SIVs and Money Market Funds
Submitted by
CalculatedRisk on Sat, 10/20/2007 - 10:40am (67 comments)
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Okay, how uncool would it be if we saw a run on money market funds? These SIVs better perform, or 1929 will be looked upon longingly as the start of "The Good Depression."
Say i had a sizeable chunk of my assests in a Fidelity money market fund because I've sold off my stocks and am waiting out the next few months. If that were the case, I would say this news concerns me. I see that Fidelity will allow me to buy CD's with similar rates as the MMF and those are backed by the feds. It seems to me as if someone looking to just lay low for the next 3-6 months might want to move that money into CD's. In this theoretical situation, would the move to CD's be pretty much the safest thing to do for someone just looking to hang on to their cash and get a little return?
--
'... bankers hatched the idea of setting up a fund that would issue short-term commercial paper and medium-term notes to investors, then use the money to buy higher-yielding assets, typically longer-term ones. The bank would profit by collecting fees for operating the fund."
Making money had never been easier. If something is too good to be true..., but bankers are too smart to believe that kind of nonsesne.
Has anyone heard of "bankers' mischief?" And its outcome?
Jas
As with CDOs, CLOs & CBOs, the money market fund portfolios of the future will need definitive instrument disclosure similar to the regime FRE & FNM imposes on the agency CMO market: specified labeling of bond principal & interest source, timing, subordination & trigger characteristics.
In part, the private-label MBS & ABS market in part adopted the FRE/FNM classification system (planned amortization classes or PACs, targeted amortization classes TACs, support tranches SUP, floaters FLT, inverse floaters INV, tiered floaters, etc.).
Moreover, the agencies identify "re-remic" (basically a CMO squared) tranches by their underlying class type as well as their new class type. The industry would be wise to borrow their practices.
In good markets, market participants like to say that "issuers don't get paid" for allocating resources to beefing up disclosure. In down markets, good disclosure more than pays for itself.
Hence, apparently, Fidelity's interest in the SIV "Superfund". Their interest really does tip their hand and indicated they may have reason to worry.
Money funds holding SIV's = "SIV Positive".
[12th percentile]"the safest thing to do for someone just looking to hang on to their cash and get a little return"
I went MM, especially after FFDIC rubbed my punkin' nose into the low FDIC reserves currently available.
1) Even if there is a haircut, I estimate it'll be less than the hit I took when I bought some of Merrill Lynch's Prime Fund in the 1980s.
2) Most MM fees are higher than index fund fees, even at Vanguard. And all MMs waived fee portions in the 1% Fed Funds days so as not to break the buck. Money Market Fund management is really on your side, and makes compromises on your small return, and theirs, to preserve your cash.
3) Remember, it is highly likely that your MM fund is exactly where your MM fund's manager puts their cash.
4) Not all your MM fund's assets are this stuff.
5) Vanguard Money Market (VMMXX) broke 5.1% trailing-12-month distrubution in both July and August 2007. And they don't even own this stuff. Depending on fees deducted, your MM fund probably did better than that.
Be careful with money market funds.
You have to use the right measuring stick to measure risk with these funds.
A static measuring stick says, "gee, only 5% of fund assets in the bad stuff, times a haircut of 20% off those, and you get a max 1% loss."
A dynamic measuring stick says, "in order to avoid a loss, they will sell billions in BBB and A securities, causing the prices of those to tank, causing margin calls for hedge funds, causing them to sell AA (better rated) securities, causing the price of those to tank, causing the money market fund to sell those same AA securities..."
See the difference?
I guess a better way to present the risk is to ask what the duration mismatch is of the money market fund holdings.
Industrial commercial paper gets paid off through inventory (think cars) liquidation every 90 days or so. Like clockwork unless there's a sudden, dramatic drop in REAL demand.
ABCP backs mostly long term assets. Mortgages, credit cards, car loans, etc. If there's no ability to borrow, there's no ability to redeem. The only way for MM funds holding this stuff to convert it into cash is to dump the securities.
Comparing this with Industrial CP is like apples and oranges. ABCP does not have the ability to redeem without borrowing. The same is true of ABS (credit card, auto loan, non-agency mortgages), CLO's, CDO's, and practically everything else with a tenor of more than one year. The MM fund "exit" for all of these is to SELL. SELLING can cause a chain reaction, which results in a potentially meaningful hit to the NAV.
So the question to ask is, what's the duration mismatch of MM fund assets? I don't think you'll like the answer.
Almost comical that for years SIV were able to finance themselves by issuing cp at levels roughly flat to libor. This would have earned them maybe 2 to 4 bps better than other eligible securities.
MM funds can't sell this stuff...there's no bid. Dealers shut off liquidity on them back in August as they were already having balance sheet problems. Dealers will only buy it if there's a buyer on the other side, but no one is taking on new positions. Funds are held hostage and having to roll their positions.
As suggested in post, if a money market fund lost money, the company offering the fund would need to cover it from their own funds. How much bad publicity would it be for Fidelity or Goldman if they told investors that the MM fund lost money and that's your loss? The investmet company would be toast. Therefore, they will cover our money market NAV with their own money.
Bill, exactly. I don't think anyone with money in a major money market fund will lose a single American Peso ... uh, dollar.
Best to all.
thanks for all the feedback. Just want to make sure my parents don't have to move in with me anytime soon because their retirement got eaten up by the greedheads.
I don't think anyone with money in a major money market fund will lose a single American Peso ... uh, dollar.
LOL!
Bill,
Say I use Fidelity as a brokerage firm. I'm effectively lending them my cash balances and short credit balances. Others buy their commercial paper. They in turn lend the money to their clients who go long on margin.
So Fidelity brokerage is kind of like a bank. Its capital creates a margin of safety so depositors (cash balance holders/CP buyers) won't be affected by an inability of borrowers (long on margin) to meet margin calls.
So you say Fido will use its capital to defend the "buck" on its MM Funds. I say that capital is also there to protect cash balances at the brokerage. You're assuming there's enough capital to do both, or that they can raise capital, or that no event will hit both at the same time. I'm not sure...
BTW, there's something called "SIPC" insurance (or something like that). Its supposed to protect you from single brokerage failures, usually produced by fraud. Of no value in case of a systemic event, IMO.
First, some clarifications and comments. No retail investor has ever lost money in a money market fund, and it's unlikely any will during this recent episode. (See my site, Crane Data Money Market Mutual Fund News and Intelligence for complete coverage of the ABCP Crisis and its impact on money funds.) Money funds did not have to waive fees or inject capital when Fed funds was at 1% in 2003-2004, only a handful (those with expense ratios over 1.0%) even had to waive a portion of fees. Money fund portfolio maturities are about 30 days, so their liabilities do indeed match their assets. The size of the potential losses from SIVS -- should anyone have to liquidate and take losses (which is a slim chance) -- is tiny compared to the overall asset base and would in no way endanger the $1.00 share prices. And, finally, the funds investing in these extremely esoteric (but safe) instruments are the largest and most sophisticated of managers, so they're also the ones with the deepest pockets. The biggest danger to cash investors is panicking and moving to something like Treasury bills yielding 3.0% or less, and losing 2 percentage points in interest. Don't believe the doom-and-gloomers in regards to money funds -- they're totally safe!
Pete Crane
Publisher, Money Fund Intelligence
sounds more like a fund company/parent bailout than a risk to money funds then....
12th percentile: I did that with all my market funds back in early Sept when this first came up. Was a issue with Fidility only in that my wife 401K account did not have a brokerage account so we set that up and then parked the money in FDIC insured cd's.
The biggest danger to cash investors is panicking and moving to something like Treasury bills yielding 3.0% or less, and losing 2 percentage points in interest. Don't believe the doom-and-gloomers in regards to money funds -- they're totally safe!
Say I have $1,000.00. If I lose 2 percentage points, I'm making $30
when I could have made $50 if you're right. If you're wrong about the "totally safe"...
Good thing Wachovia used those deep pocket, eh? Very Sophisticated.
Pete Crane: I really don't care about 1 or 2% interest anymore its my principal equity that I want to protect. As my CD's come due I am rolling them into treasury notes and would do the same with my 401 CD's that were parked in money market accounts but I don't want the tax issues at this time.
It's nice that you and CR are willing to vouch for the safety of the money markets, I hope you are correct but since its just words you are putting up I will go with treasury's for now.
Nice review on SIV's. Thanks.
Now how about some information on bank conduits.
"The biggest danger to cash investors is panicking and moving to something like Treasury bills yielding 3.0% or less, and losing 2 percentage points in interest"
Pete, a simple question:
How do Money Market funds manage to yield two hundred basis points over comparable Treasuries without taking on significant risk?
"...if a money market fund lost money, the company offering the fund would need to cover it from their own funds."
But look at the size of a manager like Federated has for exposure to SIVs in their money funds. Federated has less than a $4 billion market cap. Could they cover the worst-case scenario for their SIVs? I think the moral of the story is about knowing a little more about your money market fund. These funds disclose their holdings. All I did was pick up the phone and ask my fund company if they had SIV holdings.
I see that Federateds portfolio manager keeps showing up with quotes in the press. She sounds like a politician spinning a story about her SIV investments. That worries me.
SIVs had an advantage over conduits, a similar structure that was already gaining popularity: They didn't require banks to cover fully the fund's debts if the commercial-paper market dried up.
So why now do they feel obligated to buy the stuff at cost instead of market instead of letting the "investors" take the hit? Didn't they use the SIV exactly so they could stiff the investors?
B of A MM funds charge 0.8% fees -- they had better swallow the losses considerign that those fees are high compared to many others.
All I did was pick up the phone and ask my fund company if they had SIV holdings.
And what was her answer?
I sold all my MM funds and put the money in FDIC insured savings accounts. Less return for a while, but safer. I prefer safe rather than sorry.
"Money funds did not have to waive fees or inject capital when Fed funds was at 1% in 2003-2004"[ Pete Crane]
Thanks for your thorough post. I did not intend to misinform anyone, merely quoted from my (non-Vanguard) MM fund which, since that time (2003-2004), still posts, on website and in annual prospectus, that fund management is waiving fee, although total management fee, as opposed to total expense ratio, is less than 0.60%.
An additional consideration: If, ideologically, you feel FDIC insurance is an incentive to fiduciary misbehavior, and paperwork for FDIC settlement is too bothersome, you might also want to consider MM fund.
"How do Money Market funds manage to yield two hundred basis points over comparable Treasuries without taking on significant risk?"[David Pearson]
Duration mismatch on their Berkshire and GE paper?
You always make substantive posts.
You are fully correct, My MM fund account has little protection against an intense and sincere mob in thralls of financial panic.
Ma tol' me to do like Kipling said, and keep my head while all about me are losing theirs. It helped in a gale off Newfoundland, and another in Gulf of Mexico. Maybe it'll work again.
BTW, there's something called "SIPC" insurance (or something like that). Its supposed to protect you from single brokerage failures, usually produced by fraud. Of no value in case of a systemic event, IMO.
Why would it be of no value? It is a government agency that guarantees to replace the securities that "vanish" if the firm goes bust, up to half a million value per account. And it insures cash balances up to $100,000.
"And what was her answer?"
The answer was no SIVs in my fund. SIV-negative....
https://personal.vanguard.com/VGApp/hnw/LiteratureRequest?FW_Activity=ViewOnlineActivity&litID=2210021806&FW_Event=start
Peter, do you know what other funds are SIV-negative?
Back to the future
I guess the Community Bankers Mutual Fund of Denver didn't have any retail investors in 1994
New Caution About Money Market Funds - The New York Times
How do Money Market funds manage to yield two hundred basis points over comparable Treasuries without taking on significant risk?
In a "very sophisticated" way. Next question.
Dr. Zoidberg,
Nifty piece of research. I especially like the quote from the SEC dude: "You do need to be comfortable with your fund's sponsor. But it's probably more important not to be in a situation where you need a buyout." Translation: Keep your hand on your wallet and your back to the wall.
the funds investing in these "extremely esoteric" (but safe) instruments are the largest and "most sophisticated of managers",
Kinda like the same clowns that got us into this mess to start with. Make sense to me.
RE:
No retail investor has ever lost money in a money market fund.....Don't believe the doom-and-gloomers in regards to money funds -- they're totally safe!
Pete Crane
Publisher, Money Fund Intelligence
Oh c'mon a few people recall the 1994
Community Bankers U.S. fund liquidation
"
Money fund - Wikipedia, the free encyclopedia
....only one fund "broke the buck" in 1994, paying investors $0.96 per share. The fund that failed was called the Community Bankers U.S. Government Fund and it had invested a large percentage of its assets into adjustable rate securities. As interest rates increased, these floating rate securities lost value.
"
The early 90s were a difficult time. Enuf said.
-K
I moved my cash from MMF's when this first hit.
8 weeks ago.
Pete Crane,
Due to the fact that you decided to use this forum to declare the safety of money market funds, it is only fair for you to honor the following request.
I would like you to categorically declare that you will personally back any/all losses on any money market fund in the next 24 months. Due to the current lack of disclosure, you have no idea what is held in these vehicles and have absolutely no business defending an investment that provides less than full disclosure.
You wish to use this forum to support your website, then put your money where your mouth is and back the funds.
=========================
Bill, exactly. I don't think anyone with money in a major money market fund will lose a single American Peso ... uh, dollar.
Best to all.
CalculatedRisk
You know, CR, I'd love to place a 1 dollar on this; but by the time we define major and set a duration limit on this, events will overtake us. But - how about I say, within 18 months, you define what "major" is ? ( And no, I won't lay off the bet and make money on the arbitrage ). I'll absorb the loss if it comes my way, no SIVs for meeee.. But do you trust me to pay up on the bet though ?
-K
One more thing,
banker has been exclaining that the liquidity in the market is showingdramatic improvement, who in the $%^& do you think your kidding?
These "partial" deals were done by lending the funds to complete the transaction, risk still is retained, they moved the shit off balance sheet, nothing more. Similar to the SIV fiasco. I often wonder if some that comment think that everyone is moron and belives half of the shit that you pronounce with what you "must" perceive as any semblance of knowledge of the capital markets.
IPO-VIEW-Chinese IPOs soar in US, signs of a bubble?
| Reuters
"NEW YORK, Oct 19 (Reuters) - Chinese companies flocking to the United States for new listings are drawing widespread interest, but some analysts warn the stocks are being too richly valued by overly keen investors.
On Friday, shares of Noah Educational Holdings Inc (NED.N: Quote, Profile, Research), a provider of interactive educational materials, rose more than 40 percent on the New York Stock Exchange, a day after its initial public offering priced above a forecast range."
No crash folks...the liquity bubble is going move to China IPOs. I can see the next year; the US is mired in a subprime mortgage headache while the Beijing 2008 summer Olympics celebrates Chinas economic rise as the next big thing. Everyone in the Western world will wanna get a piece of China Inc. Start your bets early!
Totally off topic, but there is not a related thread active at the moment. The Minneapolis/St. Paul condo market (from the Star-Tribune):
"Throughout the 13-county metro area, there were 4,608 new units on the market as of the third quarter, and of those 2,699 were not yet under construction, according to a report by MetroStudy. At the current sales pace, that leaves the equivalent of a 30.8-month supply on the market.
In Minneapolis the picture looked worse: 2,193 new units were on the market, 1,284 of them not yet under construction, leaving a nearly four-year supply to work through.
Those numbers also include a high percentage of projects that exist only on paper. If the units in the metro area not yet under construction were canceled, the absorption rate would fall to a much healthier 13 months."
Money funds holding SIV's = "HIV Positive".
Which CP bet are the majority of investors going to take is the question IMNSHO:
CP - Commercial Paper and a 2% uplift in return?
or
CP - Capital Preservation and the safety treasuries?
FYEdification: Burns MoneyMarketFunds website...the news...:
" 10/19/07
SIVs Cheyne and IKB Defaults Raising Concerns Over Money Funds. Bloomberg reports that structured investment vehicle Cheyne Finance Plc and IKB Deutsche Industriebank AG's Rhinebridge Plc SIV are now in default on over $7 billion of commercial paper. Any money funds unlucky enough to still own either of these, and who haven't already, will likely seek backing, protections, or buyouts while awaiting payment from the asset liquidation. These defaults cap off a week in which the money markets suffered a significant setback on their road to recovery. Concerns resurfaced last weekend following the proposal of a "super-conduit" to support the $320 billion SIV market, and ended with another flight to Treasuries Friday. Money market funds as a whole continue to attract assets and to maintain $1.00 share prices. But this most recent round of problems, centered around SIVs without full liquidity backstops, may cause another handful of bailouts, or purchases of troubled securities, by advisors to protect portfolios. Nonetheless, money fund investors should continue to remain unaffected by this most recent bout of market turmoil. " Crane Data Money Market Mutual Fund News and Intelligence
and one more, from the next day, today, again FYI, from Sorry. Page not found.
" 10/20/07
The Wall Street Journal Asks "Is Your Money Fund SIV Burdened?" Structured investment vehicles, or SIVs, are "threatening trouble in a seemingly unlikely place: money market funds," says Saturday's WSJ. Some funds "were holding 10% to 20% of their portfolios in debt issued by SIVs", including funds from Columbia, Credit Suisse, and Federated, reports the piece. However, it adds, "Significant money-fund losses are unlikely for several reasons. Only a handful of SIVs are thought to be in real danger and money funds typically own senior notes ... money-market funds are subject to strict investing rules that limit how much they can keep in individual holdings. Many funds already have begun drastically trimming SIV-related purchases ... [and] allowing securities to mature without rolling them into new debt from the issuer." Finally, the WSJ says, "Most important for money-fund investors, fund companies would almost certainly take steps to prevent losses from reaching shareholders -- such as ... purchasing the money-losing securities from the fund at their full price. "
this is interesting:
Some money market funds are invested in risky SIVs - Oct. 19, 2007
Crane assumes the decline will be mild.
Thimk again.
I've posted what I am guessing the DJIA daily chart destination numbers will be/can be. As I called the top last week 2 days after it was in, at Mish's, my mirror doesn't show me to be the standard fish in the pond.
The MM Funds IMO will not hold up in the face of 14000 to 12500 in 2 months & 10000 in under 4 months. A 40% drop in equity values will BK many of those happy CP offerors and thus the funds will then be saying, "Who could have ever expected a black swan event like this?"
This is not a conservative investment. It involves risk, but the risk is black swan, and Burns and CR are not seeing the risk the same way the daily DJIA chart does, starting on Aug 17 and running out til today.
I'm not Monday morning quarterbacking. I'm describing the current high probability outcome for the DJIA daily price chart. So, it's buyer beware.
MM funds in the past were a sweet way to earn much higher interest, when the warning flags were not posted. They're posted. Burns is talking about a single impact, SIV's. Might that be a bit myopic at this time?
gaudia,
anyone with half a brain could read a prospectus and in a split second understand that crane and many others here are completely full of shit.
"As of Sept. 30, Fidelity's $305 billion of money market funds had 2.3% of their holdings - or about $7 billion - in SIV debt securities, according to company spokesman Alexi Maravel. The SIVs in question are Asscher Finance, Beta Finance, Centauri Corp., Dorada Finance, Cullinan Finance, K2 Finance, Links Finance and Nightingale Finance."
Some money market funds are invested in risky SIVs - Oct. 19, 2007
I don't care about the %, $7 billion is a big, big number.
And this article didn't mention Sigma which is, with out a doubt, an SIV.
The Fidelity Cash Reserve Fund has over $1.6B in this SIV. And Sigma is not run by a bank meaning there a bailout is less straight forward. You can get to the list of the 8/31 holdings here:
Fidelity Investments:
Gosh, it sure is reassuring to hear that losses are going to be very limited and all the big money funds will just make it up out-of-pocket so the average Joe won't have to take any hit at all!
So, again, Fidelity is joining up...why?
OK, I've got the SEC print out here from Vanguard Money Market Reserves. Main investments are: 20.7% in Eurodollar CD's and about 36.6% in US CD's (many of which are foreign bank names).
I honestly can't decide whether or not there's cause for concern. For example, does the fund have coverage for only 100K at each bank for the over 28 million dollars in certificates it has in US Banks?
The value of CITI's and Wells Fargo's CD's is what? Oh, yes, 100%.
As to the MM funds holding bank CD's, they have $100,000 accounts. About 1000 to 5000 at each bank. No, I don't know how they signed that many signature cards. Possibly they jobbed them out to their brokerage division as that would be a profit center for the MM fund, right?
It is pretty easy to see why people who had money in Northern Rock just decided to cut through the gordian knot of confusion and take their money the hell out.
It was the smart thing to do.
The RE market is not stable, right?
Which way is it drifting? (as a rock drifts when loosened on a mountain slope)
This underlies the SIV's and what additional percentage of the MM portfolios? Anyone know?
MM's holding treasury's is just a convenience to the depositors because the US Treasury would happily issue its paper directly to the depositors, and that MM fee would flow to the depositors, all electronically, or by mail.
It's the 401K's that need to be addressed. They park their free capital in MM's and offer MM's.
Why exactly should I trust Mr. Crain?
I don't trust myself until I've looked and decided. So, again, why should I trust Mr. Crain, who it appears has misstated reality as there has been at least one exception to non-failure of MM's in the past.
The MM as an economic vehicle has never withstood a Category 5 hurricaine which Crain conveniently has not brought to the table for discussion. Ask not. Answer not.
This is real money folks. It's the bedrock on which most here have a real vested concern. It's safety of principal that's taken a leap up the relevance stairs nowadays.
Meanwhile, trust and verify.
Gosh, it sure is reassuring to hear that losses are going to be very limited and all the big money funds will just make it up out-of-pocket so the average Joe won't have to take any hit at all!
So, again, Fidelity is joining up...why?
wally | 10.20.07 - 10:26 pm | #
Precisely the question I'm asking right now.
NM | 10.20.07 - 10:23 pm | Posted
"As of Sept. 30, Fidelity's $305 billion of money market funds had 2.3% of their holdings - or about $7 billion - in SIV debt securities, according to company spokesman Alexi Maravel. The SIVs in question are Asscher Finance, Beta Finance, Centauri Corp., Dorada Finance, Cullinan Finance, K2 Finance, Links Finance and Nightingale Finance."
CNNMoney.com: 404 Page Not Found ...oney_topstories
I don't care about the %, $7 billion is a big, big number.
And this article didn't mention Sigma which is, with out a doubt, an SIV.
The Fidelity Cash Reserve Fund has over $1.6B in this SIV. And Sigma is not run by a bank meaning there a bailout is less straight forward. You can get to the list of the 8/31 holdings here:
Not Found? 316067107
NM | 10.20.07 - 10:23 pm | #
According to company spokesman Alexi Maravel
We all know how honest these people have been in the past few months. These days its hard to tell who is telling the truth. I prefer to get 2% less in US Treasuries. Ill sleep better at night.
If you just want to be sure with your cash and want the lowest expense ratios (and don't mind holding USD),
VUSXX (greater than 100K initial investment)
VMPXX (less than 100K initial investment)
I had advised people I knew to get their money out of US equity funds and into cash in their 401Ks, not realizing the MM was the only cash option in the deferred plan.
I am now cringing for offering the advice at all (which I thought was risk free - for me anyway - how can you possibly get into trouble telling people to get OUT of the market???)
Apparently you can when its this FU.
JaneDoe, your jaw will drop when you survey the choices offered by major corporations for 401K depositors.
It's only the threat of the current tax bite that keeps those folks frightened. My friend would see 50% disappear in taxes. I've argued that 50% of 100% is better than 50% of 40% down the road. But deaf ears are deaf.
There are no treasury funds available. The stock funds have 2 out of 6 choices packed with 20% "financials", as in take the red pill.
The international fund, while attractive, is also imbedded with financials.
These are suicide choices. But nobody will do a thing. The losses, assuming the chart I'm reading brings us to 10,000 and lower DJIA rather quickly, at 40% off to start, would be/will be oh say crippling to Unca Sam's plan to see baby boomers live off their happy equity appreciation yet another of gov'ts fantasy vision things.
In the 1980's, the public could run for gold or anything they wanted. This time, most of the 401K funds are locked away, inaccessible.
Later, when that 40% drop is in, the 401K holders will begin to say "ouch" and will then start dumping, irrespective of tax consequences. That will drive the market the next 20% down.
Ah, but the MM's will be safe at a buck. How do you spell "questionable".
Is the only worry in an MM? or could this problem possibly cause more problems within Fidelity and their Mutual funds?
BERLIN (AFP) - Some 35,000 additional jobs are reportedly threatened in German telecom giant Deutsche Telekom, on top of the tens of thousands already being lost.
The report to be published on the weekly Der Spiegel next week cites "internal calculations" within the company, which employed some 249,000 people at the end of 2006, 89,000 of them outside Germany.
If you just want to be sure with your cash and want the lowest expense ratios (and don't mind holding USD)
treasurydirect.gov
From Economicdisconnect:
"So what we see here is the Superfund for SIV's is making sure to collect as many big name players as possible. One may conclude the fund is trying to make itself seem credible by including solid names across many nations. I think their intent is a bit different. The plan is to make it impossible for any sale of assets related to the SIV's to happen without approval of the cluster of banks in the Superfund. In this way, price discovery of the assets can be forestalled indefinitely, the exact stated purpose of the fund. By making agreements with all the major players, the Superfund intends to strong arm (not those ARMS!) any entity from unloading the crap paper they hold. This is a key point. I was thinking that a way for a competing bank to crush the competition would require that the bank not hold any of the assets in question. That bank could then buy a reasonable amount, and sell it on the open market,probably at a significant discount to what the assigned price is. Then that bank could short the big holders of the paper as the new price is now known by the sale, and they make a huge killing. A complete lock-up of those assets will keep that from happening. It is a form of price control, and it is a great move by the banks."
Edited and reposted to new thread:
Heard an interesting theory, rather than the MLEC taking the toxic waste from the SIVs, the idea is to extract the few things of value from the SIVs leaving them to fail (as they are inevitably going to do). The trick is going to be how to remove as many "good" assets as possible without reaching the point where the SIV fails. Kinda like Jenga....Three Mile Island edition.
So the holders of SIV CP are the suckers left with the toxic waste and the banks (via their jointly held entity) will be left holding the good paper. The peril perhaps is not that the assets will be sold to the MLEC at above market prices, but that those assets will be sold at a distressed price in a non arm's length transaction, leaving investors in the SIV poorer and the banks mostly whole. Remember "SIVs...[don't]...require banks to cover fully the fund's debts if the commercial-paper market dried up." What a country!