ABCP What?

Amidst the chaos of Canada's political posturing, some people were afraid that government was getting distracted from more important matters, i.e. the economy, stupid. Unfortunately, it seems although they were right.

Canada has escaped the brunt of the global financial meltdown, but we are not unaffected. Case in point, the Caisse de Dépôt is struggling to backstop Québec's banking system from sliding down into oblivian. Unfortunately, multiple Montréal financial institutions bought Asset-Backed Comercial Papers, or ABCPs, back in 2007 when they were considered 'safe'. These debt instruments were sold as short-term low-risk investments, which became toxic as people stopped paying their mortgages in the US. Since no one would buy them anymore, the market for this type of security froze. Institutions that happened to own that at the time were stuck with them, and took a big hit on their balance sheet.

Most other countries have moved to limit the damage caused by these radioactive papers (like $150 billion for AIG), but so far Canada has done nothing. Lots of Canadians will be affected if this downward spiral continues, and it will cost more to fix as time goes on. Having banks collapse is the worst-case scenario in the current crisis, as it could precipitate a full-blown depression.

This matter should have been resolved 6 months ago, when the credit securities were first discovered to be toxic and plans were put in place to restructure. Again, it should have been resolved last month, when Stephen Harper assured Canadians that "we will engage in sufficient stimulus to do our part in carrying global economic demand". Unfortunately, it is still not resolved, leaving beleaguered banks left begging for funds. They are not asking for the full value of the toxic papers to be covered by the government, just enough so that they won’t get killed.

Many Canadians are weary of public bailouts, but the stakes are simply too high. A domino effect is in place, and unless it is stopped, all Canadians will feel the financial pinch. This is not a time for politicians to sit by and play internal games, The Canadian economy needs action NOW. National Bank Financial's stock is down almost 10% today, and will continue to slide unless assurances are given that Ottawa and Québec City will do something about it.