The Smoke and Mirrors SIV Rescue Plan

[NMDemDist2]

Although the details of the planned SIV rescue program, the so called Master Liquidity Enhancement Conduit (MLEC) have yet to be announced, enough has been leaked to allow us to speculate with slightly greater confidence.

Since this whole enterprise has a hall of mirrors quality to it, in the spirit of Lewis Carroll, we'll start with sentence first, verdict afterward, or in this case, bottom line first, assessment afterward.

Yesterday, we voiced doubts that this program could get done. Now that we understand that the primary goals is legerdemain, we think that it is likely that some sort of entity will be put into existence, funded, and labeled a success no matter how short it falls of its initial target,. Whether that initiative will be seen as an arm's length, legitimate undertaking is very much in question. And there is a real risk of a Northern Rock effect.

Recall that what precipitated the run on UK building society Northern Rock was the revelation that it was in discussions with regulators about its deteriorating state. Before that, few outside the banking community were aware of its distress. Similarly, there has been very little coverage in the US financial media of the rocky state of the commercial paper market and Citibank's exposure to it. Revealing those facts, without having a rescue plan firmly in place, may do the exact opposite of what the program is intended to do, namely weaken confidence rather than shore it up.

http://www.nakedcapitalism.com/2007/10/smoke-and-mirrors-siv-rescue-plan.html


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