Conduits, SIVs, SPIVs

Conduits, Special Investment Vehicles (SIVs), Special Purpose Investments Vehicles (SPIVs) all are names for a investment mechanism the main property of interest is which that these do not appear on a company's balance sheet.

There certainly are legitimate uses for it. In my browsing, for instance, the example of Williams (an energy company) setting up a SPIV, to enter the telecommunications business is mentioned. This way investors who do not want the risk of a new startup can keep investing in the parent company.

Enron made SIVs notorious using them to hide liabilities.

The matter of interest here is that it seems to me that banks have conduits
a. that are loaded with toxic assets, or at least assets whose value greatly depends on the residential housing market, which has fallen, and
b. that do not appear on their balance sheets, but
c. that the banks are liable for paying off investors if the assets in the conduit fall beyond a certain point.

I think it is these off-the-balance-sheet entities that are the cause of the fear in the market on the principle that you fear what you do not know.

Here's a bunch of links, maybe you'll figure out more than I did:

http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/BanksDarkOffBalanceSheetWorld.aspx
http://toostep.com/insight/structured_investment_vehicle_siv_-_the_new_yield_curv
http://www.vinodkothari.com/spv.htm
http://www.investopedia.com/articles/bonds/08/commercial-paper.asp
http://www.investopedia.com/articles/analyst/022002.asp
http://interestrateroundup.blogspot.com/2007/12/citigroups-siv-drama.html

For all the work, a New Yorker article on the meltdown:
http://www.newyorker.com/reporting/2008/12/01/081201fa_fact_cassidy?printable=true