Maybe people in the industry are reading my blog! Today's Wall Street Journal has an article about efforts to create a super conduit to purchase mortgage related assets from bank SIVs, a move I hope can help all participants in the industry.
Back on August 11th, on this very blog, I proposed something very similar: "In an ideal world, the government would create a special purpose
vehicle similar to Freddie & Fannie Mae to go out and buy MBS &
CDOs."
The WSJ is reporting that one of the supporters of this effort is Henry Paulson, and as someone with Street experience, he can appreciate what this strategy can offer participants all around.
The challenge faced is valuations. And its a simple matter of setting up a third party of some kind who isn't getting paid by the participants to price assets that banks wish to pool into this. I think all the rating agencies disqualify themselves since they have done such a horrible job rating them the first time around.
Why not have Fannie Mae and Freddie Mac value the underlying instruments. Obviously, they would have to be compensated in some fashion.
Other questions I have is will participation be open, or will this be only for banks with SIVs? Can pension funds participate? Perhaps if they buy back from the superconduit?
I don't know, this sounds like the problem is being swept under the rug.
Sound Off! And tell me what you think- post a comment or send me an email. I'm happy to post your comment anonymously, if you prefer.
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