As expected the banks announced yesterday that they are banding together to execute the bailout of their structured credit vehicle holding cells (referred to as SIV’s).
This article does a good job walking through the implications step by step (thanks to WLH):
Enron, Subprime and the Derivative Disease
Led by names like Citigroup (NYSE:C) and JPMorgan (NYSE:JPM), the supposed “super conduit” seeks to make attractive assets which now seem dead orphans. A number of banks and other dealers are increasingly illiquid and face losses on supposedly off-balance sheet conduits or structured investment vehicles (“SIV”), losses that in extreme cases could damage their solvency.
To be fair, it looks like the Treasury is already responding to the swipes that people have taken (similar to the sentiments expressed on this blog and in articles like this: Paulson Credit Push Earns Jeers From Free-Marketers) that this bail out is not the best medicine for bad behavior.
Paulson Plans to Review Off-Balance Sheet Bank Units
At the same time, in the same speech he mentioned the obvious fact that many of us have known for quite some time, to which the markets reacted with a downturn over the last few days:
“The ongoing housing correction is not ending as quickly as it might have appeared late last year,” Paulson said. “It now looks like it will continue to adversely impact our economy, our capital markets and many homeowners for some time yet.”
And headines like these, dont look like they are going anywhere anytime soon: