Inflation | Page 5 | General financial discussion | Discussion forum

Bill said
Cool, thanks Kidd, I'd never paid attention to that before. Nice of Canadians to elect govt's that profit us bank shareholders, I guess.  

I don't see how that does much for banks or shareholders. It simply means the banks have to find others to lend the cash they get from selling the mortgages to the gov't. In times of troubled uninsured mortgages that could make sense but otherwise how can that be good?

Vatox said

Actually, you said no matter how high real inflation gets. You are saying that if we get 6% inflation or higher that they won’t raise say 50 or 75 bps. They will do it if inflation gets out of hand. Don’t say they can’t or won’t no matter how high inflation gets.  

So lets say we do see 6% inflation, I will agree o/n rate will be higher than 3%, except the yield curve will be inverted.
I should say govt will ensure the curve is inverted when the time comes. Most mortgages and govt funding will not be impacted as much.

AltaRed said

I don't see how that does much for banks or shareholders. It simply means the banks have to find others to lend the cash they get from selling the mortgages to the gov't. In times of troubled uninsured mortgages that could make sense but otherwise how can that be good?

It didn't.

Government was ready to purchase up to $150 billion of insured mortgages. The financial institutions only sold about $5.8 billion to the government, according to CMHC: Insured Mortgage Purchase Program:

Under this program, the government stood ready to purchase up to $150 billion of insured mortgage pools through CMHC. From March to December 2020, CMHC purchased from financial institutions over $5.8 billion of insured mortgages pooled into National Housing Act Mortgage Backed Securities (NHA MBS).

What was Royal Bank's profit for the quarter ended April 30, 2021? $4 billion!

The Big Banks, like Royal Bank, actually prefer to keep their prime mortgages. It's only the alternative lenders, like Home Trust and Equitable Bank, that want to get rid of them as soon as they can.

Nonsense. The only argument you can make is CMHC being an insurer of mortgages reducing the risk to banks.

Mortgage insurance is available in other countries too, albeit not necessarily backstopped by gov't. That said, a US bailout did happen in the 2008 financial crisis when they had to rescue Fannie Mae and Freddie Mac. I don't recall Ottawa having to bail out CMHC or Genworth but I may be mistaken.

All this about the Canadian taxpayer subsidizing bank shareholders is almost exclusively misinformation, or worse, disinformation. That said, post-crisis, the government did introduce higher Tier 1 capital ratios, NVCC prefs convertible to common equity on the direction of OSFI should common equity shares fall to $5, all to make all classes of shareholders truly pay before bailout of last resort from the taxpayer.

Bank bashers need to get their facts straight.

Bud's links all refer to a big 'what if' huge amounts of insured mortgages fail and CHMC does not have the resources to cover them.

Firstly, a huge amount of housing would have to go into foreclosure and secondly, recovery would only be a few cents on the dollar rather than maybe 80 cents on the dollar for CMHC to run out of resources. That is a big 'what if'. Bud is being suckered in to think tanks with ideological agendas. It is fearmongering.

A more productive discussion could be around whether CMHC charges enough for its insurance and maybe build reserves to 5-10% of its total exposure.

As Norman has said, there has been no bailout by the taxpayer.

No, there was not a bailout.

You can stop posting that garbage from CCPA. We're not falling for it.

We can read and can see that it is the same CCPA garbage being quoted by all of them: Macleans, the Huffington Post, and CBC. Just because one says something three times doesn't make any more correct.

Vatox said

Perhaps you would like to explain how the government will ensure an inverted yield curve!  

Just go back to history my friend, during the first stage of most rate rising cycle, the yield curve went inverted on its own even without govt "intervention". Its simply the market's expectation of short rates rising fasting then long rates that result in a inverted yield curve.
the govt can also simply buying long bonds to ensure those rates are in check, so they can continue to borrow at more favorable rates.
The world has moved beyond simple rate hike/ease to adjust / fine tune the economy. This is necessary as rates go to zero and easing is not effective anymore. Quantitative easing/hiking willbe deployed if needed depends on which beast you are trying to combat.

Thanks Norman1 & AltaRed for exposing fake news here, I don't follow this stuff that closely (e.g. what's CCPA?) so it's very helpful to me.

I'll just never understand why people would rather complain about big banks, gov't, etc vs accepting it is what it is and investing to their own financial (and happiness!) benefit, but that "is what it is" too, I suppose.