CPP Dec 20th 2007

From the desk of:

Shoobedoowa
Calgary
http://whatisgoingonincanada.blogspot.com/

To:

Diane Ablonczy (MP)
Calgary Nose Hill

1107 17th Ave North West
Calgary, Alberta
T2M 0P7

December 20th, 2007

Dear Ms. Ablonczy:

I am one of your constituents. I am writing to you not only as a voter, but as an angry Canadian citizen who is feeling quite betrayed not only for myself, but on behalf of all Canadian citizens.

I was shocked to read the article attached below from the Globe and Mail, regarding the use of CPP funds to bail out various institutions by providing funding, for what is known as ABCP, which is used to underwrite assets that are incomprehensible, poorly documented, and very likely in default.

I am astonished that money being safe guarded for Canadians against their need in retirement is being applied to bail out financial institutions that speculated in risky assets. I do not recall the Federal Government being given a mandate to squander their citizen’s future in such a manner.

I am well aware of the nature of these assets, commonly referred to as securitized assets with various simplified labels such as CMO, CDO, CLO, MBS, and so forth. I would expect that someone charged with the prudent stewardship of our retirement money, CPP, would also be aware of this. There are multiple reasons why no institutions or investors are willing to fund these assets.

The ABCP market has frozen up. It is because the assets backed by that commercial paper are suspect. They are often securitized loans and mortgages that were, in many instances deceivingly, given a AAA rating using a non-disclosed black box model, but are now revealed to consist of non-existent cash flows from loans in default.

No financial institution, nor knowledgeable investor, wants to fund these assets since their actual creditworthiness is in question and suspect. Further, no holder of these assets appears willing to disclose exactly what they are using the ABCP to fund, nor what the actual status is of the underlying cash flows from the securitized assets.

If major financial institutions and private investors do not want to put their money at risk in this situation, why should I? Why should any Canadian? Our government has seen fit to take money that I, and every other working Canadian, has provided as a backstop for our collective futures, and “invest it in” (spend it on) this toxic waste of securitized products.

Furthermore, to hear some bureaucrat tell me, via this article, that these instruments are transparent and safe is a lie. Nothing less than a BLATANT LIE. The ABCP, which is distinct from commercial paper issued by manufacturers, is funding assets that are so risky that no one in their right mind, including our very own banks, wants to lend against.

Mr. Raymond’s deceiving claim that “All of the Big Five banks in Canada now provide global liquidity” must not be considering TD bank to be one of the “Big Five”. This week, TD bank refused to be involved in the latest scam….er…..scheme.

This organization has taken an action that would NEVER be taken by a knowledgeable and prudent investor. Why do we not have laws against such action?

I also resent that most of the banks in the consortium trying to straight arm the Canadian financial establishment into bailing themselves out are foreign banks who took unnecessary risks. They were greedy, and they speculated. Let them pay the price. Unless I am personally receiving some of their outrageous bonuses for their deceptive achievement of abnormally high returns on these risky assets, MY MONEY SHOULD NOT BE USED TO BAIL THEM OUT. Why are you privatizing profits and socializing losses?

How dare our Federal Government!? Shame on you all for the slimy back room deals that are being put together with money that does not belong to you!

With all of the fraud and deception that seems to be surfacing, it may be time that some of us rank and file citizens start passing some serious questions around about how our financial systems are being run these days. I should expect that we can rely on our elected representatives to be taken to task in their fiduciary duty to do so.

With Sincerity,



Shoobedoowa
Calgary


Attachment: Reference to Globe and Mail article, dated December 19th, 2007.

Below is the article in Globe and Mail, dated December 19th, 2007:

http://www.globeinvestor.com/servlet/story/RTGAM.20071219.wabcp_cpp1220/GIStory/

Pension fund snaps up $6-billion in ABCP
LORI McLEOD AND BOYD ERMAN
Wednesday, December 19, 2007
Canada's biggest pension fund is giving bank-sponsored asset-backed commercial paper a big vote of confidence. The Canada Pension Plan Investment Board has bought $6-billion of the short-term debt based on a view that confusion in the marketplace has created an attractive opportunity.
Canada's market for asset-backed commercial paper (ABCP) has been in turmoil since August, when $33-billion of the paper created by non-bank institutions such as Coventree Inc. ended up frozen when investors refused to buy the paper because of concern that it was backed by U.S. subprime mortgages.
More than $80-billion of ABCP issued by the country's big banks kept trading in the fall, but at a huge discount. With yields soaring, the CPPIB began accumulating ABCP in September, but is sticking to the more solid bank-backed paper.
“They are actually incredibly safe investments with lots of transparency, and, at this point in time, offering a higher yield because of the confusion between them and their next of kin,” said Don Raymond, senior vice-president of public market investments at the CPPIB. “Traditional investors who have gotten into the non-bank side have now been restricted from investing in the bank-sponsored ABCP. So the whole market has been treated as one, while they are really very different instruments.”
Thirty-day, bank-sponsored paper, for example, is trading at about 60 basis points above the rate on banker's acceptances, a much wider spread than the three to four basis points above that rate before the crisis took hold. (A basis point is 1/100th of a percentage point.) In the world of short-term investments, where returns are often just a few percentage points, an extra half percentage point is a huge pickup in yield.
The $121.3-billion pension plan decided to reveal its ABCP investments because of their size, and because of the widespread knowledge of its investment activities among market participants. The CPPIB also stressed that it made the investment solely on its merits, and has not been asked by outside parties to help provide liquidity to the ABCP market in Canada.
ABCP is a short-term investment vehicle backed by assets including home and car loans. Some paper is also backed by derivatives and other financial instruments, but the CPPIB is avoiding that, Mr. Raymond said.
Bank-sponsored ABCP is actually a safer investment than it was this summer owing to changes largely driven by market demand, Mr. Raymond added.
Investors have pushed the banks for global liquidity standards, which provide better safeguards for investors than were required by Canadian-style liquidity provisions. All of the Big Five banks in Canada now provide global liquidity, Mr. Raymond said.
The CPPIB also receives monthly reports showing how the receivables in its investments are performing, when just months ago that information wasn't provided to investors in many cases, he said.
“This has created an opportunity for investors like ourselves, who have the ability and the capabilities to understand the underlying assets within these securities, and offers attractive yields for what in fact are very solid assets.”
Moody's Investors Service Inc. is rating Canadian ABCP for the first time. The ratings company gave almost $20-billion of paper issued by Royal Bank of Canada and Bank of Nova Scotia its top rating of Prime-1.
The banks asked Moody's to rate the paper, so that it would have grades from two ratings companies. Before the credit crunch, DBRS Ltd. was the only company to rate Canadian ABCP.
By getting a second rating for their paper, Scotiabank and RBC are likely trying to boost investor confidence which would lower interest rates on the paper, improving profits for the banks.
“Maybe people will be more confident buying it, and maybe the spreads will come in, which would be a big benefit for the banks,” said Charles Gamm, vice-president and senior credit officer at Moody's.
Ironically, RBC and Scotiabank paper always had global style liquidity, and would have qualified for a rating from Moody's had the banks asked for one.
Moody's is now discussing rating paper from the other big banks, since they too have switched to global-style liquidity backup.
© The Globe and Mail