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"Superconduit" To Back Structured Investment Vehicles, Bail Out Banks.
Bloomberg, The Wall Street Journal (with chart of 10 largest SIVs), and The New York Times report that the Treasury department, Citigroup, Bank of America, and JPMorgan Chase have announced the creation of a $100 billion "superconduit" designed to support other SIV "conduits". The new Master-Liquidity Enhancement Conduit, or M-LEC will sell commercial paper to purchase assets of troubled SIVs, or structured investment vehicles, and MTNs, or medium term notes, and hold them to maturity, thereby sparing banks the full pain of supporting this $300 billion market. The Treasury Department "is pleased with the response by the private sector to enhance liquidity in the short term credit markets. The joint efforts of domestic and international financial institutions, broker dealers, and investors have resulted in a potential structure to improve liquidity in the asset backed commercial paper markets." SIVs remain a trouble spot in the ABCP market, but today's announcement should assist in the recovery. Money market funds, though protected from most troubles by bank backing or other features, have undoubtedly been cutting back their exposure to SIVs over the past two months. Also, see Oct. 13 "Link of the Day".
