Sunday, October 14, 2007

Banks Said To Be Prepping Up To $100B Fund

Reports: Citigroup, others working with Treasury Department on plan to protect against further securities collapses.
A consortium of the world's biggest banks, led by Citigroup, is working to create a fund to back up to $100 billion in shaky mortgage and other securities, according to published reports Sunday.

The fund, according to reports in the New York Times and Wall Street Journal, would be used to buy securities at risk in the current credit crunch in an effort to avoid a broader economic problem. An agreement on the fund's framework could be announced as early as Monday, the Times reported, adding the talks were ongoing and could still result in no accord.

A major focus of the fund, according to the reports, is structured investment vehicles, or SIVs. The Times said the SIVs - which issue short-term notes to invest in longer-term securities with higher yields - have been tainted by the loss of confidence in subprime mortgages.

The Journal, citing Moody's, said there are about $400 billion in SIVs.

Besides Citigroup, the Times said Bank of America and JP Morgan Chase were involved in the discussions. The Journal said Britain's markets regulator has suggested that U.K. banks participate in the plan.

The Journal said Citigroup has about $100 billion invested in SIVs, while Britain's HSBC Holdings PLC has about $35 billion.

Both the Times and Journal see the fund as an echo of the 1998 plan to bailout the hedge fund Long-Term Capital Management after it made a series of bad bets. The bailout was made to thwart an international financial crisis.
This is a sound idea to ward off any major economic collapse. It does make me realize that these large banks must understand that the threat of collapse is real or they would not be putting in 100 Billion dollars of their own funds to head off such a collapse.

The Bush administration has been one that believes that industry can police itself. With the subprime mess and the continued recalls of food and toys I hope we all realize that this belief is false.

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