Bankers Enthroned

The recent mega-scams of our banks in activity with the likes of the Enron scandal have brought scandalous financial penalties arising out of the USA, especially upon CIBC. This is precisely the reason the banks want more mergers- more bailouts by taxpayors. Fogal agrees with Krehm's analysis that, "In the early 1990s Canada allowed our banks to be decontrolled and to merge, to fit them for competing with the large Japanese banks.... The most needy Canadians were deprived of essential social services so that our banks could be provided with gambling money that is at present going to settle the charges levied by various American authorities....That is what has created the urgency of the new round of mergers that the NDP amazingly 'does not want to hold up.' It should in fact hold them 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." Fogal concurs with William Krehm that "we have spoiled the banks into the belief that the banks have first place at the head of the nation's bread-lines as part of the new 'bankers' seigniorage.'" She joins him in calling for a Royal Commission to ascertain what our banks did with the billions of dollars made available to them once the statutory reserves were abolished in 1991-1993. Contact Bill Krehm at 416 924 3964 Connie Fogal at 604 872 2128 -30- BANKERS ENTHRONED...by William Krehm, editor COMER We couldn't believe our eyes when we read of the NDP support for bank mergers. The Globe & 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.." 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. The 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- WK] 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 that 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". The rescue of a failed bank usually follows from the many financial shenanigans that brought it to disaster such 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 the value of their stock on the market by as much as 20%. Moreover, when two banks merge, the cheques that customers in one bank write in favour of a client of the other becomes 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 wiser, 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 because of 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 mega-scandals that are costing 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 on 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. The bailout of the banks from their crippling capital losses in speculation in gas and oil, real estate, and other adventures of the 1980s had in Canada taken the form of abolishing the 10 to 12 percent of the deposits taken into chequing and short-term accounts, and made the banks extremely excited about the prospects of operating with a degree of leverage that they had never imagined in their wildest dreams. In the early 1990s Canada allowed our banks to be decontrolled and to merge, to fit them for competing with the large Japanese banks. I tried pointing out to the chairman of the fact-finding committee that toured the country, that the large Japanese banks had already lost their capital in so-called eurodollar loans , i.e. in dollar loans made offshore and hence not subject to US bank restrictions. To no avail. The most needy Canadians were deprived of essential social services so that our banks could be provided with gambling money that is at present going to settle the charges levied by various American authorities. That is what has created the urgency of the new round of mergers that the NDP amazingly "does not want to hold up." It should in fact hold them 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 is successor to the monopoly of the ancestral monarch in coining precious metals. The resulting money created by the monarch or later 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, central bank credit. Today it is close to 400 to one. That is because they have been deregulated to merge with stock market brokerages, insurance companies and mortgage corporations, and in doing so have come to use their liquidity pools as part of their own money base. They have merged with and taken over everything that remotely smacks of financing. Why they are still afflicted with loneliness and an controllable desire to merge amongst themselves should be the subject not only of an enquiry by a progressive reformist party like the NDP, but by a Royal Commission. It could examine what our banks have done with the billions of dollars that our governments had made use of interest free from the statutory reserves that our banks, until 1991-3, had deposited on an interest free- basis and was available to the federal government as what is technically known as segniorage. The use of those moneys by the Federal government, once that was abolished, was replaced by bonds held by the chartered banks without putting up a penny of their own. That was 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 and the public at large that gave rise to by far the greater part of the federal debt of over a half trillion dollars. To pay the interest on it, the federal government slashed grants to the provinces, who passed on the treatment to the municipalities. Our banks literally elbowed out the most needy members of our society from the head of the breadlines and put themselves there. That bailout and the deregulation that changed our banks into international casinos today has gotten many of our banks in serious trouble again and stands in need of an encore. Our banks who were supposed to become international makers and shakers are in full retreat from the American and international markets. A new bailout is being planned- mergers. The appearance of central government reserves deposited with central banks but earning interest paid by the central bank to the commercial banks has cropped up in Europe under the name of "bankers' seigniorage"- a sure indication that our banks are to be crowned as well as provided with a renewed helping of gambling funds. Really 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 NDP's benign credit card and payday loan rates. The banks in no time will have lost their new funding, and will be left neither with the means nor the will to go in for such kindnesses to the needy planned for them by the NDP. For we have spoiled the banks into the belief that the banks have first place at the head of the nation's bread-lines as part of the new "bankers' seigniorage." William Krehm Canadian Action Party/ Parti Action Canadienne Leader, Constance (Connie) Fogal Telephone (604) 872 2128 home; Fax: (604) 872 1504 E-mail: conniefogal@telus.net Head Office #385- 916 West Broadway, Vancouver B.C. V5Z1K7 Tel: (604) 708-3372;Fax: (604) 872 1504; e- mail: info@canadianactionparty.ca www.canadianactionparty.ca [Proofreader's note: this article was edited for spelling and typos on August 16, 2005]

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