Sunday, December 30, 2007

Last (?) Thoughts on M-LEC

As everyone knows now, M-LEC is dead.

There was never a solid explanation of how M-LEC (the Master Liquidity Enhancement Conduit) would have been structured (without guarantees from the supporting banks it would have had a hard time funding the purchase of SIV assets, even the "best" of those assets).

In the end, I believe, the idea of M-LEC helped to stabilize the markets (in that, without the expectation of some plan, the markets would have been less stable).

Apparently there was no way to make the economics of the structure attractive to both the participants in the Super-SIV and the SIVs that were supposed to be saved.

Actions by the banks themselves (taking the SIV assets onto their balance sheets) seem to have dealt with the problem.

The banks have been able to attract capital from other sources to keep their balance sheets in order.

More later.

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