Investors Scrutinizing the Regulators

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Fox Guarding the Hen House

   

 

 


Passionate responses from commercial paper investors
Their plight raises questions about the integrity of our financial system


Ray Turchansky
 

Wednesday, April 09, 2008

 

My recent column on the plight of retail investors holding frozen assets in non-bank asset-backed commercial paper drew a variety of passionate responses from readers across the country.

Here are some of their feelings:

"Thanks for your article on the side of the retail investors who were either misinformed about the security of ABCP, or in many cases were simply not consulted about their funds being placed in ABCP. I am a retail investor, obviously, and it is so incredibly frustrating to read the online comments of horses' (butts) who insist that we'd been offered 17 per cent, that we're greedy and stupid.

I was told my funds were going into a 'note like a term deposit, fully secured, with interest at 4.0 to 4.25 per cent.' It was just for a month until I bought a house; hardly an opportunity for a cash grab, nor a definition which appeared to require research on my part.

I just spent the morning in Vancouver at the dog and pony show Pan Canadian Committee meeting. It's clear a settlement offer is in the works. I can only hope they get on with it quickly.

One very tired, very angry investor." -- J.O., Victoria, B.C.
 



"Look for either the provincial governments, or the Canadian payments system, to allow partial security interests as a more credible alternative to ABCP. I say look for it, because you will not find any bank proposing to let go of any part of security interests they hold.

The issue I have with any solution that I have read about so far, is that the banks remain secured creditors, and the individual investors remain unsecured against property." -- B. v. L., Ontario

"Doesn't a writedown cascade down to the individual shareholder -- Farmer John and wife Mary, too? The value of the company has been reduced, has it not? Perhaps the effects don't show up until that investor tries to sell shares in the devalued company.

Has there been any recognition expressed that the failure of the investment companies' staff worked to the detriment of some pretty ordinary Joes, or is that perhaps politically unpalatable to acknowledge, perhaps like yelling fire in a crowded theatre!

In my opinion, of course, and a dream as well, we don't need more law or regulation, we need people (politicians, businessmen or women, writers, speakers, etc.) of moral fibre; people whose life/business style reflects an approach that is ethical, moral, honourable -- less greedy to make a large profit at someone else's expense -- and one which is more ready to accept a reasonable profit. We also need an accessible communication system that is trustable, competent to deliver truth, or at least an unbiased opinion (or a biased one with an acknowledgment of the bias), and is supported by writers/communicators with sufficient knowledge to deliver an improved understanding to a reader. Of course, in the absence of those things we must hope for regulations or laws that are also workable and enforceable." -

 

- G.S., Edmonton
 



"Thank you for the good item on the U.S. financial crisis. I am a regular watcher of the News Hour on PBS and of course this subject is discussed practically every night.

As you say, there is much more to this than simply 'investor beware.' A writer for the New York Times revealed that many of the people caught in this mortgage fiasco could well afford a conventional mortgage, but were persuaded by their bankers to go for the subprime.

Why were they persuaded? The banker got a bigger commission by selling them a subprime mortgage.

Also on the News Hour, a historian said that if the U.S. government decides to let borrowers sink on their own they will be reverting to the philosophy of Herbert Hoover during the Great Depression. In those days governments believed that bailing people out of their personal financial predicaments was somehow against 'their religion.' It took FDR (Franklin Delano Roosevelt) to change all that. It now appears that the U.S. government is going to give some relief to these people. To not do so after bailing out Bear Stearns would be political suicide, I guess. These are very scary times I fear."

-- S.B., Edmonton
 



"Liked your article; however, are you sure that Canaccord and Credential were 'unwitting?' Dig a bit further and you may find that they got extra points for taking on this stuff and selling it to clients as a totally secure investment.

At the Toronto session, an advisor from Credential said he had proof that other secure investments were not available during the time that this tainted product was being sold from their inventory.

Unwitting? I don't think so."

 

-- J.M., Toronto
 



Ray Turchansky, a freelance writer and income tax preparer, writes Wednesdays and Saturdays in The Journal. He may be contacted at turchan@telusplanet.net

The Edmonton Journal 2008

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