06-20-08 FP: Top Financial Regulator Moves To Close Loopholes In Securities Rules
On June 19, 2008, the Office of the Superintendent of Financial Institutions rescinded the Canadian banks right to assign zero capital in their Basel II capital requirements for liquidity agreements that use the General Market Disruption Clause. The change is effective immediately.
This is an amendment of Guideline B-5, which is widely acknowledged to have been a contributing factor that enabled the international and Canadian banks to walk away from their calls to purchase the Non-Bank ABCP owned by Canadians when no other buyers would buy the paper.
OSFI says it is not to blame for the ABCP debacle because Canada's zero capital assignment for Canadian banks using General Market Disruption Liquidity Agreements was a standard available under the Basel Committee Capital Requirements adopted throughout the world.
OSFI says the blame lies with DBRS for giving top credit ratings to the the Non-Bank ABCP trusts using the General Market Disruption Liquidity Agreements, whereas the international credit rating agencies did not do so in any other country.
Also, OSFI blames the provincial securities commissions for not adequately supervising DBRS and not ensuring the necessary transparency in Non-Bank ABCP sold to Canadians.
I have concluded that OSFI needs to share the blame for the Non-Bank ABCP fiasco,
since the assignment of zero capital for General Market Disruption Liquidity Agreements enabled DBRS, the banks and securities dealers to sell Non-Bank ABCP on the basis of "bank guarantees" that effectively did not exist.
OSFI should not have and cannot now rely on the provincial securities commissions to stop the market players from using OSFI Guidelines that protected the banks, but were detrimental to Canadian savers who bought the ABCP.
Guideline B-5 was an unacceptable bank regulation in Canada and throughout the world.
Canadians are invited to make comments to OSFI on the new requirements applicable to General Market Disruption Liquidity Agreements before July 31, 2008.
I intend to make written comments and if any of the ABCP owners wish to do so, the OSFI contact information is below.
Top Financial Regulator Moves To Close Loopholes In Securities Rules
Duncan Mavin, Financial Post
Friday, June 20, 2008
Canada's top financial regulator yesterday moved to close loopholes in securities rules that led in part to the asset-backed commercial-paper crisis. The draft rules will tighten up capital requirements for liquidity lines supporting ABCP conduits, clarify the roles of banks and others that sponsor the investments, and press for more thorough credit ratings tied to the securities. The suggested changes have been released for comment from the industry and "take into account some observations made during the recent turmoil in Canadian and international securitization markets," said Julie Dickson, head of the Office of the Superintendent of Financial Institutions (OSFI). Earlier this week, Ms. Dickson told a parliamentary hearing into the crisis that OSFI was not to blame for the ABCP debacle.
From attached OSFI Draft Advisory - Securitization Expected Practices 06192008:
2. End of Zero Capital for General Market Disruption Liquidity Facilities
The CAR guidelines and Guideline B-5 provide guidance as to the risk weights to be ascribed to exposures arising from the provision of liquidity lines and define an eligible liquidity facility6.
Eligible liquidity facilities for securitizations in Canada have, historically, taken two different forms: (1) generally available eligible liquidity lines (so-called global style liquidity facilities); and (2) liquidity lines only available during a general market disruption (GMD liquidity facilities). Eligible global style liquidity facilities attract higher capital usage (e.g. 20% or 50% credit conversion factors, for under 1 year and greater than 1 year exposures respectively, under the CAR standardized approach to securitization) because they represent higher risk of loss to the institution that provides them. Eligible GMD liquidity facilities (which attract a 0% credit conversion factor under the Basel II standardized approach to securitization) have not attracted capital because the legal availment rights were very restrictive, thus limiting the potential that the provider would experience credit losses.
Effective immediately,
GMD liquidity facilities provided by Canadian FREs will no longer result in zero capital usage (e.g. a 0% credit conversion factor will cease to apply under the standardized approach) and will, regardless of the approach (e.g. standardized approach;
internal ratings based approach) used to measure risk arising from securitization exposures, receive the same credit conversion factors and capital treatment as global style liquidity facilities. In particular, when using an internal ratings-based approach, no reduction in risk exposure for a liquidity facility will apply if it is structured as a GMD liquidity facility and such facility shall be treated in a manner consistent with global style liquidity facilities.
This guidance reflects that, while GMD liquidity facilities may not exhibit material credit risk, recent events have shown that other risks do exist (such as reputational risk)7 and that, consequently, a capital charge is appropriate.
To implement this change, CAR A and A-1 and Guideline B-5 are amended as set forth in, respectively, Appendices A and B hereto.
From OSFI Letter to Bank - Securitization Expected Practices 06192008:
Diane Urquhart, B.A. & M.A. Economics, CFA
Independent Analyst
Mississauga, Ontario
Telephone: (905) 822-7618
Cell: (416) 505-4832
E-mail: urquhart@rogers.com
visit breachoftrust.ca for BREACH OF TRUST film info
E-MAIL us at investoradvocate@shaw.ca
ABCP's of stealing $32 Billion. Case study 2 for inquiry
by admin » Tue Jul 01, 2008 7:48 am
--------------------------------------------------------------------------------
June 29, 2008
Fair Game
E-Mail That Investors Might Like to Read
By GRETCHEN MORGENSON
EVERY few years, the conflicts of interest so deeply embedded in the Wall Street business model emerge from the shadows for all to see. Coming to light last week, courtesy of Massachusetts regulators, was UBS’s dual roles in the auction-rate securities market, which have had devastating effects on the people and institutions that invested in them.
Because every big brokerage firm that participated in this market faced the same conflicts as both underwriters of the securities and managers of the auctions that set their prices, similar ugliness will likely turn up elsewhere as regulators continue their digging.
Auction-rate securities are preferred shares or debt instruments with rates that reset regularly, usually every week, in auctions overseen by the brokerage firms that originally sold them. They have long-term maturities or, in the case of the preferred shares, no maturity dates whatsoever. The securities are issued by municipalities, student-loan companies, closed-end funds and tax-exempt institutions like hospitals and museums.
In mid-February, the $300 billion market for these instruments collapsed, trapping investors who had been told that they were safe and easy to cash in — leaving both wealthy investors and those of modest means unable to finance their small businesses, buy homes, pay college tuition and otherwise use their money as they had planned.
After receiving a flood of complaints from investors in his state, William F. Galvin, secretary of the Commonwealth of Massachusetts, subpoenaed documents from some major market participants. Thursday, he released materials produced by UBS and filed a civil suit against the firm, accusing it of defrauding investors.
Stephan Savoia/Associated press
William F. Galvin
MR. GALVIN’S complaint says UBS misled investors by peddling auction-rate securities as cash equivalents and ultrasafe. But the suit also asserts that UBS dumped these securities on individual investors to minimize its own exposure to the risks inherent in keeping them on its own books.
Karina Byrne, a spokeswoman for UBS, said the firm would defend itself. “Contrary to the allegations, UBS is committed to serving the best interests of our clients. We continued to support the auction rate securities market longer than any other firm,” she said in a statement. “We have offered our clients loans of up to 100 percent of the par value of their A.R.S. holdings at preferred lending rates. UBS, our clients and clients of other industry participants all share the impact of this unprecedented loss of liquidity in the A.R.S. market.”
Nevertheless, the e-mail messages attached to the Massachusetts complaint support Mr. Galvin’s accusations in stunning black and white.
The problem UBS faces began in August, when the credit markets seized. Corporations — which are big buyers of auction-rate securities because of their slightly-higher-than-money-market yields — were beginning to sell. New buyers had to be found or UBS, as underwriter and auction manager, would be stuck with the securities. The firm was going into shell shock because of losses from subprime mortgages on its books, so it needed to find a way out of the auction-rate mess.
Throughout the autumn, increasingly frantic e-mail messages flew among UBS executives. “As you can imagine during these stressful times, the pressure is on to move our inventory,” wrote David Shulman, global head of fixed income distribution at UBS, on Aug. 30. “I am aware that JPM and Citi are on all ‘alert’ in the same fashion with their retail groups.”
Joel P. Aresco, chief risk officer for the Americas, sent this message on Nov. 15: “Why the continual increase” in the inventory of auction-rate securities? “What measures are being taken to reduce this exposure?”
On Dec. 11, Mr. Shulman wrote: “I am pushing every angle here to move product.”
As it turned out, some of that product being moved was Mr. Shulman’s own stake in auction-rate securities, the complaint said. He testified that he began selling in September, because of his “risk tolerance.” By Dec. 12, he had dumped all his holdings.
UBS declined to make any of these executives available.
On Feb. 12, just days before the auctions ground to a halt, another UBS executive wrote: “We need to beat the bushes harder than ever to unload this paper.”
UBS’s Web site, meanwhile, continued to identify auction-rate preferred stock as a highly liquid cash alternative, the lawsuit said.
“The Massachusetts complaint alleges that sophisticated Wall Street insiders, knowing that the market for auction-rate securities was failing, foisted these same securities off on innocent public investors through profoundly deceptive sales practices,” said Lewis D. Lowenfels, a securities law expert at Tolins & Lowenfels who represents a handful of auction-rate securities investors. “If these allegations prove to be true and prevalent throughout the Wall Street community, then civil actions awarding punitive damages and possibly even criminal actions may well become widespread.”
UBS’s clients were not the only ones that the firm’s executives appear to have misled. Its brokers, too, seem not to have been told about the risks that auctions could fail and their clients could be locked into their holdings.
“We continue to be frustrated by the lack of information that they are providing to us,” one broker wrote about the firm’s auction-rate unit in a Jan. 10 message. “Given the strange and difficult environment, it is imperative that we are fully aware of the risk we are taking. We do not want to imperil any relationships over something as ‘simple’ as their cash investments. The lack of clarity regarding ARPS is contrary to our focus on ‘improving the client experience.’ ” (ARPS refers to auction-rate preferred shares.)
NO Wall Street firm likes to acknowledge that conflicts of interest bedevil its business. And UBS says its clients come first.
But one of the e-mail messages amassed by Mr. Galvin stands out for its cogent discussion of these troubling biases. It was written by Joe Gallichio, a managing director in the municipal finance department at UBS, on Feb. 21, after the market for auction-rate securities had frozen.
“As things change they also remain the same,” Mr. Gallichio begins. “What we face now in the firm as related to muni short term is classic Wall Street. In its core, it is trading versus sales, risk management versus client franchise.”
“As a firm we tell people we are client focused,” he went on. “So if the client is always right, then we should fix the problem this product has created in WM,” the firm’s wealth management unit, which includes retail investors. “To let WM and the firm as a whole go through costly litigation, the loss of investor confidence and significant assets, the cost in management time, legal and compliance, IT spend, the total distraction from our core growth strategy and overall employee morale — will certainly be in excess of the multibillion-dollar hit to balance sheet we would take by just buying the rest of the assets from WM. I just don’t get it.”
Reached Friday, Mr. Gallichio declined to comment. He didn’t have to. His e-mail said it all.
June 29, 2008
Fair Game
E-Mail That Investors Might Like to Read
By GRETCHEN MORGENSON
EVERY few years, the conflicts of interest so deeply embedded in the Wall Street business model emerge from the shadows for all to see. Coming to light last week, courtesy of Massachusetts regulators, was UBS’s dual roles in the auction-rate securities market, which have had devastating effects on the people and institutions that invested in them.
Because every big brokerage firm that participated in this market faced the same conflicts as both underwriters of the securities and managers of the auctions that set their prices, similar ugliness will likely turn up elsewhere as regulators continue their digging.
Auction-rate securities are preferred shares or debt instruments with rates that reset regularly, usually every week, in auctions overseen by the brokerage firms that originally sold them. They have long-term maturities or, in the case of the preferred shares, no maturity dates whatsoever. The securities are issued by municipalities, student-loan companies, closed-end funds and tax-exempt institutions like hospitals and museums.
In mid-February, the $300 billion market for these instruments collapsed, trapping investors who had been told that they were safe and easy to cash in — leaving both wealthy investors and those of modest means unable to finance their small businesses, buy homes, pay college tuition and otherwise use their money as they had planned.
After receiving a flood of complaints from investors in his state, William F. Galvin, secretary of the Commonwealth of Massachusetts, subpoenaed documents from some major market participants. Thursday, he released materials produced by UBS and filed a civil suit against the firm, accusing it of defrauding investors.
Stephan Savoia/Associated press
William F. Galvin
MR. GALVIN’S complaint says UBS misled investors by peddling auction-rate securities as cash equivalents and ultrasafe. But the suit also asserts that UBS dumped these securities on individual investors to minimize its own exposure to the risks inherent in keeping them on its own books.
Karina Byrne, a spokeswoman for UBS, said the firm would defend itself. “Contrary to the allegations, UBS is committed to serving the best interests of our clients. We continued to support the auction rate securities market longer than any other firm,” she said in a statement. “We have offered our clients loans of up to 100 percent of the par value of their A.R.S. holdings at preferred lending rates. UBS, our clients and clients of other industry participants all share the impact of this unprecedented loss of liquidity in the A.R.S. market.”
Nevertheless, the e-mail messages attached to the Massachusetts complaint support Mr. Galvin’s accusations in stunning black and white.
The problem UBS faces began in August, when the credit markets seized. Corporations — which are big buyers of auction-rate securities because of their slightly-higher-than-money-market yields — were beginning to sell. New buyers had to be found or UBS, as underwriter and auction manager, would be stuck with the securities. The firm was going into shell shock because of losses from subprime mortgages on its books, so it needed to find a way out of the auction-rate mess.
Throughout the autumn, increasingly frantic e-mail messages flew among UBS executives. “As you can imagine during these stressful times, the pressure is on to move our inventory,” wrote David Shulman, global head of fixed income distribution at UBS, on Aug. 30. “I am aware that JPM and Citi are on all ‘alert’ in the same fashion with their retail groups.”
Joel P. Aresco, chief risk officer for the Americas, sent this message on Nov. 15: “Why the continual increase” in the inventory of auction-rate securities? “What measures are being taken to reduce this exposure?”
On Dec. 11, Mr. Shulman wrote: “I am pushing every angle here to move product.”
As it turned out, some of that product being moved was Mr. Shulman’s own stake in auction-rate securities, the complaint said. He testified that he began selling in September, because of his “risk tolerance.” By Dec. 12, he had dumped all his holdings.
UBS declined to make any of these executives available.
On Feb. 12, just days before the auctions ground to a halt, another UBS executive wrote: “We need to beat the bushes harder than ever to unload this paper.”
UBS’s Web site, meanwhile, continued to identify auction-rate preferred stock as a highly liquid cash alternative, the lawsuit said.
“The Massachusetts complaint alleges that sophisticated Wall Street insiders, knowing that the market for auction-rate securities was failing, foisted these same securities off on innocent public investors through profoundly deceptive sales practices,” said Lewis D. Lowenfels, a securities law expert at Tolins & Lowenfels who represents a handful of auction-rate securities investors. “If these allegations prove to be true and prevalent throughout the Wall Street community, then civil actions awarding punitive damages and possibly even criminal actions may well become widespread.”
UBS’s clients were not the only ones that the firm’s executives appear to have misled. Its brokers, too, seem not to have been told about the risks that auctions could fail and their clients could be locked into their holdings.
“We continue to be frustrated by the lack of information that they are providing to us,” one broker wrote about the firm’s auction-rate unit in a Jan. 10 message. “Given the strange and difficult environment, it is imperative that we are fully aware of the risk we are taking. We do not want to imperil any relationships over something as ‘simple’ as their cash investments. The lack of clarity regarding ARPS is contrary to our focus on ‘improving the client experience.’ ” (ARPS refers to auction-rate preferred shares.)
NO Wall Street firm likes to acknowledge that conflicts of interest bedevil its business. And UBS says its clients come first.
But one of the e-mail messages amassed by Mr. Galvin stands out for its cogent discussion of these troubling biases. It was written by Joe Gallichio, a managing director in the municipal finance department at UBS, on Feb. 21, after the market for auction-rate securities had frozen.
“As things change they also remain the same,” Mr. Gallichio begins. “What we face now in the firm as related to muni short term is classic Wall Street. In its core, it is trading versus sales, risk management versus client franchise.”
“As a firm we tell people we are client focused,” he went on. “So if the client is always right, then we should fix the problem this product has created in WM,” the firm’s wealth management unit, which includes retail investors. “To let WM and the firm as a whole go through costly litigation, the loss of investor confidence and significant assets, the cost in management time, legal and compliance, IT spend, the total distraction from our core growth strategy and overall employee morale — will certainly be in excess of the multibillion-dollar hit to balance sheet we would take by just buying the rest of the assets from WM. I just don’t get it.”
Reached Friday, Mr. Gallichio declined to comment. He didn’t have to. His e-mail said it all.
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
by admin » Sun Jul 06, 2008 11:38 am
our government is cracking down on grow-ops and tax-free cigarettes (in the extreme), and this is yet another example of white collar crime going unpunished.
That the alleged perpetrators - banks and financial houses (possibly DBRS - I'm not sure) - are demanding immunity from fraud charges and civil suits speaks for itself. They will refuse to follow through with the deal if they don't get immunity. Logically then if they don't go through with it, they no longer enjoy immunity --- which arguable should never have been offered in the first place.
Yet your government sits there and watches people contract to allow themselves and/or others to commit an alleged fraud involving $32 Billion dollars - standing the law on its head in the process - while you and your Attorney General and the RCMP remain silent - as the world watches - shocked...and you expect my vote in an election.
This is the most appalling, egregious miscarriage of justice that I am aware of in the First World in modern times. And it is on your watch Mr. Harper. I'm betting you will be a pariah at the next G-7(8) - it's just not worth it!
ABCP group expected to move quickly
BOYD ERMAN
Friday's Globe and Mail
July 3, 2008
Investors stuck with frozen asset-backed commercial paper could begin to see their holdings thawed not long after an appeal court ruling that's expected in a matter of days.
The committee overseeing the $32-billion restructuring of the frozen paper is planning to move quickly to close the deal should the Ontario Court of Appeal dismiss a challenge to the fairness of the proposal, rather than wait for any further appeals to run their course, said two people familiar with the strategy.
Lawyers expect the appeal court will decide on the challenge by a group of corporations by the middle of next week.
The committee doesn't want to wait on a possible appeal to the Supreme Court of Canada by the challengers, the people said. That would force the challengers, who include companies ranging from small miner Redcorp Ventures Ltd. to airport manager Aéroports de Montreal Inc., to try to stop the closing of the deal with an injunction.
The plan as it stands calls for swapping the seized-up paper, which investors have been saddled with since last August, for new notes that should trade freely, albeit at a discount [of up to 100% - unless the B o C is the buyer] to their face value. However, the challengers are upset because the plan grants a measure of legal immunity to players in the ABCP business, which the appellants say is unfair and unlawful. (Since fraud can't be proven in Canada at the best of time in Criminal Court because we, unlike the U.S., have to prove "intent" -- because our law and order government won't amend the criminal code to catch the big fish -- you should thank your God that Canadians are so dumb now that they don't understand your strategy -- pray for them because they know not what they do.)
After a lower court approved the plan in early June, the committee held off on closing the transaction because of the pending appeal. However, with the courtroom drama dragging on, the strategy now is to try to get the swap done without further delay. That would be a relief for investors who bought the paper last year, thinking it was a short-term place to park cash, only to find themselves mired in a restructuring that has locked up their money for 11 months....[what this reporter either doesn't know or is afraid to report is that small investors will get $1.5 billion - and the rest is institutional and locked in - he seems to think that doesn't involve employees, pensioners, taxpayers, jobs, business development, suppliers, governments and the list goes on - even reporters are ignorant or corrupt to the point at which I could cry - but not if I were in your shoes of course!]
“The idea is to move to hit the switch and start paying,” [$1.5 billion out of $32 billion - and this so-called reporter missed that???] said one person familiar with the situation.
The legal strategy is based on the view that an appeal by the corporate challengers to the Supreme Court would be a long shot if the plan is upheld at both the lower and appeals court levels. [He doesn't even know that Corporations are "legal people" and that they employ people, have shareholders who are people, pensioners who are people, taxpayers who are people, customers who are people, suppliers who are people who pay taxes - he thinks its OK to shaft "corporations" at the expense of the rule of law or doesn't know any better.
Sadly, neither do most of his readers - and, I suppose, that is your trump card. The rule of law is more than a convenience - this is not France where the people can vote and over-throw its application - or so I thought. But watching you Finance Minister play his little games has been and education - we are now francite in Canada].
Much will depend on the wording of the appeal court's ruling, no matter which way it goes. If it's a split decision by the three-judge panel, that would likely open the door to a Supreme Court bid.
“There are still enough challengers that I think if their appeal is thrown out by the Court of Appeal, I think some of them will still try to get leave to appeal to go to the Supreme Court,” said Colin Kilgour, a consultant who has advised many corporations on their ABCP holdings.
The corporate challengers have yet to decide whether they will push their case to the Supreme Court if need be, said one lawyer working on their behalf who asked not to be identified given that the appeals court has yet to make a decision.
The Court of Appeal hasn't given a timeline for its ruling, but may want to hand down a judgment before the middle of next week, when a standstill agreement that has kept the ABCP restructuring from imploding expires. [Heavens yes, the Courts can't keep the banks and financial companies waiting - never in my life.....did I ever think I would read something like that in this country]. The judges asked about the standstill during hearings on the matter, which some in the room took as a signal that the justices are cognizant of the time constraints.
The banks that are backing the restructuring in return for legal immunity have been voluntarily extending the standstill, under which they have agreed not to halt the restructuring and force a liquidation of the assets backing the paper. But there is no guarantee they will continue to do so indefinitely.
{If they don't hang in, they are nuts, because somebody better head for Bay Street with handcuffs for many of them if they are no longer "immune by agreement" - the day they walk is the day charges had damn well better be laid - or this country is done. And this is your watch, Mr. Harper!}.
Jim Roache
That the alleged perpetrators - banks and financial houses (possibly DBRS - I'm not sure) - are demanding immunity from fraud charges and civil suits speaks for itself. They will refuse to follow through with the deal if they don't get immunity. Logically then if they don't go through with it, they no longer enjoy immunity --- which arguable should never have been offered in the first place.
Yet your government sits there and watches people contract to allow themselves and/or others to commit an alleged fraud involving $32 Billion dollars - standing the law on its head in the process - while you and your Attorney General and the RCMP remain silent - as the world watches - shocked...and you expect my vote in an election.
This is the most appalling, egregious miscarriage of justice that I am aware of in the First World in modern times. And it is on your watch Mr. Harper. I'm betting you will be a pariah at the next G-7(8) - it's just not worth it!
ABCP group expected to move quickly
BOYD ERMAN
Friday's Globe and Mail
July 3, 2008
Investors stuck with frozen asset-backed commercial paper could begin to see their holdings thawed not long after an appeal court ruling that's expected in a matter of days.
The committee overseeing the $32-billion restructuring of the frozen paper is planning to move quickly to close the deal should the Ontario Court of Appeal dismiss a challenge to the fairness of the proposal, rather than wait for any further appeals to run their course, said two people familiar with the strategy.
Lawyers expect the appeal court will decide on the challenge by a group of corporations by the middle of next week.
The committee doesn't want to wait on a possible appeal to the Supreme Court of Canada by the challengers, the people said. That would force the challengers, who include companies ranging from small miner Redcorp Ventures Ltd. to airport manager Aéroports de Montreal Inc., to try to stop the closing of the deal with an injunction.
The plan as it stands calls for swapping the seized-up paper, which investors have been saddled with since last August, for new notes that should trade freely, albeit at a discount [of up to 100% - unless the B o C is the buyer] to their face value. However, the challengers are upset because the plan grants a measure of legal immunity to players in the ABCP business, which the appellants say is unfair and unlawful. (Since fraud can't be proven in Canada at the best of time in Criminal Court because we, unlike the U.S., have to prove "intent" -- because our law and order government won't amend the criminal code to catch the big fish -- you should thank your God that Canadians are so dumb now that they don't understand your strategy -- pray for them because they know not what they do.)
After a lower court approved the plan in early June, the committee held off on closing the transaction because of the pending appeal. However, with the courtroom drama dragging on, the strategy now is to try to get the swap done without further delay. That would be a relief for investors who bought the paper last year, thinking it was a short-term place to park cash, only to find themselves mired in a restructuring that has locked up their money for 11 months....[what this reporter either doesn't know or is afraid to report is that small investors will get $1.5 billion - and the rest is institutional and locked in - he seems to think that doesn't involve employees, pensioners, taxpayers, jobs, business development, suppliers, governments and the list goes on - even reporters are ignorant or corrupt to the point at which I could cry - but not if I were in your shoes of course!]
“The idea is to move to hit the switch and start paying,” [$1.5 billion out of $32 billion - and this so-called reporter missed that???] said one person familiar with the situation.
The legal strategy is based on the view that an appeal by the corporate challengers to the Supreme Court would be a long shot if the plan is upheld at both the lower and appeals court levels. [He doesn't even know that Corporations are "legal people" and that they employ people, have shareholders who are people, pensioners who are people, taxpayers who are people, customers who are people, suppliers who are people who pay taxes - he thinks its OK to shaft "corporations" at the expense of the rule of law or doesn't know any better.
Sadly, neither do most of his readers - and, I suppose, that is your trump card. The rule of law is more than a convenience - this is not France where the people can vote and over-throw its application - or so I thought. But watching you Finance Minister play his little games has been and education - we are now francite in Canada].
Much will depend on the wording of the appeal court's ruling, no matter which way it goes. If it's a split decision by the three-judge panel, that would likely open the door to a Supreme Court bid.
“There are still enough challengers that I think if their appeal is thrown out by the Court of Appeal, I think some of them will still try to get leave to appeal to go to the Supreme Court,” said Colin Kilgour, a consultant who has advised many corporations on their ABCP holdings.
The corporate challengers have yet to decide whether they will push their case to the Supreme Court if need be, said one lawyer working on their behalf who asked not to be identified given that the appeals court has yet to make a decision.
The Court of Appeal hasn't given a timeline for its ruling, but may want to hand down a judgment before the middle of next week, when a standstill agreement that has kept the ABCP restructuring from imploding expires. [Heavens yes, the Courts can't keep the banks and financial companies waiting - never in my life.....did I ever think I would read something like that in this country]. The judges asked about the standstill during hearings on the matter, which some in the room took as a signal that the justices are cognizant of the time constraints.
The banks that are backing the restructuring in return for legal immunity have been voluntarily extending the standstill, under which they have agreed not to halt the restructuring and force a liquidation of the assets backing the paper. But there is no guarantee they will continue to do so indefinitely.
{If they don't hang in, they are nuts, because somebody better head for Bay Street with handcuffs for many of them if they are no longer "immune by agreement" - the day they walk is the day charges had damn well better be laid - or this country is done. And this is your watch, Mr. Harper!}.
Jim Roache
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
by admin » Sun Jul 06, 2008 11:39 am
Mr Prime Minister:
I could not agree more with the email sent to you below.
I have worked in the financial industry after leaving the federal public service and over and over I am shocked and dismayed by the abusive practices exercised in the industry which harm the interests and retirement plans of hardworking Canadians.
And with the ABCP debacle, the industry is officially being placed above the law, untouchable and a key formal bellweather signal to continue to perpetrate future abuses on Canadians.
I thought your roots and values were with ordinary hardworking Canadians.
Your actions and that of your Minister of Finance demonstrate that you have been captured by Bay Street and you now remain silent with this and other financial rapes of Canadians.
I thought you were a leader with clear core values. You have been compromised or you have chosen the compromised life.
Please reflect on these concerns. Strong decisive leadership and positive action is urgently required.
Jim.
Best wishes.
Jim MacDonald MBA
I could not agree more with the email sent to you below.
I have worked in the financial industry after leaving the federal public service and over and over I am shocked and dismayed by the abusive practices exercised in the industry which harm the interests and retirement plans of hardworking Canadians.
And with the ABCP debacle, the industry is officially being placed above the law, untouchable and a key formal bellweather signal to continue to perpetrate future abuses on Canadians.
I thought your roots and values were with ordinary hardworking Canadians.
Your actions and that of your Minister of Finance demonstrate that you have been captured by Bay Street and you now remain silent with this and other financial rapes of Canadians.
I thought you were a leader with clear core values. You have been compromised or you have chosen the compromised life.
Please reflect on these concerns. Strong decisive leadership and positive action is urgently required.
Jim.
Best wishes.
Jim MacDonald MBA
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
by admin » Thu Jul 31, 2008 9:57 pm
Subject: Purdy Crawford was CEO of Imasco, when Imperial Tobacco Conducted
the Illegal Tobacco Smuggling that it Admitted Today
The RCMP made the following announcement today, July 31, 2008, concerning admission of guilt by Imperial Tobacco on illegal tobacco smuggling during 1989-1994. Purdy Crawford was the CEO of Imasco during 1985-1995, which covers the 1989-1994 time period when Imperial Tobacco, a wholly owned subsidiary of Imasco, conducted the illegal activity of tobacco smuggling for the purpose of avoiding the payment of Canadian tobacco taxes. Purdy Crawford is now employed at Oslers LLP and he is the Chairperson of the Pan Canadian Committee, who are the applicants for the ABCP CCAA Restructuring Plan, being administered at the Ontario Superior Court of Justice.
From attached RCMP Media Release dated July 31, 2008:
""The guilty pleas, from Imperial Tobacco Canada Limited (ITCL) and Rothmans Benson & Hedges (RBH), are the culmination of more than eight years of investigative work by RCMP Customs and Excise sections in Ontario and Québec. As part of agreed statements of fact, the two companies admitted to “aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the Excise Act and its amendments and Ministerial regulations.”
As a result, the two companies have paid the largest fines ever levied in Canada; ITCL has paid a $200-million fine and RBH $100-million.""
"The material time of the charges involved illegal activity between the years of 1989-1994. Then, the contraband tobacco market in Canada involved product being produced in Canada, and shipped to locations in the US near the Canada/US border. From there, it was distributed to smugglers or black market distributors who brought it back into Canada for further illegal distribution."
From attached Reuters, "Federal and Provincial Governments Reach Landmark Settlement with Tobacco Companies, July 31, 2008:
"The Honourable Gordon O'Connor, Minister of National Revenue today announced that the federal and all provincial governments have enter into civil settlement agreements with Imperial Tobacco Canada Ltd. a Rothmans, Benson & Hedges to resolve all potential civil claims they have in relation to the two companies' role in the movement of contraband tobacco in the early 1990s.
The fines in these prosecutions, combined with the civil settlements, will result in the companies paying $1.15 billion to governments."
the Illegal Tobacco Smuggling that it Admitted Today
The RCMP made the following announcement today, July 31, 2008, concerning admission of guilt by Imperial Tobacco on illegal tobacco smuggling during 1989-1994. Purdy Crawford was the CEO of Imasco during 1985-1995, which covers the 1989-1994 time period when Imperial Tobacco, a wholly owned subsidiary of Imasco, conducted the illegal activity of tobacco smuggling for the purpose of avoiding the payment of Canadian tobacco taxes. Purdy Crawford is now employed at Oslers LLP and he is the Chairperson of the Pan Canadian Committee, who are the applicants for the ABCP CCAA Restructuring Plan, being administered at the Ontario Superior Court of Justice.
From attached RCMP Media Release dated July 31, 2008:
""The guilty pleas, from Imperial Tobacco Canada Limited (ITCL) and Rothmans Benson & Hedges (RBH), are the culmination of more than eight years of investigative work by RCMP Customs and Excise sections in Ontario and Québec. As part of agreed statements of fact, the two companies admitted to “aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the Excise Act and its amendments and Ministerial regulations.”
As a result, the two companies have paid the largest fines ever levied in Canada; ITCL has paid a $200-million fine and RBH $100-million.""
"The material time of the charges involved illegal activity between the years of 1989-1994. Then, the contraband tobacco market in Canada involved product being produced in Canada, and shipped to locations in the US near the Canada/US border. From there, it was distributed to smugglers or black market distributors who brought it back into Canada for further illegal distribution."
From attached Reuters, "Federal and Provincial Governments Reach Landmark Settlement with Tobacco Companies, July 31, 2008:
"The Honourable Gordon O'Connor, Minister of National Revenue today announced that the federal and all provincial governments have enter into civil settlement agreements with Imperial Tobacco Canada Ltd. a Rothmans, Benson & Hedges to resolve all potential civil claims they have in relation to the two companies' role in the movement of contraband tobacco in the early 1990s.
The fines in these prosecutions, combined with the civil settlements, will result in the companies paying $1.15 billion to governments."
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
by admin » Sat Aug 02, 2008 8:20 am
B.C. Miner sues over ABCP
Silver Standard; HSBC Bank, DBRS named as defendants
John Greenwood, Financial Post
Saturday, August 02, 2008
A small British Columbia mining company has filed a lawsuit against HSBC Bank Canada alleging the investment dealer failed to reveal problems with the market for asset-backed commercial paper that it learned about a month before the $35-billion sector seized up, leaving investors on the hook.
The suit, launched by Silver Standard Resources Inc. of Vancouver, also names the rating agency DBRS Ltd. as a defendant. Silver Standard is one of more than 100 companies caught out when the ABCP market collapsed 12 months ago.
This marks the first time that DBRS, the only agency to rate non-bank sponsored ABCP in Canada, has been targeted in connection with the meltdown.
The documents allege that DBRS was negligent in failing to spot the risks in the paper, much of which garnered its highest score.
DBRS spokeswoman Caroline Creighton said the firm believes the case is without merit.
Ernest Yee, a spokesman for HSBC, denied the allegations. "HSBC will vigorously defend itself against any lawsuit," he said in an e-mail.
The case is garnering attention on Bay Street because of parallels with a high-profile legal battle in the United States between investment firms there and holders of frozen auction rate securities, which have a lot of similarities with ABCP.
Yesterday New York Attorney General Andrew Cuomo said he plans to sue the Wall Street firm Citigroup Inc. for alleged misrepresentation it made to buyers regarding auction-rate securities.
The case comes after a five-month investigation by the New York Attorney General's office. In a letter to Citigroup, Mr. Cuomo claimed the bank "repeatedly and persistently committed fraud by making material misrepresentations" regarding its underwriting and sale of auction rate securities.
Citigroup, the largest U. S. bank, is only the latest financial institution to become entangled in legal wrangling over the collapse of the US$330-billion auction-rate security market.
Auction-rate securities are bonds whose interest rates are set at regular auctions. But as the credit crunch deepened back in February, many of the firms that regularly bid on the bonds suddenly abandoned the market, leaving investors unable to trade their notes.
The New York attorney General and other regulators allege that many investment dealers aggressively marketed auction-rate securities even after they realized the market was in trouble.
Canada's ABCP market fell apart last August after demand for the notes evaporated and the banks that had agreed to provide emergency liquidity declined to step up.
Under a restructuring plan still tied up in court, the frozen ABCP would be converted to long-term notes. Investors will likely end up shouldering significant losses.
What has many holders up in arms is a clause in the restructuring that would shield the firms that created and sold the investments from any legal action.
Despite objections from corporate investors who claim the so-called legal releases are unfair, an Ontario Superior Court judge approved the restructuring earlier this year. That decision is being reconsidered by the Ontario Court of Appeal, which has yet to make a ruling.
jgreenwood@nationalpost.com
Silver Standard; HSBC Bank, DBRS named as defendants
John Greenwood, Financial Post
Saturday, August 02, 2008
A small British Columbia mining company has filed a lawsuit against HSBC Bank Canada alleging the investment dealer failed to reveal problems with the market for asset-backed commercial paper that it learned about a month before the $35-billion sector seized up, leaving investors on the hook.
The suit, launched by Silver Standard Resources Inc. of Vancouver, also names the rating agency DBRS Ltd. as a defendant. Silver Standard is one of more than 100 companies caught out when the ABCP market collapsed 12 months ago.
This marks the first time that DBRS, the only agency to rate non-bank sponsored ABCP in Canada, has been targeted in connection with the meltdown.
The documents allege that DBRS was negligent in failing to spot the risks in the paper, much of which garnered its highest score.
DBRS spokeswoman Caroline Creighton said the firm believes the case is without merit.
Ernest Yee, a spokesman for HSBC, denied the allegations. "HSBC will vigorously defend itself against any lawsuit," he said in an e-mail.
The case is garnering attention on Bay Street because of parallels with a high-profile legal battle in the United States between investment firms there and holders of frozen auction rate securities, which have a lot of similarities with ABCP.
Yesterday New York Attorney General Andrew Cuomo said he plans to sue the Wall Street firm Citigroup Inc. for alleged misrepresentation it made to buyers regarding auction-rate securities.
The case comes after a five-month investigation by the New York Attorney General's office. In a letter to Citigroup, Mr. Cuomo claimed the bank "repeatedly and persistently committed fraud by making material misrepresentations" regarding its underwriting and sale of auction rate securities.
Citigroup, the largest U. S. bank, is only the latest financial institution to become entangled in legal wrangling over the collapse of the US$330-billion auction-rate security market.
Auction-rate securities are bonds whose interest rates are set at regular auctions. But as the credit crunch deepened back in February, many of the firms that regularly bid on the bonds suddenly abandoned the market, leaving investors unable to trade their notes.
The New York attorney General and other regulators allege that many investment dealers aggressively marketed auction-rate securities even after they realized the market was in trouble.
Canada's ABCP market fell apart last August after demand for the notes evaporated and the banks that had agreed to provide emergency liquidity declined to step up.
Under a restructuring plan still tied up in court, the frozen ABCP would be converted to long-term notes. Investors will likely end up shouldering significant losses.
What has many holders up in arms is a clause in the restructuring that would shield the firms that created and sold the investments from any legal action.
Despite objections from corporate investors who claim the so-called legal releases are unfair, an Ontario Superior Court judge approved the restructuring earlier this year. That decision is being reconsidered by the Ontario Court of Appeal, which has yet to make a ruling.
jgreenwood@nationalpost.com
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
by admin » Sat Aug 02, 2008 5:19 pm
Subject: Ironstone Trust - Barrick Gold Globe and Mail Article
7/2/2008
Flaherty wades into Barrick's CIBC feud
Dustup threatens to delay ABCP restructuring
JACQUIE MCNISH
May 6, 2008 at 7:30 PM EDT
Finance Minister Jim Flaherty has taken the unusual step of intervening in a sideshow spat
in the ABCP drama, applying direct pressure on Canadian Imperial Bank of Commerce
to settle up with Barrick Gold Corp.
Sources say Mr. Flaherty's phone call to senior CIBC executives last week succeeded in
bringing the bank to the table in a festering dispute with its gold miner client.
After eight months of intense negotiations, the success of the asset-backed commercial
paper rescue now hinges on a legal spat between the two parties that involves less than 1
per cent of the total troubled notes at stake. The dispute centres on $65.8-million of ABCP
notes, which is minor compared with the total $32-billion currently frozen, but the standoff
threatens to hold back the settlement process.
Regardless of the merits of Barrick's case, this much is certain: CIBC's foot dragging has
brought the ABCP restructuring to the brink. If talks fail, Barrick could be in a unique
position to derail the restructuring because its case is widely seen as being strong enough
to potentially block court approval of the rescue proposal at a sanction hearing set for next
week.
As the dispute plays out, it is attracting attention not just because the two parties appear
willing to bring the ABCP bailout to the edge, but also because CIBC has exposed itself to
the very public and angry wrath of a major and long-term corporate client and its globetrotting
chairman Peter Munk.
It's not so rare for companies to get in fights with their banks, but it is almost unheard of
Lawyer Terry O'Sullivan of Lax
O'Sullivan Scott LLP in Toronto
According to people familiar with the discussions, Barrick's
team, led by Lax O'Sullivan Scott LLP partner Terry
O'Sullivan, has demanded full repayment for Barrick, but the
bank has so far refused to yield.
We have been co-operative for months on end, Vince
Borg, a spokesman for Barrick, said yesterday.
It's fair to say, at this stage, that our patience is being
tested, Mr. Borg said. We have been willing to engage in
discussions but any discussions must clearly lead toward a
satisfactory resolution.
Mr. O'Sullivan and CIBC declined to comment.
for a Canadian bank to allow a dustup with such a prominent company to escalate into a
public feud. After telling Barrick to effectively take a hike, CIBC found itself on the wrong
end of a court motion last month.
An affidavit from Barrick treasurer James Mavor alleges that weeks before the market
collapse last August, an executive director of the bank expressly confirmed to Barrick that
its [ABCP] investments did not have exposure to subprime assets. In fact, ABCP issued by
Ironstone Trust is so loaded with the toxic mortgages that the notes are now estimated to
be worth between 5 and 12 cents on the dollar.Although no one will publicly admit it, sources say a number of CIBC's competitors quietly
bought peace with some of its most prized corporate clients by buying back stranded ABCP
after last August's meltdown.
More than a dozen companies including Barrick, Transat A.T. Inc., Jean Coutu Group (PJC)
Inc. and Redcorp Ventures Ltd., were not so lucky. Bankers to these corporate investors
apparently made a calculated bet that either these clients weren't important enough, or
they lacked the firepower to derail the restructuring plan.
So far it looks like everyone except CIBC made a good bet. When investors were asked to
vote on the restructuring proposal two weeks ago, all but one of the 20 trusts won the
majority support needed to win court approval. The one trust that failed to win sufficient
support was Ironstone.
The combination of the failed Ironstone vote and some of the unique facts of Barrick's case
has put the Superior Court of Ontario's Mr. Justice Colin Campbell, who is overseeing the
court restructuring plan, in a tight legal corner. The centrepiece of the ABCP proposal is a
sweeping legal release that will shield all banks and parties linked to the troubled notes
from any lawsuits. Under the Companies' Creditors Arrangement Act, judges have been
able in previous cases to force legal releases on opposing investors and debtors when it
could be shown that a restructuring plan provided at least some benefit to all parties.
There are other companies, such as Chicago-based Sun-Times Media Group Inc., that own
Ironstone, but these investors don't have much legal ammunition to fight the restructuring
proposal because they own other, healthier ABCP notes that stand to be repaid under the
plan.
Barrick, however, is the one holder that was misfortunate enough to only own Ironstone
notes. That means the mining company stands to get little more than fool's gold under the
proposed restructuring. And that means Judge Campbell is going to be on thin legal ice if
he forces Barrick to give up its legal rights to sue CIBC.
Faced with this legal paradox, Judge Campbell dropped some very strong hints last week
that he wants CIBC and Barrick to settle their differences before he convenes a so-called
sanction hearing May 12.
Other challenges stand in the way of a resolution. The biggest danger CIBC faces is that if it
buys out Barrick, it could face a chorus of objections from other corporate clients holding
Ironstone notes. These investors may not have much of a legal leg to stand on, but any
objections could potentially further slow the restructuring plan.
The other challenge is CIBC's bank partner on Ironstone Trust. Although CIBC structured
and sold much of the Ironstone notes, it was National Bank of Canada that sponsored
the trust when it was launched in 2005. If CIBC is called upon to make Barrick whole on its
soured ABCP investment, it's a pretty good bet that the bank will be asking National to
share the pain.
If that happens, look for the restructuring to drag on beyond the sanction hearing Judge
Campbell has set for next week. CIBC and National have both already written off billions of
dollars of troubled ABCP and other structured financial instruments. Spending more bank
capital on another soured play is not something that either bank will be eager do without a fight.
Which is why Mr. Flaherty might want to put CIBC on speed dial.
7/2/2008
Flaherty wades into Barrick's CIBC feud
Dustup threatens to delay ABCP restructuring
JACQUIE MCNISH
May 6, 2008 at 7:30 PM EDT
Finance Minister Jim Flaherty has taken the unusual step of intervening in a sideshow spat
in the ABCP drama, applying direct pressure on Canadian Imperial Bank of Commerce
to settle up with Barrick Gold Corp.
Sources say Mr. Flaherty's phone call to senior CIBC executives last week succeeded in
bringing the bank to the table in a festering dispute with its gold miner client.
After eight months of intense negotiations, the success of the asset-backed commercial
paper rescue now hinges on a legal spat between the two parties that involves less than 1
per cent of the total troubled notes at stake. The dispute centres on $65.8-million of ABCP
notes, which is minor compared with the total $32-billion currently frozen, but the standoff
threatens to hold back the settlement process.
Regardless of the merits of Barrick's case, this much is certain: CIBC's foot dragging has
brought the ABCP restructuring to the brink. If talks fail, Barrick could be in a unique
position to derail the restructuring because its case is widely seen as being strong enough
to potentially block court approval of the rescue proposal at a sanction hearing set for next
week.
As the dispute plays out, it is attracting attention not just because the two parties appear
willing to bring the ABCP bailout to the edge, but also because CIBC has exposed itself to
the very public and angry wrath of a major and long-term corporate client and its globetrotting
chairman Peter Munk.
It's not so rare for companies to get in fights with their banks, but it is almost unheard of
Lawyer Terry O'Sullivan of Lax
O'Sullivan Scott LLP in Toronto
According to people familiar with the discussions, Barrick's
team, led by Lax O'Sullivan Scott LLP partner Terry
O'Sullivan, has demanded full repayment for Barrick, but the
bank has so far refused to yield.
We have been co-operative for months on end, Vince
Borg, a spokesman for Barrick, said yesterday.
It's fair to say, at this stage, that our patience is being
tested, Mr. Borg said. We have been willing to engage in
discussions but any discussions must clearly lead toward a
satisfactory resolution.
Mr. O'Sullivan and CIBC declined to comment.
for a Canadian bank to allow a dustup with such a prominent company to escalate into a
public feud. After telling Barrick to effectively take a hike, CIBC found itself on the wrong
end of a court motion last month.
An affidavit from Barrick treasurer James Mavor alleges that weeks before the market
collapse last August, an executive director of the bank expressly confirmed to Barrick that
its [ABCP] investments did not have exposure to subprime assets. In fact, ABCP issued by
Ironstone Trust is so loaded with the toxic mortgages that the notes are now estimated to
be worth between 5 and 12 cents on the dollar.Although no one will publicly admit it, sources say a number of CIBC's competitors quietly
bought peace with some of its most prized corporate clients by buying back stranded ABCP
after last August's meltdown.
More than a dozen companies including Barrick, Transat A.T. Inc., Jean Coutu Group (PJC)
Inc. and Redcorp Ventures Ltd., were not so lucky. Bankers to these corporate investors
apparently made a calculated bet that either these clients weren't important enough, or
they lacked the firepower to derail the restructuring plan.
So far it looks like everyone except CIBC made a good bet. When investors were asked to
vote on the restructuring proposal two weeks ago, all but one of the 20 trusts won the
majority support needed to win court approval. The one trust that failed to win sufficient
support was Ironstone.
The combination of the failed Ironstone vote and some of the unique facts of Barrick's case
has put the Superior Court of Ontario's Mr. Justice Colin Campbell, who is overseeing the
court restructuring plan, in a tight legal corner. The centrepiece of the ABCP proposal is a
sweeping legal release that will shield all banks and parties linked to the troubled notes
from any lawsuits. Under the Companies' Creditors Arrangement Act, judges have been
able in previous cases to force legal releases on opposing investors and debtors when it
could be shown that a restructuring plan provided at least some benefit to all parties.
There are other companies, such as Chicago-based Sun-Times Media Group Inc., that own
Ironstone, but these investors don't have much legal ammunition to fight the restructuring
proposal because they own other, healthier ABCP notes that stand to be repaid under the
plan.
Barrick, however, is the one holder that was misfortunate enough to only own Ironstone
notes. That means the mining company stands to get little more than fool's gold under the
proposed restructuring. And that means Judge Campbell is going to be on thin legal ice if
he forces Barrick to give up its legal rights to sue CIBC.
Faced with this legal paradox, Judge Campbell dropped some very strong hints last week
that he wants CIBC and Barrick to settle their differences before he convenes a so-called
sanction hearing May 12.
Other challenges stand in the way of a resolution. The biggest danger CIBC faces is that if it
buys out Barrick, it could face a chorus of objections from other corporate clients holding
Ironstone notes. These investors may not have much of a legal leg to stand on, but any
objections could potentially further slow the restructuring plan.
The other challenge is CIBC's bank partner on Ironstone Trust. Although CIBC structured
and sold much of the Ironstone notes, it was National Bank of Canada that sponsored
the trust when it was launched in 2005. If CIBC is called upon to make Barrick whole on its
soured ABCP investment, it's a pretty good bet that the bank will be asking National to
share the pain.
If that happens, look for the restructuring to drag on beyond the sanction hearing Judge
Campbell has set for next week. CIBC and National have both already written off billions of
dollars of troubled ABCP and other structured financial instruments. Spending more bank
capital on another soured play is not something that either bank will be eager do without a fight.
Which is why Mr. Flaherty might want to put CIBC on speed dial.
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
"ninja" loans........loans to no income, no job, n
by admin » Tue Aug 19, 2008 2:19 pm
'Liars' to prolong crisis
By ALAN ZIBEL, THE ASSOCIATED PRESS
Tuesday, August 19, 2008
NEW YORK -- In the U.S. mortgage industry, they are called "liar loans" -- mortgages approved without requiring proof of the borrower's income or assets.
The worst of them earn the nickname "NINJA loans," short for "no income, no job, and (no) assets."
The struggling U.S. housing market, already awash in subprime foreclosures, is hit with a second wave of losses as homeowners with liar loans default in record numbers. In some parts of the country, the loans threaten to drag out the mortgage crisis for another two years.
"Those loans are going to perform very badly," said Thomas Lawler, a Virginia housing economist. "They're heavily concentrated in states where home prices are plummeting," including California, Florida, Nevada and Arizona.
Many homeowners with liar loans are stuck. They can't refinance because housing prices in those markets have nose-dived, and lenders now demand full documentation of income and assets.
Losses on liar loans could total US$100 billion, according to Moody's Economy.com. That's on top of the US$400 billion in expected losses from subprime loans.
Fannie Mae and Freddie Mac, the largest buyers and backers of mortgages in the United States, lost a combined US$3.1 billion between April and June. Half of their credit losses came from sour liar loans, which are officially called Alternative-A loans (Alt-A for short) because they are seen as a step below A-credit, or prime, borrowers.
Many of the lenders that specialized in such loans are now defunct -- banks including American Home Mortgage, Bear Stearns and IndyMac Bank. More lenders may follow.
"Everybody drank the Kool-Aid," said David Zugheri, co-founder of Texas-based lender First Houston Mortgage.
Liar loans were commonly paired with "interest only" features that allowed borrowers to pay just the interest on the debt and none of the principal for the first few years.
Even riskier were "pick-a-payment" or option ARM loans -- adjustable-rate mortgages that gave borrowers the choice to defer some of their interest payments and add them to the principal.
Now that prices have fallen, almost 13 per cent of borrowers with liar loans were at least two months behind on their payments in May, nearly four times higher than a year earlier, according to First American CoreLogic.
Countrywide Financial Corp., now part of Bank of America Corp., was one of the top providers of liar loans. More than 12 per cent of Countrywide's US$25.4 billion in pick-a-payment loans are in default, and 83 per cent had little or no documentation, according to a Securities and Exchange Commission filing last week.
Critics say Fannie Mae and Freddie Mac, which bought or guaranteed liar loans from lenders including Countrywide and IndyMac, should have stuck with traditional 30-year, fixed-rate mortgages.
"I personally think that they ventured beyond their mission," said Richard Smith, a Tennessee mortgage broker.
By ALAN ZIBEL, THE ASSOCIATED PRESS
Tuesday, August 19, 2008
NEW YORK -- In the U.S. mortgage industry, they are called "liar loans" -- mortgages approved without requiring proof of the borrower's income or assets.
The worst of them earn the nickname "NINJA loans," short for "no income, no job, and (no) assets."
The struggling U.S. housing market, already awash in subprime foreclosures, is hit with a second wave of losses as homeowners with liar loans default in record numbers. In some parts of the country, the loans threaten to drag out the mortgage crisis for another two years.
"Those loans are going to perform very badly," said Thomas Lawler, a Virginia housing economist. "They're heavily concentrated in states where home prices are plummeting," including California, Florida, Nevada and Arizona.
Many homeowners with liar loans are stuck. They can't refinance because housing prices in those markets have nose-dived, and lenders now demand full documentation of income and assets.
Losses on liar loans could total US$100 billion, according to Moody's Economy.com. That's on top of the US$400 billion in expected losses from subprime loans.
Fannie Mae and Freddie Mac, the largest buyers and backers of mortgages in the United States, lost a combined US$3.1 billion between April and June. Half of their credit losses came from sour liar loans, which are officially called Alternative-A loans (Alt-A for short) because they are seen as a step below A-credit, or prime, borrowers.
Many of the lenders that specialized in such loans are now defunct -- banks including American Home Mortgage, Bear Stearns and IndyMac Bank. More lenders may follow.
"Everybody drank the Kool-Aid," said David Zugheri, co-founder of Texas-based lender First Houston Mortgage.
Liar loans were commonly paired with "interest only" features that allowed borrowers to pay just the interest on the debt and none of the principal for the first few years.
Even riskier were "pick-a-payment" or option ARM loans -- adjustable-rate mortgages that gave borrowers the choice to defer some of their interest payments and add them to the principal.
Now that prices have fallen, almost 13 per cent of borrowers with liar loans were at least two months behind on their payments in May, nearly four times higher than a year earlier, according to First American CoreLogic.
Countrywide Financial Corp., now part of Bank of America Corp., was one of the top providers of liar loans. More than 12 per cent of Countrywide's US$25.4 billion in pick-a-payment loans are in default, and 83 per cent had little or no documentation, according to a Securities and Exchange Commission filing last week.
Critics say Fannie Mae and Freddie Mac, which bought or guaranteed liar loans from lenders including Countrywide and IndyMac, should have stuck with traditional 30-year, fixed-rate mortgages.
"I personally think that they ventured beyond their mission," said Richard Smith, a Tennessee mortgage broker.
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
by admin » Tue Aug 19, 2008 4:28 pm
Follow the Money is a phrase that is quite common. As I follow the money, it disturbs me that the law seems to follow the money quite closely, in fact a little too closely.
For example:
In the USA there has already been $40 Billion in restitution ordered by authorities to those clients who were burned by tainted investment products in the recent sub prime scandals.
In Canada there is no such restitution, nor even a demand for same, despite having over 100 agencies in this country purporting to protect and serve Canadian investors.
Some of these protective agencies actually issued "exemptions" to our laws in order to allow the sale of these tainted investment products to our consumers. see CIBC exemption at http://www.osc.gov.on.ca/Regulation/Ord ... 1_cibc.jsp
Some of these protective agencies similarly allowed exemptions to our laws to allow salespersons to disguise themselves as qualified professional investment advisors (which requires a license they did not have) in order to better market this tainted product.
If I look up the definition of fraud in our criminal code some of these tricks come pretty close to fitting the definition. I wonder if the RCMP has the time to look this up.
We now see a restructuring of the debt in which protection is being granted against lawsuits in return for some of these poor people getting their own money back. Isn't that a bit like blackmail to withold a client's money from them unless and until they agree not to sue?
Compound this with the restructuring having been negotiated by a man who led a tobacco company to this press release:
The RCMP made the following announcement today, July 31, 2008, concerning admission of guilt by Imperial Tobacco on illegal tobacco smuggling during 1989-1994. Purdy Crawford was the CEO of Imasco during 1985-1995, which covers the 1989-1994 time period when Imperial Tobacco, a wholly owned subsidiary of Imasco, conducted the illegal activity of tobacco smuggling for the purpose of avoiding the payment of Canadian tobacco taxes. Purdy Crawford is now employed at Oslers LLP and he is the Chairperson of the Pan Canadian Committee, who are the applicants for the ABCP CCAA Restructuring Plan, being administered at the Ontario Superior Court of Justice.
When I set out on this journey, I fully expected to find corruption and greed wthin the financial industry. What I did not expect, and what truly shocks me the most, is the extent which the legal and regulatory industry can be captured or purchased using this same greed and corruption.
For example:
In the USA there has already been $40 Billion in restitution ordered by authorities to those clients who were burned by tainted investment products in the recent sub prime scandals.
In Canada there is no such restitution, nor even a demand for same, despite having over 100 agencies in this country purporting to protect and serve Canadian investors.
Some of these protective agencies actually issued "exemptions" to our laws in order to allow the sale of these tainted investment products to our consumers. see CIBC exemption at http://www.osc.gov.on.ca/Regulation/Ord ... 1_cibc.jsp
Some of these protective agencies similarly allowed exemptions to our laws to allow salespersons to disguise themselves as qualified professional investment advisors (which requires a license they did not have) in order to better market this tainted product.
If I look up the definition of fraud in our criminal code some of these tricks come pretty close to fitting the definition. I wonder if the RCMP has the time to look this up.
We now see a restructuring of the debt in which protection is being granted against lawsuits in return for some of these poor people getting their own money back. Isn't that a bit like blackmail to withold a client's money from them unless and until they agree not to sue?
Compound this with the restructuring having been negotiated by a man who led a tobacco company to this press release:
The RCMP made the following announcement today, July 31, 2008, concerning admission of guilt by Imperial Tobacco on illegal tobacco smuggling during 1989-1994. Purdy Crawford was the CEO of Imasco during 1985-1995, which covers the 1989-1994 time period when Imperial Tobacco, a wholly owned subsidiary of Imasco, conducted the illegal activity of tobacco smuggling for the purpose of avoiding the payment of Canadian tobacco taxes. Purdy Crawford is now employed at Oslers LLP and he is the Chairperson of the Pan Canadian Committee, who are the applicants for the ABCP CCAA Restructuring Plan, being administered at the Ontario Superior Court of Justice.
When I set out on this journey, I fully expected to find corruption and greed wthin the financial industry. What I did not expect, and what truly shocks me the most, is the extent which the legal and regulatory industry can be captured or purchased using this same greed and corruption.
Last edited by admin on Tue Aug 19, 2008 6:15 pm, edited 1 time in total.
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
by admin » Tue Aug 19, 2008 5:43 pm
ABCP may land in top court
BOYD ERMAN
From Wednesday's Globe and Mail
August 19, 2008 at 7:27 PM EDT
For the second time this summer, the Supreme Court of Canada may decide the fate of investors with billions of dollars at stake, after an opponent of the $32-billion asset-backed commercial paper restructuring announced plans to pursue the challenge to the highest court in the land.
Ivanhoe Mines Ltd., which is stuck with $70.7-million (U.S.) of ABCP because of last summer's freeze-up in the market for the short-term investments, is asking the court to stop the planned restructuring.
Ivanhoe is arguing that the restructuring is unfair because it gives all participants in the ABCP market broad immunity from lawsuits, and that the Ontario Court of Appeal ruling on Monday allowing the proposal to go ahead is flawed, said Howard Shapray, Ivanhoe's lawyer.
Purdy Crawford, head of the investor committee that created the proposal, said yesterday that the aim is still to try to complete the restructuring by Sept. 30. The plan calls for swapping the frozen notes for new bonds that trade freely.
BOYD ERMAN
From Wednesday's Globe and Mail
August 19, 2008 at 7:27 PM EDT
For the second time this summer, the Supreme Court of Canada may decide the fate of investors with billions of dollars at stake, after an opponent of the $32-billion asset-backed commercial paper restructuring announced plans to pursue the challenge to the highest court in the land.
Ivanhoe Mines Ltd., which is stuck with $70.7-million (U.S.) of ABCP because of last summer's freeze-up in the market for the short-term investments, is asking the court to stop the planned restructuring.
Ivanhoe is arguing that the restructuring is unfair because it gives all participants in the ABCP market broad immunity from lawsuits, and that the Ontario Court of Appeal ruling on Monday allowing the proposal to go ahead is flawed, said Howard Shapray, Ivanhoe's lawyer.
Purdy Crawford, head of the investor committee that created the proposal, said yesterday that the aim is still to try to complete the restructuring by Sept. 30. The plan calls for swapping the frozen notes for new bonds that trade freely.
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
by admin » Tue Sep 09, 2008 8:56 am
The article is posted on the Complinet Group website. Founded in 1997, Complinet Group is a provider of risk and compliance solutions to the global financial services community. Complinet's website says its customers include 80 per cent of the leading financial services firms across the globe.
http://www.complinet.com
http://www.complinet.com/net_file_store ... canada.xml
"Canadian banks brag that they have fared much better than their American and international counterparts, who have collectively taken close to $500bn of write-offs for US subprime mortgages and structured credit vehicles. In the rest of the world, the banks were forced to honor their international style liquidity agreements and to take back the asset backed commercial paper onto their own balance sheets.
These banks often voluntarily bought back other distressed debt from their customers where they had no legal obligation to do so in an effort to protect their reputations. The American and international banks took billions of write-offs for the bad underlying assets and credit default swap contract losses within the ABCP they sold, whereas the Canadian banks and their wholly owned securities dealers have been given immunity from civil lawsuits for remedy of their customers' damages in the Canadian ABCP bankruptcy protection plan.
Canadian banks have been given a gift of unfair competition versus the American and international banks, at the expense of Canadian governments, pension funds, corporations and individuals who own more than $1m of the distressed Canadian non bank ABCP."
"The Canadian federal and provincial governments failed to protect the retail owners of non bank ABCP by approving a series of banking, securities and bankruptcy law and regulation amendments since 2004 that facilitated the manufacture and sale of the non bank ABCP in a negligent and potentially fraudulent manner, and then gave clear advantage to the banks in the bankruptcy restructuring process itself.
With glaring contrast to Canada and an illustration of how governments can intervene to protect its citizens from flawed savings products, a twelve US state and federal government consortium has to date ordered the repurchase of $55bn of auction rate securities from retail, charitable organizations and small corporations by eight securities dealers. There are a total of 40 securities dealers expected to receive auction rate securities repurchase orders from this US governments' consortium, including the Royal Bank of Canada.
Many Canadian banks, securities dealers and other financial institutions have made voluntary repurchases of close to $5bn of the non bank ABCP from their retail customers. In an August 19, 2008, teleconference call, Purdy Crawford describes the retail customers of these banks as "damn lucky." The well-publicized Canaccord and Credential Securities' under $1m customer relief plans provides for $177m cash settlement at the face amount plus accrued interest and legal costs to their applicable customers. But, the 1,800 Canaccord and Credential Securities retail owners will not get their cash back until the Supreme Court of Canada approves the ABCP CCAA restructuring plan and this is not a certain outcome.
Many retail non bank ABCP owners with over $1m of non bank ABCP have no cash settlement offer at all or have offers that are clearly deficient for the $100m of non bank ABCP they own. National Bank Financial has not made all of its retail customers whole. Every individual, family trust and personal investment holding company owning non bank ABCP should receive a cash settlement at the full face amount of ABCP owned."
http://www.complinet.com
http://www.complinet.com/net_file_store ... canada.xml
"Canadian banks brag that they have fared much better than their American and international counterparts, who have collectively taken close to $500bn of write-offs for US subprime mortgages and structured credit vehicles. In the rest of the world, the banks were forced to honor their international style liquidity agreements and to take back the asset backed commercial paper onto their own balance sheets.
These banks often voluntarily bought back other distressed debt from their customers where they had no legal obligation to do so in an effort to protect their reputations. The American and international banks took billions of write-offs for the bad underlying assets and credit default swap contract losses within the ABCP they sold, whereas the Canadian banks and their wholly owned securities dealers have been given immunity from civil lawsuits for remedy of their customers' damages in the Canadian ABCP bankruptcy protection plan.
Canadian banks have been given a gift of unfair competition versus the American and international banks, at the expense of Canadian governments, pension funds, corporations and individuals who own more than $1m of the distressed Canadian non bank ABCP."
"The Canadian federal and provincial governments failed to protect the retail owners of non bank ABCP by approving a series of banking, securities and bankruptcy law and regulation amendments since 2004 that facilitated the manufacture and sale of the non bank ABCP in a negligent and potentially fraudulent manner, and then gave clear advantage to the banks in the bankruptcy restructuring process itself.
With glaring contrast to Canada and an illustration of how governments can intervene to protect its citizens from flawed savings products, a twelve US state and federal government consortium has to date ordered the repurchase of $55bn of auction rate securities from retail, charitable organizations and small corporations by eight securities dealers. There are a total of 40 securities dealers expected to receive auction rate securities repurchase orders from this US governments' consortium, including the Royal Bank of Canada.
Many Canadian banks, securities dealers and other financial institutions have made voluntary repurchases of close to $5bn of the non bank ABCP from their retail customers. In an August 19, 2008, teleconference call, Purdy Crawford describes the retail customers of these banks as "damn lucky." The well-publicized Canaccord and Credential Securities' under $1m customer relief plans provides for $177m cash settlement at the face amount plus accrued interest and legal costs to their applicable customers. But, the 1,800 Canaccord and Credential Securities retail owners will not get their cash back until the Supreme Court of Canada approves the ABCP CCAA restructuring plan and this is not a certain outcome.
Many retail non bank ABCP owners with over $1m of non bank ABCP have no cash settlement offer at all or have offers that are clearly deficient for the $100m of non bank ABCP they own. National Bank Financial has not made all of its retail customers whole. Every individual, family trust and personal investment holding company owning non bank ABCP should receive a cash settlement at the full face amount of ABCP owned."
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
FRAUDULENT MISREPRESENTATION
by admin » Thu Sep 11, 2008 2:23 pm
I am 90% convinced that a case for fraudulent misrepresentaion might be made against those who used a "salesperson" licence and who misled customers into thinking they were "advisors" and sold them this tainted investment product.
Tainted product or not, this flogg has for years been trying to seek clarity on the fundamental question of whether canadians are dealing with salespersons or with trusted financial advisors.
I suspect the ABCP crisis might be the trigger that puts the question to the forefront of the nation. Whether I am right or not, I would like to see the question answered with clarity and transparency for the benefit of everyone.
If my hunch is correct, a win in the legal arena might not be assured, but an open discussion might lead to a moral victory or a court of public opinion victory. After all, it is pretty hard to beat the men with the money in a legal sense, they write the laws in our beloved financial services industry. But I have no worries that if morals, and ethics were to be taken into account, that some of their codes of conduct and behaviors would not pass a smell test.
Hope we get the chance to test.
Tainted product or not, this flogg has for years been trying to seek clarity on the fundamental question of whether canadians are dealing with salespersons or with trusted financial advisors.
I suspect the ABCP crisis might be the trigger that puts the question to the forefront of the nation. Whether I am right or not, I would like to see the question answered with clarity and transparency for the benefit of everyone.
If my hunch is correct, a win in the legal arena might not be assured, but an open discussion might lead to a moral victory or a court of public opinion victory. After all, it is pretty hard to beat the men with the money in a legal sense, they write the laws in our beloved financial services industry. But I have no worries that if morals, and ethics were to be taken into account, that some of their codes of conduct and behaviors would not pass a smell test.
Hope we get the chance to test.
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
by admin » Sun Sep 14, 2008 5:43 pm
Friday, July 4, 2008
GAFFLEGAB COSTS MONEY
Today we are going to talk about how the challenges of today will inspire the financial wizkids of tomorrow! Most recently we have felt the impact of the "skill" or perhaps more appropriately, the "cunning" of financial engineering. The increase in "structured" solutions has come at a tremendous cost as we have all seen with the Sub Prime situation and ABCP fiasco.
While rationale minds might think that would lead to the sale of more "vanilla" securities like stocks and bonds and Index funds, that is not likely to happen any time soon. Financial engineering is "industry speak" for hiding the fees behind the concept. So whats coming next.....
What will actually happen is that the financial "engineers" will construct more of the same structured stuff that got us into trouble today! If real engineers and construction firms worked the same way as financial engineers, houses would be falling down all around us as I write. But one needs to assume we are not crazy enough to buy the same risky securities as the ABCP and bad mortgage products we bought; so this time around the engineers will have a whole new approach to the products. Look for the word "GUARANTEED" to become prevalent in the sale of the "new" structured products! Having just been burned they know we are all looking for a "sure thing" before we dip our investing toe back into the shark tank.
How will they manage this engineering feat? Think of a rundown dilapidated house, but with a new coat of paint and new vinyl siding! The risks and future repairs are hidden by the cheap covering to provide a sense of quality that is not there.
Securities are actually quite basic. They are investments upon which you earn a rate of return determined by rent and risk.
Rent is the return you could get from a zero risk investment such as a short term government guaranteed treasury bill. That is known as the "risk free rate of return".
The "risk" portion is the additional return you get for accepting volatility and some amount of uncertainty in your return. As an example with bonds that risk portion would be the credit risk of the issuer and the impact of interest rate changes on the bond value.
So, if somebody is offering you returns above the risk free rate, and suggesting you have a guarantee, then where did the risk end up? The return over and above the T-Bill rate means there is risk, but the guarantee means somebody else is taking the risk for you! Sounds great! So, just one question(?) what are they getting in return?
Well, for the most part they are getting a significant chunk of the return you might think you will be getting! The neat thing, for the engineers, is you are the only one putting money into the proposition! They are taking a per cent of your positive returns and none of the negative returns because the guarantee is paid for from your deposit. Perhaps now you can see where the cunning comes into the equation!Perhaps these products need to come with a warning on the label:
CAUTION: Guarantees may significantly reduce the value of your investment while drastically increasing your costs!
While that is never likely to happen, the real disgrace is that these products will be sold to those seeking the least risk and who can often least afford the costs.
So what should you be watching for:
Guarantees: Unless you are buying a bank GIC with CDIC coverage or a short term Government Bond, do NOT ever trust a guarantee.
GaffleGab: If you do not understand a product, do NOT think it is because you are stupid. There is a great chance the confusion is intentional and a pretty good chance your advisor does not really understand it either.
Fees: Structured products are often designed to hide fees. Ask for a clear description of all fees in writing from your advisor along with comparable fees without the guarantee. In fact ask your advisor why they can not create the same product for you from standard easy to understand securities.
The attached leads to a great Ken Hawkins article on structured products for those wanting to learn more!
sois mike
http://www.investopedia.com/articles/fi ... oducts.asp
GAFFLEGAB COSTS MONEY
Today we are going to talk about how the challenges of today will inspire the financial wizkids of tomorrow! Most recently we have felt the impact of the "skill" or perhaps more appropriately, the "cunning" of financial engineering. The increase in "structured" solutions has come at a tremendous cost as we have all seen with the Sub Prime situation and ABCP fiasco.
While rationale minds might think that would lead to the sale of more "vanilla" securities like stocks and bonds and Index funds, that is not likely to happen any time soon. Financial engineering is "industry speak" for hiding the fees behind the concept. So whats coming next.....
What will actually happen is that the financial "engineers" will construct more of the same structured stuff that got us into trouble today! If real engineers and construction firms worked the same way as financial engineers, houses would be falling down all around us as I write. But one needs to assume we are not crazy enough to buy the same risky securities as the ABCP and bad mortgage products we bought; so this time around the engineers will have a whole new approach to the products. Look for the word "GUARANTEED" to become prevalent in the sale of the "new" structured products! Having just been burned they know we are all looking for a "sure thing" before we dip our investing toe back into the shark tank.
How will they manage this engineering feat? Think of a rundown dilapidated house, but with a new coat of paint and new vinyl siding! The risks and future repairs are hidden by the cheap covering to provide a sense of quality that is not there.
Securities are actually quite basic. They are investments upon which you earn a rate of return determined by rent and risk.
Rent is the return you could get from a zero risk investment such as a short term government guaranteed treasury bill. That is known as the "risk free rate of return".
The "risk" portion is the additional return you get for accepting volatility and some amount of uncertainty in your return. As an example with bonds that risk portion would be the credit risk of the issuer and the impact of interest rate changes on the bond value.
So, if somebody is offering you returns above the risk free rate, and suggesting you have a guarantee, then where did the risk end up? The return over and above the T-Bill rate means there is risk, but the guarantee means somebody else is taking the risk for you! Sounds great! So, just one question(?) what are they getting in return?
Well, for the most part they are getting a significant chunk of the return you might think you will be getting! The neat thing, for the engineers, is you are the only one putting money into the proposition! They are taking a per cent of your positive returns and none of the negative returns because the guarantee is paid for from your deposit. Perhaps now you can see where the cunning comes into the equation!Perhaps these products need to come with a warning on the label:
CAUTION: Guarantees may significantly reduce the value of your investment while drastically increasing your costs!
While that is never likely to happen, the real disgrace is that these products will be sold to those seeking the least risk and who can often least afford the costs.
So what should you be watching for:
Guarantees: Unless you are buying a bank GIC with CDIC coverage or a short term Government Bond, do NOT ever trust a guarantee.
GaffleGab: If you do not understand a product, do NOT think it is because you are stupid. There is a great chance the confusion is intentional and a pretty good chance your advisor does not really understand it either.
Fees: Structured products are often designed to hide fees. Ask for a clear description of all fees in writing from your advisor along with comparable fees without the guarantee. In fact ask your advisor why they can not create the same product for you from standard easy to understand securities.
The attached leads to a great Ken Hawkins article on structured products for those wanting to learn more!
sois mike
http://www.investopedia.com/articles/fi ... oducts.asp
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
by admin » Sun Sep 14, 2008 6:00 pm
Friday, April 18, 2008
Portfolio Complexity: The toxic cake!
Wow, do you ever wonder how an industry with so many smart people can get itself into such a huge mess? Having met Purdy Crawford, I know he is extremely bright and experienced and a great choice to sort out the ABCP issues in Canada. So is it not amazing when he takes months working with a hand picked selection of bright minds, and then acknowledges they have no idea what the ABCP is worth today! I guess that qualifies as complex!
Asset Backed Commercial Paper is one of the best examples of smart people outwitting themselves. It all starts with simple assets like a mortgage, but a straight mortgage can only generate so much profit for the smart folks. So from the mortgage comes mortgage backed securities, then comes a complex bundling process that is like baking a cake. When the recipe is right, the individual ingredients cannot be easily distinguished but the finished product looks and smells great! Unfortunately, as with baking, a little of the toxic stuff can be mixed into the investment bundle and perhaps not be fatal. Maybe we use a few ingredients that are past there "best before dates", who will know or care, right. Well, in a great kitchen the chef would notice and of course in the investing world the rating agencies would know. Quick comment: trust your chef before your rating agency, the chef is not paid by the flour mill!
Not surprisingly, it would appear that there is a limit to how much of the ingredients can be toxic before the cake is poisonous. And to bring this long analogy to an end; the cakes have all been baked, nobody knows how much of the ingredients are toxic, and there are very few investors lined up to sample the outcome! The smart guys in the kitchen can't tell the good cakes from the bad and it would appear the bakeries sold enough cake to feed the world!
So what have we learned: The old adage still holds true....you can't have your cake and eat it too!
As for complexity in your portfolio....beware the advisor selling baked goods! Check the ingredients before you scoop up the icing! For a more rational and clear understanding of portfolio complexity, check out the 3rd issue of the Second Opinion Newsletter .
soismike
http://unbiasedportfolio.blogspot.com/2 ... chive.html
Portfolio Complexity: The toxic cake!
Wow, do you ever wonder how an industry with so many smart people can get itself into such a huge mess? Having met Purdy Crawford, I know he is extremely bright and experienced and a great choice to sort out the ABCP issues in Canada. So is it not amazing when he takes months working with a hand picked selection of bright minds, and then acknowledges they have no idea what the ABCP is worth today! I guess that qualifies as complex!
Asset Backed Commercial Paper is one of the best examples of smart people outwitting themselves. It all starts with simple assets like a mortgage, but a straight mortgage can only generate so much profit for the smart folks. So from the mortgage comes mortgage backed securities, then comes a complex bundling process that is like baking a cake. When the recipe is right, the individual ingredients cannot be easily distinguished but the finished product looks and smells great! Unfortunately, as with baking, a little of the toxic stuff can be mixed into the investment bundle and perhaps not be fatal. Maybe we use a few ingredients that are past there "best before dates", who will know or care, right. Well, in a great kitchen the chef would notice and of course in the investing world the rating agencies would know. Quick comment: trust your chef before your rating agency, the chef is not paid by the flour mill!
Not surprisingly, it would appear that there is a limit to how much of the ingredients can be toxic before the cake is poisonous. And to bring this long analogy to an end; the cakes have all been baked, nobody knows how much of the ingredients are toxic, and there are very few investors lined up to sample the outcome! The smart guys in the kitchen can't tell the good cakes from the bad and it would appear the bakeries sold enough cake to feed the world!
So what have we learned: The old adage still holds true....you can't have your cake and eat it too!
As for complexity in your portfolio....beware the advisor selling baked goods! Check the ingredients before you scoop up the icing! For a more rational and clear understanding of portfolio complexity, check out the 3rd issue of the Second Opinion Newsletter .
soismike
http://unbiasedportfolio.blogspot.com/2 ... chive.html
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
by admin » Tue Sep 16, 2008 3:07 pm
As I was driving home this afternoon, I was thinking of exactly what it was that was the biggest message of the whole affair. I came to this conclusion.
1. Despite the fact that the USA had gotten authorities involved and ordered over $50 bil in fines and repayments of customer losses..............within six months of the failures.
2. Despite the fact that there are over 100 offices, agents, departments, ombudsmen, others (like the ASC) purporting to protect the investing public in Canada...........
3. Despite this being the largest financial liquidation (melt down according to some) in North American history......
Despite any and all public relations and marketing to the contrary, I can find no evidence of any person in a position of authority (ASC, OSC, IDA, RCMP) or any government protective agency in Canada even taking a stance, or a look at this crisis. In fact, I have evidence to the contrary, that those in positions of authority have actually aided and abetted the pilaging of public investment accounts.
Similarly, at the City of Leth, (my town is stuck with $30 mil) I see no evidence of a person or persons, standing up and speaking on behalf of the public whose money this is.
I see only a private "cleanup crew" headed by a former tobacco industry lawyer who led the company into the smuggling business. This person and his private, non-sanctioned cleanup crew is the sum total of the entire Canadian effort during our largest crisis.
It almost speaks volumes louder than words can convey to the topic of Canada being lawless financially. Or as former Bank of Canada governor David Dodge was quoted as saying, "Canada has a reputation internationally as being a Wild West".
cheers
1. Despite the fact that the USA had gotten authorities involved and ordered over $50 bil in fines and repayments of customer losses..............within six months of the failures.
2. Despite the fact that there are over 100 offices, agents, departments, ombudsmen, others (like the ASC) purporting to protect the investing public in Canada...........
3. Despite this being the largest financial liquidation (melt down according to some) in North American history......
Despite any and all public relations and marketing to the contrary, I can find no evidence of any person in a position of authority (ASC, OSC, IDA, RCMP) or any government protective agency in Canada even taking a stance, or a look at this crisis. In fact, I have evidence to the contrary, that those in positions of authority have actually aided and abetted the pilaging of public investment accounts.
Similarly, at the City of Leth, (my town is stuck with $30 mil) I see no evidence of a person or persons, standing up and speaking on behalf of the public whose money this is.
I see only a private "cleanup crew" headed by a former tobacco industry lawyer who led the company into the smuggling business. This person and his private, non-sanctioned cleanup crew is the sum total of the entire Canadian effort during our largest crisis.
It almost speaks volumes louder than words can convey to the topic of Canada being lawless financially. Or as former Bank of Canada governor David Dodge was quoted as saying, "Canada has a reputation internationally as being a Wild West".
cheers
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
- Location: alberta
Return to Click here to view forums
Who is online
Users browsing this forum: Yahoo [Bot] and 1 guest