US Banks abandon credit fund plan

(sorry - don’t know where this should be posted - haven’t seen it anywhere else on the forum. db)(from RTE news - today)

US banks abandon credit fund plan
Monday, 24 December 2007 13:16
Leading US banks have abandoned a joint plan to create a massive fund aimed at easing the global liquidity squeeze due to lack of interest in the market. The announcement came over the weekend.

Bank of America, Citigroup and JPMorgan Chase had announced in October a plan to create a single ‘master-enhanced liquidity conduit’ to buy up troubled debt.

The banks reportedly wanted to pump in between $75 billion and $100 billion into the fund, which would buy assets from ‘structured investment vehicles’ (SIVs), which have been hit by the credit squeeze. But the banks, in a joint statement, said the plan would not go forward.

The plan, which was backed by US Treasury Secretary Henry Paulson, was seen as a major effort by the private banking sector to help restore normal credit conditions after turmoil earlier this year sparked by losses and a lack of confidence in sub-prime mortgage assets.

Since I didn’t really understand how it was going to work in the first place, what does it mean now that it has gone tits-up?


They goes plan C, now on to plan D…

It was supposed to hide the dodgy assets in the SIVs by buying them at close to parity, so losses wouldn’t be realised all at once. There was also a hope that the assets would magically become more valuable in some fantasy future!

It has been replaced with banks bringing the SIVs onto their balance sheets and recognising the losses, or hiding them in Tier 3 assets (hiding at least until they have to do FASB 157 accounting and value the assets at market rate). I think that once the sky didn’t fall in when Citi and HSBC and UBS brought their SIV assets in, there are few takers for the plan. And anyway, I’m not sure anyone has any money to pay for it!

Some posts from Mike Shedlock on the subject:
globaleconomicanalysis.blogspot. … r-siv.html
globaleconomicanalysis.blogspot. … group.html
globaleconomicanalysis.blogspot. … -fail.html

The result? US banks look like they are going to take their medicine and write-down their bad assets.