Articles on siv0

Oil and Gas Prices, $ and euro, June 4, 2008, Mark Wyatt

Food for Thought, May, 2008, Niels Jensen

Stagflation and the Fed, February 29, 2008, John Mauldin

Consumers, Credit, and Complications, February 8, 2008, John Mauldin

What Caused the Home Mortgage Market to Go Out of Control?, February 2008, Thomas Tan

Summary of Orange County, California, Structured Investment Vehicle Holdings, January 31st, 2008, Mark Wyatt

Taking Out the Structured Investment Vehicle Garbage, October 21st 2007, John Mauldin


Arbitrage: A scheme where a profit is made by an income spread between two interest bearing assets. I.e., Sell commercial papaer at 3% interest and buy bonds at 4% interst. Make a profit of $5-4% = 1% on the difference. Of course using leverage, this amount can be increased.

Asset Backed Security (ABS): As it is stated, this is a security that is backed by some asset. In the case the asset is a mortgage, this would be called a morgage backed security (MBS). ABS are backed by a pool of assets, or collateralized cash flows from these assets.

Collateralized Debt Obligation (CDO): A type of asset backed security (ABS) constructred from a pool of fixed income assets (such as mortgage backed securities). A CDO is generally structured into tranches: senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated). The senior tranches get paid first, and the junior tranches take the greater risk. A CDO can leverage its funds for greater return to the equity holders.

Collateralized Loan Obligation (CLO): A specific type of CDO based on loans as the underlying securitized asset.

Credit Default Swap (CDS): A type of credit derivative which resembles an insurance policy. A CDS is an agreement between two parties on a third party entity, such as a bond. One party guarantees some aspect of the bond's value, while the other party accepts the risk of the bond's default. One party basically "insures" the value of the bond (or other entity) for the other party. The insuring party is often a monoline insurer such as Ambac or MBIA. It is estimated that there are around $45 trillion in CDS existing at this time.

Monoline Insurer: An entity that provides credit default swaps (CDS) for specific types of assets (i.e., municipal bonds).

Mortgage Backed Security (MBS): A specific asset backed security (ABS) based on mortgaes.

Structured Investment Vehicle (SIV): Described as a virtual (or "shadow" bank). Purchases long term paper, and sells short and medium term paper. Makes an arbitrage profit on the spread in interest rates. Generally highly leveraged. Usually started by investment banks, off the balance sheet.

Special Purpose Vehicle (SPV): A financial corporation, usually off shore, set up for a specific purpose. Examples include the structured investment vehicle (SIV) and the collateralized debt obligation (CDO).