Monday, December 21, 2009

Pen Meets Paper Dec. 21 '09

Opinion by Helge Nome
Is the value of gold a canary in the coal mine? Lately, the value has exceeded US$1,100 per ounce. Why is gold thought to be a safe harbor from the stormy financial markets where the big sharks prey?
Perhaps we shouldn’t speak so much about the strength of gold as the weakness of national currencies reflecting a general lack of faith in the institutions that are supposed to look after the tickets we use to access goods and services.
In this regard, the 2008 Annual Report from ATB Financial contains some very revealing information
At March 31, 2008, ATB Financial found itself in possession of $1.2 billion worth (or so they thought) of so called Asset Backed Commercial Paper (ABCP). As it turned out, nobody wanted to buy this paper any more because of its questionable value.
In other words, ATB Financial had exchanged $1.2 billion good Canadian dollars for what I have chosen to call ABCTP (Asset Backed Commercial Toilet Paper).
What now follows is interesting, quoted directly from the report:
“Given that there is no active market for the ABCP currently undergoing restructuring, ATB developed a valuation model, in accordance with Canadian Institute of Chartered Accountants (“CICA”) guidelines, to determine its best estimate of the fair value of these investments as at March 31, 2008. This model includes a number of significant assumptions; consequently the fair value of the investment may vary significantly from the current estimate”

So what has happened here? Simply that a group of bank executives sat down around a table and decided how good or bad they wanted their 2008 Annual report to look.
Instead of showing a loss of $1.2 billion they decided that they had only lost an estimated $252.5 million based on future hopes of getting rid of their ABCTP at a discount value.
And you can bet your bottom dollar that every bank holding ABCTP has done exactly the same thing, hiding their action in some obscure part of their annual report.

Now, in the 2009 Annual Report, a box for storing the ABCTP is revealed. It is called a “Master Asset Vehicle” or “MAV” for short. The report doesn’t state whether these vehicles have wheels or a driver, but I suspect that they do. So that they can be parked around the corner, out of public view.

Wouldn’t it be nice if we could all do the same thing when trying to attract investors?

Why would we trust people that are prepared to play these kinds of tricks on us while taking our money?

Did I hear something about pay dirt up Yukon way?

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