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Buffet calls superfund a 'financial toad'

Berkshire Hathaway Chairman and CEO Warren Buffett listens during a hearing before the Senate Finance Committee on Nov. 14, 2007.

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KAI RYSSDAL: It's always a good idea to read the statement the Fed puts out after it meets. About the only ray of sunshine today for analysts worried about the credit crunch was that the Fed left the door open to the idea of more cuts when it meets at the end of January.

Just about any stock that's sensitive to interest rate changes took a drubbing today. That would include the big Wall Street banks. They've been hit hardest by the liquidity squeeze. They've also been among the most creative in trying to find a way out.

A key part of their plan, up until now, was a Superfund to shore up confidence in what're called "Structured Investment Vehicles." SIVs are those ridiculously complicated devices Wall Street created to sell off subprime loans and the like. Anyway, that Superfund idea never really caught on. Banks weren't necessarily wild about throwing good money after bad, and today no less an authority than Warren Buffet put what's probably the last nail in the coffin.

From New York, Marketplace's Amy Scott has more.


AMY SCOTT: The idea behind the bailout fund was to buy assets like mortgage-backed securities from the SIVs, or Sivs. It was supposed to prevent a sell-off that could cripple the markets, but today Warren Buffett told CNBC the Superfund's involvement won't make those assets any more attractive.

WARREN BUFFETT: You can't turn a financial toad into a prince by kissing it or by securitizing it or by transferring its ownership to somebody else. If there's problems with an instrument, there's problems with an instrument.

The market seems to agree. Many of the banks the Superfund was intended to help are taking matters into their own hands. HSBC and Germany's West LB are just two banks that have restructured their own SIVs. One of the worst-off, Citigroup, has reportedly managed to sell $15 billion in SIV assets. Bert Ely is a banking consultant in Alexandria, Virginia.

BERT ELY: More and more banks look closely at the Super SIV idea. They reach the conclusion that they're better off not participating.

So is the Super SIV dead in the water? Mike Ehrlich teaches finance at the New Jersey Institute of Technology. He says supporters of a bailout fund may still raise the money, but in the end there may not be many troubled assets left to buy.

MIKE EHRLICH: Most of the assets that are in the SIVs are relatively short-term assets. They're assets with probably an average life of two or three years.

The pressure's not off yet. Moody's Investors Service has warned it may lower its credit ratings for more than $100 billion in SIVs. Those cuts could make it harder for the SIVs to raise money, and could increase the pressure on them to sell their assets.

In New York, I'm Amy Scott for Marketplace.

About the author

Amy Scott is Marketplace’s education correspondent covering the K-12 and higher education beats, as well as general business and economic stories.
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