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SIV= Imagine Enron, Bank Wide.
First, a disclaimer. I am not a banker. I am not a financial advisor. I'm just a Realtor. Please ignore anything that I say.
Update 12-1-07: I want to make the concept of SIVs more clear.
 
 
 
Imagine this:
Bank has $1 Billion making 5% Bank figures they can start a fake company (which is not reported to shareholders, and off all books) and "Lend" the fake company/subsidiary the $1B in order to buy riskier portfolios and sell them for 8%, but with a "this is backed by an A grade company." Newly added 12-5-07 bank lever the business 14 to 1.  Pocket the 3%, and that makes them $30 Million a year (levered at $420M?) DO it with $10Billion and they make $300 Million (levered at $4.2 Billion?) Bank gets RICH. Do you get that? The buyers of the 8% notes get Grade A security (normally paying 5%) because it is "guaranteed" by a Grade A bank (somehow the name of the bank isn't shown publically). Bank never thought "what if these 8% securities go down and we have to back them up with cash" Then the 8% money becomes worth 2%. Bank has to bail them out... Everything crumbled like a house of cards. Then $10 ... more

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