:LPE:

The Supreme Court has weighed in on its second or third major business case of the year — a busy year - and approved the plan of arrangement that will restructure the Canadian non-bank asset-backed commercial paper market. Yes, that’s right, a single case is restructuring the market, it used to be worth tens of billions, maybe even $100B, but the numbers escape me, all because a single guy, Purdy Crawford, put together a single committee, the Montreal Committee, to make a single deal (well, ok, there were a few side deals) to exchange 30, 60 or 90 day commercial paper for long-term bonds worth, well, we don’t know what they’re worth because they have (wisely) not yet floated any. But they’ll be worth something, we presume. That’s certainly what everybody who signed onto the deal hope, because otherwise the write-downs are going to be enormous.

From a lawyer’s perspective, it smells. No-one, least of all the Ontario Court of Appeal, thought it was an elegant legal solution, and that court bent over backwards to say everything but we’ll never do this again”. I have yet to count the number of times they use the term “unique” in relation to the facts. (Interesting how the very same thing happened in the U.S., and we hear of new aspects each week: unique doesn’t mean what it used to mean.)

One of the reasons for that smell is that the plan of arrangement provides a “blanket release” to all claims in negligence against the issuers, their advisors, the rating agencies, everyone who had anything to do with making or selling this toxic waste, as the bond traders call it. A few people found that kind of thing hard to swallow — there are some pretty good cases out there saying you can’t take away people’s rights like that, least of all through an obscure piece of corporate restructuring ordinance that has not been seriously updated since the ’50s. It’s fair to say it does not contemplate restructuring entire markets and removing rights to remedies in the process. But with few other options explored by the issuers in Mr. Crawford’s committee (who otherwise had everything to lose and nothing to gain), they struck the deal we are now going to live with. Not a proud moment, but at least it isn’t suspending habeus corpus.

I hope this means we won’t have to talk about the Greespan anymore. One of the most remarkable moments of the past couple months was Greenspan admitting he “found a flaw” in his views on capital markets and that this flaw permitted him to preside over the greatest mismanagement of U.S. capital markets, ever. Don’t take my word for it, you can read his here.

He says he is “distressed”. Not at people’s losses (naturally, he’s distressed at those), but at his mistake. Well, here’s to distress, we’ll be hearing a lot more about that in the next 3-5.

Note, however — and it is really just notorious fact — that the pundit class has not read his testimony, nor internalized what Greenspan himself appears to have concluded. There are still attempts to reconcile public ownership of, say, the mortgage market and substantial portions of bank balance sheets with “greater deregulation” and “protecting, not eroding” unregulated financial capitalism. Really, this is even more distressing, a public press than can’t read.

I suppose one has to keep these short: after 20 years of deficit slaying and through one if not two recessions, today we are being told, by Stephen Harper no less, that it is meet and right to run the deficit. Yes, yes, yes, as the man said, we are all Keynesians again.

Not that it is translating into anything but spending ad hocism in regions based on their polling results, but baby steps and it is early days in this slowdown.

I have not posted consistently to this space for a couple of years, as a long project wound up. I hope soon to be regularly posting again. In the meantime, the New Gilded Age came to a crashing halt, we’re measuring losses in deciles not percentages, the worlds central banks threw their entire balance sheets at financial markets, the U.S Treasury convinced Congress to spend $700B on a plan it abandoned six weeks later (but did not return the money), the financial press are still using the word “free” in close proximity to “market” notwithstanding the largest government intervention (read: nationalization) in capital markets in two lifetimes, the auto industry is about enter insolvency proceedings, the Canadian airlines may not be far behind (again), oil is now dipping below $60 again, losing 50% of its price since peak in July, the secondary effects of the housing, financial and commodity deflation are starting to appear more consistently (today City axed thousands of jobs, but again, kept its bailout money), AIG is now into the Feds for $150B, there are no longer any independent investment banks in the U.S., the term ‘moral hazard’ has been re-defined somehow to not apply to all of the above (what’s the opposite of a moral hazard? A moral incentive? Could there be any larger incentive to greed and fecklessness at the highest levels than $700B and not even an effort to defend it as anything but a transfer to the richest segment of the population?)

And still, I was told recently, there is demand out there, looking for things to buy. Caveat emptor. More on these and other topics soon.