Beware the SIV

Not sure if many you have taken notice of the articles in the news lately regarding SIVs or Structured Investment Vehicles. The frequency of the articles in the Wall St Journal Europe have picked up pace and it is cause for real concern. Many people don’t realize that they themselves may be exposed to the woes of the subprime mortgage debt crisis that the markets have been reeling from recently. Here’s the issue. SIVs are the investment of choice for money market funds. Money market funds are usually considered to be safe investments but take notice. The nature of the debt crisis that we have had recently affects these once thought safe havens. Everyone should realize that the standard NAV (net asset value) of $1.00 per share on money market funds is NOT guaranteed and money market funds can – however unlikely it is- lose money. Further, money market funds are NOT FDIC insured. I hope that everyone will carefully consider this and their own personal situations. The full extent of the losses related to the subprime mortgage lending crash is yet to be known. Many large money centre banks are pulling together rescue plans for SIV’s that they have structured and the loses are expected to be in the tens of billions of dollars. On a personal basis, Jennifer and I have chosen to move our money into FDIC insured bank Certificates of Deposits (a.k.a CD’s) and to just keep some money in plain old FDIC insured checking accounts. One thing to take heed of- if your broker or financial advisor does you a ‘favor’ of sweeping your cash balances into money market accounts, he or she may be exposing you to risks that you are not aware of. A few weeks ago I was on my way to shul and I saw a line of people wrapped around the block waiting to take their money out of the Northern Rock bank in Golder's Green. This is the first time there has been a run on a UK bank in over 100 years. I don’t want to sound like Chicken Little saying, ‘The sky is falling’, but I do want people to understand the issue and take notice if they have not done so already. If you think it can’t happen to you… you may be wrong.