Sunday, October 14, 2007

Master Liquidity Enhancement Conduit / SIV & Conduit Bailout

It looks like the big players, the Treasury Department & the Fed have found a way to hold on to their off balance sheet addiction. Although the details are not clear yet i can´t help myself but whenever i hear "Big Banks" & Treasury Department and the Fed in one sentence it doesn´t smell like more transparency is on the way ....

Es sieht einmal mehr danach aus als wenn die großen Banken Hand in Hand mit dem Finanzministerium und der Fed Überstunden geschoben haben um auf jeden Fall zu verhindern das die bisherigen Off Balance Sheet Verbindlichkeiten in die eigene Bilanz aufgenommen werden müssen. Ich muß zugeben das immer wenn ich Banken, Finanzministerium und die Fed in einem Satz zu lesen bekomme es nicht zu Unrecht zu befürchten steht das die eh schon dürftige Transparenz noch mehr Schaden nimmt ...

And thanks to Aaron Krowne we know of some small print that is already in place to prop up these vehicles....

Und dank Aaron Krowne erfahren wir auch das die Fed bereits jetzt fleißig diese Konstruktionen ausserhalb der Bilanz auf eine Art und Weise fördert das es einem dem Atem verschlagen muß.......

Is The Fed Flushing Out The “Excess Credit” Demons?

With this in mind, those generally suspicious of the Fed might not be surprised to find out that the Bernanke bunch is busy suspending even more reserve requirements for many major banks amidst this credit crisis.

Specifically here I am referring to bank off-balance-sheet conduit subsidiaries (this is now how money market and similar vehicles are handled… which is a sketchy fact in and of itself). The Fed is apparently piling up exceptions to its regulation 23A, which normally mandates 10% reserves for such conduit entities.

The exceptions “temporarily” suspend these reserve requirements. They are open-ended. Hmmm.

One would think in a time of financial crisis that the monetary authorities would be increasing capitalization requirements. Not so in the bizarro-world of the US Fed — maintaining the con a little longer is top priority

Here the reports / Hier die Berichte

Citigroup, Bank of America Agree to Set Up $80 Billion CP Fund / Bloomberg

Banks to Start Fund to Protect Credit Market / NYT

Banks line up $75bn mortgage debt fund / FT

Rescue Readied By Banks Is Bet To Spur Market / WSJ

Here are other takes / Hier andere Meinungen

Mish Super SIVs - A Fraudulent Attempt at Concealment

Nacked Capitalism The Smoke and Mirrors SIV Rescue Plan

Zeitenwende Wall-Street plant Notfall-Fonds

Calculated Risk Musical SIVs

WSJ Deal Journal A Bailout for Citigroup?

Lee Adler The Worst Is Over ?

WSJ Opinion House of Paulson?

Paul Kasriel MLEC - Trying to Turn a Sows Ear into a Silk Purse?

Calculated Risk Institutional Risk Analytics on MLEC

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Anonymous Anonymous said...

What color would you like your new Master Liquidity Enhancement Conduit in? You can have it in any color except transparent. Also don't worry about the stench... that's new Master Liquidity Enhancement Conduit smell.

11:22 PM  
Blogger jmf said...

Moin Anon,


I think they should call it "Black Box Conduit" & the "flavour" will not make it to the shelves....

11:38 PM  
Blogger jmf said...

MoneyGram’s shock subprime loss / FT

MoneyGram international is expected to show about $200m in losses on investments in complex debt securities when it reports its Q2’s on Wednesday. Shocking because the company is no bank or risky investment fund, but a wire transfer service trusted by ordinary people around the world with billions of dollars not made as deposits.

The company funds a near-$6bn long-term investment portfolio with cash it holds on behalf of customers for between five and 10 days.

11:47 PM  
Blogger jmf said...

No kidding....

America to press for restrictions on potent sovereign wealth funds

Too bad that the US need $3 billion a day from foreigners to finance their debt.....

1:47 AM  
Anonymous Anonymous said...

Hi J-M,

off topic maybe, but interesting:

Big winners, losers at auction of new Manteca homes

For the math challenged, it should be made clear that there are far more 'losers' than 'winners'. In this case, twice as many: if 1/3 of the houses were auctioned, this means 2/3 had already been sold, and this probably not that long ago, meaning sold for much higher prices -- as the one example shows. This ratio will greatly increase/worsen when it is considered on a state- or nation-wide level.

Such wealth destruction will have serious consequences for the wider economy, one would think.

That new conduit better be pretty big.


2:08 AM  
Anonymous Anonymous said...

And IMO the coming of the new 'conduit' will be seen as positive by the markets, at least in the short-term. The (probably sordid) details won't matter much now, maybe not ever. It seems to be the way things work...

If you follow telecom, maybe you heard about 3G waiting for the 'killer app' to really take off. In the same way, the bears are waiting for the 'killer news' that will kill off this bull market, but I am not sure it is going to come. Confidence in the big players -- government, CBs, investment banks, etc -- and their ability to stage-manage this is very high, and these players are very active. This will keep sentiment high. So as long as there are not a great number of negative earnings surprises, it looks like up is where things are headed. GOOG's earnings will be most interesting, IMO, as the stock tanked last time.


2:21 AM  
Blogger jmf said...

Moin Eh,

excellent story.

Looks like even the "mother of all conduits" won´t be enough.....

"I'm feeling my worst fears right now," said Cantrell, who estimated that the auction devalued his neighbors' homes by roughly $200,000 each compared with what many of them paid a year ago. "I lost a quarter million dollars in value. I'm screwed."

Cantrell bought his home a year ago for $670,000 (not including the $90,000 he paid to install a pool and miniature golf course). The winning bidder Saturday of an identical home five doors down the street paid $391,000 - 38 percent less than what he paid.

These houses are not in foreclosure. They are brand-new ones that Anderson Homes couldn't sell no matter how many free upgrades it offered...

And i agree that in the short term this will once more add fuel to the bulls.

I´m also not sure what will be the trigger for the markets to "correct". I still think it won´t come from the earnings side.

I´m still watching the (phony) CPI number and the 10 year. Next number is out on Wednesday.

On the other hand the reaction on Thursday after a negative comment on Bidu and a comment from ECB´s Weber that turned the market sharply lower within minutes tells me that the risk reward for a potential short is getting better.

2:33 AM  
Blogger jmf said...

Moin again,

others triggers could be

trade war / protectionism

Türken / Kurden / Irak

But maybe the markets will view this also as positive, weil "wall of worry" :-)

2:41 AM  
Blogger jmf said...

Treasury Sales May Rise 50% as Deficit Suddenly Grows

Government auctions of bills, notes and bonds in the fiscal year that started this month may rise more than 50 percent to $220 billion, according to UBS Securities LLC, one of the 21 primary dealers that underwrite Treasury auctions. The first decline in corporate tax revenue since 2003 increased the shortfall by 12 percent to $162.8 billion for the year ended in September, from $144.8 billion in the 12 months through April.

3:29 AM  
Blogger jmf said...

Citi Reports billions of write downs/loan loss reserves etc across all sectors....

3:36 AM  
Blogger jmf said...

PetroChina Surpasses GE as Second-Biggest Company

3:44 AM  
Anonymous Anonymous said...


I saw the story about the US deficit over the weekend -- I would guess it will make it tougher to hold down interest rates (unless the world economy really sinks and therefore such low yielding government becomes attractive again). Perhaps especially because of the creation of these 'sovereign' funds, with more money/reserves going there. I think that whole idea is to get a higher yield by investing in things other than government debt. So if the US Treasury wants to attract buyers, it will have to offer higher rates.


5:24 AM  
Blogger jmf said...

Mahlzeit Eh,

i highly recommend to read this from iTulip

Captive bidding at the auction: How bond vigilantism was swamped

Longer term there are lots of points that are pointing to structual higher US yields.....

10 year just broke 4,70.....

5:36 AM  
Anonymous Anonymous said...

Hi jmf,

Everyone all over the world is now fully aware of the confidence scheme being run by Wall Street. I don't want to hear anymore whining. They all know. Don't come crying to the U.S. citizenry when you-all get burned next time, and there will be a next time. If Wall Street or D.C. wants to sell you something it is a crappy deal for you, otherwise they wouldn't sell. Plain and simple.

10:54 AM  
Blogger jmf said...

"If Wall Street or D.C. wants to sell you something it is a crappy deal for you, otherwise they wouldn't sell. Plain and simple."

AMEN! :-)

10:57 AM  
Anonymous Anonymous said...

Master Liquidity Enhancement
Conduit... like the High Grade Structured Credit Strategies Enhanced Leveraged Fund, but even better!

8:18 PM  

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