October 18, (LPAC)--The lead article of today's Wall Street Journal, titled "How London Created a Snarl in Global Markets," reports that structured investment vehicles (SIVs), that is, those collapsing funds which are the subject of frantic rescue efforts by the Treasury and major U.S. banks, were created by "a small coterie of London bankers who engendered what became a $400 billion industry. The funds boomed because they allowed banks reap profits from investments in newfangled securities, but without setting aside capital to mitigate the risk." The article describes SIVs as funds set up by banks to issue short-term commercial paper and medium-term notes to investors, and then use the proceeds to buy long-term higher-yield assets - i.e. sub-prime mortgages and related junk. The assets are owned by the investors, not the banks, so the SIVs aren't on the banks' books; the bank profited by collecting fees for operating the SIVs.

The Journal elaborates that "Most of the few dozen SIVs, typically registered in offshore havens such as the Cayman Islands, are managed out of London." London law firms are also heavily involved in providing advice to SIV operators. The Journal attributes this London-nexus to the fact that the initial SIVs were launched out of Citigroup's London office in the late 1980s, and the Citigroup bankers which invented them now run the world's largest SIV, Gordian Knot Ltd., from an office in the Mayfair district of London), and that "most people with the necessary skills and experience are in the United Kingdom."