I imagine the people running the SIVs would disagree that they don't serve a purpose. Much in the same way that gambling doesn't serve a purpose either, unless you're the house.

Let's boil it down quickly, a SIV is an off balance sheet repo. While it is a nice sound bite for the media, is there more to the comment for the next regulator looking to make his name. I'm not an accountant nor am I a lawyer, but I'd like to ask could that comment in any way question the off-balance sheet nature of SIVs? Do accounting regulations in any way mimic tax-law whereby transactions without a legitimate business purposes would be quite a problem? And this arguably the most powerful and influential non-GS employee Wall Streeter saying it.

My take: It is hugely problematic to take the view that Wall Street transactions without an obvious business purpose are suspect. We can constrain Wall Street innovations by explicit regulation, but not by trying to guess which transaction will turn out to have a business purpose and which ones won't.

PAUL -

Frank Partnoy argues that many of these deals are simply done to avoid regulation, not make money.