A new Finance Round-Up has been posted at TOD:Canada. An Energy and Environment Round-Up will follow tomorrow.

With frozen ABCP (asset-backed commercial paper) apparently about to spawn a litigation nightmare in Canada, huge bank writedowns in the US and Europe, bank closures, a lack of interbank lending, large-scale ARM readjustments, exploding credit card debt, a growing surge in foreclosures, and homebuilders further depressing real estate prices by selling off their inventory for whatever they can get, one could be forgiven for wondering why global stock markets seem so unconcerned.

Some aggressive speculators - cushioned by the moral hazard of central bank liquidity injections - may be prepared to throw caution to the wind in overextending the trend, but others are waiting in the wings, well placed, through bets in the derivatives market, to profit from its eventual reversal. In a market at the peak of a mania, where rampant speculation drives volatility for short-term gain, arguably the best place to be is out of the game.

Credit crisis puts law firms in conflict pickle

Contingent liability is a fancy phrase that means that money is being set aside to pay potential damages. Such contingencies do not mean that National Bank would actually be on the hook to pay lawsuit damages or settlements, but rather that, at this juncture, it may be worried enough to set aside some of its profit as a kind of insurance to cover the risk.

Legal contingent liabilities are rare for Canada's banks for the simple reason that the country's handful of chartered banks are so big that lawsuit costs seldom rank as a material financial event. It took seismic events, such as the collapse of Enron Corp. and the U.S. mutual fund trading scandal, to prompt some of the country's banks, most notably Canadian Imperial Bank of Commerce, to set aside hundreds of millions of dollars a few years ago to cover potential legal liabilities.

The fact that National Bank appears to be contemplating a reserve sends a chilling signal that one of the country's most active sellers of non-bank-issued asset-backed commercial paper fears it may become embroiled in a high-stakes legal slugfest with corporate clients who are now stuck with a share of the more than $30-billion of troubled short-term notes.

Normally the prospect of such a lawsuit rush would excite the hearts of the country's litigation warriors. But there is no litigation fairy in the asset-backed commercial paper (ABCP) crisis. Instead, the credit turmoil is shaping into a Hydra-headed monster for major law firms because so many of their clients have become entangled in the credit nightmare.