Should we jump for joy?
While the subprime madness eats into
bank profits -- today, prime lending
rates fall to 5.25%, after new Bank
of Canada Governor Mark Carney
boldly slashed our central bank's
key rate by half a percent to 3.5%
in a desperate move to stop an
economic meltdown in Canada.
That's the biggest single rate cut
since the terrorist attacks of 9/11.
But this time it took banks five
hours to respond to the bank rate
cut, with TD the first to announce
it would cut its prime rate,
This means consumers' loans will be
cheaper. But it doesn't mean banks
will give you one if you're
desperately seeking to consolidate
high-cost debt into a less expensive
loan. Variable rate mortgages will
also be cheaper.
But don't hold your breath for a
break on gouging credit card rates,
stuck in the stratosphere even when
interest rates sank.
Rates charged on a standard card
have jumped to 19.75%, up from
18.9%, while our central banker has
been slashing its key rate, expected
to hit as low as 2.75% by summer.
Retail cards still charge 28.8%.
And if you fall for those no-money
down, 0% interest deals and don't
pay up by the due date, you'll still
be paying 35% and higher.
Meanwhile, scuzzy payday operators
continue to feast on the most
vulnerable, charging 300% to 1,000%
for short-term loans, when their
gouging fees are added in.
Ottawa may be throwing a lifeline to
overly-indebted consumers, who owe
131% of disposable income for a
total $1.1 trillion in record
household debt. But sadly, the most
desperate won't save a cent.
Meanwhile, one economist warns our
central bank is not a miracle
"Even it cannot fully shield the
economy in the event of a
deeper-than-expected U.S. downturn,"
said Douglas Porter, economist with
South of the border, Federal Reserve
chair Ben Bernanke yesterday urged
Congress to pass another relief
In Canada, StatsCan shocked analysts
Monday by revealing our economy
shrank in December by 0.7%, after
growing by a dismal 0.1% in
November. A full-blown recession is
two consecutive quarters of negative
Meanwhile, the subprime mortgage
madness continues to hurt Canada's
big banks. Bank of Montreal's
first-quarter earnings fell 27% to
$255 million -- hit by a double
whammy of writedowns over
asset-backed commercial paper and
the prospects of soaring loan
BMO shares have been hit hardest,
falling 18% so far.
Scotiabank yesterday reported a 18%
drop in its profit, earning $835
million in the first quarter, just
shy of market expectations, while
loan loss provisions increased to
Scotiabank CEO Rick Waugh tried to
calm shareholders' frayed nerves at
the annual meeting in Edmonton
yesterday, saying "crises do come to
But Reid Mosley, who represented
1,400 retail customers of Canaccord
Capital, Cental Credit Union Group
and National Bank, who invested in
asset-backed commercial paper, made
an impassioned plea for help.
"Scotiabank has a duty and the
expertise to know it was selling a
flawed savings product to unknowing
retail investors like myself," said
Mosley. "Now our plans are destroyed
and our life's savings from our jobs
and businesses -- the things we
built are literally hanging on
somewhere in the Internet."