Sunday, 23 December 2007

Ding Dong the SIV is dead

Kudos to naked capitalism, who from the get go said the super SIV idea would most probably fail. So it's only fitting to give them the last word on the death of the Super SIV:

SIV Rescue Plan: RIP

The SV rescue plan touted by the Treasury Department and sponsored by Citigroup, JP Morgan, and Bank of America, has finally, officially, had a stake put through its heart today. It dies unmourned and unloved.

It wasn't hard to see that this concept was unlikely to get off the drawing board. But with the Treasury's prestige at stake, Paulson (and even Bernanke) flogging the idea and garnering front page coverage, the plan kept moving ahead, zombie-like, based on momentum rather than merit, demand, or utlility.

The sponsors nevertheless put a brave face on this move, saying the banks would "reactivate" the program if conditions warranted. I guess that's Wall Street for "peace with honor."

While the Vietnam comparison may seem strained consider: the US government, in this case a Treasury secretary, was unable to win the hearts and minds of a reluctant population, in this case both the supposed beneficiaries, the SIV sponsors, and the investors who would ultimately bear the risks. We witnessed the astonishing precedent of a Treasury secretary lobbying top bankers at a G7 meeting to promote what had consistently been depicted as a private sector initiative. There was also more that a bit of boosterism in lieu of reporting in evidence on this story at the Wall Street Journal.

A fitting epitaph comes via Bloomberg:

"The market is in surgery and they can't even get the Band- Aids to work,'' said Thomas Flaherty, who manages $25 billion in corporate debt at Aberdeen Asset Management in Philadelphia.

But in the denouement, BlackRock, engaged to act as manager of the program, doth protest too much, complaining that this exercise kept them from taking on other, presumably better-paying, assignments. Yet, but here the firm got tons of profile without having to put its reputation at risk by delivering an outcome. Sounds like awfully good PR to me. And the three sponsors, who incurred real expenses (a hundred lawyers were reported to be working on the deal) aren't whining.

Click on the link above for the entire post.