Reregulate Banks.

December 11, 2022

We need to reregulate the banks.  Many Canadians are struggling to hang onto their homes as a direct result of policies enacted by the Federal Government in collusion with the Bank of Canada.  Make no mistake, the current economic disaster was manufactured and has always been avoidable.  It takes bold and clear-thinking legislative measures to reverse the impact of Bank of Canada policy actions that harm consumers.

Credit Cards:

Quebec, much to its credit took very clever steps towards freeing consumers from the ravages of profiteering credit card company and bank policies.  In the first instance, they recognized that setting minimum monthly payment terms that extend beyond many lifetimes was unconscionable.  One of our clients, in his 80’s, had a CIBC credit card that had, on its credit card statement, minimum monthly payment terms that extended over 420, yes, four hundred and twenty, years.  And, CIBC is not the only Canadian bank that can get away with that – they all do it!

Quebec enacted new credit card rules that require all new credit cards to charge minimum monthly payments of at least 5% of the outstanding balance.  With the repayment terms existing cards being gradually implemented to avoid mass bankruptcies.  And as the Federal Government has recently  allowed merchants to openly recover fees paid to credit card companies, Quebec has blocked the practice.  

Hitherto, merchants have paid an average of 3% of the purchase price of goods to credit card issuers, in addition to other fees for the use of point-of-sale equipment.  But those fees were buried in the price of goods, which were necessarily passed along to everyone else, including customers paying cash.  In other words, you have been paying a 3% premium on everything you buy because credit cards are being used to make purchases, whether you use that payment option or not

The Federal Government’s new rules require merchants to disclose the fees and to allow merchants to recover the cost of the fee directly from their customers.  But don’t look for a 3% discount if you use cash or a cheque to pay for goods.  Merchants will tack on another 3% on top of the price sticker when you use a credit card if they, at their option, ask for you to pay their fees.  The Government of Quebec has had the courage to take on consumer exploitation in a way the Federal Government has not, it is long pased time to reregulate banks as you will discover reading this blog

Interest Rates:

Let’s talk about another area of collusion between Government and Banks that is ripping this country’s economy apart.  Increasing interest rates.  Why did the Bank of Canada wait so long to return, deliberately manipulated, interest rates to the level of historic norms?  Interest rates have been suppressed for over a decade, as “quantitative easing” measures following the banks’ questionable practices that led to the great Canadian taxpayers’ Bail Out of 2008/9. At some point, banks need to suffer the consequences of their own actions.

Interest rates were deliberately reduced to encourage spending, to “create money” in the system by encouraging people to take on more debt, that would then be recorded as assets on bank balance sheets allowing banks to lend more money that was in existence.  Yet another signal for the Government to reregulate banks and the precise problem that has caused economic disaster after economic disaster.  To understand the creation of money, watch this short explainer video.

We have blogged about the problems of fractional reserve banking in the past.  The Government in 2009 missed a fabulous opportunity for a Great Reset, that would have allowed them to finally intervene, by the reregulation of banks, in a meaningful way.  Unfortunately, politicians, of all stripes, are dependent on financial support, donations, from these institutions and are unlikely to get in their way.  The smart thing for governments to have done would have been to break the banks up into smaller, competitive, entities that were not “too big to fail”.  But that was then.

Housing Crisis:

Returning to one of our current crises, if there were the political will it would be easy to solve.  In the USA when you take out a mortgage over thirty years, the rate of interest, agreed upon at the time you took out the mortgage, is the rate that prevails until the mortgage is paid out (thirty years later).  And, in the US the interest paid on your mortgage is tax deductible.

By contrast in Canada, although you borrowed from the bank at a time when the rate at which the bank borrowed the money, from the Bank of Canada, at 0.25%, and your repayment terms were 1.4% (a profit of nearly 600%), the bank gets to gazunder you every few years, increasing the rate of payback.  So, if you took out the mortgage noted above and then renewed five years later at 7% the banks profit on the money, they originally loaned you, increased to a value of 2,800%. Not only that, but the Federal Government now taxes the profit from the sale of your home if you operated a business in it, and plans to tax the profit as a capital gain even if you don’t operate a business.

The Federal Government in collusion with the Bank of Canada has the power to do good, they could freeze the rates of all mortgages issued in the last five years and fix those rates for the full repayment of the amortization.  New, increased rates would then apply only to new mortgages in a like manner – for the full amortization – until paid in full. If the government fails to act, and it likely will as history bears witness, the result will be many people finding their homes are worth far less, on the market, than the cost of their mortgages.  

In that case the government could instruct the CMHC to buy out the mortgages in exchange for the title to the property, which could then either be rented back to the current owner for a percentage of their income, as long as they live in the house, rented to someone else, or sold at a loss.  The alternative would likely be mass bankruptcies, and a collapse, or massive correction, of the housing market.  The second option leads uncomfortably into the WEF promise that “by 2030 you will own nothing (the state will own everything).

If Canada were to adopt the same type of mortgage regime as the USA model, homeowners would not be subject to constantly fluctuating interest rates, and they would get tax relief for the interest payments paid to mortgage lenders.  Unfortunately, taxation itself is one of the leading causes of poverty and inflation in this country.  Simply eliminating the G/HST, which was supposed to be a temporary tax in the first place, would put 13% of earnings back in the pockets of consumers and businesses.  But that is a whole other blog article

The Way Out:

It seems the clearest way of this mortgage crisis is to reregulate banks, to force banks to change their lending policies, at all levels, ending the exploitation of consumers as a commodity.  It is also worthy of note that the Government is changing investment rules to push low-middle class investors into buying bank bonds, apparently as a part of the bank bail-in regime passed by the Federal Government in 2018.  Again that is a whole other blog article, stay tuned.