The Globe and Mail astonished me this morning with a superb, balanced report on the August 2007 Canadian ABCP Collapse. They have even eased up on their concentration on the Credit Rating Agencies.
The article sticks to its knitting, focussing on real, live, actual journalism. Not rewriting press releases, not using a press card as soapbox for some strange idea or another; just plain old getting out there and asking questions. It’s a shame that in exchange for this access, they (presumably) had to ease up on tough questions like: ‘What made you think you had the skills to invest $100-million dollars?’, but hopefully shareholders will attend to that aspect of the matter.
In line with this, they do not offer any prescriptions to “fix” the system, but there are some interesting snippets in ‘Chapter 10 : Learning Lessons’:
“We don’t understand what’s going on in our markets any more and we feel we can’t trust anyone,” said Dwayne Lo, comptroller of First Quantum Minerals Ltd.
Good for you, Mr. Lo! You have now passed the first test in becoming a portfolio manager.
The blame for the lack of transparency rests on many shoulders. Investors didn’t ask, sellers didn’t tell, and regulators who focus on traditional stocks and bonds didn’t push either side of the market to have an honest conversation about risk.
It’s not clear why the Globe feels regulators should be involved, but we’ll let that pass. They make the point elsewhere that ABCP conduits inter alia can have some strange things in them; investors should be looking for a good level of credit enhancement; and, perhaps most importantly, credit risk is not the only risk in the marketplace.
Anyway, I recommend this article to anybody with an interest in August’s events.
I find it interesting that the reporting on the Canadian ABCP story has characterized it as a credit (and particularly subprime mortgage) problem. The largest conduits have said they have little subprime exposure and the credit enhancements to achieve their AAA ratings would be sizable.
The media wants to have an identifiable villain and the most obvious target was DBRS.
Mind you – Apsley Trust’s downgrade from R-1(high) to R-4 is not the most impressive example of ratings stability I’ve ever seen.