The scrapping of the “Superfund” designed to help soothe the Structured Investment Vehicle meltdown will have come as no surprise to readers of Research Recap, which has been skeptical about the clumsily-named “M-LEC Superfund” since its inception.
The final nail in the fund’s coffin was the move by one of its lead sponsors, Citigroup, to bring some of its SIV exposure onto its own balance sheet rather than utlilize the SuperSIV. SunTrust has also joined the crowd of banks tackling the problem directly, taking on board $1.4 billion of securities from two SIV-exposed money market funds it manages.
The collapse of the plan to create the $75bn superfund “is embarrassing for the US Treasury, which backed the scheme, but is not likely to have big implications for financial markets,” the Financial Times reports.
The fact that the banks feel it is no longer needed is very good news indeed, according to value investor Todd Sullivan, writing on SeekingAlpha. “It means the write downs for the SIV’s at the institutions can’t go much lower. These things ARE worth something. ”
Sullivan sees financial stocks as “the big winners next year and our next purchases will be in the sector again.”
CreditSights also sees the plan’s demise as a good omen . . .”between the recently announced mortgage modifications, the Fed’s efforts to make bank loan windows more acceptable, and the fact that we are almost beyond the turn, we are almost optimistic about the progress of the clean up in the liquidity markets. ”
Progress, however, does not mean success and we feel that we are still far from the calm waters of Lake Woebegone where every credit was above average . . .
Research Recap gives the last words of this holiday season (with apologies) to Edward Lear, whose nonsense poems seem like they were written with these days in mind:
They went to sea in a SIV, they did;
In a SIV they went to sea;
In spite of all their friends could say,
On a winter’s morn, on a stormy day,
In a SIV they went to sea.
And when the SIV turn’d round and round,
And every one cried, “You ’ll be drown’d!”
They call’d aloud, “Our SIV ain’t big:
But we don’t care a button; we don’t care a fig:
In a SIV we ’ll go to sea!”
Far and few, far and few,
Are the lands where the Jumblies live:
Their heads are green, and their hands are blue;
And they went to sea in a SIV.