In the fall of 2008, as the financial crisis was just starting to impact the United States, the Harper government was lauding Canadian banks as the “soundest in the world.” This was to become a well-rehearsed and well-worn talking point for government and corporate mouthpieces throughout the duration of the 2008-10 recession. However, a recent study released by the Canadian Centre for Policy Alternatives (CCPA) reveals a staunchly different picture. Massive government bailouts were dolled out to the country's largest banks to the tune of $114-billion of public money being pumped into the financial institutions.
The report, “The Big Banks' Big Secret,” shows that all of the capitalists' self-righteous talk about “shouldering the risks” of the market is just a load of manure, though particularly well compensated manure as we will see. The ones who really have to shoulder the risk of losses on the market are the working-class, the general population, whose money was used to prop up the big banks through loans and buying huge swathes of mortgages being dumped by the bank executives. The bankers are all too happy to take on the “responsibility” of being the risk-takers in leading the country's largest financial institutions when those institutions are in profit, but when their capital reserves are at risk of falling into the red, suddenly that risk (that is, when it actually becomes risky) falls to the public to pay for.
Private profit, public debt
On February 29, 2009, Prime Minster Stephen Harper announced, “It is true, we have the only banks in the Western world that are not looking at bailouts or anything like that.” During that same month, the total value of financial support given to the five largest Canadian banks would have been enough to buy a majority share in the two largest banks, and outright buy the other three.
Royal Bank of Canada (RBC) and Toronto-Dominion Bank (TD) are the two largest financial houses in the country. Together, they received an estimated $25-billion and $26-billion, respectively, in government support from late 2008 to 2010. If we compare the stock market value of all the shares of these companies' stocks, that is enough to buy a 63% share of RBC and a 69% share of TD.
The other three banks tell an even more interesting story. Scotiabank, CIBC, and Bank of Montreal (BMO) received $25-billion, $21-billion and $17-billion respectively. At it's peak of support, that would have been just enough to buy the whole of Scotiabank’s shares. In the case of CIBC and Bank of Montreal, buying the company would have actually been the wiser business decision on the part of the government as the cost to the public coffers in terms of loans and buying of mortgage securities was quite a bit more than the total market value of the companies. In the case of CIBC, in fact, the government could have purchased the whole of the bank about one-and-a-half-times over (with total government support peaking at 148% of market value).
However the fact is that the public's money was not used to buy the major banks — it was used to prop them up. The $41-billion in loans and the $69-billion in direct cash injections through mortgage buyouts given to the Big 5 banks (with another $4-billion also given to several smaller banks) were used simply as if the money belonged to the banks in the first place. The bail-outs simply allowed the banks to carry on as before. From the fourth quarter of 2008 to the second quarter of 2010, the Big 5 banks made a total profit of $26.9-billion, none of which went anywhere near the public purse. Even small investors get a dividend, but apparently the government bail-outs, worth more than the total value of most of the banks themselves, entitled the average Canadian to a total share of 0% of the corporate super-profits that their own money financed. Instead of a share of the profits, working Canadians get austerity budgets, service cuts, wage freezes, job losses, and attacks on our right to organize. Any broker on Bay Street that made a deal this bad would be lucky to get away in one piece.
But the outrage is not just about the government doling out huge sums of cash during the financial recession; the banks themselves had some multi-billion dollar expenses. Total executive bonuses set a new all-time record high in 2009, coming in at $8.3-billion! Every single one of the CEOs of the five major banks moved up in rank on the list of Canada's 100 best-paid chief executives. Edmund Clark, CEO of TD Bank, had the highest jump, hurdling up ten spots to become the fourth highest earning CEO in Canada in 2009, taking home $15.2-million. Special mention, though, has to go to Gerry McCaughey, CEO of CIBC, who moved up five spots on the list with a total compensation of $6.7-million in 2009 — despite his bank being effectively “underwater” for most of that year, having received government money worth more than the entire market value of his bank.
In 2010, spurred-on by growing public anger over bail-outs, bank executives chose to “trim” their bonuses, and by “trim” they meant give themselves another raise, just not as much as the year before. Total executive bonuses for 2010 came out to roughly $8.6-billion, only a “slight” increase of $300-million, but still enough to set another new record high. More recently in 2011, having apparently done their civic duty the year prior, bank executives saw an 8% increase in total compensation, pushing their total to $9.3-billion.
“The money just isn't there.”
How often do working people here the same old song from the corporate press and the government ministers that “there simply isn't any money” to pay for social programs, jobs, healthcare, and other essentials. Workers are lectured that they must simply “tighten their belts.” Well, it is partly true — the debt-to-GDP ratio in some provinces like Ontario and Quebec is starting to approach 100%. The federal government, too, is buried under a multi-billion dollar deficit. But this deficit didn't come from government investments into social programs, job creation, or infrastructure; rather, the lion's share of it was the result of corporate welfare, tax-cuts, bail-outs, and bad-asset buy-outs.
Why should the big banks be able to toss their losses onto the backs of working-class people, just so they can protect their profits? Why should the government hand over more money than the banks are even worth, just to keep the massive profits in the hands of a tiny minority rather than used for the benefit of the overwhelming majority? The top 150 corporations in this country collectively control $4.5-trillion in assets, and bring in a total of $850-billion in revenue every year. Compare that to the total federal government debt, the total accumulation of all government deficits since the 1960s, which amounts to about $551-billion. And yet, it is the government who is giving money to the banks.
It would cost roughly $8-billion a year to completely wipe out tuition fees in this country and provide universal education. Bank executive bonuses alone would more than cover this cost, and yet we are seeing a concerted effort on the part of governments to hike tuition and cut funding for education while the corporate press tries to demonize the Quebec student movement as “spoiled children.”
A national childcare program would cost, according to the CCPA, around $12-billion. But while the banks continue to rake in their government-supported profits, access to quality childcare is pathetically limited, or outright nonexistent. In Toronto, average childcare costs are well in excess of $1,300 per month per child.
A national housing strategy, so desperately needed in Canadian cities dominated by youth unemployment, a lack of public housing, and skyrocketing rents, could provide both jobs and housing for hundreds of thousands of families. Coupled with childcare and free education, which could provide support and training, young people could be given a future, a decent life, and build communities worth living in. Instead, the banks privatize their profits, and socialize their losses, driving us down into austerity, debt and crisis, while the executives collect record bonuses.
In the last analysis, under capitalism, real power rests in control of capital; those who own the majority of the economy inevitably have control over society. A tiny elite wields massive economic, and thus, social and political power. This is the reason why the public has been forced to carry the astronomical costs of protecting the banks and their profits. This is why we are forced to accept austerity, cuts, and attacks, even to our democratic rights — all in the name of saving the wealthy few who are “too big to fail.” TD's CEO Mr. Clark, who as we have seen is one of the best paid individuals in the country, told a meeting of shareholders in early 2009, while talking about receiving assurances of government backing, “Maybe not explicitly, but what are the chances that TD Bank is not going to be bailed out if it did something stupid?” Within the confines of this system, the government is forced, whether through collusion or coercion, to serve the interests of big capital. Only through nationalization of the top banks and corporations and placing them under the direct control of the working-class can this sham of a system be finally and justly brought to an end.
As we are seeing not only across Canada but across the world, this reality is becoming more and more evident to mass layers of society. The veil of “democracy” is being torn away, and the invisible hand of the market is being seen for what it is to an ever growing number of people. The only solution is to wrest this massive reserve of wealth, this tool of control used by the few over the many, away from the hands of the capitalists and use it, under the democratic control of the working masses, to build a new and better society. Free education, universal childcare, national housing program; the bettering of society is within our grasp, we have only to take it.