According to The Wall Street Journal "Debt-rating agency Moody’s Investors Service, signaling a new turn for the worse for some bank-affiliated funds, said it downgraded or put on review debt totaling $119 billion that was issued by structured investment vehicles that have been paralyzed by lack of investor appetite."
And "the drop in the market values and the inability to finance the SIV debt is expected to put new pressure on banks such as Citigroup (C) to support the billions of dollars in debt that SIVs face having to pay in coming months."
The news brings Wall St .back to the plan, supported by Citi, Bank of America (BAC), and JP Morgan (JPM) to set up a bail-out fund of $85 billion to make short-term loans to the SIVs. Greenspan, Buffett, and other financial geniuses have suggested that if the SIV assets are never marked to market, the financial crisis in the debt markets will be prolonged and Citi will only be forestalling its day of reckoning. The plan may also simply be a case of throwing good money after bad.
If the SIVs related to Citi do fail, there may have to be a bail-out of the bank. There is precedent in recent history for helping big US companies. Just think of it. The government bailed out Chrysler, and not it is owned by a hedge fund. Maybe a hedge fund can own Citi, too.
Douglas A. McIntyre