Thursday, December 18, 2008

The ABC's of Flaherty's insane ABCP bailout

A: Flaherty wants to turn Ottawa into a soup kitchen for the wealthy.
B: Compensation for professional incompetents.
C: Immunity for the brokers'and banks'pathetic sales practices

Fact: Only $400 million of the $32 billion of ABCP is owned by retail investors, all of whom represented themselves as accredited and sophisticated investors in order to qualify themselves to purchase ABCP. The remaining $31.6 billion is owned by some of the most (presumably) sophisticated investors in Canada, who were looking to boost their investment returns. They took on known risks. Now they want Canadians taxpayers to bail them out of their own professional incompetence.

As for the 1400 retail investors. If they feel that the banks and brokers who sold this paper to them did so without properly disclosing the risks, then these investors have legal recourse against the banks and brokers. This is how they can achieve recourse. meanwhile Flaherty's bailout deal is designed with the sole intent of achieving legal immunity for these banks and brokers. Who do think Purdy Crawford is actually working for? Certainly not Canadian taxpayers. of that you can be sure.

Bottom line:
This is absurd. That's why Flaherty is going for it. He has been successfully lobbied by Bay Street. Bat Street want taxpayers to clean up their mess. Flaherty is more than happy to oblige Bay Street......with your tax dollars!

Relevant Quotes:

"It is extremely important that financial market participants bear the consequences of their decisions." Bank of Canada Governor Mark Carney (in reference to any government involvement in ABCP bailout)

“The ultimate result of shielding man from the effects of folly is to people the world with fools” Herbert Spencer ( English philosopher; prominent classical liberal political theorist)

Provinces asked to chip in for ABCP rescue

John Greenwood and Paul Vieira,
Canwest News Service;
December 18, 2008

Finance Minister Jim Flaherty has formally asked Alberta, Ontario and Quebec to contribute toward a government-backed $9.5-billion standby facility that would clinch a deal in the 16-month restructuring of wonky commercial paper.

The request was made in Saskatoon, where Flaherty met yesterday with his provincial finance counterparts to discuss the coming federal budget and what should be done to deal with the global financial crisis.

The $32-billion restructuring of asset-backed commercial paper now hinges on Ottawa's ability to provide a $9.5-billion standby facility. Otherwise, the restructuring could unravel.

Meanwhile, Bank of Canada governor Mark Carney suggested the Canadian economy is strong enough to withstand the restructuring's collapse. However, Carney said that was not an outcome he was advocating.

Sources say Flaherty asked Alberta, Ontario and Quebec to contribute to the facility, given those jurisdictions have provincially-owned entities -- such as the Caisse de depot et placement du Quebec, Ontario Financing Authority and ATB Financial -- that hold ABCP.

At the conclusion of the federal-provincial meeting, Flaherty declined to say whether any progress was made on ABCP. "I can't tell you very much," Flaherty said. "I can tell you that there have been some discussions with some of the ministers here on that subject. It is being reviewed by several of the (provincial) ministers."

Flaherty added: "We all have our responsibilities to our taxpayers, to be cautious in our reviews and that is what is happening right now."

First mapped out in the fall of 2007, the rescue plan started off as a private-sector undertaking. Under the scheme, insolvent 30- to 90-day debt would be converted into new notes maturing in about eight years. The asset-backed paper hasn't traded since August 2007, when investors began to shun the debt because of concerns about ties to high-risk mortgage loans in the United States.

But in the face of unprecedented market turbulence, a committee spearheading the plan -- led by Bay Street lawyer Purdy Crawford -- came forward last week with a last-minute request to the government to supply $9.5 billion of additional funding for a backstop facility.

Until recently, Flaherty has insisted that taxpayers' money will not be used to fix what he regards as a private-sector problem. However, in the face of increasing distress in financial markets over the past few weeks, he has softened his position.

Meanwhile in Toronto,Carney was asked after delivering a speech whether the Canadian market could survive the restructuring's collapse.

"Yes," he said. While that "would not be a welcome development," he said Canada has "resilient markets" and could survive if the court-protected bankruptcy process unravels.

Later, Carney said the central bank has had discussions with the federal government about available options.

"But it is entirely the decision of the government's, so I am not going to comment further," he said.


Dr Mike said...

Mr Ignatieff

Good to speak with you again.

I have written you previously concerning the 2006 Income trust ruling & just wanted to contact you once more to emphasize the need to reverse this decision.

I have recently noticed that my Liberal party has come out in favor of a financial bail-out for the holders of ABCP. The over 2000 retail investors are mainly institutional in nature & as such should be considered "professional" investors & therefore , should have been well-versed in the risk involved.
Their losses were a direct result of market conditions & their own investment policy.

The losses by "true" retail investors in the case of income trusts were as a result of government intervention in the so-called free markets. An injustice has been done in the case of trusts because losses were thru no fault of the investor.

To finance a bail-out for the holders of ABCP would be a travesty to myself as a trust investor.

Thank you for your consideration with this matter. 


Dr Mike Popovich
Rodney Ont

Anonymous said...

A, B or C ... Hmm, where is D for "all of the above"?
Real trick question, without the "all of the above" option.

Dr. Mike - Great idea to contact the Liberal party and let them know a bailout is not acceptable under these circumstances. They should also be reminded they do have an obligation to Income Trust investors.
Thanks for sharing you letter - makes it easier for sending my own.

Dr Mike said...

You are welcome.

It seems unless you are a squeaky wheel or perhaps Dominic D`Alessandro , you will get zero consideration.

Since none of us aspire to be Dominic , then we better do a lot of squeaking.

Dr Mike.

John M said...

Hi all,

I have been following ABCP since it started, and this bailout ("Big P" is starting out at about 3 times the size of the Big 3 one) seems to be happening with almost no public awareness. Thanks for this piece. I'm mentioning under my own effort "Ground Zero Canada: Ottawa to Detoxify Original World Seed-Crisis by Monday — OR ELSE".

That one got picked up by Implode-O-Meter, so at least a few hundred readers will likely see it. It's really scandalous how quietly this enormous taxpayer burden is being taken on. Even stories about the sudden lifting of the deficit estimate (surely driven by this monster) don't mention ABCP.