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Contents 1 == 1.1 Whistlejacket and White Pine 1.2 incomprehensible 1.3 stil incomprehensible 1.4 Current event 1.5 Try this explanation of a SIV... 1.6 Comparison/contrast to other investment vehicles? 1.7 Off Balance Sheet 1.8 SIV Failure 1.9 incomprehensible jumbled presentation of topic 1.10 finally 1.11 general info 1.12 disruptive edits 1.13 "Links Normally to be Avoided

[edit] ==

My understanding is that it is like borrowing money in the short term to fund lending money in the long term.

In general, though not always, it is cheaper to borrow money in the short term because the people who are lending you money do not have their capital tied up for so long. This is why you will often get a better rate on your savings if you invest in a notice account (eg. where you have to give 90 days notice before withdrawing any money).

So if our SIV was Bart Simpson, he might borrow some money, say $100 from Marge and promise to pay her back in one year. Marge might charge him 5%. To make a bit of money, Bart goes to Homer and says he will lend him $100, repayable in three years, providing Homer pays him 6%.

So after one year, Bart has borrowed $100 at a cost of $5 but lent it back out for a benefit of $6 so after one year, Bart has made a profit of $1.

However, at that year, he has to repay the original $100 to Marge. So, he might then go to Barney and borrow some more money. If we assume the price of borrowing stayed the same then Barney would lend him another $100 for 5%. He could then use the $100 be borrowed from Barney to repay Marge, with Homer still owing him the original $100 - ie. Bart is acting like a financial middle man, or a Bank.

So after two years, Bart has paid a total of $10 out in interest and received $12 from Homer, a profit of $2. But what if, in year three, people were more keen to hold on to their money? Bart still needs to repay Barney but Apu will charge him 6.5% (because he is concerned that Some of his clients (of whom Bart is one) may struggle to pay him back the loaned amount) for the year. Bart is only going to receive $6 from Homer but has to pay Apu $6.50 so, unusually for such a canny lad, he will make a loss of $0.50. So, at the end of three years, Homer repays Bart the $100, which Bart then returns to Apu. Bart made a $1 profit in each of the first two years but a loss of $(0.50) in the third year. Therefore, in total, Bart made $1.50 because, for the large part, it was cheaper to borrow money for one year than to borrow money for three years.

Has that made it better or worse?Tmischler 10:43, 14 September 2007 (UTC)

You are kind of there but I think it is better NOT to put a description like that because although it gets the "gist" across for a lay person, it will actually be more confusing for someone semi-educated in the subject. I think it is much more useful to keep it accurate.

The point is that SIV's are fully hedged for interest rate risk, so there is no question of "rates going up or down" as in the case with Apu. Rather the risk lies in the spread over libor contracting or widening, which is credit risk and not interest rate risk.

I added the overview section, to try give a basic explanation that I think anyone with basic financial knowledge will understand. If you wanted you could expand with a money example based on credit spreads rather than interet rates if you like.CreditQuant 08:34, 17 September 2007 (UTC)

It is untrue to say SIVs do not take interest rate risk ... Cap's on Home Equity bonds put SIV's at risk to a spike higher in US rates.. is this largely unimportant given that the SIV model is basically done for ?? probably. --JOB 13:51, 19 October 2007 (UTC)

[edit] Whistlejacket and White Pine

I had a feeling these two have now merged into one (under the name whistlejacket) although I may be mistaken. Can anyone confirm/refute this? CreditQuant 19:52, 7 March 2007 (UTC)

Can confirm that is all Whistlejacket now --JOB 13:51, 19 October 2007 (UTC)

[edit] incomprehensible

I'm sorry, even to an educated layman, this article is incomprehensible. I think it has somthing to do with buying longterm, AAA bonds, and using the interest to buy other things.. I also suspect, that like a lot of finance things, it is a lot lot simpler then people say it is (how can you justify those insane salarys if it ain't complicate) ?

A comprehensible version would look something like

A) Recive 100 MM from investors B) buy 100 MM long term bonds C)....

[edit] stil incomprehensible

sorryCinnamon colbert 13:51, 18 August 2007 (UTC)

better? CreditQuant 09:25, 13 September 2007 (UTC)

See below in current event. Sorry I put this in the wrong spot.--198.240.130.75 (talk) 19:38, 13 December 2007 (UTC)

much better introduction; started to get lost on the senior junior debt part - ie pari passu has got to be jargon that can be replaced. thanksCinnamon colbert (talk) 19:34, 7 May 2008 (UTC)

[edit] Current event

Could someone put a "this is a current event" thingy on the Subprime crisis bit - I don't know how you do it. CreditQuant 09:25, 13 September 2007 (UTC)

[edit] Try this explanation of a SIV...

I am a siv manager I borrow money from investors in the short term (say 1 yr) at 5%. I invest that money in (Asset back paper) in longer term (say 3yr) at 6%. I recieve a AAA rating for this structure investing in good AAA rated asset backed paper. Unfortunately Asset backed paper is not performing well this year and the mortgages that the Asset back paper was written on are defaulting. In order for me to maintain my profits I can exchange some of the Asset backed paper that I invested in. I do this by selling the quality AAA assets with lower yield and investing in cheaper, Higher yielding asset backeds to make up the short fall. Under the terms of my prospectus I am allowed to do this within certain limits and the investors who provide the money do not need to be notified even though the rating agency said that the original investments made were in AAA Asset backed paper when the prospectus was issued. If enough of these are replaced the entire instrument would no longer be AAA if the rating agency could have another look but given the instrument is already trading there is no need for the cost of a re-rating. As an investor there is no transperancy for you to see the investment changes I have made (unlike CDOs were you can look through and see the investments). As the mortgage cycle deteriorates I need to cover my shortfall by selling quality and buying (junk) higher yielding instruments. The hope at this point is a market recovery which will result in the junk paying back the cost of my borrowing. Unfortunately as the 2007 slow motion train wreck has progressed there has yet to be seen some recovery. My AAA quality initial investment is now in junk bonds and they are defaulting at an even faster rate. It was reported by bloomberg on Dec 13th '07 that the average collateral (level of assets held to cover the loan) had fallen from 102% to an average of 55% across the SIV indistry. I am now faced with a capital shortfall (principle) as well as an interest covering shortfall.

The bolded sentences are the key behind the issues here. Rgds Andre

[edit] Comparison/contrast to other investment vehicles?

Could someone explain how an SIV is different from a hedge fund or other vehicles from investment management firms? The leverage cited here seems significantly beyond what typically exists in HFs -- more akin to what we saw in LTCM, no?

Hedge funds are generally low rated due to their nature of investing in equity (containing a low rating) and bond instruments (higher rating) (leverage is created through both cash and derivatives). SIVs should have higher quality allowing higher leverage as they are borrowing to invest in AAA rated bonds. Unforetunately the ratings agencies have done a terrible job at rating my structure because they overlooked the fact I can change the investment as I need to as long as the invetsment is within a certain class of assets regardless of the rating.--198.240.130.75 (talk) 16:29, 14 December 2007 (UTC)

SIVs seem to be sponsored primarily by banks. Are they the only sponsors of such vehicles? (If so, why does the SIV structure work for a bank -- balance sheet issues, right? But not for others?) How do the management fees generated for the banks (or other sponsors) compare with those for hedge fund managers? Who are the investors? The WSJ today mentioned institutional investors, including pension funds and mentioning Fidelity by name, specifically. Who else? And why would these investors be interested in SIVs over hedge funds?Hudsonvalleychris 17:31, 18 October 2007 (UTC)

Answers to the above; Anyone could establish a SIV however in order to be successful/profitable you will need a high credit rating and the ability to transact cheaply. This make this a high volume small margin business requiring massive economies of scale to be profitable, thus the banks and large fund managers can do these. SIV are a way for Banks to offload mortgages from their balance sheet by structuring an Asset backed instrument where they keep or sell out the first loss and have the remaining assets pay out as a AAA bond.

Management fees are low given the margins.

Investor is anyone with large amounts of cash that they want to invest in high quality assets. You would choose these over a hedge fund if you did not want to risk lossing your money with a risky bet on a Hedge Fund.

These (SIVs) were paying out very extremely high interest (Spreads) rates given they were receiving AAA rating from the credit rating agencies. Think of it like buying a car. you go to the shop and it is all shiny and polished, the salesman says, "it is a great car and a steal given it is going at half the price of all the other similar cars in its class on the lot". Would you buy it or would you want to understand why it was so cheap. Unfortunately no one (especially the rating agencies) asked why the SIVs were paying such high dividends for a AAA rated instrument.--198.240.130.75 (talk) 16:29, 14 December 2007 (UTC)

[edit] Off Balance Sheet

I think it would be useful, if anyone can do it, to provide an understanding of how SIVs are used to transfer liability from the sponsor's balance sheets. Nereus1 18:24, 19 October 2007 (UTC)

[edit] SIV Failure

What happens if the SIV can't refinance its short term debt? Do they go bankrupt? Does their commercial paper get sold at firesale prices? Do the owners of the short term debt (like Fidelity's Money Market Funds) get the commercial paper?? 66.31.61.240 14:10, 22 October 2007 (UTC)CuriousFrank

[edit] incomprehensible jumbled presentation of topic

hello,

i have been suddenly reading about the SIV instruments in the press recently. the press articles (WSJ, NYT, et al.) are obviously written by journalists who either (1) know the topic too well to write clearly about it to an educated layman or more likely (2) don't have a clue about the vehicle and are only pulling buzz words here and there, i thought i'd come to wikipedia for a cogent entry. alas, the wikipedia article is just as jumbled. the main article page clearly needs flagging as incoherent...work-in-progress...first draft...something to indicate that it's not up to typical wikipedia standards.

regards. —Preceding unsigned comment added by 68.173.7.103 (talk) 03:15, 31 October 2007 (UTC)

[edit] finally

Someone finally explained SIV's in a comprehensible manner. Thank you. However, can anyone help me understand the relationship between mortgage back securities and SIV's. Am I right in thinking that SIV's merely can invest in MBS among others? 67.53.237.105 03:18, 31 October 2007 (UTC)

[edit] general info

SIVs are different from bond funds and hedge funds in that their investment management rules limit the activities of the portfolio to just those described in the main article.

In terms of borrowing, the SIV has access to only a few debt markets, usually the dollar CP, euro CP and whatever MTN programmes have been put in place.

Assets suitable for investment are typically high-grade e.g. rated AA or higher, since SIVs may have strict limits on the total exposure to paper at various ratings. All such controls are established in order to maintain the top rating on the senior debt, which keeps the cost of funding to a minimum.

The weighted average life of the assets and the liabilities is a key defining characteristic of the portfolio. The larger the gap between the two, the more pronounced the liquidity risk. Susceptibility to the current conditions in the debt markets arises in the first instance precisely because of this continuing need to roll the short-term CP, and the inability to readily sell assets to raise money. SIVs then have a few choices available:

1. They sell higher quality assets where possible while trying to avoid crystalising a loss or depressing market values.

2. They can enter into repo agreements with other counterparties, pledging assets as collateral.

3. They can accept a higher cost of funding on their CP, and accept the negative consequences this has from the signals it sends to the market.

4. And finally, they can fall back on committed facilities such as backstops which have been pre-agreed with a counterparty.

As the dislocations in the market continue, the SIV may suffer from a kind of collateral damage. If the fund has market-value triggers, then a sufficient slide in values of the assets in the portfolio will force the SIV to unwind partially or totally by selling the assets over a period of time, until either the portfolio passes the market-value test, or the fund has been liquidated. This carries severe risks to both the capital note holders, who may not recoup their principal, but arguably more importantly, to the banking system as a whole.

A large scale sale -- forced or otherwise -- into an already stressed market will deflate the value of assets held by other SIVs, financial vehicles and institutions. The risk then is that other funds may subsequently fail their market-value or capital adequacy tests, resulting in a cascade effect. For this reason, the fate of the SIVs and of the investment banks are inextricably intertwined, and the solution will involve multilateral cooperation from sovereigns, corporates and SIVs to allow the structures to unwind in an orderly way.

[edit] disruptive edits

Hu12 accuses me of being a disruptive editor for linking the site www.siv0.com. Hu12 seems to want to limit extrernal links on this article to one (Moody's). First, I deny being a disruptive editor. I am contributing to the article, and I do link to the site I mentioned under external links. Most wikipedia articles have several external links, and frankly, I find them helpful Who is Hu12?

Do not let him block me. I am not being disruptive, and in fact, I would say Hu12 is being overbearing and way out of line. This is wikipedia, not Hu12-ipedia. Let's take a look at the disruptive editing policy:

"This guideline concerns gross, obvious and repeated violations of fundamental policies, not subtle questions about which reasonable people may disagree."

I would say this is a subtle issue. Many, many Wikipedia articles have several external links. Why does Hu12 decide that this article only has one?

More from the policy:

"Is tendentious: continues editing an article or group of articles in pursuit of a certain point for an extended time despite opposition from one or more other editors. Cannot satisfy Wikipedia:Verifiability; fails to cite sources, cites unencyclopedic sources, misrepresents reliable sources, or manufactures original research. Rejects community input: resists moderation and/or requests for comment, continuing to edit in pursuit of a certain point despite an opposing consensus from impartial editors and/or administrators. In addition, such editors may:

Campaign to drive away productive contributors: act in spite of policies and guidelines such as Wikipedia:Civility,Wikipedia:No personal attacks, Wikipedia:Ownership of articles, engage in sockpuppetry/meatpuppetry, etc. on a low level that might not exhaust the general community's patience, but that operates toward an end of exhausting the patience of productive rules-abiding editors on certain articles."

I do none of the above. I have been "warned" twice by Hu12. I reject his authority on this issue. I am not trying to make any particular point. I am just part of those monitoring the subprime issue, and specifically the role of sivs. I do not reject comments, as I have seen none other than Hu12's. I do not campaign to have others removed from the article.

Hu12, mellow out, or I will report you to the administrators.

Wyattmj (talk) 01:35, 11 March 2008 (UTC)

Wikipedia:Disruption

• Blocking_policy#Disruption A block for disruption may be necessary in response to:
• persistent spamming see your spam additions →123456

Please take a look at the specific requirements of our External Links and Reliable Sources guidelines. I don't think this link meets either guideline. Inappropriate links include (but are not limited to) links to personal web sites, links to web sites with which you are affiliated, and links that exist to attract visitors to a web site. See the external links guideline and spam policies for further explanations of links that are considered appropriate.--Hu12 (talk) 12:05, 11 March 2008 (UTC)

[edit] "Links Normally to be Avoided

From Wiki policy:

Links normally to be avoided Except for a link to a page that is the subject of the article or an official page of the article subject—and not prohibited by restrictions on linking—one should avoid:

Any site that does not provide a unique resource beyond what the article would contain if it became a Featured article.

Nope, does not fit this category. The daily news reprting makes the site valuable.

Any site that misleads the reader by use of factually inaccurate material or unverifiable research. See Reliable sources for explanations of the terms "factually inaccurate material" or "unverifiable research".

Site uses mainly top newspapers and reporting services (AP, Reuters), plus articles from financial practicioners.

Any site that attempts to surreptitiously install malware on a visitor's computer.

Nope

Links mainly intended to promote a website. See External link spamming.

Nope. I understand when I linked it into multiple websites this may have appeared as such. That is why I backed off from that. It does fit more than this article, but it was accepted on this article for a long period, so let it stay.

Links to sites that primarily exist to sell products or services. For example, instead of linking to a commercial bookstore site, use the "ISBN" linking format, giving readers an opportunity to search a wide variety of free and non-free book sources.

Nope

Links to sites with objectionable amounts of advertising. Links to sites that require payment or registration to view the relevant content. Sites that are inaccessible to a substantial number of users, such as sites that only work with a specific browser. Direct links to documents that require external applications (such as Flash or Java) to view the relevant content, unless the article is about such rich media. If you do link to such material make a note of what application is required.

None of the above.

Links to search engine and aggregated results pages.

Nope

Links to social networking sites (such as MySpace or Fan sites), discussion forums/groups (such as Yahoo! Groups) or USENET. Links to blogs and personal web pages, except those written by a recognized authority.

Nope.

Links to open wikis, except those with a substantial history of stability and a substantial number of editors. Wikis that meet this criteria might also be added to Meta:Interwiki map.

Nope.

Sites that are only indirectly related to the article's subject: the link should be directly related to the subject of the article. A general site that has information about a variety of subjects should usually not be linked to from an article on a more specific subject. Similarly, a website on a specific subject should usually not be linked from an article about a general subject. If a section of a general website is devoted to the subject of the article, and meets the other criteria for linking, then that part of the site could be deep-linked.

Nope subject is subprime/ structured investment vehicles and related.

Lists of links to manufacturers and suppliers. Links to sites already linked through Wikipedia sourcing tools, such as Wikipedia:Book sources with ISBNs and Wikipedia:Map sources with geographical coordinates.

Nope.

Can you be more specific?

Wyattmj (talk) 11:33, 11 March 2008 (UTC)

Please dont Text bomb the talk page, it is disruptive.

Links normally to be avoided

4 Links mainly intended to promote a website. See External link spamming.

• Blocking_policy#Disruption A block for disruption may be necessary in response to:
• persistent spamming see your spam additions →1234567891011121314151617181920212223242526

10 Links to search engine and aggregated results pages.

• The entire content is derived from aggregated sources, and is a Link normally to be avoided

Which makes siv0.com....

1 Any site that does not provide a unique resource.

In addition. Please take a look at the Reliable Sources guidelines. I don't think this link meets either guideline. Inappropriate links include (but are not limited to) links to personal web sites, links to web sites with which you are affiliated, and links that exist to attract visitors to a web site. See the external links guideline and spam policies for further explanations of links that are considered appropriate.--Hu12 (talk) 12:21, 11 March 2008 (UTC)

Who determines the intention?

Wyattmj (talk) 00:04, 12 March 2008 (UTC)

This is the same link. YOU keep reverting it.

Wyattmj (talk) 00:04, 12 March 2008 (UTC)

Who says? This is not aggregated (i.e., automated). It is obvious each headline is hand picked for relevancy. Also, this site contains much more than headlines.

It is unique in that it supplies upo to date information on daily basis. Something Wikipedia is not designed to do.

Wyattmj (talk) 00:06, 12 March 2008 (UTC)

Again, you opinion.

Wyattmj (talk) 00:04, 12 March 2008 (UTC)

External links policy on Advertising and conflicts of interest states You should avoid linking to a website that you own, maintain or represent, and in this case, you are the owner of siv0.com. Unfortunately your conflict of interest editing involves contributing to Wikipedia in order to promote siv0.com. Such a conflict is strongly discouraged. Your contributions to wikipedia under Wyattmj, consist of adding external links to siv0.com→1234567891011121314151617181920212223242526 and is considered WP:Spam. It has become apparent that your account and IP's are only being used for spamming inappropriate external links and for self-promotion. Wikipedia is NOT a "repository of links" or a "vehicle for advertising" and persistent spammers will have their websites blacklisted. Any further spamming may result in your account and/or your IP address being blocked from editing Wikipedia.--Hu12 (talk) 00:41, 12 March 2008 (UTC)