Never say never

Diogenes's picture
purdy2 (3K)

Back in June 2008, I wrote what I said would be my last blog on a ABCP.

Until then, I had been an active and vocal member of the Facebook group Canaccord and other ABCP clients. I had written blogs about the group and the topic, posted links to news articles and sent e-mails to a whole gaggle of MP's. I was consuming every story I could find on Goggle News.

I was a Facebook ABCP group junkie. Worse yet, I didn't even own any of toxic paper or live in Canada at the time. It was a vicarious life.

Why would I care, you ask? Because I am Canadian! This curious connection to home was my nirvana. Does that make sense? Take off eh?

My last rant on this subject had the view that victory was ours (fellow CAOABCPC members, the little guy, all retail investors).

Big shot investment dealer Canaccord was finally obliged to offer their retail clients a full refund. But this offer was conditional on having their clients vote in favour of a restructuring plan that would:

  • exchange the frozen short term notes for that mature in 7-9 years
  • exempt the banks, dealers, and agents that originated and distributed the ABCP from all lawsuits, including fraud and negligence

This restructuring plan does not pass the smell test; in fact it stinks. Critics argue its dollars for votes, a deal with the devil. Some good companies (i.e. Air Transat) get badly burned. But the vast majority of retail investors will walk away from this debacle intact. The vote passes. The taste of victory is bitter-sweet, but it is still a victory.

At this point, I quit Facebook (again) and attempt to resume a normal life. I go on vacation to Armenia. Since life is full of surprises, I have no expectations. Surprises happen.

- 2 -   

It is 6 months later and I'm back online. I have joined Facebook (again) but under a different name (Bernie Madoff? ha-ha, just kidding, there were already too many).

As I write this, the deal has yet to be completed. There have been 7 more months of delays by the Pan Canadian committee (or whatever the hell it's called now). The agreement has survived a Supreme Court of Canada challenge, which was another victory (of sorts) for the group, but then other issues develop.

The financial and stock markets have collapsed, the Canadian dollar drops 20% in a month, oil is down by 75%.

"Houston, we have a problem." The committee announces another 1 month delay.

In December, we watch in amazement as Purdy Crawford accepts an award for his role in handling the ABCP crisis and then, less than 2 weeks later, going to the government, hat-in-hand, for a loan guarantee. We live through another white knuckle, sweat-some-saddlebags drama as the whole deal threatens to fall apart… again!

And then an amended deal come together on christmas eve! This journey has been so remarkable.

- 3 -   

By the Numbers - the cost of the ABCP fiasco

Being the fashion for the season, I have also tallied some numbers. They don't add up without very some complicated explanations, but what else is new? ABCP has never passed the smell test.

  • $32 billion - the value of non-bank ABCP short term debt notes that 'froze' on August 13, 2007
  • $39 billion - the total amount 'credit facilities' arranged to re-structure the ABCP mess
  • $4.45 billion - the additional 'margin funding provisions' provided by the Federal, Alberta, and Quebec governments after another 11th hour re-jigging of the re-structuring in December 2008.
  • $6 billion - the amount of cash collected so far against the $32 billion in ABCP notes. Some of the debt has being repaid in the last 17 months. It sits in some trust account, somewhere…
  • $200 million - the fees for the army of lawyers and financial advisors, paid for from the $6 billion trust account, to sort out this mess and refinance it.
  • $186 million - the amount Canaccord will refund their retail investors who had invested in ABCP.
  • 3000+ - pages of amendments to the restructuring plan agreed to in December.
  • 1,765 - number of retail clients that Canaccord will refund. I wonder how many will remain clients?
  • 290 - membership in the Facebook group Canaccord and Other ABCP clients
  • 13 - the number of security regulators in Canada
  • 0 - the number of securities regulators in Canada that were helpful in preventing the problem and resolving this situation.

    We should also mention Bank Governors, Superintendents of Financial Institutions, Members of Parliament, Members of the Legislative Assembly, Ministers of Finance and many others whom I forget or don't have time to mention. (it's Oscar season, forgive me if I can't contain my excitement)

    But some of those cited in the penultimate paragraph of this point did come forward and try to make a difference. Some did make a difference. We thank you.

- 4 -   

While I am very happy about the outcome for all members here and all the retail investors across Canada, I am deeply disturbed by how this whole process came to be and how it was resolved. The foxes were put in charge of guarding the hen house.

If the purpose of government is to govern, to create a fair and just society for all Canadians, then this government failed. Some changes are needed.

Too many equate good manners, impeccable tailoring and wealth with honesty, integrity, and intelligence. As some of us have learned from this experience, it ain't necessarily so.

Brian Hunter, the founder of the Facebook group CAOABCPC, made one comment in the press about polishing a turd. Though a great deal of time and money was spent in shaping and polishing this one, in the end it still smells pretty bad.

Our local governments have been pretty successful at getting dog owners to be responsible for the turds their pets leave behind. Now the federal government needs to do the same with our millionaire-salaried club of bankers, securities dealers, and investment managers.

Canada needs a single national securities regulator. One with teeth and intelligence.

I wouldn't even mind if the top dogs were paid a 7 figure salary, if that is what it takes to get the best. But I'm guessing too, that if the legislation was properly framed, a light touch with teeth, if you will, the office would receive the respect and support and it would cost much less to get the best.

Good luck Canada! This may not be easy, constitutional challenges notwithstanding, but it needs to be done.