Saturday, November 28, 2009

Banks and collusion in Canada

When the economy got bad and the Canadian bank's bottom lines started looking slim they decided to steal from their customers! Many of the main banks raised the interest rates they charge on their customers in unison early this year (which is probably an example of a violation of collusion laws). The banks decided to blindly steal from everyone right when the economy was worsening and many people really were struggling.

Ironically, the recession has taken a toll on my family quite substantially (my wife and her sister run a small business) it came to the point where we needed some extra financial assistance but the bank refused to increase the amount of money we've borrowed against our house out of fear of increasing my debt servicing charges (they would have increased by up to 30% had this transaction been completed). The bank said they would be happy to help us once we are making more money - in other words they'll help when we don't need the help anymore. The hilarious thing is that the bank didn't care about increasing my debt servicing charges by 40% back earlier in the year when they decided to steal from me and their other customers (which is more than the 30% that they used to justify rejecting helping me).

As the recession was going strong, the government (through the Bank of Canada) was lowering interest rates to help the economy and to lower people's and business' debt servicing charges thus making enduring the recession less painful. The banks used the fact that the rates were dropping quickly as an excuse to steal an extra 1% in interest charges from their customers. It was calculated that people would either not notice or stomach it because the government was providing so much interest rate relief. I use the term "to steal an EXTRA 1%" because when someone has a mortgage the bank only has to have 10% of the loan value but charges you interest on the whole 100%. The remaining 90% comes from the Bank of Canada which is provided to the banks at a well publicized interest rate (currently only 0.25%). The banks borrow 90% of the mortgage at 0.25% and hand it over to you - charging you 3.25 or 4.25 or 5.25% - they never even had that money in the first place! But what would a whiny banker say if they were in the room with me right now: "but we incur risk, what if the person defaults on their loan?" well incidentally the Canadian Mortgage and Housing Corporation (a government company!) actually insures the risky cases (all cases where the homeowner puts less than 20% of the mortgage cost down). So the government is lending money to people who add nothing to the value of that resource but they turn around and lend it to you and me at hugely inflated prices (right now its like 13 to 20 times the rate they borrow the money at!) and even if the person can't pay the bank back the government takes care of that problem anyway: through the CMHC, the government fixes the problem for the bank but not the person who couldn't pay the bank and just lost their home.

So what should be done about this? The banks clearly need regulations: if the bank is operating in a privileged capacity to hand out loan money that came from the government, then the bank should not be allowed to charge more than the amount the government is lending it at. I wouldn't complain if the government started dealing directly with homeowners and cut the bank out of the equation all together. That Bank of Canada money belongs to ALL Canadians. It is the government's responsibility to make sure that the banks don't abuse us all. If any politician wants an issue that they could use to help get themselves elected or re-elected then perhaps they should focus on stopping banks from stealing from Canadians. Most Canadians aren't particularly fond of the banks (beyond seeing some of their fiscal solvency as a reflection of Canadian prudence). Much of their profits stem from their relationship with the Bank of Canada, an instution we as Canadian's have control of through our elected government.

I found this cartoon on the internet available from this cool site and thought how maybe it would be appropriate to name the main mommy pig "Bank of Canada" and the little ones being the commercial banks - suckling off the system. Perhaps the little piggies should also be defecating on people labeled "the public".