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SUMMER : DISRUPTIONS IN FUNDING 

backed securities, mortgage-related CDOs, or both. These included Cheyne Finance
(managed by London-based Cheyne Capital Management), Rhinebridge (another
IKB program), Golden Key, and Mainsail II (both structured by Barclays Capital). Be-
tween August and October, each of these four was forced to restructure or liquidate.
Investors soon ran from even the safer SIVs. “The media was quite happy to sen-
sationalize the collapse of the next ‘leaking SIV’ or the next ‘SIV-positive’ institution,”

then-Moody’s managing director Henry Tabe told the FCIC. The situation was
complicated by the SIVs’ lack of transparency. “In a context of opacity about where
risk resides, . . . a general distrust has contaminated many asset classes. What had
once been liquid is now illiquid. Good collateral cannot be sold or financed at any-
thing approaching its true value,” Moody’s wrote on September . 
Even high-quality assets that had nothing to do with the mortgage market were
declining in value. One SIV marked down a CDO to seven cents on the dollar while

it was still rated triple-A. To raise cash, managers sold assets. But selling high-qual-
ity assets into a declining market depressed the prices of these unimpaired securities
and pushed down the market values of other SIV portfolios.
By the end of November, SIVs still in operation had liquidated  of their portfo-

lios, on average. Sponsors rescued some SIVs. Other SIVs restructured or liquidated;
some investors had to wait a year or more to receive payments and, even then, re-
couped only some of their money. In the case of Rhinebridge, investors lost  and
only gradually received their payments over the next year. Investors in one SIV, Sigma,


lost more than . As of fall , not a single SIV remained in its original form.
The subprime crisis had brought to its knees a historically resilient market in which
losses due to subprime mortgage defaults had been, if anything, modest and localized.

MONEY FUNDS AND OTHER INVESTORS:
“DRINKING FROM A FIRE HOSE”
The next dominoes were the money market funds and other funds. Most were spon-
sored by investment banks, bank holding companies, or “mutual fund complexes”
such as Fidelity, Vanguard, and Federated. Under SEC regulations, money market
funds that serve retail investors must keep two sets of accounting books, one reflect-
ing the price they paid for securities and the other the fund’s mark-to-market value
(the “shadow price,” in market parlance). However, funds do not have to disclose the
shadow price unless the fund’s net asset value (NAV) has fallen by . below  (to
.) per share. Such a decline in market value is known as “breaking the buck”
and generally leads to a fund’s collapse. It can happen, for example, if just  of a
fund’s portfolio is in an investment that loses just  of its value. So a fund manager
cannot afford big risks.
But SIVs were considered very safe investments—they always had been—and
were widely held by money market funds. In fall , dozens of money market
funds faced losses on SIVs and other asset-backed commercial paper. To prevent
their funds from breaking the buck, at least  sponsors, including large banks such