Dresdner supports US sub-prime fund

by Gill Montia

Story link: Dresdner supports US sub-prime fund

Dresdner Bank, the German bank that forms part of the Allianz group, has announced its intention to join three US banks in setting up a special fund to offset the losses of lenders involved in the sub-prime mortgage crisis.

The bank will work with Citigroup, JP Morgan Chase and Bank of America on a $100 billion fund that will buy assets held within investors’ Structured Investment Vehicles, many of which have been seriously damaged by sub-prime borrowers defaulting on their repayments and the shortage of credit on the money markets.

The original idea for the fund, known as a supercondiut, came from Henry Paulson, secretary to the US Treasury.

If successful it should help contain the current global credit crisis by providing a means for investors to sell mortgage-backed securities without adding to the existing panic surrounding the sale of such assets.

This in turn could mean that prices would not be driven any lower by jittery markets.

According to Mr Paulson, the fund is not intended to bail-out those with poor investments but rather to provide a means for banks to work together in minimising losses and restoring confidence in the markets.

However, Alan Greenspan, the world-renowned US economist, has warned that the creation of such a fund may have the opposite effect and further undermine market confidence.