Skip to main content

John Mauldin on "SIV Garbage"

In Friday's "Features" post, we included some links to commentary on the widely followed SIV "superfund" scheme. Today, we'll include some more useful background information on this issue, and some added commentary and analysis.

First off, what is the "superfund"? What is its stated purpose? How did the fund get capitalized, and why is it deemed necessary in the first place?

The "superconduit", or superfund, as it has come to be known, is a plan, enacted by the banks and endorsed by the US Treasury, to build a support fund to buy the assets of troubled structured investment vehicles, or SIVs.

Assets held by SIVs tend to be a mix of asset-backed commercial paper, short-term debt typically backed by the assets held by the issuing vehicles. The assets backing this paper tend to be mortgages, credit card receivables, student loans, and corporate loans.

The plan has already drawn a barrage of criticism, causing Treasury Secretary Henry Paulson to hit back at superfund critics, while claiming the plan is misunderstood and that it is a "market driven" solution.

Still, many of the critics are just not buying it, noting that the plan essentially allows banks to profit from the very mess which they helped bring about in the first place.

For a detailed overview of the SIV bailout proposals, let's go to John Mauldin, who recently wrote about these issues in a piece called, "Taking Out the SIV Garbage".

"This week we learned that Structured Investment Vehicles or SIVs should more properly be termed SIGs or Structured Investment Garbage. Several SIVs worth over $20 billion are closing shop, and investors will lose money. More SIVs are selling assets to meet loan demands. SIVs had issued at the peak about $400 billion worth of asset-backed commercial paper. The total of asset-backed commercial paper was $1.2 trillion. Since July, that has plummeted, nose-dived, crashed to $888 billion, and is on its way to a small fraction of that.

In effect, we are taking a trillion dollars of financing for a wide variety of things we need, like credit cards, autos, homes, and corporate loans out of the credit market. That is going to have an impact.

But I don't want to get ahead of myself. Let's start at the beginning. What is an SIV and where do they come from? Who owns them? Why do they exist?"

For more info on SIVs and their asset mix, as well as the "Superfund solution" and the impact this will have on the economy, read on at the link above.

Popular posts from this blog

Jesse Livermore: How to Trade in Stocks (1940 Ed. E-book)

If you've been around markets for any length of time, you've probably heard of 20th century supertrader, Jesse Livermore . Today we're highlighting his rare 1940 work, How to Trade in Stocks (ebook, pdf). But first, a brief overview of Livermore's life and trading career (bio from Jesse Livermore's Wikipedia entry). "During his lifetime, Livermore gained and lost several multi-million dollar fortunes. Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. He subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one's position as it goes in the right direction and cutting losses quickly. Ironically, Livermore sometimes did not follow his rules strictly. He claimed that lack of adherence to his own rules was the main reason for his losses after making his 1907 and

New! Finance Trends now at FinanceTrendsLetter.com

Update for our readers: Finance Trends has a new URL!  Please bookmark our new web address at Financetrendsletter.com Readers sticking with RSS updates should point your feed readers to our new Finance Trends feedburner .   Thank you to all of our loyal readers who have been with us since the early days. Exciting stuff to come in the weeks ahead! As a quick reminder, you can subscribe to our free email list to receive the Finance Trends Newsletter . You'll receive email updates about once every 4-8 weeks (about 2-3 times per quarter).  Stay up to date with our real-time insights and updates on Twitter .

Moneyball: How the Red Sox Win Championships

Welcome, readers . T o get the first look at brand new posts (like the following piece) and to receive our exclusive email list updates, please subscribe to the Finance Trends Newsletter .   The Boston Red Sox won their fourth World Series title of t he 21st century this we ek. Having won their first Se ries in 86 years back in 200 4, the last decade-plus has marked a very strong return to form for one of baseball's oldest big league clubs. So how did they do it? Quick background: in late 2002, team own er and hedge fund manager, John W. Henry (with his partners ) bought the Boston Red Sox and its historic Fenway Park for a reported sum of $ 695 million. Henry and Co. quickly set out to find their ideal General Manager (GM) to help turn around their newly acquired, ailing ship. This brings us to one of my fav orite scenes from the 2011 film , Moneyball , in which John W. Henry (played by Ar liss Howard) attempts to woo Oakland A's GM Billy Beane (Brad Pi