So What is a Superconduit?

Well, at it's simplest it's an attempt to make all of this nasty about sub-prime mortgages go away. Details are here.

Basically, if we take all of that sub-prime debt and stick in one great big super duper box, then everyone will be happy to roll over the commercial paper that funds it because, well, because it'll be very big indeed. One problem with this idea is that even at $100 billion or so it's still a much smaller box than, say, Citigroup, and if people aren't willing to fund the larger, why would they the smaller? There's also the point from James Hamilton:

I am skeptical of any claims for a feel-good, this-will-solve-all-the-problems fix. The reality is that someone must absorb a huge capital loss. The question we should be asking from the point of view of public policy is, Who should that someone be?

My answer is: the shareholders of Citigroup.

Quite. They would have taken any upside so it is really part of our capitalist system that they take the down.

But I think a much more basic problem will scupper this idea. What is actually causing us these problems is that no one knows what these outstanding mortgages are worth. But if we go and pool them then we have to work out what they're worth in order to allocate ownership of the pool. Which means that to work this idea has to do what we already know we can't do: and if we could do it then we wouldn't be having this problem.

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