I would draw your attention to my rantings about Canada’s Asset Backed Commercial Paper (ABCP) fiasco. The American equivalent was Auction Rate Securities (ARS). CP was traditionally where that short money went to earn a bit of interest until it was needed at 9AM Monday to pay for that tub of manganese chromate.

In mid-August 2007, on Bay Street in Toronto, a company you probably have not even now heard of called Coventree couldn’t get its own financing and it had to freeze some of that money. Before the clients could escape from that burning theatre (the entire ABCP market immediately froze) they saw C$32 billion of their short money taken from them, and it didn’t start to trickle back for over 18 months. Meanwhile that money constituted a handy subsidy underpinning the stability of our banks.

For some reason, even after that the US didn’t see ARS coming, and when it hit about $300 billion got frozen.

One casualty was trust between small vendors and suppliers. The vendors didn’t want to be blindsided by some institution coming out of left field and confiscating all their accounts receivable ever again.

Funny, but investors at the CME are presumably cool with parking their physical gold offshore where it can be put to work for them as collateral. That one ended badly before around 1695, and there’s not much has changed since then.

So in a few months they get blasted, too. But then in a few years we’ll be back to normal and the same practices will resume — a business model based on an infinite supply of pikka birds.

“What does this mean? This means cash on delivery. This means you’re not getting 30 days anymore from whoever, who’s selling you a couple boxes of widgets that you need for your business. They want to be paid up front.”

This is beyond belief. The US of A has degenerated into a third-world “cash-and-carry” economy. How did we sink to the level of Brazil, Bolivia and Belize? What’s the next stop on the elevator to hell–Botswana??