The danger is that the so-called Single-Master Liquidity Enhancement Conduit cherry picks the best assets, leaving the Structured Investment Vehicles (SIVs) holding the lower quality assets. Research house Creditsights cites the danger of the crisis spreading from sub-prime into other areas: “By buying only the most attractive assets that they can reasonably buy, either at or close to par, [they] will effectively be diluting the credit quality of the SIVs’ remaining ABS portfolios.”
It expects the crisis to spill over into the residential commercial real estate mortgage-backed sectors and for SIVs to be undergoing ratings downgrades. On this reading of events the crisis has a long way to run.
