British Columbia and Quebec accounting for much of the rest. And while the S&P/TSX index plunged by 35 percent in 2008 for its worst annual drop since 1931, the pensions of Canadians were severely battered. The Canadian Pension Plan, the largest pension plan in Canada looking after the retirement funds of 17 million Canadians, lost 17% of its value, or $22 billion, in 2008.

Meanwhile, consumer debt has been climbing at a pace that far outstrips the ability of Canadians to service their debts, especially now in a time of soaring unemployment. For instance, between 1994 and 2004, Canadian consumer debt jumped 36% to $752.1 billion. According to Statistics Canada, between 1999 and 2005 the average family household experienced a 38% increase in their debts . While the assets of the households surveyed increased by 24% over the same period, the bubble in the North American housing market drove up a large proportion of the value of those assets. In November 2008, homes in the U.S. lost 18% of their value as compared to a year earlier, whereas in Canada homes lost about 11.3% over the last year. Therefore, we see that much of these gains were speculative and are now being wiped out.

With the brunt of the crisis being borne by the working class, and even the “middle class”, it may not seem like it makes much sense for the Canadian government to be handing over hundreds of billions of dollars to the banks. But alas, parasitism is the social logic of a class-based economy. If Canadians were convinced of anything otherwise for the last half-century, it is only because the parasitic exploitation and plunder of the oppressed countries of the world has afforded Canadians a sense of class peace that has lulled the majority of us into passively accepting capitalism as the best of all possible worlds – there is no alternative, as Margaret Thatcher used to say. This consensus and the social order upon which it was premised is undoubtedly unraveling. The question of what will replace it truly cannot be answered at this point. Whether the socio-economic order that replaces the current one ends up looking more like fascism or more like socialism will ultimately depend on the class forces that win out in the struggle ahead. For the vast majority of us, the future is bleak unless we decide to stand up and fight for the latter.

*Steve da Silva is a community organizer in Toronto and he is an active member of BASICS Free Community Newsletter. da Silva is also an M.A. student at York University in the Social and Political Thought program. He can be contacted at s.da.silva83@gmail.com.

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