Investors Scrutinizing the Regulators

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Highs 'n' lows
Rate cut sparks Wall Street jump but more sub-prime victims emerge 

March 19, 2008


Stock markets celebrated another U.S. interest rate cut with the TSX up 184.55 points yesterday and Wall Street enjoying its biggest one-day jump in five years.

Hard-hit financial shares rebounded by 4.1%.

What sweet relief from Monday's bloodbath, when stocks plunged on fears that Bear Stearns was the first of banks to fail not just in the U.S., but globally as this Economic Armegeddon unfolds.

The Dow climbed 420.41 points, after the Federal Reserve cut its key rate by another 0.75% to 2.25%, as it tries to put the brakes on the spreading subprime mortgage crisis and what doomsayers predict will be the next Great Depression.

But for small Canadian investors caught up in the $32-billion worth of frozen commercial paper invested in sub-prime instruments and now in bankruptcy protection, there's little to celebrate.

Calgary pastors Garry Webber and wife Merelyn's investments in asset-backed commercial paper have been frozen in the fallout from the U.S. sub-prime mortgage disaster.

In fact, Toronto lawyer Brian Iler didn't want to be exposed to risky markets in the first place. And that's why last spring, he sold his mutual funds and went to credit union Alterna to safeguard the $220,000 he got from the sale of his matrimonial home, after he and his wife divorced.

"I was worried about the American market and the deficit (George W.) Bush was running. I didn't want to take any risk," said Iler.

At Alterna's brokerage arm, Credential Securities, a broker suggested he invest in SIT III. SIT stands for structured investment trusts.

Calgary pastor Garry Webber and his wife, Merelyn, also a pastor, bought similar investments. They were seeking a better return for $180,000 of their RRSP investments, but still wanted to play it safe.

What an easy sell it was. A Cannacord Capital memo advertised these babies as protecting capital just like GICs, but offering a better one-year GIC rate, at 4.8%. Even better, Dominion Bond Rating Agency gave them a Triple A credit rating.


And what a rude awakening for Iler, the Webbers and other investors, many of them retired, when the asset-backed commercial paper crisis hit last summer, rendering their investments, tied to the subprime madness, as junk. Also exposed are Crown corporations, financial institutions and companies.

Ottawa froze the assets and Toronto lawyer Purdy Crawford was put in charge of a committee to restructure, with hope government wouldn't be forced to bail them out. This week, the assets were place in bankruptcy protection until April 16 and now investors get to vote on a restructuring proposal. Meanwhile, Purdy is floating blanket legal releases to try to stop investors from suing.

"This is rock bottom low," said Diane Urquhart, an independent analyst, who points out many families have been emotionally and financially distressed.

Webber, a pastor at Calgary's Foursquare Gospel Church of Canada, is hoping financial institutions will do the right thing and pay out small retail investors caught in this storm.

Like many others, Webber is also concerned about the greed and corruption which has crept into capital markets and hurt so many innocent people.

"Perhaps it's time to read the good book (the Bible)," said Webber who left the private sector 12 years ago after a calling to enter the ministry. "To me, the whole end times scenario is referenced (in the Bible). We need to understand what has been prophesized in the scriptures."


Psssst. If you want some reading that will have you sitting on the edge of your seat, read the book of Revelation. It even prophesized 9/11. Or get a copy of Rev. Ronald Weinland's latest book 2008: God's Final Witness. If your eyes aren't opened yet, they will be.

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