(See also the Energy and Environment Round-Up for September 7th below.)

For all those who think that the world's central bankers have the developing credit crunch contained, look at the liquidity crisis in asset-backed commercial paper (ABCP), which is currently affecting Canada worst of all. ABCP is an impenetrable mish-mash of mortgages, credit card receivables, car loans and other miscellaneous debt that institutions were quite happy, until recently, to use as a convenient place to park short term cash. Within a month that has seen a severe attack of risk aversion, it has gone from safe to toxic, with the result that liquidity has dried up almost completely.

In Canada, banks are trying to put together a deal that converts $35 billion of non-bank short term paper, that could no longer be rolled over, into 5-year floating-rate notes, but the credit default swaps (which can be, and were, used as vehicles for naked speculation) are a huge problem. Does the deal remind anyone of the Argentine financial crisis - where short term bonds were converted to long term (and then later defaulted upon)?

Those who think the situation contained might also look to Europe at the increasing gap between base rates and three-month interbank lending rates (Libor). That gap is now at its widest for 20 years, reflecting uncertainty and distrust as to the risk exposure of other banks, and the hoarding of cash. Interbank lending is breaking down, despite the efforts of the ECB and the Fed to restore confidence.

Is there really nothing to worry about?

ABCP investors could lose half their money

The vast majority of about $35-billion of non-bank ABCP is backed by risky bets on credit default rates that are now so far underwater that investors could be looking at losses as high as 50 on the dollar, said Edward Devlin, Canadian portfolio manager for highly respected California-based bond fund manager Pacific Investment Management Co. LLC....

....Commercial-paper markets around the globe have been struggling with fallout from the subprime mortgage crisis in the United States, but the situation is worst in Canada.

"It's the one country where people couldn't get their money back," Mr. Devlin said. "There's a whole group of people who bought commercial paper [thinking it was liquid] and now they find they can't get their money back."