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Minyan Mailbag: Money Frozen in the Yukon


Just how pervasive has the fraud in mortgage-backed securties become?


I received an interesting e-mail this morning from Peter in Whitehorse, Yukon. The issue was asset backed commercial paper. Here goes:

Hi Mish,

I live in Yukon, Canada and regularly read your blog. I was away from the Yukon for a month and came back to news headlines that the Yukon's surplus of $36.5 mln that had been invested in a "low risk, low return" scheme was overdue. Smelled like asset-backed commercial paper. Sure enough as this link shows:

$36.5 mln owed to Yukon government unpaid on schedule.

Of course the government is in damage control and telling everyone that will listen that the money is safe and will be returned!! Methinks the money is likely gone.

The real question is what was the Yukon Government doing investing taxpayer money in commercial paper when it should have been buying government bonds or something that is relatively safe? They got in way over their heads. The Yukon has a population of about 30,000. This surplus represents a lot of money that will now not be available. We are likely back to zero or worse. Incredible!!

Whitehorse, Yukon

Thanks Peter,

In the grand scheme of things, the Yukon money involved is insignificant (but not to those in Whitehorse). Instead of an apology Yukon's top finance official said he's confident the money is secure, and the uncertainty will have no impact on the territory's cash flow.

"Naturally, we would have wanted our money back when we expected it to get back, but you know, the paper we bought was the highest-rated investment paper one could buy."

Although the amount in the Yukon is small, there is $40 billion frozen elsewhere in Canada. That is not peanuts. I talked about the plight of frozen asset backed commercial paper in Canada back on September 28, in Global Credit Crisis Weekly Wrap-Up.

I am curious here. Was this asset backed paper by any chance rated by Fitch? See Any Credibility Left At Fitch? for why I ask:

Purdy Crawford, a lawyer and financial adviser hired to negotiate a settlement, said he is now hoping to have an agreement by the end of this year. That deal is expected to convert the short-term investment into longer-term notes, with the government being paid back over five or 10 years.

If investors are patient, Crawford said, they could receive all or nearly all of their money back over time.

Isn't that just lovely? If you wait 10 years maybe you can get nearly all your money back.

The fact that this problem stretched all the way to Whitehorse, Yukon shows you just how pervasive the fraud in mortgage-backed securities became.


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