Saturday, October 13, 2007

An American ABCP Bailout Plan in The Works?

While the Canadian bailout plan is still in trouble with a deadline this weekend, the USA seems now to be planning its own bailout plan.

Citigroup and JPMorgan are leading a group of banks in talks with the U.S. Treasury about a plan to revive the ABCP market. Under one plan being considered by the banks, lenders would establish a fund of as much as $100 billion to buy assets from the SIVs (structured investment vehicles). Investors remain reluctant to acquire the paper. Setting up a fund would allow SIVs, which own $320 billion of assets, to avoid having to sell their holdings at deep discounts and further roil the credit markets.

The Canadian plan offers greatly benefits the banks, as opposed to the holders of the maligned paper, by swapping short term for long term paper. It remains to be seen who will be the real beneficiary of the American plan. Source: Bloomberg.

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