Interest Rate Roundup

Friday, December 21, 2007

The M-LEC/Super SIV plan is dead: WSJ

The Wall Street Journal is reporting that the bailout ... er ... rescue plan dubbed "M-LEC" or "Super SIV" is history. An excerpt:

"The banks orchestrating a bailout of troubled investment vehicles that were hit by the subprime mortgage crisis are throwing in the towel after struggling to raise money for the planned fund, according to people familiar with the matter.

"At the behest of the Treasury Department, Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co. have been working since September to set up the fund, which would buy assets from so-called structured investment vehicles. SIVs have been battered by the credit crunch, with investors refusing to buy the short-term commercial paper that the funds issue to buy higher-yielding assets, in particular securities backed by subprime mortgages.

"Lack of interest has led the banks to drop the plan -- known as the Master-Enhanced Liquidity Conduit, or M-LEC. In many cases the banks, in particular Citigroup, that were supposed to sell assets to the fund have instead bitten the bullet and moved the assets onto their own balance sheets, alleviating a key rationale for the rescue fund."

You could spin this as bullish -- the crisis is abating, banks can handle taking this stuff back on their balance sheets without the Super SIV, etc. Or you could look at it as bearish -- investors don't want to participate in any SIV rescue plan because the value of the underlying paper is so opaque and questionable.


Post a Comment

<< Home

Site Meter