August 17, 2007 (LPAC)--The "agreement" worked out among 8 Canadian Banks and Pensions funds to convert C$120 billion of maturing asset backed commercial paper (ABCP) into long term notes is being viewed in some circles as a "solution" to the commercial paper crisis. By contrast the U.S. market for ABCP stands at over $1 trillion, at least 9 times larger, not to mention the the sub-prime and Countrywide crises. Columnists in the Financial Times point out that this is not a solution for the U.S. crisis, and could have "horrible" consequences for the Canadian crisis.

The FT's Gillian Tett points out that "it is one thing to get two dozen banks to agree to a swap; it is quite another to arrange a restructuring with the 6,200 financial institutions that deal with the ECB (or those interacting with the Fed)."

Even for Canada, the Financial Times' Lex column writes, the plan "is risky. It requires everyone to accept some pain and risk: banks would have to agree not to make margin calls, vehicles issuing the paper would have to cease accumulating assets. None of this is straightforward. Investors such as money market funds, for instance, may not be able to hold such a big chunk of long-term paper. But if the plan fails, the crisis in confidence would be really horrible."

Meanwhile, investors are refusing to buy ABCP outside the U.S. and Canada. The FT points out that of the $45bn of non-U.S. and Canadian CP maturing on Thursday, only 40 percent had been rolled over at the end of the London trading day.