SIV= Imagine Enron, Bank Wide.

By
Real Estate Broker Owner with Northern Virginia Homes - FRANKLY REAL ESTATE Inc

 First, a disclaimer. I am not a banker. I am not a financial advisor. I'm just a Realtor. Please ignore anything that I say.

Update 12-1-07: I want to make the concept of SIVs more clear.

 

 

 

Imagine this:

  1. Bank has $1 Billion making 5%
  2. Bank figures they can start a fake company (which is not reported to shareholders, and off all books) and "Lend" the fake company/subsidiary the $1B in order to buy riskier portfolios and sell them for 8%, but with a "this is backed by an A grade company."
  3. Newly added 12-5-07 bank lever the business 14 to 1. 
  4. Pocket the 3%, and that makes them $30 Million a year (levered at $420M?)
  5. DO it with $10Billion and they make $300 Million (levered at $4.2 Billion?)
  6. Bank gets RICH.
  7. Do you get that? The buyers of the 8% notes get Grade A security (normally paying 5%) because it is "guaranteed" by a Grade A bank (somehow the name of the bank isn't shown publically).
  8. Bank never thought "what if these 8% securities go down and we have to back them up with cash"
  9. Then the 8% money becomes worth 2%. Bank has to bail them out...
  10. Everything crumbled like a house of cards.
  11. Then $10 Billion is wiped out.
  12. If it was levered 14 to 1. That is $140 Billion
  13. But it doesn't stop at $140 Billion since NOBODY KNOWS SINCE IT LEGALLY IS OFF THE BOOKS!

 Moody's estimate there are $400 Billion in SIVs, but it could be more since they are off the books. The Savings and Loan crisis was $150 Billion.

Have you ever heard of a SIV? You will soon. Just imagine Enron practices, and apply them to most major banks. (see WSJ article)

After a scary lunch with a bank friend of mine, I actually looked into buying Gold (see the the new GLD, basically gold, but in the form of an easy to buy "tracking stock" or EFT, kinda like the US dollar 35 years ago which was backed by gold).

So, now I'm doing research to better understand this stuff through other sources. I figured rather than keep all of this information to myself, I would share it, and maybe together we can get our virtual hands around it.

A SIV is a Structured Investment Vehicle (see Wiki definition).  Here comes the important Enron part: they are kept OFF BALANCE SHEET. Through some legal trickery, ala Enron, they can keep these subcompanies (funds) off of their balance sheets, so nobody really knows how much loss, or gains, or exposure these b anks have. And in the world of leverage, your dozens of Billions of dollars can vanish overnight.

Have you heard of the Super Fund SIV bailout proposal? Reading from a few blog and articles, it is essentially banks bailing each other out, and finding a way to profit from it. But essentially it is moving money from a smaller shirt pocket to a larger pant pocket.

Individuals might think that they are fine and the government can bail them out? FDIC insured right? Technically maybe, but if the US just prints more money to make up for it, there are international ramifications. We can't do things in a vacuum. The US is not the world. The dollar can collapse against foreign currencies, just like Mexico's currency collapsed in 1994.

Also let's stop blaming the press. We blamed them when everything was skyrocketing, accusing them of wanting to sell advertising to builders. Otherwise, if this collapse occurs, we will blame the press for not telling us about it. Also to say that the press causes fear, and fear causes collapse is absurb. Banks doing Enron-type off banks trickery is the cause, not the press that expose them. If anything the press makes things pop FASTER, and thus making for a LESS severe fall.

I know it sounds like doomsday stuff. I was born to Cuban parents that had everything taken away, so I hear these things and I know they can happen. The question is how likely is it? Under 1% 10%? Under .00001

Or as Lawrence Yun put it "Close to Zero" (regarding the chances of the DC market going down after 2005) 

This stuff could be REALLY bad.

- Written by Frank Borges LL0SA- Virginia Broker FranklyRealty.com

Related stuff to read:  http://activerain.com/blogsview/252212/Peter-Schiff-Was-Exactly

and CNN's The next credit scandal

CNBC 14 to 1 Leveraged

 

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Rainer
77,576
Jeffrey Dolfinger
NRBA Member
24/7 Realty Inc.

Not wrong just not complete.  Off balance sheet is okay if you understand the dynamics of the trusts and investments. 

December 14, 2007 12:39 AM
Rainmaker
135,325
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc

Well it happened.

September 21, 2008 10:52 PM
Anonymous #19
Anonymous
Tom McCammon

"Will there be a bank bailout?  No but there may be acquisitions or mergers"

HAHA.  EJ drank the Kool Aid.   

October 11, 2008 06:48 AM
Anonymous #20
Anonymous
Anonymous

Tom:

Not one bank, if you even understand the strict definatition of bank, has been bailed out.  The banks have been taken over by the FDIC not bailed out!  Investment firms are getting bailed out, banks are merging like i said.  At least I understand the Kool Aid I drink!  Investment class 101, whats the difference between a bank, s&l, thirft, credit union, or bank holding company.  I guarantee you have no idea who regulates each without looking it up. 

October 11, 2008 10:24 AM
Anonymous #21
Anonymous
UrbanFlight

He who has no name:

You pedantic d-bag. In light of this mess and the fact that we are in fact bailing out wall street and printing imaginary money at break-neck pace to get it done, does it really matter what the "strict" definition of bank is?

 

 

November 17, 2008 01:58 PM
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Rainmaker
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FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com

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