Leaking like a SIV

Citigroup SIVs Hit Norway Townships

* Two Bear Stearns (BSC) Hedge Funds went to Zero
* Two Hedge Funds in Australia liquidated
* Money has been frozen in Canada including the Yukon
* US and Canadian pension plans are affected
* Two banks in Germany were bailed out by the ECB
* Norway Townships borrowed money to invest in this mess
* Citigroup (C) and Merrill Lynch (MER) both lost their CEOs over this mess
* Hundreds of $billions in potential losses are still circulating

* Don't trust Citigroup, Bear Stearns, Merrill Lynch or anyone else hawking debt

The latest news in the US is that SIV debts are hiding in scores of public school funds and close to a $billion in defaults losses had not even been disclosed as late as a week ago even though this mess has been brewing for six months. See SIV Debts A Disaster For Public School Funds for more on this story.

Townships caught up in international credit crisis

Officials in four northern Norwegian townships (Narvik, Rana, Hemnes and Hattfjelldal) went along with an alleged recommendation by Terra Securities to invest a total of NOK 451 million in what they're now calling "high-risk structured products" offered by Citibank and sold for Citibank by Terra.

The American commercial paper was also tied to bonds issued by local governments in the US, and Norwegian Broadcasting (NRK) reported that hedge funds were involved. To boost returns, the Norwegian townships also borrowed NOK 3.5 billion to invest in Citibank's products, which later lost as much as 50 percent of their value because of the US credit crunch.

News started leaking out about the troubled investments when the townships were ordered to pay in millions more, to satisfy guarantee requirements. Mayor Asgeir Almås in Hattfjelldal feels cheated.

erra officials say they're sorry about the losses, but claim the townships are viewed as "professional players" in the financial markets and must also take responsibility "for the investments they choose to make."

While the finger-pointing continues, the townships are obligated to put what some fear is good money after bad. Norwegian townships that are suddenly relatively wealthy on energy revenues are also learning to be more cautious, as they face constant, complicated investment offers from foreign institutions.

The township politicians are both embarrassed and angry at the financial advisers who they now claim led them astray. "They think we're a bunch of small-town fools," one local mayor told newspaper Dagens Næringsliv.

Paulson Finds Bush's Treasury No Career Enhancer Like Goldman

The entity is called the master liquidity enhancement conduit, or M-LEC. Henry Paulson hopes it will help the banking system contain a debacle.

Paulson, the former Goldman Sachs Group Inc. chief executive who took office as U.S. Treasury Secretary in July 2006, led the effort to create M-LEC, whose purpose is to stem the tide of defaults by a group of financial companies called structured investment vehicles, or SIVs, which are packed with mortgage-backed loans.

The idea is to have a group of big banks -- Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. have already signed on -- provide back-up financing to the SIVs and buy their higher-rated long-term assets, using money raised through the sale of short-term commercial paper.

"If Paulson succeeds, he'll have a very strong legacy," says Vin Weber, a former Republican Congressman and party strategist who is policy chairman for presidential candidate Mitt Romney. "If not, it means we're headed for a serious economic downturn, and we'll all pay a price."

There are 30 SIVs that held securities worth $400 billion when the mortgage meltdown began in July, according to Moody's Investors Service. Their net asset value fell more than 30 percent from July to mid-November. As of the first week of November, SIVs had been forced to sell at least $75 billion of assets as investors retreated from all but the safest bets.

Paulson started preparing for market gyrations on the day he moved to Washington from Wall Street, colleagues say. "And he decided early on that a key mechanism for doing that was the President's Working Group."

Nicknamed the Plunge Protection Team, the group brings together officials from the Commodity Futures Trading Commission, Federal Reserve, Securities and Exchange Commission and Treasury Department for what have become regular meetings.