Comments on: SIV: RIP http://www.nakedcapitalism.com/2008/04/siv-rip.html Sun, 22 Nov 2009 16:13:25 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Richard Kline http://www.nakedcapitalism.com/2008/04/siv-rip.html#comment-6544 Richard Kline Tue, 08 Apr 2008 12:42:00 +0000 http://www.nakedcapitalism.com/2008/04/siv-rip/#comment-6544 "Yet when SIVs hit trouble, and the banks that spawned them were prompted by reputational concerns to . . . ." That's a fat assertion; prove it, sez me. No one with a choice takes _$100B_ in liquefying assets back on balance as Citi did for 'reputational concerns.' They did it, I feel sure, because their in-house counsel told them they were on the hook given the fine print 'guarantees' they included to get shmuck investors to buy the notes of these money sieves. If you 'guarantee' that an investment is sound, and it is not . . . court is not where you want to review your options. <br/><br/>To me, this point has been underreported and underanalyzed regarding the SIVs, that they may have looked off-the-books---but never were. Yet another area of wilfully_failed central bank regulation_, to me. “Yet when SIVs hit trouble, and the banks that spawned them were prompted by reputational concerns to . . . .” That’s a fat assertion; prove it, sez me. No one with a choice takes _$100B_ in liquefying assets back on balance as Citi did for ‘reputational concerns.’ They did it, I feel sure, because their in-house counsel told them they were on the hook given the fine print ‘guarantees’ they included to get shmuck investors to buy the notes of these money sieves. If you ‘guarantee’ that an investment is sound, and it is not . . . court is not where you want to review your options.

To me, this point has been underreported and underanalyzed regarding the SIVs, that they may have looked off-the-books—but never were. Yet another area of wilfully_failed central bank regulation_, to me.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/04/siv-rip.html#comment-6524 Anonymous Tue, 08 Apr 2008 03:58:00 +0000 http://www.nakedcapitalism.com/2008/04/siv-rip/#comment-6524 Related story worth a look:<br/><br/>Tribune, Dole May Need to Draw Down Bank Credit Lines (Update1) <br/>By Pierre Paulden and Shannon Harrington<br/><br/>http://www.bloomberg.com/apps/news?pid=20601087&sid=aafb4fPM5faw&refer=home<br/><br/>April 7 (Bloomberg) -- Tribune Co. and Dole Foods Co. may need to draw down on bank lines to avoid default, causing a new drain on bank capital, according to Morgan Stanley analysts.<br/><br/>Sprint Nextel Corp., the Overland Park, Kansas-based wireless carrier, borrowed $2.5 billion in February from a $6 billion credit line arranged by JPMorgan and Citigroup, according to a regulatory filing. CIT Group Inc., the New York-based finance company, drew down four emergency credit lines totaling $7.3 billion last month after being cut off from customary sources of cash.<br/><br/>``A credit crunch is upon us,'' Peters said on the conference call. ``If you actually need access to capital you're probably not going to get it.'' Related story worth a look:

Tribune, Dole May Need to Draw Down Bank Credit Lines (Update1)
By Pierre Paulden and Shannon Harrington

http://www.bloomberg.com/apps/news?pid=20601087&sid=aafb4fPM5faw&refer=home

April 7 (Bloomberg) — Tribune Co. and Dole Foods Co. may need to draw down on bank lines to avoid default, causing a new drain on bank capital, according to Morgan Stanley analysts.

Sprint Nextel Corp., the Overland Park, Kansas-based wireless carrier, borrowed $2.5 billion in February from a $6 billion credit line arranged by JPMorgan and Citigroup, according to a regulatory filing. CIT Group Inc., the New York-based finance company, drew down four emergency credit lines totaling $7.3 billion last month after being cut off from customary sources of cash.

“A credit crunch is upon us,” Peters said on the conference call. “If you actually need access to capital you’re probably not going to get it.”

]]> By: foesskewered http://www.nakedcapitalism.com/2008/04/siv-rip.html#comment-6519 foesskewered Tue, 08 Apr 2008 01:29:00 +0000 http://www.nakedcapitalism.com/2008/04/siv-rip/#comment-6519 Actually it's not just covenants/restrictions that indicate the possibility of ultimate ownership. More importantly, the financial reality of transactions should be scrutinised particularly when legal reality is contrary to that financial reality. <br/><br/>If benefits from an asset or entity continue to flow to the "orginator", then the asset and its corresponding liability should be recorded on the originator's BS , if an entity, it should be regarded as subsidiary or joint venture or associate depending on the shareholding and structure of the entity. <br/><br/>Legal quibbles should not obscure financial reality but that's an ideal world which lawyers would probably hate! Actually it’s not just covenants/restrictions that indicate the possibility of ultimate ownership. More importantly, the financial reality of transactions should be scrutinised particularly when legal reality is contrary to that financial reality.

If benefits from an asset or entity continue to flow to the “orginator”, then the asset and its corresponding liability should be recorded on the originator’s BS , if an entity, it should be regarded as subsidiary or joint venture or associate depending on the shareholding and structure of the entity.

Legal quibbles should not obscure financial reality but that’s an ideal world which lawyers would probably hate!

]]> By: Anonymous http://www.nakedcapitalism.com/2008/04/siv-rip.html#comment-6518 Anonymous Tue, 08 Apr 2008 01:16:00 +0000 http://www.nakedcapitalism.com/2008/04/siv-rip/#comment-6518 The ability of companies to hide liabilities (assets) off the balance sheet defeats the purpose of the financial statements. It is a fraudulent business practice no matter how it's spun. The ability of companies to hide liabilities (assets) off the balance sheet defeats the purpose of the financial statements. It is a fraudulent business practice no matter how it’s spun.

]]> By: Anon http://www.nakedcapitalism.com/2008/04/siv-rip.html#comment-6515 Anon Mon, 07 Apr 2008 23:59:00 +0000 http://www.nakedcapitalism.com/2008/04/siv-rip/#comment-6515 I suspect that the only story behind the "petitions and blogging" comment is that Denninger wants his readers to believe that his petition was a cause of the change.<br/><br/>The decision to drop QSPEs was reported by PJ at HousingWire on Feb. 6: http://www.housingwire.com/2008/02/06/revenge-of-the-nerds-qspes-an-endangered-species/<br/><br/>And according to Bloomberg has been under consideration since May 2007: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aIOWGBzzWpNo<br/><br/>The most interesting blogpost on the whole issue is Independent Accountant's (keeping reading to the bottom):<br/>http://skepticaltexascpa.blogspot.com/2008/02/treasury-and-banks.html<br/><br/>It is important that the FASB hasn't tackled VIEs (i.e. conduits) yet. That VIEs should be next to be eliminated does not mean that they will be. I suspect that the only story behind the “petitions and blogging” comment is that Denninger wants his readers to believe that his petition was a cause of the change.

The decision to drop QSPEs was reported by PJ at HousingWire on Feb. 6: http://www.housingwire.com/2008/02/06/revenge-of-the-nerds-qspes-an-endangered-species/

And according to Bloomberg has been under consideration since May 2007: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aIOWGBzzWpNo

The most interesting blogpost on the whole issue is Independent Accountant’s (keeping reading to the bottom):
http://skepticaltexascpa.blogspot.com/2008/02/treasury-and-banks.html

It is important that the FASB hasn’t tackled VIEs (i.e. conduits) yet. That VIEs should be next to be eliminated does not mean that they will be.

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