[NYTr] As govts shower money on them, banks drop subprime rescue fund

[All the News That Doesn't Fit]

Gold Anti-Trust Action Committee - Dec 22, 2007
http://www.gata.org

As governments shower money on them, banks drop subprime rescue fund


Banks Abandon Super-SIV Plan

By David Enrich and Diya Gullapalli The Wall Street Journal Friday,
December 21, 2007

The banks orchestrating a bailout of troubled investment vehicles
that were hit by the subprime mortgage crisis are throwing in the
towel after struggling to raise money for the planned fund, according
to people familiar with the matter.

At the behest of the Treasury Department, Bank of America Corp.,
Citigroup Inc., and J.P. Morgan Chase & Co. have been working since
September to set up the fund, which would buy assets from so-called
structured investment vehicles. SIVs have been battered by the
credit crunch, with investors refusing to buy the short-term
commercial paper that the funds' issue to buy higher-yielding assets,
in particular securities backed by subprime mortgages.

Lack of interest has led the banks to drop the plan -- known as the
Master-Enhanced Liquidity Conduit, or M-LEC. In many cases the
banks, in particular Citigroup, that were supposed to sell assets
to the fund have instead bitten the bullet and moved the assets
onto their own balance sheets, alleviating a key rationale for the
rescue fund.

Despite the fundraising difficulties and the reduced need for the
bailout, the three banks and BlackRock Inc., which was selected to
oversee and operate the fund, have insisted until recently that it
was still on track, albeit in a smaller version. Tuesday, the parties
said in a joint statement that "We are committed to our goal to
launch M-LEC in the weeks ahead with its ultimate size at closing
being driven by SIVs' needs and evolving market circumstances."

The banks and BlackRock are likely to issue a statement by Monday
saying they no longer intend to go forward with the fund, according
to the people familiar with the matter. But these people say that
if conditions worsen, the banks could reactivate the fund in the
future.

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