About this time last year, all signs indicated that the market for structured investment vehicles (SIVs) was up and coming. In the second half of 2006, the sector had about $250 billion in debt under management. According to Moody's Investors Service, that jumped to $400 billion by a week or so ago. The rating agency estimated that SIV-lites, a less closely managed and slightly simpler version of SIVs, had about $12 billion outstanding by the same date.

Investor demand was strong a year ago and continued through at least early summer, but that has changed dramatically. SIVs operate by investing in highly rated long-term assets and fund themselves by issuing CP and MTNs, aside from a capital component of about 7% or 8%. They depend heavily on the expertise of sophisticated managers to keep their systems running smoothly. More importantly, they use subordination for credit enhancement, thus underscoring the critical market-value component of their structures.

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