Comments on: Further Developments on the SIV Rescue Front http://www.nakedcapitalism.com/2007/10/further-developments-on-siv-rescue.html Sun, 22 Nov 2009 19:08:53 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Yves Smith http://www.nakedcapitalism.com/2007/10/further-developments-on-siv-rescue.html#comment-1115 Yves Smith Wed, 17 Oct 2007 23:58:00 +0000 http://www.nakedcapitalism.com/2007/10/further-developments-on-the-siv-rescue-front/#comment-1115 Anon of 7:29 PM,<br/><br/>Yes, this looks even less disinterested than it appeared (and it didn't look too arm's length even then). Anon of 7:29 PM,

Yes, this looks even less disinterested than it appeared (and it didn’t look too arm’s length even then).

]]> By: Anonymous http://www.nakedcapitalism.com/2007/10/further-developments-on-siv-rescue.html#comment-1112 Anonymous Wed, 17 Oct 2007 23:29:00 +0000 http://www.nakedcapitalism.com/2007/10/further-developments-on-the-siv-rescue-front/#comment-1112 "So at least so far, only one bona fide end investor who doesn't have ulterior motives has put up his hand and said it will go along, and that is for public-minded reasons."<br/><br/>Wachovia owns Evergreen right? Bank of America owns Columbia. Any possible bailout could be helping the fund companies and other investors - not just the banking arms. <br/><br/>Looks like Fidelity and Federated participated in the talks with Treasury as well. “So at least so far, only one bona fide end investor who doesn’t have ulterior motives has put up his hand and said it will go along, and that is for public-minded reasons.”

Wachovia owns Evergreen right? Bank of America owns Columbia. Any possible bailout could be helping the fund companies and other investors – not just the banking arms.

Looks like Fidelity and Federated participated in the talks with Treasury as well.

]]> By: Bill Yates http://www.nakedcapitalism.com/2007/10/further-developments-on-siv-rescue.html#comment-1091 Bill Yates Tue, 16 Oct 2007 20:46:00 +0000 http://www.nakedcapitalism.com/2007/10/further-developments-on-the-siv-rescue-front/#comment-1091 Nice analysis, Yves. We're calling the new entity the White Elephant Fund. They're all standing around at a cocktail party, and everyone is trying to ignore the white elephant in the room. My question: What entities will be enticed to buy this paper the WE fund will issue? Pension funds? Other hedge funds? I just want to know who they think they're going to sell this stuff to, so I know who to short. Thanks for your efforts. Nice analysis, Yves. We’re calling the new entity the White Elephant Fund. They’re all standing around at a cocktail party, and everyone is trying to ignore the white elephant in the room. My question: What entities will be enticed to buy this paper the WE fund will issue? Pension funds? Other hedge funds? I just want to know who they think they’re going to sell this stuff to, so I know who to short. Thanks for your efforts.

]]> By: OOUA http://www.nakedcapitalism.com/2007/10/further-developments-on-siv-rescue.html#comment-1089 OOUA Tue, 16 Oct 2007 18:54:00 +0000 http://www.nakedcapitalism.com/2007/10/further-developments-on-the-siv-rescue-front/#comment-1089 ... and , what is to prevent the ratings from being changed later ? like what happened to create the mess in the first place ! <br/><br/>The rating agencies are at the heart of this and the issue of allowing those who have been proven to be either incompetent or corrupt have a hand in the future is truly the biggest MORAL HAZARD of all time. <br/><br/>outright monetization of these 'SIV's will be the final result, just buckle-up butter cup, it either happens now or a little later and later will have a little more cost as time does that in these situations … and , what is to prevent the ratings from being changed later ? like what happened to create the mess in the first place !

The rating agencies are at the heart of this and the issue of allowing those who have been proven to be either incompetent or corrupt have a hand in the future is truly the biggest MORAL HAZARD of all time.

outright monetization of these ‘SIV’s will be the final result, just buckle-up butter cup, it either happens now or a little later and later will have a little more cost as time does that in these situations

]]> By: SotT http://www.nakedcapitalism.com/2007/10/further-developments-on-siv-rescue.html#comment-1087 SotT Tue, 16 Oct 2007 18:01:00 +0000 http://www.nakedcapitalism.com/2007/10/further-developments-on-the-siv-rescue-front/#comment-1087 Yves,<br/>Do you remember this WSJ article?<br/><br/><i>Under the clarification, issued verbally by New York Fed officials to market participants in the last day, banks may pledge asset-backed commercial paper for which they also provide the backup lines of credit. "This strikes us as a very big deal," said Lou Crandall, chief economist at Wrightson-ICAP LLC....The clarification, he said, means if an issuer is unable to sell an entire portion of its paper, the bank providing the backstop can finance the unsold portion with a discount window loan, backed by the assets underlying the paper. ...<br/><br/>"Previously banks could not post such ABCP as collateral, that is ABCP for which the bank is a liquidity backstop," said Michael Feroli, economist at J.P. Morgan Chase.</i><br/><br/>I have this theory that the recovery over the last couple of weeks in ABCP was staged in hopes of turning the herd around, that investors have not in fact returned to ABCP despite the Fed's rosy numbers, and that the MLEC is an admission that the ABCP market will continue to shrink fast.<br/><br/>In other words, MLEC is stage 2 of an effort to slow the collapse of ABCP and to carefully test to see what parts of the market can be saved.<br/><br/>I'd be curious to learn what you think of this theory. Yves,
Do you remember this WSJ article?

Under the clarification, issued verbally by New York Fed officials to market participants in the last day, banks may pledge asset-backed commercial paper for which they also provide the backup lines of credit. “This strikes us as a very big deal,” said Lou Crandall, chief economist at Wrightson-ICAP LLC….The clarification, he said, means if an issuer is unable to sell an entire portion of its paper, the bank providing the backstop can finance the unsold portion with a discount window loan, backed by the assets underlying the paper. …

“Previously banks could not post such ABCP as collateral, that is ABCP for which the bank is a liquidity backstop,” said Michael Feroli, economist at J.P. Morgan Chase.

I have this theory that the recovery over the last couple of weeks in ABCP was staged in hopes of turning the herd around, that investors have not in fact returned to ABCP despite the Fed’s rosy numbers, and that the MLEC is an admission that the ABCP market will continue to shrink fast.

In other words, MLEC is stage 2 of an effort to slow the collapse of ABCP and to carefully test to see what parts of the market can be saved.

I’d be curious to learn what you think of this theory.

]]> By: Anonymous http://www.nakedcapitalism.com/2007/10/further-developments-on-siv-rescue.html#comment-1086 Anonymous Tue, 16 Oct 2007 14:05:00 +0000 http://www.nakedcapitalism.com/2007/10/further-developments-on-the-siv-rescue-front/#comment-1086 Yves, thanks for more great analysis on the SIVs.<br/><br/>Any possible "success" for this SIV rescue plan would hinge on bank guarantees of the debt. If there are no bank guarantees, it will never work.<br/><br/>It doesn't look like there are any bank guarantees in this deal.<br/><br/>Here's an excerpt from the NY Times:<br/><br/>The conduit would raise money by selling what it calls senior securities to investors who would be assured of payment UNLESS losses grew so large that the junior securities were wiped out.<br/><br/>http://www.nytimes.com/2007/10/16/business/16fund.html?pagewanted=2&_r=1&ref=business<br/><br/>The junior securities would represent 5% of the funds raised. So if the assets fall by more than 5%, the debt-buyers of the MLEC would start taking losses. <br/><br/>Where are the bank guarantees???<br/><br/>Bernard Yves, thanks for more great analysis on the SIVs.

Any possible “success” for this SIV rescue plan would hinge on bank guarantees of the debt. If there are no bank guarantees, it will never work.

It doesn’t look like there are any bank guarantees in this deal.

Here’s an excerpt from the NY Times:

The conduit would raise money by selling what it calls senior securities to investors who would be assured of payment UNLESS losses grew so large that the junior securities were wiped out.

http://www.nytimes.com/2007/10/16/business/16fund.html?pagewanted=2&_r=1&ref=business

The junior securities would represent 5% of the funds raised. So if the assets fall by more than 5%, the debt-buyers of the MLEC would start taking losses.

Where are the bank guarantees???

Bernard

]]>