Canada's Bank "Bailout" plan (another approach)

[Oregone]

http://www.theglobeandmail.com/servlet/story/RTGAM.20081010.whowcmhc1010/BNStory/Business/

"The federal government, through Canada Mortgage and Housing Corp., will purchase $25-billion worth of CHMC-backed residential mortgages from banks and credit unions.

The mortgages are considered “high quality” assets that are not in arrears, and the government insist the program is not a bail-out for Canadian banks, which remain sound.

Ottawa expects to make money on the deal because it can borrow money to pay for the program at a considerably lower rate than the mortgages pay.

The banks are finding it difficult and increasingly expensive to borrow to funds their own lending. The government measure will increase their cash positions, increasing the availability and lowering the cost of mortgages and lines of credit."

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I guess this goes to show: "Where you stand depends on where you sit."

Here Canada is purchasing real assets, mortgages, not fake funny money paper swaps that are worthless and failing. Its just like if all these people sold or refinanced at once (the Banks get liquidity instantly). These are not troubled loans, but rather, the real deal. And on paper, there is no reason they wont stand to make money off of this due to interest.

Of course, Harper is getting a lot of flak because its a small gesture, and a bit late after he denied there is no crisis, but look how this approach is a world of difference from the radical US approach. If the government aims at injecting liquidity by buying real assets, it causes the banks to be able to lend (no credit crisis) and the government isn't buying bad debt. They also stand in the position to, if there is a major foreclosure crisis, take a stake in the homes and alter terms (but Canada isn't facing a foreclosure crisis yet). Yeah, the future doesn't look rosy here because of what is going on in the states, but the regulation thus far has ensured the banks aren't just going to go under.

[aquart]

1. Congratulations on your national sanity.

We are green with envy down here.

[Oregone]

2. I know, I used to be envious too...

I just moved here a few months ago.