If the risk were all that low, there would be no need for govt. backing in the first place. The whole idea of govt. backing is to provide a guarantee that financial institutions are not willing to give to the plan.
This is from the Globe and Mail.
ASSET-BACKED COMMERCIAL PAPER
Flaherty confident 'risk to taxpayers is low'
KEVIN CARMICHAEL
December 27, 2008
OTTAWA -- Finance Minister Jim Flaherty doubts the guarantee that he and three provinces put up to save a restructuring of $32-billion in asset-backed commercial paper will ever be used.
"I am confident that the use of this backstop facility is not likely to be required, and the risk to taxpayers is low," Mr. Flaherty said in statement released by the Finance Department yesterday in Ottawa.
The statement revealed that the federal portion of the government rescue is $1.3-billion. Quebec, Ontario and Alberta contributed the balance of the $3.5-billion guarantee, which became necessary after a previous deal began to unravel.
Much of the $32-billion in ABCP is tied to the market for U.S. subprime mortgages, which collapsed more than a year ago. Investors and counterparties agreed in August, 2007, to freeze the assets to avoid a fire sale. Governments intervened at the 11th hour to keep that agreement from unravelling, allowing for a new deal on Christmas Eve.
"The government's decision to support this restructuring plan reflects its ongoing commitment to protect financial stability and ensure the health of Canada's capital markets in these very challenging times," Mr. Flaherty said.
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