The Fed bails out SIVs with conjured money

Excellent article explaining the SIV crisis:

“SIV-Positive,” by Eric J. Fry, October 26, 2007 

Fry writes:

Since almost all the investors who comprise the free market refuse to purchase ABCP [asset-backed commercial paper], the Federal Reserve has stepped into the breach. . . .

Could the Fed conjure up $1 trillion worth of AB financing between now and President’s Day, 2008? Maybe, but probably not without also conjuring up a dollar crisis, or a bond market crisis…or both at once. The only viable path toward recovery and normalcy requires a legitimate mark-to-market. But marking MBS and CDOs to real-world prices might clip tens of billions of dollars from bank balance sheets…and might kick a few dozen millionaire-bankers to the curb.

Unfortunately, because the millionaire-bankers still control the flow of information – and still hold meetings with the Treasury Secretary to concoct shell games – the “fantasy pricing” regime remains in effect.

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