Sunday, October 21, 2007

Helpful Sources to Better Understand SIVs

There seems to be a great deal of confusion as to what SIVs are, how they work, and how M-LEC may provide time for the market to regain confidence in the commercial paper market.

To start off with, SIVs are not vehicles that provide banks with the ability to manipulate earnings, misappropriate funds, or to do anything else that is illegal. Comparisons to Enron are way off base.

I can understand people's willingness to assume the worst of businesses in the wake of Enron, WorldCom, etc., but that simply is not the case here.

I highly recommend the following articles/publications that are available on-line:

  1. This article from Hedgeworld (requires free registration) that gives a good explanation of what is known about M-LEC;
  2. This Wikipedia article, which gives a decent explanation of SIVs; and
  3. This DerivativesFitch report (requires free registration) that speaks to seven specific SIVs that Fitch rates, including information on the assets and capitalization of each SIV.

I hope you find these helpful in getting a better feel for what is currently a little understood aspect of our financial markets.

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Palermo's Blog said...


Thanks for the posts. The Fitch report is very helpful. Note further downgrades since it was published at Hedgeworld here:

Lawrence D. Loeb said...

Cheyne and Rhinebridge have been on watch for a few weeks.

Guess they finally got to recognizing the default.

We'll see what the recovery is on the various levels of debt.

The article is particularly confusing since it seems to say "million" on a few occasions where it should say "billion."