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

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Slate profiles Victor Niederhoffer

Slate's recent profile of writer/speculator, Vic Niederhoffer has been getting some attention from traders and finance types in recent days. I thought we'd take a look at it here too, to offer up some possible educational value from Vic's experiences with trading and loss. Here's an excerpt from Slate's profile of Victor Niederhoffer : " I've enjoyed getting your e-mails. It sounds like you've thought a lot about being wrong. Well, the reason you contacted me, to call a spade a spade, is that I'm sort of infamous for having made a big, notorious, terrible error not once but twice in my market career. Let's talk about those errors. The first was your investment in the Thai baht, which pretty much wiped you out when the Thai stock market crashed in 1997. I made so many errors there it's pathetic. I made one of my favorite errors: "The mouse with one hole is quickly cornered." That is key. There are certain decisions you make in li

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean