What is factually incorrect is to state that Northern Rock was brought down by SIVs. Had you made the same point about IKB I would have agreed, but Northern Rock’s position was very different.

The differences between SIVs and securitisation vehicles like Granite are considerable and you should not confuse them.

SIVs sit off balance sheet. I agree that this is a fiction, since the sponsoring banks usually provide liquidity guarantees which means that the risk never leaves the balance sheet of the bank. Public information on SIVs is available but you have to know where to look.

SIVs usually hold long term assets which they fund short term. That is why they rapidly ran into liquidity problems in the crisis.

Securitisation vehicles like Granite are different. They often sit on balance sheet with matched funding and usually are a genuine risk transfer. The SPV is required to ring fence a pool of assets against which the funding is secured. There is nothing sinister about this.

Funding via a securitisation is cheaper than unsecured borrowing (on a like for like duration) because it is secured on a segregated pool of assets (i.e. prime mortgages for Granite), and is not exposed to the banks other riskier activities (e.g. trading). Securitisations are also used by many non-financial companies (e.g. receivables factoring is very similar).

Northern Rock failed because it used too much short term (on balance sheet) funding. Had it used more longer term funding, including securitisations, it might still be in business today. Far from being a fraud, Northern Rock was a good old fashioned run on a bank with the bank unable to meet its liabilities (to depositors and other short term lenders) because too many of its assets were illiquid and long-term.

That is my honestly held opinion - based upon objective evidence. Please tell me what is wrong with that? More than that, tell me what is factually wrong with the suggestion made.

You should take more care Richard - publishing untruths like these can have unfortunate consequences.

My problem is simple - the Northern Rock SPVs and all SIVs are works of fiction. It so happened that Northern Rock kept its SPVs on balance sheet. Others are off balance sheet, but the structure of both are similar. The structure is designd to suggest the SIV is beyond the control of the companies promoting them, which is not true. They claim to be owned by trusts with charitable intent - which are always a sham.

My concern is simple - because these structues are a sham they create an acceptance of a lack of accountability and transparency, which is what they are promoted for. As such they undermine the credibility of the whole reporting process of financial institutions that use them and promote the whole idea that deceit and non-disclosure is acceptbale.

It is not.

My suggestion that those who think these structures acceptable were out of touch with reality is that amongst the non financial community the idea that people can pretend that structures owned by sham trusts do not need to account for what they do and can disappear from view is seen as fraudulent. But in the City it is seen as normal.

Down here in the Fens we agree with the idea that this is fraud. It is.

And let’s be clear. This fraud did allow Northern Rock to issue debt in a prejudicial way. Granite had a AAA rating, Northern Rock had a much lower status. So the SPV dumped a known problem in Northern Rock onto the market, and all through use of a sham.

And society is now paying the cost.

How can you justify them in that case?

Richard

BTW I think you will find that it is lawyers who exhibit arrogance!

Anyone using this site is welcome to disagree with me - but if your comment is personal or abusive it will be deleted before being posted.

If you can’t argue with facts, please do not bother to argue.

You bet I’ve agreed I’m wrong - often. Only a fool thinks he’s right all the time.

But, equally I don’t concede to keep people happy, especially when no evidence is offered to make me change my mind

Richard

re off balance sheet vehicles, you make an interesting point - perhaps you should have a conversation with a certain Gordon Brown about this - as he seems to love off balance sheet!

All you succeed in proving is a) the arrogance of bankers and b) how far you are removed from reality.

Richard