A plan to construct a bailout vehicle for investment funds hit hard by the mortgage crisis is being abandoned.
At the behest of the Treasury Department, Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co. have been working since September to set up the fund, which would buy assets from so-called structured investment vehicles. SIVs have been battered by the credit crunch, with investors refusing to buy the short-term commercial paper that the funds' issue to buy higher-yielding assets, in particular securities backed by subprime mortgages.
Lack of interest has led the banks to drop the plan -- known as the Master-Enhanced Liquidity Conduit, or M-LEC. In many cases the banks, in particular Citigroup, that were supposed to sell assets to the fund have instead bitten the bullet and moved the assets onto their own balance sheets, alleviating a key rationale for the rescue fund.
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