Structured investment vehicles’ role in crisis

Date: Sunday, August 12, 2007
Author: Gillian Tett, Paul J. Davies and Norma Cohen,

Policymakers and investors have been obsessed in recent years about the potential for a hedge fund collapse to spread financial panic. But it seems one of the biggest threats to stability is coming from the age-old risk of short-term borrowing to fund investments in illiquid long-term products.

In a corner of the market few people knew existed, regulators are scrambling to understand what is happening in structured investment vehicles (SIVs), a breed of often huge, mainly bank-run, programmes de­signed to profit from the difference between short-term borrowing rates and longer-term returns from structured product investments.