SuperSIV Bailout Fund

I read this report from the internet.

Three large banks are setting up a SuperSiv fund to bail out short-term debt markets.

The fund is one of two private-sector efforts fostered by the Bush administration to address fallout from subprime-mortgage delinquencies.

The fund will buy assets from structured investment vehicles, or SIVs, which would otherwise be forced to dump their $300 billion of assets to repay debt.

These SIVs sell short-term debt to finance purchases of higher-yielding assets. They were shut out of the commercial paper market on investor concerns that SIV held troubled subprime-related securities.

SIVs borrow in the $836 billion asset-backed commercial paper market and then buy longer-dated bank bonds, mortgage-backed securities and collateralized debt obligations.

Investors are reluctant to deal with SIVs because their holdings are difficult to value now that trading has collapsed in some mortgage debt markets.

Lesson: Apparently, the sub-prime problem is spreading to other markets, including short term commercial paper. This is an effort to limit the damage. Will it work?