What is this plan really going to do for the big SIV banks?
Generate liquidity for the good while warehousing the truly distressed, where the value of buying time is uncertain. This vehicle, the Master-Liquidity Enhancement Conduit, or M-LEC, is not designed to hold a bunch of garbage, but only the highest-quality components of existing SIVs. From the WSJ: According to people familiar with the plan, though, the price of admission for SIVs will be high. SIVs will only be allowed to sell assets rated AA or better and likely will be unable to sell collateralized debt obligations — pools of debt repackaged into slices with different levels of risk and return — backed by subprime assets. In addition, the SIVs will have to pay a fee to the super conduit and accept a discount in the price of the securities they are selling. In return for that discount, the SIVs will receive notes in the “junior” layer in the conduit — which will take the first hit if losses are incurred. So, what the M-LEC is really doing is generating liquidity against a higher qu
