Now, That Is Too Rich (Pun Intended)

Get a load of this one, folks:

Fed trolls Canada to rescue U. S. banks

In a desperate bid to help U. S. banks recapitalize, Washington is dropping its inhibitions and reaching out to Canadian financial institutions to gauge their willingness to participate in rescue operations.

The Federal Reserve Board has activated a back channel that puts the central bank in direct contact with chief executives at Canada's largest banks and insurers, according to a person familiar with the dialogue.

They are approaching "banks with major assets in the U. S. like [Toronto-Dominion Bank] and Royal [Bank of Canada], because when they have a bailout situation they want everyone who is a potential buyer to look at it," the source said.

The ongoing conversations between the U. S. central bank and Canadian executives reflects the challenge facing Washington as it seeks to address both short-term liquidity and permanent capital needs of financial institutions crippled by more than $500-billion in losses and limited access to financing.

The communications have included phone calls from Fed officials pitching potential sales of assets of U. S. financial companies and at least one intensive discussion of a major rescue operation, according to people familiar with the contacts.

The Fed has been steadily widening the circle of foreign institutions it is working with as the banking crisis deepens, according to a former Fed official now on Wall Street.

The outreach to Canadian companies signals a more permissive environment in which U. S. authorities would look very favourably on an intervention by a Toronto-based institution.

(...) The engagement of Canadian institutions follows U. S. federal assent for the acquisition of assets in bankrupt Lehman Brothers by the U. K.'s Barclays, in a deal that followed intensive discussions with the Federal Reserve and U. S. Treasury.

That deal was smoothed by good relations between the London and Washington and a lower level of resistance to a deal with the U. K. on Capitol Hill, where political disquiet over foreign interventions has helped keep some buyers at bay.

"Canada is not China," said a former Fed official.

A lobbyist for a Canadian bank said the political climate in Washington had changed markedly since the passage of a US$700-billion bailout and that this country is now seen as a potential source of support.

Executives and advisers in the Canadian financial services industry indicated they still saw live opportunities for their sector to help drive consolidation and recapitalization in the U. S., despite limited flexibility at a time when sinking markets were lowering all boats.

U. S. regional banks remain in deep distress and an acquisition of this scale is seen as possible in the coming months, as Canadian banks cautiously explore possible buys and after TD Bank Financial Group put its name forward during an auction of Washington Mutual.

A broad sell-off in the U. S. insurance sector has also cut into the valuations and capital positions of U. S. insurers seen as possible matches for Sun Life and Manulife, the Canadian life insurers.

Sun is actively weighing the likelihood of an intervention in the U. S., according to one person in the industry.

A foreign bank executive who participated in a recent round of rescue talks with the Fed said U. S. authorities were also keeping national regulators informed of high-stakes negotiations.

It was not clear how deeply involved Canadian authorities were in the discussions.

The Bank of Canada declined to comment.

So, let me get this straight: Da Fed wants our Canadian banks and other financial institutions to buy U.S. "toxic credit/mortgage/lending assets" while we in Canada are already getting hit by an economic backlash coming from the current U.S. credit woes - thanks largely to their own incompetence in having chosen the path of deregulations in addition to not even properly enforce what little regulations that remained?

In other words: the U.S. wants Canada to help them clean up their own mess at Canada's expense and risk.

What does this remind me of? Ah, yes ...

What is particularly troubling here is that A) it remains "unclear" whether Canadian (Harper) government officials are involved in such talks; and B) that Canadian banks and financial institutions are even considering to take such risks when considering the current sputters of our own economy.

Or is it that they are confident that if their risks pan out, the Harper government will have their backs? This would be quite likely despite Harper's previous claims otherwise:

In a marked change of tone entering the final week of the election campaign, the Prime Minister, Stephen Harper, said Monday he's in the midst of working on "secondary plans" to protect Canada from the ill-effects of a global financial crisis should conditions worsen in the country.

The options available to the Conservative Party, which is seeking re-election, include boosting the amount in bank deposits Ottawa will guarantee to ensuring weak lenders are rescued -- if needed -- by agreeing to take on their bad assets.

(...) Mr. Harper's comments stand in stark contrast to what he has said during the first four weeks of the election campaign, which culminates with a vote on Oct. 14. To date, he has oft-repeated that the country's economic fundamentals are sound, the financial system in strong shape, and that Canada does not have the same problems as the United States.

But in the past week, the Bank of Canada was forced to intervene and make cash available to financial institutions -- up to $20-billion -- to encourage lending by, and among, banks. Monday, the central bank moved to buy back nearly $2.4-billion of government securities to keep its overnight lending rate -- or the short-term rate at which banks lend to each other -- at 3%.

At a campaign stop in Ottawa yesterday, Mr. Harper indicated that Ottawa is "watching very carefully" to see if the turmoil in credit markets, and the subsequent reaction from world governments, has any unwanted effects on Canada.

"We are putting some secondary plans in place if that becomes necessary," Mr. Harper said.

Later, the Minister of Finance, Jim Flaherty, issued perhaps his strongest statement yet about the stresses in Canada's financial system.

"The deterioration of global credit markets is beginning to squeeze the ability of even the strongest of financial institutions to raise longer-term funds, which could limit the provision of longer-term credit in Canada to businesses and households,'' Mr. Flaherty said in a statement.

So, to recap: things are bad over here and are already being felt by our banks and financial institutions - and yet, these same banks and financial institutions are considering bailing out the mess in the U.S., putting themselves further at risk of melting down themselves ... but hey - our government (with our money) will bail them out in turn, so there's no problem here, eh?

I say we need to nip this in the bud. NOW.

Are you listening, Mr. Prime Douchebag of Canada?

It wouldn't hurt you (at all) to be competent, you know - at least this one time on this issue of such an obvious disaster-in-the-making ...

(Aw Hell - who am I kidding here?)


(Cross-posted at NetRoots)