Research Update: M-LEC – Will It Float?
Opinion continues to be divided on whether the M-LEC Superfund will get off the ground, and whether it will do much good even if it does.
Readers of Research Recap may recall that the wisdom of the fund designed to buy up some of the assets of Structured Investment Vehicles was questioned two weeks ago. Last week it looked like the Superfund was being revived.
Today, The New York Times reports the fund may not help much. Noting that the goal is to have it up and running by the end of the year, the Times says it will not save troubled SIVS, though it could delay their demise.
It may help calm the turbulent credit markets by preventing a sharp sell-off of securities, though analysts say the fund will probably not be able to offset the deteriorating prices of the securities.
“Banks, meanwhile, may benefit if the backup fund can reignite trading in the packaged loan market and keep SIV assets from bogging down their own balance sheets.”
The Financial Times reports that the three banks behind the proposal – Citigroup, Bank of America and JP Morgan Chase – have simplified the proposal in the hope of signing up more banks, though none are mentioned by name.
Some analysts say the US Treasury fears fire sales could depress prices, piling pressure on the asset values of the money market funds that are the main buyers of the SIVs’ commercial paper.
Elsewhere FT Columnist Wolfgang Munchau opines that the subprime-mortgage-driven housing and credit crises are likely to have a deep and long-lasting impact on economic growth.
“The world economy can now look forward to confronting four ugly and partly interrelated shocks at the same time: a US economy heading for the rocks, a rise in global inflation, a collapse in the dollar’s exchange rate and a credit market crisis.”
In a couple of years, it will be over. The bad news is that this is an environment in which it is easy for policymakers to make mistakes – and some probably will.
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