
Bankers Enthroned COMER \|\| December 13, 2005 [KDR: This article is a little old but it is important since the election is coming.] We couldn’t believe our eyes when in The Globe and Mail (10/08, “NDP, PCs to send bank merger demands” by Steven Chase) we read: “The NDP and Conservatives are sending Finance Minister Ralph Goodale their conditions for supporting bank mergers in an attempt to remove any excuses the Liberals have for further delaying the release of long-awaited guidelines for financial sector consolidation.” “‘Now the ball is back in his court,’ said NDP finance critic July Wasylycia-Leis, who is sending her letter to Mr. Goodale this week. ‘We are not holding anything up.’” Certainly not the banner of Tommy Douglas who at the head of the party that was to become the NDP goaded the minority government of the Liberals into nationalizing the Bank of Canada. That sheltered the people of Canada from a recurrence of the Great Depression. “Ms. Wasylycia-Leis said the NDP is prepared to consider dropping its opposition to bank mergers if the Liberals agree to their proposed changes that could ‘neutralize the impact’ of mergers. ‘I don’t think bank mergers will benefit Canadians,’ she said. ‘But the benefit will come from us being able to win major victories out of this for Canadians: major changes in the banking and financial world of Canada.” “Such changes include ‘generous lending policies for low and middle-income earners and small and medium-sized businesses; government assistance for credit unions and alternative lenders in communities where banks have shut down branches; stricter rules requiring the disclosure of banking fees, a government-regulated lending on credit card interest rates; government regulation of payday money lenders and assistance. The NDP also wants Ottawa to pledge action to address job losses from branch closings should banks merge.” Why Sudden Talk of Bank Mergers Again? What is entirely missing in the NDP letter is an inkling of what has made it so urgent for our banks to merge once again. And yet much of the pertinent facts could have been found in a column in the 4/08 issue of the same G&M by Andrew Willis (“CIBC’s only saving grace may be its profitable branch network”): “CIBC is now trapped in a box of its own making. Two years back, the most accident-prone of Canadian banks went conservative. Aggressive US expansion [so long desired by it] was out. Share buybacks and dividend hikes were in. CIBC became a market darling by stealing a page from the income trusts, and handing over all the cash it made to shareholders.” When banks get that virtuous there must be a good reason. “Only now, newly appointed chief CEO Gerry McCaughey must fork out a staggering $2.4 billion (US) to settle a US lawsuit that arose from the bank’s dealings with Enron, with more cheques likely to follow. That means no more share repurchases [the financial equivalent of a face-lift – W.K.] and no dividend increases for the foreseeable future. Wounded and with no growth strategy, this is a bank stock that’s dead in the water, a trust with no cash to distribute.” That means there is urgent need for a merger which would bring first aid in several ways. There is an adage as old as modern banking: “A bank too large to be allowed to fail is not allowed to fail.” The failure of a bank usually discloses so many financial shenanigans that brought it to disaster that politicians feel obliged to make it whole again. Merger is the ideal way of doing this – the government takes care of the bad debts, or puts enough money into the rescue. By hook or crook the mere uniting of two banks with a new lease on life bestowed on them is usually enough to drive up the value of their stock on the market by as much as 20%. Moreover, when two banks merge many cheques that customers in one bank write in favour of clients of the other become an internal bookkeeping matter. This allows the reserves held by the bank against incoming cheque clearances to be reduced. Thus the bank can use more of the cash entrusted to it for projects of its own. But that is still not the really exciting stuff. Merged banks are bigger, and what is bigger is assumed by the ensconced wisdom to be better, and certainly more powerful. In the 1980s the banks had acquired enough political heft to be freed from the controls that prevented them from merging with non-banking financial institutions such as stock brokerages, insurance and mortgage companies. The really irresistible and easiest of mergers were not between bank and bank, but with the other “financial pillars” – the stock market, insurance, and mortgage companies. And mergers with these – though strictly prohibited during the 1930s for their part in bringing on the Great Depression – were legalized decades ago. In fact those mergers have already brought on vast financial meltdowns throughout the world. That is why you don’t hear about those mergers. But you do hear plenty about their consequences. If it were not for those mergers there would not have been many of the of mega-scandals that is costing at least three of our largest Canadian banks substantial portions of their capital, which they have paid to settle some of the charges in connection with Enron and other of the nastiest US scandals. Canadians had to rely of American authorities to learn about the mega-scams that our banks got into that could not have arisen without our previous bailout of our banks and their further deregulation in the early 1990s.On this side of the border we have had no equivalent enquiries of what our banks have been up to with the taxpayers’ money that financed their bailout, and the vastly greater liberties lavished on them shortly afterward. Article Posted at www.KnowledgeDrivenRevolution.com Mergers with the Other Financial Pillars The bailout of our banks in Canada from their crippling capital losses in gas and oil, real estate and other adventures during the 1980s, took the form of abolishing the statutory reserves. These were 10 to 12% of the deposits they took into chequing and other short-term accounts from the public that they had to deposit with the Bank of Canada. This allowed the banks to operate with a leverage that they had never dreamt of. To guild the lily, shortly afterwards they were deregulated further to permit them to merge with “the other financial pillars” – stock market brokerages, insurance and mortgage companies, each of which maintained its large cash pool to look after the needs of its own businesses. Getting access to these and using them as cash bases for many-storeyed money creation had always fascinated bankers. That had helped bring on the great depression of the thirties. I tried pointing out to a fact-finding committee sent out at the time from Ottawa that at least two of the large Japanese banks, which decontrolling our banks was supposed to equip them to compete with, were no longer making loans because they had lost their capital. To no avail. But the resulting speculations of our banks is what has created the urgency of the proposed new round of bank mergers that appears only to be hushed up again until the coming elections are behind us – the mergers that the NDP amazingly “does not want to hold up.” It should in fact hold it up enough to learn how our banks were bailed out 14 years ago by relieving them of the need to redeposit with the central bank some 10-12 percent of the deposits they took into their checking accounts. On those deposits with the central bank they were paid no interest – because the checking system and the leveraged money-creation it makes possible are successors to the monopoly of the ancestral monarch in coining precious metals. The resulting money created by the monarch or later by the central bank also earned no interest by its mere existence. It became money issued by being spent by the government for necessary infrastructural ends. When a private bank creates money, it does so by lending it out. In that way banks used to create 10 times what they held in the legal tender: coins, bills, and central bank deposits. Today it is close to 400 to one. That is because they have been deregulated to merge with the other financial pillars. A Royal Commission to Resurrect the Real Facts They have merged with and taken over everything that remotely smacks of financing. Why they are still afflicted with loneliness and an uncontrollable desire to merge should be the subject not only of an enquiry by a progressive party like the NDP, but by a Royal Commission. It could examine how our banks have used hundreds of billions of dollars that our governments had had free use of from the statutory reserves that our banks until 1991-3 had deposited with the Bank of Canada. This is technically known as “seigniorage.” That free seigniorage was abolished and replaced by bonds acquired by the chartered banks without putting up a penny of their own. That became possible because the Bank for International Settlements – a technical body of central bankers had declared the debt of developed countries “risk-free requiring no capital for private banks to hold.” It is the interest on the federal debt held by private banks that gave rise to by far the greater part of the federal debt of over a half trillion dollars. To pay that interest, the federal government slashed grants to the provinces, who passed on the treatment to the municipalities. That bailout and the deregulation that changed our banks into international casinos has gotten several of them into serious trouble again and stands in need of an encore bailout. Our banks, which were supposed to become international makers and shakers, are in full retreat from the American and international markets. A new bailout is being planned. A revived discussion of mergers is one indication of this. Another is the new phenomenon in Europe of banks being paid interest by a central bank on reserves deposited with them. It is even called “bankers’ seigniorage” – a sure indication that our banks are to be crowned as well as provided with an additional source of gambling funds. Our friends of the NDP should think twice before backing bank mergers in return for some control over interest rates. Do that and there will be no chance of the benign credit card and payday loan rates that the NDP proposes. The banks in no time will have lost their new funding, and will be left without the means or the will to go in for such kindnesses planned for them by the NDP. For we have spoiled them into the belief that they that have first place at the head of the nation’s breadlines as part of the new “bankers’ seigniorage.” About KDR \| \| Home \| \| Weekly Features Archive	Weekly Weekly Features Archive
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Bankers Enthroned

COMER || December 13, 2005

[KDR: This article is a little old but it is important since the election is coming.]

We couldn’t believe our eyes when in The Globe and Mail (10/08, “NDP, PCs to send bank merger demands” by Steven Chase) we read: “The NDP and Conservatives are sending Finance Minister Ralph Goodale their conditions for supporting bank mergers in an attempt to remove any excuses the Liberals have for further delaying the release of long-awaited guidelines for financial sector consolidation.”

“‘Now the ball is back in his court,’ said NDP finance critic July Wasylycia-Leis, who is sending her letter to Mr. Goodale this week. ‘We are not holding anything up.’”

Certainly not the banner of Tommy Douglas who at the head of the party that was to become the NDP goaded the minority government of the Liberals into nationalizing the Bank of Canada. That sheltered the people of Canada from a recurrence of the Great Depression.

“Ms. Wasylycia-Leis said the NDP is prepared to consider dropping its opposition to bank mergers if the Liberals agree to their proposed changes that could ‘neutralize the impact’ of mergers. ‘I don’t think bank mergers will benefit Canadians,’ she said. ‘But the benefit will come from us being able to win major victories out of this for Canadians: major changes in the banking and financial world of Canada.”

“Such changes include ‘generous lending policies for low and middle-income earners and small and medium-sized businesses; government assistance for credit unions and alternative lenders in communities where banks have shut down branches; stricter rules requiring the disclosure of banking fees, a government-regulated lending on credit card interest rates; government regulation of payday money lenders and assistance. The NDP also wants Ottawa to pledge action to address job losses from branch closings should banks merge.”

Why Sudden Talk of Bank Mergers Again?

What is entirely missing in the NDP letter is an inkling of what has made it so urgent for our banks to merge once again. And yet much of the pertinent facts could have been found in a column in the 4/08 issue of the same G&M by Andrew Willis (“CIBC’s only saving grace may be its profitable branch network”): “CIBC is now trapped in a box of its own making. Two years back, the most accident-prone of Canadian banks went conservative. Aggressive US expansion [so long desired by it] was out. Share buybacks and dividend hikes were in. CIBC became a market darling by stealing a page from the income trusts, and handing over all the cash it made to shareholders.” When banks get that virtuous there must be a good reason.

“Only now, newly appointed chief CEO Gerry McCaughey must fork out a staggering $2.4 billion (US) to settle a US lawsuit that arose from the bank’s dealings with Enron, with more cheques likely to follow. That means no more share repurchases [the financial equivalent of a face-lift – W.K.] and no dividend increases for the foreseeable future. Wounded and with no growth strategy, this is a bank stock that’s dead in the water, a trust with no cash to distribute.” That means there is urgent need for a merger which would bring first aid in several ways. There is an adage as old as modern banking: “A bank too large to be allowed to fail is not allowed to fail.” The failure of a bank usually discloses so many financial shenanigans that brought it to disaster that politicians feel obliged to make it whole again. Merger is the ideal way of doing this – the government takes care of the bad debts, or puts enough money into the rescue. By hook or crook the mere uniting of two banks with a new lease on life bestowed on them is usually enough to drive up the value of their stock on the market by as much as 20%. Moreover, when two banks merge many cheques that customers in one bank write in favour of clients of the other become an internal bookkeeping matter. This allows the reserves held by the bank against incoming cheque clearances to be reduced. Thus the bank can use more of the cash entrusted to it for projects of its own.

But that is still not the really exciting stuff. Merged banks are bigger, and what is bigger is assumed by the ensconced wisdom to be better, and certainly more powerful. In the 1980s the banks had acquired enough political heft to be freed from the controls that prevented them from merging with non-banking financial institutions such as stock brokerages, insurance and mortgage companies. The really irresistible and easiest of mergers were not between bank and bank, but with the other “financial pillars” – the stock market, insurance, and mortgage companies. And mergers with these – though strictly prohibited during the 1930s for their part in bringing on the Great Depression – were legalized decades ago. In fact those mergers have already brought on vast financial meltdowns throughout the world. That is why you don’t hear about those mergers. But you do hear plenty about their consequences. If it were not for those mergers there would not have been many of the of mega-scandals that is costing at least three of our largest Canadian banks substantial portions of their capital, which they have paid to settle some of the charges in connection with Enron and other of the nastiest US scandals. Canadians had to rely of American authorities to learn about the mega-scams that our banks got into that could not have arisen without our previous bailout of our banks and their further deregulation in the early 1990s.On this side of the border we have had no equivalent enquiries of what our banks have been up to with the taxpayers’ money that financed their bailout, and the vastly greater liberties lavished on them shortly afterward.

Article Posted at www.KnowledgeDrivenRevolution.com

Mergers with the Other Financial Pillars

The bailout of our banks in Canada from their crippling capital losses in gas and oil, real estate and other adventures during the 1980s, took the form of abolishing the statutory reserves. These were 10 to 12% of the deposits they took into chequing and other short-term accounts from the public that they had to deposit with the Bank of Canada. This allowed the banks to operate with a leverage that they had never dreamt of. To guild the lily, shortly afterwards they were deregulated further to permit them to merge with “the other financial pillars” – stock market brokerages, insurance and mortgage companies, each of which maintained its large cash pool to look after the needs of its own businesses. Getting access to these and using them as cash bases for many-storeyed money creation had always fascinated bankers. That had helped bring on the great depression of the thirties.

I tried pointing out to a fact-finding committee sent out at the time from Ottawa that at least two of the large Japanese banks, which decontrolling our banks was supposed to equip them to compete with, were no longer making loans because they had lost their capital. To no avail.

But the resulting speculations of our banks is what has created the urgency of the proposed new round of bank mergers that appears only to be hushed up again until the coming elections are behind us – the mergers that the NDP amazingly “does not want to hold up.”

It should in fact hold it up enough to learn how our banks were bailed out 14 years ago by relieving them of the need to redeposit with the central bank some 10-12 percent of the deposits they took into their checking accounts. On those deposits with the central bank they were paid no interest – because the checking system and the leveraged money-creation it makes possible are successors to the monopoly of the ancestral monarch in coining precious metals. The resulting money created by the monarch or later by the central bank also earned no interest by its mere existence. It became money issued by being spent by the government for necessary infrastructural ends. When a private bank creates money, it does so by lending it out. In that way banks used to create 10 times what they held in the legal tender: coins, bills, and central bank deposits. Today it is close to 400 to one. That is because they have been deregulated to merge with the other financial pillars.

A Royal Commission to Resurrect the Real Facts

They have merged with and taken over everything that remotely smacks of financing. Why they are still afflicted with loneliness and an uncontrollable desire to merge should be the subject not only of an enquiry by a progressive party like the NDP, but by a Royal Commission. It could examine how our banks have used hundreds of billions of dollars that our governments had had free use of from the statutory reserves that our banks until 1991-3 had deposited with the Bank of Canada. This is technically known as “seigniorage.” That free seigniorage was abolished and replaced by bonds acquired by the chartered banks without putting up a penny of their own. That became possible because the Bank for International Settlements – a technical body of central bankers had declared the debt of developed countries “risk-free requiring no capital for private banks to hold.” It is the interest on the federal debt held by private banks that gave rise to by far the greater part of the federal debt of over a half trillion dollars. To pay that interest, the federal government slashed grants to the provinces, who passed on the treatment to the municipalities.

That bailout and the deregulation that changed our banks into international casinos has gotten several of them into serious trouble again and stands in need of an encore bailout. Our banks, which were supposed to become international makers and shakers, are in full retreat from the American and international markets. A new bailout is being planned. A revived discussion of mergers is one indication of this. Another is the new phenomenon in Europe of banks being paid interest by a central bank on reserves deposited with them. It is even called “bankers’ seigniorage” – a sure indication that our banks are to be crowned as well as provided with an additional source of gambling funds.

Our friends of the NDP should think twice before backing bank mergers in return for some control over interest rates. Do that and there will be no chance of the benign credit card and payday loan rates that the NDP proposes. The banks in no time will have lost their new funding, and will be left without the means or the will to go in for such kindnesses planned for them by the NDP. For we have spoiled them into the belief that they that have first place at the head of the nation’s breadlines as part of the new “bankers’ seigniorage.”

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