Why we need citizen's accountability

In our effort to provide continuing historical examples of governmental abuse and the need for direct citizen involvement in decision-making, we would like to provide a review of the federal government bailout of the Canadian Commercial (CCB) and Northland banks in Alberta in 1985.

The following quotes from Hansards will demonstrate, yet again, how our federal government and the bankers misled the Canadian citizens and, through corruption, added $3.332 Billion to the National Debt.


(Regarding the CCB) "The third quarter net income for this particular bank was down 61% in 1983 over 1982. It was also down in it's year end income (in) 1983 over 1982 by 24%.

In 1984 it was down 88% over 1983. Given that, why did the government not move in September when it was told that this bank had serious difficulties?" (1)

"There were $300 million of bad loans in energy development in Southern California and in bad real estate speculation on the West Coast." (2)

"Santa Ana, CCB branch had outstanding loans of $396 million, Dec. 31, 1984. June 30, 1985, loans totalled $165 million. Decrease of $232 million U.S. or roughly $300 million in Canadian dollars." (3)

"What were the Directors (of the bank) doing except taking the fees which were paid them? Did they not have a responsibility to the depositors, to the shareholders and the public to see that the bank was operating in a sensible and prudent way?.....Directors simply took their money and kept quiet." (4)



"Why was a special audit refused before bail-out?" (5)

"Inspector General of Banks (has) 8 inspectors, (he) could of sent some to the 10th largest bank (CCB). If (he's) not aware of the situation, then (he's) incompetent. If (he's) aware and not telling (the) Minister, (he's) irresponsible (and) should resign." (6)

"George Hitchman's ( the Inspector General) report reviewed 84 accounts. 28 had no financial statements, 11 had financial statements over 1 year old, 45 had financial statements but some of them lacked sufficient detail in order to assess loans properly." (7)

Re: the Inspector General of Banks functions..."all (are) misinformed (of his functions).....Well you see, the banks inspect themselves." (8)

"The bank inspectors are paid by the banks?.....Yes." (9)



"March 5, CCB dividends caused the shares of this bank to go up (8,500 shares traded). Bail-out March 25....prices fell." (10)

"Specifically, is the government investigating the sale by CCB vice-president Scott McCreathy who sold 2,000 preferred shares....February for over $20 a share?" (11)

"Northland Bank, Robert Wilson - chairman, Charles Neapole - president, Martin Fortier - vice president. Financial Post states each (was) given, to compensate for the lack of bonus, a brand new $50,000 Jaguar automobile." (12)

"In mid-July, after CCB president Gerald McLaughlin had assured Hitchman (Inspector General) the bank was devoting it's energy to collecting on old loans instead of pursuing new business, the CCB loan committee recommended two new loans of $15 million each. Both loans were to be made to brand new companies whose capital value was $1 each. One of the $15 million loan was for a 10 year term to bear interest at 10% or prime plus half. Yet CCB would have had to pay 12% to raise the funds to be lent out, costing the bank an additional $5 million." (13)

"How is it possible to lose 80% of the total amount of money loaned out?" (14)


Re: total debts. "Northland Bank...

$1,232 Billion, 414 million uninsured depositors, $318 million insured deposits, $500 million - Bank of Canada."

"Canadian Commercial Bank...

$2 Billion, 532 million uninsured deposits, $275 million insured deposits, $1.3 Billion advance - Bank of Canada. Total $3.332 Billion." (15)

(Ed. note: I total up $3.339 Billion but what's 7 Million more!)

"That the government provided thousands of millions of taxpayers dollars to depositors like the Bank of America, Wells Fargo Bank, the Bank of Japan, the Bank of Hong Kong, the Bank of Abu Dhabi and the Bank of Saudi a matter of fact, this has not happened anywhere else in the world. Taxpayers money has never been used to bail-out uninsured depositors of that type before." (16)

(Ed. note: Nor since!)

"But there is no money for decent daycare facilities, no money to provide venture capital for small business and no money to support fishermen and farmers. When it came to bailing out the uninsured depositors, made up exclusively of foreign banks, the Bank of Japan, Wells Fargo, the Bank of Kuwait, the Dubai National Bank...and we can go on, along came the government of Canada, using taxpayers money, and bailed them out." (17)

"Canada's six leading banks showed a real rate return well above levels earned by U.S., Japanese or British banks or, for that matter, any other banking system." (18)

"Farmers in trouble....(too bad)..homeowners in trouble....(too bad)...small business in trouble...(too bad). In light of that, on behalf of ordinary Canadians, why does the government step in with an interest-free loan to bail-out a bank when the banking sector is the most profitable sector of the Canadian economy today." (19)

"When has to keep in mind that the financial system must cover the cost of any bail-out, of insured depositors, not the public purse....If Government to pick up all the losses, surely in heaven's name, it should also have an opportunity to participate in the profit-making?" (20)

"We cannot practise socialism for the rich and dog eat dog for the poor and still claim to be a country in which fairness rules." (21)

"The Estey Commission confirmed that the Prime Minister was directly responsible for the CCB decision. Today we also learned that the government orchestrated the bail-out knowing that losses were understated." (22)



The bailout of these 2 banks cost the taxpayers $3.339 Billion.

The bank directors inflated share dividends and then sold their shares at an inflated price prior to the bailout.

The bank directors created two $1 companies and lent them $15 million each.

Bank directors received new Jaguars in lieu of bonuses for a job well done.

The cost of the bailout was transferred from the banking sector to the Canadian taxpayers. Historically, other banks cover losses such as these.

The CDIC guarantees payment to $60,000 per depositor. In this bailout, the payments were far in excess of $60,000 to multinational banks named.

The Canadian people ending up paying $200 each for the privilege of bailing out the likes of the Bank of Japan, Bank of Kuwait, Bank of Saudi Arabia and others.

The author attempted to lay charges of corruption against executives of both the Northland and CCB banks through the RCMP head office in Vancouver, B.C. The RCMP refused to take the charges seriously. Unanswered questions still remain to this day. Questions such as who bought the remaining performing loans of both banks and at how many cents on the dollar?

Clearly, our government was not only aware of the corrupt acts of these banks but participated in duping the Canadian citizens and acting solely for the banking interests.

If citizens had the right to initiate legislation and referenda and to recall those politicians not acting in our best interests, examples such as the above would decline rather than continue to increase.


Written and produced by Lorenzo Bouchard and Christine Monford.

FOOTNOTES (From Hansards)

(1) Page 3321 Ian Deans (03/25/85)

(2) Page 7011 Lloyd Axworthy (09/25/85)

(3) Page 6786 Raymond Garneau (09/19/85)

(4) Page 7470 David Orlikow (10/08/85)

(5) Page 6788 Donald Johnston (09/19/85)

(6) Page 7433 Mike Cassidy (10/08/85)

(7) Page 7854 Mr. Boudria (10/22/85)

(8) Page 7019 Mr. Rodriguez (09/25/85)

(9) Page 7019 Nelson Riis (09/25/85)

(10) Page 6736 Aideen Nicholson (09/18/85)

(11) Page 4198 David Orlikow (04/29/85)

(12) Page 7158 Mike Cassidy (09/30/85)

(13) Page 7708 David Orlikow (10/17/85)

(14) Page 3523 Mr. Baker (03/29/85)

(15) Page 7506 Raymond Garneau (10/09/85)

(16) Page 922 Nelson Riis (10/30/86)

(17) Page 7704 Nelson Riis (06/26/87)

(18) Page 210 Nelson Riis (11/14/84)

quoting from report of I.B.C.A. Banking Analysis Ltd.

(19) Page 3325 Lorne Nystrom (03/25/85)

(20) Page 7475 Simon de Jong (10/08/85)

(21) Page 9699 Steven Langdon (12/20/85)

(22) Page 7958 Raymond Garneau (10/24/85)



(Review and comments by Lorenzo Bouchard)

Recently, I read two articles published by the Canadian Treasurer about the National Debt and how it should be handled.

The first article, printed in the February/March 1994 edition, was titled "The Interest is Killing Us" by Roger Schmitz. He is a well-educated man who has much experience working with the homeless. In his article, he provided an excellent analysis of our debt problem and proposed some solutions. Mr. Schmitz proposes that our currency be issued at a nominal rate as an IOU from the Treasury to the Government for an administrative cost of 1.5% to 2%. In addition, the requirement of banks to possess 100% cash reserves for loans issued which would prevent them from creating currency. Mr. Schmitz's proposals reflect the economic situations present before 1913 when the Bank Act was created.

The second article, printed in the April/May 1994 edition, was titled "Financial Markets like Governments Do Not Work Perfectly" by Gordon F. Boreham. He is an economist who protects the banking interests and the status quo. His proposals reflect the status quo. Today, in order for our government to operate, it must create a bond issue or treasury bills, pay a brokerage fee for the sale of these bonds and have private interests buy these bonds and treasury bills at the current interest rate. In addition, he would continue to allow the banks to hold ZERO reserves for their loans issued which allows them to create money based on thin air.

Let's examine these two very different proposals by these gentlemen by breaking it down to dollars and cents. Please see the chart on the following page (courtesy of Ian Woods) for a graphic breakdown of the following:

The first proposal where the government pays a minimal administrative cost of 1.5-2% means they would pay $1.50 per year for a $100 IOU from the Treasury Board for monies needed. If the loan was outstanding for 10 years, the debt would be $115. After 40 years, the debt would be $160. After 80 years, the debt would be $220.

The second proposal (business as usual) has our government first pay a brokerage fee of 10-20% on the initial issue. The bond or treasury bill then goes out on the open market at the current interest rate of 7% and upwards, COMPOUNDED. This activity doubles the original $100 loan every 7-10 years. If the loan was outstanding for 10 years, the debt would be $200. After 40 years, the debt would be $1600. After 80 years, the debt would be $25,600.

Take these two proposals and figure the difference using the National Debt of $550 Billion (excluding the provincial debt).

Currently, our National Debt is doubling every 6 years.

As of 1992, over 91.25% of the National Debt was interest charges from private banks.

Doesn't take an economist to see which of the two proposals benefits the people and which benefits the banks. As to where the government's interests lie, the situation speaks for it's self.

In 1939, during a meeting of the Banking and Commerce Committee of Parliament,the following question was asked:

"Will you tell me why a government with the power to create money, should give that power away to a private monopoly, and then borrow back at interest that which Parliament can create for itself, to the point of bankruptcy?"

The answer from Mr. Graham Towers: " Now if Parliament wants to change the form of operating the banking system, then certainly it is within the power of Parliament".

In a year where the private banks posted their highest profits ever, it's obvious that they have a lot to gain from the current economic conditions and method of creating money. They benefit from the National Debt being a debt in perpetuity (something that was once called USURY). No doubt they have gone to great lengths to protect their interests and paid off many people in the process.

The Canadian citizens must regain control of the banking situation. As we watch our social safety nets being eroded and the middle class being decimated, we have much cause for alarm. The debt is not due to government overspending on social problems, nor due to citizens having it too good for too long, nor due to unions and their wage demands, nor due to the public sector employees. The debt is due to private banks charging the citizens for something we can produce ourselves at enormously less cost.

Citizens initiatives, referenda and recall would help us regain the monetary control needed to bring the banks back in line. Federal legislation for initiatives, referenda and recall is needed with fair terms for signatures gathered and time requirements.

The B.C. provincial Referenda and Initiative Act is an example of how NOT to implement these tools of accountability. Mr. Harcourt and Mr. Dosanji have made sure that citizens will not interfere with business as usual.

Come and hear Linda McQuaig in Victoria

Linda McQuaig, journalist on Brian Mulroney's hit list, is coming to Victoria on November 24, 1995. She will be speaking at 7:30 p.m. at the University of Victoria auditorium. Linda's latest book is SHOOTING THE HIPPO about Canada's national debt.