Tag Archives: Banks

As 2015 comes to a close, these major ongoing issues aren’t going anywhere

This awkward week jammed in between Christmas and New Year’s is when some of the year’s most half-assed journalism gets cranked out, in the form of phoned-in Year in Review pieces, or worse, Top Ten Blanks of 201x listicles.

I don’t have a problem with retrospectives. It’s just that the last week of December is only ever the actual turning point in current events by pure chance or accident. More often than not, major stories are still developing, trends are still unfolding, and it’s too soon to pass judgement on what the legacy of recent events will actually be.

So in my final post of 2015, I’m going to eschew the lazy conventions of the genre by highlighting a few stories which are very much ongoing affairs as the year comes to a close. Continue Reading

Fallacy Friday: Bombardier, bailouts, and the importance of honest language

A Bombardier CSeries plane takes off in a demonstration flight in Toronto - but is the program doomed to fail before it can get fully off the ground? (Image credit: Bombardier

A Bombardier CSeries plane takes off in a demonstration flight in Toronto – but is the program doomed to fail before it can get fully off the ground? (Image credit: Bombardier)

As you may have heard, the government of Quebec a few weeks back announced that they were going to “invest” $1.3 billion into struggling aerospace and transportation company Bombardier in an attempt to rescue the company’s drastically over-budget and behind-schedule next-gen CSeries airplane.

The announcement came in the aftermath of an “earnings” report which was even more devastating for Bombardier than pessimistic financial analysts had projected.

At the time, Quebec’s government publicly called on the federal government to match their “investment”, openly stating that the fate of the CSeries program is in doubt without a further infusion of cash.

From the outside, Bombardier looks like a company in freefall, missing deadlines and running over-budget on even routine projects like Toronto’s long-delayed streetcar series. The delays and technical issues have been so numerous that the TTC’s CEO Andy Byford is now publicly musing about suing the company and permanently barring it from winning any future TTC contracts. (73 streetcars were originally projected to be in use by the end of 2015; currently the TTC has a mere 10 on the streets.)

The CSeries program that the Quebec government is desperately trying to save is producing a plane which is years behind schedule, and the company has only received firm orders for 243 units. One potential customer, Porter Airlines, looks less likely than ever to be a buyer after last night’s announcement by Transportation Minister Marc Garneau that the new Liberal government will not be granting the airline permission to fly jet planes out of Toronto’s island-based Billy Bishop Airport (and major kudos to NoJetsTO for a well-organized and victorious campaign!); Porter had previously put in an order for a dozen of the CSeries planes conditional on their Billy Bishop proposal’s approval.

Bombardier also announced that it was entirely cancelling its Learjet 85 program, a decision which contributed heavily to $4.9 billion USD loss posted in their third-quarter “earnings” report. And the fact that Quebec’s infusion of cash only covers about half the shortfall the CSeries program is projected to incur, Scotiabank is now projecting that Bombardier will need to go back to the government for more money within the next eighteen months.

All of which makes the Quebec government’s choice of the word “investment” smell kinda fishy. Continue Reading

ICYMI: Canadian pension plans investing in risky securities US banks aren’t allowed to buy

File this one under “Impending Economic Crisis” – a file that’s looking pretty stuffed lately.

Earlier this week Bloomberg reported on a disturbing trend: Canadian pension plans are increasingly investing in high-risk securitized loans in the United States, loans that new American regulations prevent domestic banks from touching.

The headline, “Shadow Banking Draws Canadians Where U.S. Banks Are Warned Away“, strikes an appropriately dire tone, and the details are pretty frightening:

Public Sector Pension Investment Board, Canada’s fifth-largest pension plan, said last month it intends to open a loan-origination business in New York by year-end. That follows the Canada Pension Plan Investment Board’s $12 billion deal to acquire General Electric Co.’s business that lends to smaller companies.

The Canadians are part of a wave of institutions unencumbered by U.S. regulation searching for higher returns in the market for risky loans to American companies. Bank supervisors there are pressuring the biggest lenders to pull back from deals that load up companies with too much debt, seeking to avoid a credit bubble that could damage the U.S. economy…

The Canadian funds, which have pioneered the strategy of using alternative investments in pensions, are joining private-equity giants KKR & Co. and Apollo Global Management LLC and other nonbank firms in seeking to profit from high-yield credit as central banks around the world suppress interest rates. Canada’s biggest private-equity firm, Onex Corp., has also moved deeper into the U.S. market, ramping up its business packaging the debt as securities with an eye to doubling that unit’s assets in two years.

That’s some serious investing, man! Like wow!

The PE funds are being drawn by the allure of high returns, but of course, with high returns comes high risk. And indeed, the very fact that this market is being flooded with billions of dollars only increases the risk, as it further inflates an already dangerous bubble. Continue Reading

The housing bubble is gonna pop, and it’s gonna pop soon

How soon is soon, you ask?

That’s the funny thing about bubbles. After a certain point in their inflation, it becomes obvious to just about everybody that prices are way too high, and they’ve gotta come down eventually, and when they do it’s probably gonna be pretty drastic. But nobody knows with any certainty when exactly that inflection point is going to be, and most people like to think that they’re smarter than average and that they’ll get out while the getting is good. Most people try to beat the bubble.

Or they go all ostrich-style and deny that the bubble is there, insist that the rapidly inflating prices (“Housing sales across the Greater Toronto Area climbed 11.3% in February from a year ago, helping to push the average sale price of detached homes in the city pass the $1 million mark for the first time”) are based on some until-now-unnoticed inherent value, and that there’s nowhere to go from here except up, up, up!

(All of those links, by the way, are to the Financial Post, which is my go-to source for finding out what’s definitely not going to happen in the economy.)

The poor fools who buy into this pap are the target demographic for subprime loans, which despite being a major cause of the US’s real estate debacle a decade ago are actually and truly still a thing here.

And the subprime market is starting to show signs of going belly-up: Continue Reading

Getting Obama’d, or, how we fool ourselves into thinking politicians are on our side

This is the latest in an ongoing series on the question of whether voting is a worthwhile exercise. If you’re interested, you can read parts one, two, three, and four.

This week’s entry is going to be the ultimate in “dog bites man” journalism, but it’s also a point well worth making loudly and repeatedly: politicians lie.

Politicians lie, and they mislead, and they inculcate false impressions. Politicians demonize their opponents and exalt their own parties, regardless of whether this demonization or exaltation is deserved. Politicians promise something for everybody, they promise prosperity, they promise responsibility, they promise that they will stand up for you. And then they proceed to help out the wealthy and ignore their promises.

This has been the pattern since time immemorial. That it isn’t always true isn’t ultimately that relevant. It’s true often enough that politicians have a well-deserved reputation as untrustworthy. A poll conducted by the Gandalf Group last year found that only 13% of Canadians “trusted politicians to behave ethically in fulfilling their duties.” The findings shocked the polling company’s director, David Herle, who had just months before successfully managed Kathleen Wynne’s campaign for premier of Ontario.

“After over 20 years in opinion research, it comes as no surprise that politics is not the most respected profession, but the findings of this survey with respect to the extent of the cynicism is shocking,” said Herle.

“The gap between politicians and others in public life, the extent to which our politics is believed to be inherently corrupting, and the frequency with which private interests are assumed to trump the public interest are all corrosive to democracy.”

Of course, Wynne’s premiership is a prime example of why most Canadians are cynical about politicians. As I wrote in an earlier post in this series, “Strategic voting and how it helps the capitalists win“: Continue Reading

As Canada’s economy slides into recession, how safe are the big banks?

Bank of America said it on the 1st of July, and TD said it on the 6th, but I knew that the economy was in a recession as soon as I heard federal Finance Minister Joe Oliver deny it way back in early June.

That would be the same Joe Oliver who “balanced” the budget with a whole host of lies, tricks, creative accounting, and the promise of future union-stomping. That surplus was a total fabrication, a clumsy election-year subterfuge designed to make the Cons look like responsible stewards of the economy.

Also that’s the same Joe Oliver who was forced to delay unveiling of that budget by several months because of “market volatility” (aka the tar sands getting kicked in the shins by the collapse in oil prices). Despite the total lack of improvement in the economy in the interim, Oliver was confident at the time the budget was released that things would get better – soon.

And that’s the same tune he was singing last week when BofA became the first of the big bank to project a recession following the release of stats for April showing the economy contracted for a fourth consecutive month. Oliver angrily denied that we’re in recession territory, and predicted strong, strong growth – right around the corner!

“We don’t have a recession. We don’t believe we will be in a recession,” Oliver said Friday in Toronto. “A recession is technically two consecutive negative quarters and we don’t have results from the second quarter.”

Statistics Canada reported this week that gross domestic product shrank by 0.1 percentin April, on the heels of a 0.6 percent annualized contraction in the first quarter.

However the finance minister sees indications that consumers and manufacturers are more optimistic. “There are, I think it’s fair to say, mixed signals at the moment,” Oliver said. “We’ll and wait and see what the numbers, in fact, will be.”

The federal budget, released in April, forecast annual GDP growth of 2 percent for the country, based on projections from private sector economists. Those projections haven’t been updated, Oliver said.

Of course the projections haven’t been updated – that would make the phony surplus Oliver worked so hard to engineer completely disappear! But in order to make good on those projections, the Canadian economy will have to grow at an annualized rate of roughly 4% in the second half of the year – a pace we haven’t seen in the last fifteen years. Continue Reading

In solidarity with the people of Greece, on the eve of a ridiculous referendum

Pity the people of Greece.

Those folks have been screwed over by everybody. And tomorrow, no matter how they vote in this supposedly critical referendum, they’re gonna get screwed again.

And yet in most of the articles on this debacle that I read, I run into the conventional framing of this story, which still dominates coverage of Greece despite the fact that it’s total bullshit. I’m referring to the wrong-headed notion that the people of Greece somehow brought this on themselves, and that if they had only been more disciplined and responsible, they wouldn’t be in such a desperate fix.

So I wanted to take this opportunity, on the eve of a vote that nobody quite understands, to point out how guiltless the people of Greece are.

The essence of the story of this debt crisis, in fact, is that the Greek people have been fucked over by pretty much everybody.

They were enticed into the eurozone by what turned out to be fantasy promises by an institution whose architecture was pretty much designed to fail. European bureaucrats, Greek politicians, and French and German bankers were well aware that Greece was a risky proposition, but they were willing to look the other way because there was money to be made: Continue Reading

Put not your faith in experts – why you can’t trust bankers on the economy

If you’re like me, the Business section of the newspaper is pretty much impenetrably unreadable.

Not that I don’t try to read it. And not that I don’t occasionally learn things. But most of the time, I come away baffled, as though I’d just read a play-by-play summary of a cricket match.

Like for instance this story from last week about the energy company everybody loves to hate:

Enbridge Inc. moved forward with a sweeping restructuring plan as it seeks to accelerate dividend growth and finance billions in new pipeline projects.

The Calgary-based company said Friday that Enbridge Income Fund would buy $18.7-billion in assets, including the Canadian portion of its mainline oil-shipping network and a patchwork of regional oil sands lines, as well as some renewable energy assets. The deal, known as a drop-down, also includes the assumption of $11.7-billion of debt associated with the assets, Enbridge said.

The move will lower the company’s cost of capital as it advances a $44-billion portfolio of new projects over the next decade, Enbridge said.

It follows an announcement by the company, last December, that it would transfer ownership of $17-billion of assets to the fund and boost its quarterly dividend by 33 per cent. Enbridge expects per-share dividend growth to average 14 to 16 per cent annually from 2016 to 2018.

No matter how many times I read it, my eyes keep glazing over at key parts, and the meaning of what’s happened here remains totally obscure. My best effort at deciphering it is: “Enbridge announced today that by rearranging its piles of money, it has (somehow) created more money! And also more debt. Pipelines!”

Or, as South Park so succinctly put it: Continue Reading

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