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This doesn't look like a bail-out

Say what? The government may not be buying up toxic assets but they're still bailing the lenders out of their sticky situation.

Not entirely sure what to make of this. Was this move absolutely necessary at this point? Was it done for electioneering purposes or _despite_ short-term political risks?

On the bright side, the move is cautious and at the same time signals a willingness of the federal government to stand ready to inject more capital into the banking system.

I still have no forgiven Harper for some of the populist economic policy crap that his government has pulled recently and in recent years but so far I like this timid initiative and see it as helpful.

Why would CMHC paper be at a higher rate than T-bills, if both are backed by the same borrower? Isn't that 35 bps a phenomenal waste of money, spread over many billions?

The Canadian "Toxic" mortgages are already "guaranteed" by the Canadian government via CMHC -- all mortgages with a loan to value of more than 90% must be guaranteed by CMHC. Liquidity is not the same thing as insolvency; Canadian banks are being given "funding" breathing room by the BoC, no one thinks that Canadian banks have been imprudent in providing mortgages to Canadian home buyers (Canadian residential building is growing), these are prime assets. These these days nobody cares about reasonable assets -- Government bonds are considered the only safe haven! Or cold hard cash.

Canadian banks are considered some of the world's safest and most conservative financial institutions.

The Backgrounder on the Finance Canada site explains this a bit differently. CMHC will be buying mortgage-backed bonds from banks. "CMHC borrowings from the Government of Canada will increase to fund this operation. The Government of Canada will increase its issuance of treasury bills and bonds to finance these loans." It's a much more direct injection of liquidity - cash for bonds - with the operation funded by issuing new Treasury bills (which people will be eager to buy with current credit market conditions). Overall, the operation reduces the risks on bank balance sheets and increases their liquidity. Not sure if the issuance of new treasuries offsets the cash paid out by CMHC...

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