What are SIVs?
I believe that by now we have all become familiar with these funds. They are similar to conduits. Though SIVs differ from conduits in two main aspects: they also issue longer-dated notes and make use of leverage. SIVs issue short term debt (commercial paper) and the proceeds are invested in high yield longer term debt. SIVs assets are dominated by mortgages (23 %) and corporate financials (43 %). These funds are generally kept off the balance sheets of the banks but agreements are in place whereby banks guarantee part of the funds or provide with credit lines for financing. In normal circumstances, these vehicles can pocket the difference between the cost of financing in short term debt and the juicy return of their assets. Things can turn nasty (as it happened in August 2007) in the fund assets suffer losses or the SIV can not refinance the short term commercial paper that finances their assets. Then, banks that sponsored the SIV are called upon to facilitate financing or get the assets of the funds (into their balance sheets).

Why the need of a bail out fund?

The spirit of the fund is to avoid a coordination failure in the market that would induce a fire sale of some assets held by SIVs depressing the value off these assets. There are a few banks that have sponsored several SIVs. These SIVs are seeing problems in their financing side (refinancing their short paper in the ABCP-Asset Backed Commercial Paper- is becoming harder and harder) as well as on their asset value side (the credit squeeze has affected the prices of many of the assets generally held by SIVs). Any of the SIVs has an incentive to liquidate the funds, now that they can, and avoid further losses if things deteriorate further. If all the funds have the same idea, there will be a fire sale that will overflow the market with the assets held by SIVs, pushing their prices lower and lower, up to unprecedented levels. So everyone (all SIVs) is better off if there is a coordinating effort from the side of banks sponsoring SIVs.
This has led Citigroup and other institutions to promote the idea of a super SIV fund that will buy assets from other SIVs in an orderly way to avoid any fire sale liquidation. The fund will be named the Master Liquidity Enhancement Conduit, and will get financing from the ABCP commercial paper. In order to provide further guarantees banks participating in it will provide a cushion of support from junior layers of capital and liquidity backstops. With a liquidity backstop a borrower facing temporary liquidity problems may draw upon the guarantee to prevent a default on creditors.

Critics to the funds. Can it really work?
Criticism has abounded and has come from many different places. Some critics claim the fund a bailout of Citigroup, the largest sponsor of SIVs. The leader of this coordination effort is the bank that is exposed most to SIVs. These critics just see this fund simply as a bail out for Citi itself.
Other such as Greenspan believes that markets should make their work and SIVs’ assets can not be valued by a single superfund. According to Greenspan, the establishment of the superfund will prevent the market from establishing true clearing prices for asset-backed securities. Similar views are held by Warren Buffet that does not see how changing the property of some of the assets could alter its value.
Though other bail out funds have existed before (the most recent and notorious been the one organized to deal with the LTCM crisis), this fund is seen as not having full support (either in terms of the number of firms involved or government/Fed sponsorship) to deal with the problems assigned.