It’s impossible to tell if this is an isolated event or the beginning of a trend, but a page one story in the Wall Street Journal today, “How London Created a Snarl In Global Markets,” labors to paint SIVs as a UK problem.
The difficulty with this spin is that anyone with an operating brain cell who read the text would have headlined the piece as, “How Citibank Created a Snarl in the Global Markets.”
The desire to pin the blame outside the US is truly bizarre, and I am not sure what it portends. Are the true defenders of the superiority of American capitalism stung by the criticism heard ’round the world of our subprime mess and the toll it has exacted on hapless foreign investors (aka “chumps”)? Then the misguided effort to point fingers at the UK can be seen as an attempt to prove that the US wasn’t alone in selling overly aggressive structures.
That’s a fair point, independent of the accuracy of the Journal’s charges, But I wonder if this weird positioning comes out of an even more deeply rooted defensiveness, that America’s days as the dominant financial power are numbered, and we are losing our preeminence faster than anyone anticipated.
OK, so why is the Journal’s characterization overreaching? The story tells us that the fathers of SIVs, Nicholas Sossidis and Stephen Partridge-Hicks of the firm Gordian Knot, which
….runs the world’s biggest such fund, with some $57 billion in assets, from an office in London’s ritzy Mayfair district. The two bankers are part of a small coterie of London bankers who engendered what became a $400 billion industry.
Narrowly, this is 100% true. However, the first two SIVs, Alpha Finance Corp. and Beta Finance Corp., were started by Citibank in 1988 and 1989 while Sossidis and Partridge-Hicks were still employees, one based in New York, the other in London. The pair quit in 1993 and launched Gordian Knot, based in London, which also manages some of Citi’s current SIVs. Citigroup’s London office established five more SIVs. Citi has clearly been central to the growth of the market, establishing SIVs for banks like Rabobank and having its alumni start SIVs at other banks.
The Journal notes that the legal expertise for SIVs is also concentrated in London, but the only firm it can name is Mayer Brown. Um, that’s a US firm.
You get the drift. The moving force behind the development of this mini-industry was Citigroup, and the fact that London was the center of activity seems secondary. But the Journal would have you believe the reverse.