Top (3) U.S. banks agree on backup fund for markets: report

The new fund’s potential impact is unclear. Debt market conditions are rapidly deteriorating, leading some analysts to declare them worse than nearly a decade ago, when the Long-Term Capital Management hedge fund collapsed. Investors’ appetite for pools of assets — from mortgages to auto and credit card loans, more recently — has all but dried up. And virtually all structured investment vehicles, commonly called SIVs, are trying to unload the securities they hold, on the assumption that the proposed backup fund will not work.

Now, Henry M. Paulson Jr., the Treasury secretary, is describing the proposal’s benefits as helping “at the margin.” In an interview on Thursday, before the latest agreement was made, he acknowledged that the proposed backup fund would not rescue troubled SIVs, only lead to a longer and more orderly demise.

“This is something that is not a savior,” Mr. Paulson said, noting that he expected the fund to begin operating by the end of the year. “Anything at the margin that will speed up liquidity is worth trying.”

The fund’s organizers say it is intended to avoid a severe credit market disruption. The hope is that it will allow time for asset prices to recover, although most market analysts call that improbable. More likely, it will discourage SIVs from dumping their holdings all at once, causing securities prices to plummet.