Super SIV

Kutilya · Post by **Kutilya** » Wed Oct 17, 2007 5:23 pm

OK there is a word in English language called “Sarcasm”, which means this

FDAXHunter · Post by **FDAXHunter** » Wed Oct 17, 2007 5:40 pm

Ahem... Kutilya, chill the hell out. Why are you even in this thread? You know next to nothing about credit, so leave these guys alone.

SirAppleby · Post by **SirAppleby** » Wed Oct 17, 2007 5:55 pm

Can a bank pledge the M-LEC paper as collateral at the Fed discount window? Since it has the moral support of Paulson, then a special 1% haircut will be applied. The Fed may soon become the biggest creditor of the fund. Big Smile

KangaXX · Post by **KangaXX** » Wed Oct 17, 2007 7:21 pm

And funding on term at the discount window is pretty cheap versus longer dated libor

rowdyroddypiper · Post by **rowdyroddypiper** » Wed Oct 17, 2007 7:31 pm

I think we've gotten a little wide of where Cheng was going. I'd be interested to hear some more details on the proposed super SIV he was referencing if it is not in fact the MLEC vehicle that has seemed to taken over the discussion of this thread.

Cheng, I'm a little confused. Many SIV's have had the ability to invest into structured credit (if we are thinking of the same terms here, for example a CDO of ABS would be structured credit in my book). What would be so unusual about this ability in the deal you are talking about? I could just be dense on some issue though so let me know.

Cheng · Post by **Cheng** » Thu Oct 18, 2007 8:52 am

The original idea was that the SIV could invest in rated synthetic tranches. Now if you buy a rated ABS tranche for example the rating is a crucial factor to determine the price as far as I understand the market (eg UK prime RMBS AAAs trade at 30, no matter whom you ask). In synthetics there are a lot of twists and tweaks to achieve a desired rating while creating a very high coupon (and thus a toxic structure). Buying synthetic structured credit by rating is the fastest track to hell, believe me. The guys proposing this structure said they have a looooong track record on one hand (suggesting they should know that this is exactly the one thing not to do) and on the other hand that this is a very clever way to improve traditional SIVs. Sounded fishy to me.

rowdyroddypiper · Post by **rowdyroddypiper** » Thu Oct 18, 2007 9:58 pm

Okay, much clearer now. Your definition of structured credit and mine weren't necessarily lined up. This is along the lines of CPDOs as investments for SIVs? L + 200 isn't AAA. Also, cash or synthetic if you buy on rating you're asking for disappointment.

Cheng · Post by **Cheng** » Fri Oct 19, 2007 9:02 am

Exactly same story for CPDOs. Looks like AAA and is volatile as the 3m USD LIBOR lately. Worst thing is that you probably won't loose any money at maturity but the MtM swings will grill you long before, especially if you are a SIV and prone to these things.

[i]Also, cash or synthetic if you buy on rating you're asking for disappointment.[/i]

Did anyone say subprime Smiley ?

SirAppleby · Post by **SirAppleby** » Fri Oct 19, 2007 4:19 pm

According to the paper, the M-LEC can pay the SIV in a combination of cash and notes for the assets. Presumably, the note is as good as the assets being sold to the fund. This is one way to set a “non-firesale” price for the assets.

Do you think that the investment firms who arrange the super-SIV will receive their fees in notes rather than cash?