the visible hand

it is the theory which decides what can be observed – einstein

bullet-biting and belt-tightening over SIVs

Posted by ecoshift on November 1, 2007

Treasury Secretary Paulson made a really, really good effort to help keep steeply declining asset values backing these Structured Investment Vehicles from being marked to market.

Hopefully one or two of the entities involved will survive long enough to offer him a well-deserved well-paid, post-administration titular position. He kinda went out on a limb there for those guys.

Though sadly, as investor confidence “shatters,” it appears another mechanism to delay price discovery is still needed. If it doesn’t appear soon the bullet-biting and belt-tightening is likely to continue unabated.

As mortgage resets, declining real property values, defaults and foreclosures erode both cash flows and the underlying equity whose going to loan these guys money? Is a rate cute enough?

Ben… Hello Ben… you there?


$75 Billion Fund Is Seen as Stopgap – New York Times
By ERIC DASH
Published: November 1, 2007

Nearly three weeks after the country’s biggest banks announced a $75 billion fund to help stabilize the credit markets, the reality is sinking in that the plan will provide hospice care to troubled investment funds, not resuscitate them.The reason, market participants say, is that the structured investment vehicles, or SIVs, that helped fuel the Wall Street loan-packaging boom hinged on confidence in the quality of the $400 billion in securities they bought and on easy credit from investors. Now, that trust has been shattered and most of the investors have fled. Many say that the business model is dead, or soon will be.

The proposed bank fund “is more a towline to get them to the scrapyard,” Lou Crandall, chief economist at Wrightson ICAP, a financial research firm, said.

Since August, SIVs have been under siege. Cheyne Finance, a $6 billion fund managed by British investors, has been forced to unravel. Rhinebridge Funding, a $2 billion vehicle sponsored by a German bank, is in receivership.

Citigroup’s seven SIVs are under pressure to repay investors. Several less robust funds could face downgrading. Over all, the 30 or so SIVs have been forced to sell assets at an alarming pace — shedding roughly $75 billion since July and shrinking the industry by a fifth. Market participants expect SIVs to unload even more, as much as $15 billion a week.

“The odds are stacked against them,” Steven Abrahams, Bear Stearns’s chief interest rate strategist, said. “SIVs have some very serious challenges if they are going to remain.”

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