May 12, 2008

Bill Fleckenstein on bank SIVs

It just boggles the mind how much leverage is employed by financial institutions and how little knowledge the world has of their workings.

As to why these infinitely leveraged black boxes (with extremely flexible accounting and disclosure rules) exist in the first place, I think we know the pat answer: so that financial institutions can employ them and utilize even more leverage than they are legally allowed to.

Which makes one wonder: Since these entities are designed specifically to circumvent the rules, why have they been countenanced by the rule makers?

~ Bill Fleckenstein, Contrarian Chronicles, MSN.Money, "Banks' dark off-balance-sheet world," September 17, 2007

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