Bernanke Feels The Heat: Maiden Lane Asset Disclosure Reveals Truth In Bailout Farce
Forty cents on the dollar, and that's stretching it.
For Fed clowns Bernanke and Geithner, transparency is not unlike sandpaper to their nut sack. When the crisis began with Bear Stearns in March of '08, Bernanke and Geithner likely never imagined they would be eventually forced to disclose the details of their dirty work. Yesterday was a victory for the good guys, but that doesn't mean you're going to like what you read.
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Bloomberg has the details:
April 1 (Bloomberg) -- After months of litigation and political scrutiny, the Federal Reserve yesterday ended a policy of secrecy over its Bear Stearns Cos. bailout.
In a 4:30 p.m. announcement in a week of congressional recess and religious holidays, the central bank released details of securities bought to aid Bear Stearns’s takeover by JPMorgan Chase & Co. Bloomberg News sued the Fed for that information.
The Fed’s vehicle known as Maiden Lane LLC has securities backed by mortgages from lenders including Washington Mutual Inc. and Countrywide Financial Corp., loans that were made with limited borrower documentation. More than $1 billion of them are backed by “jumbo” mortgages written by Thornburg Mortgage Inc., which now carry the lowest investment-grade rating. Jumbo loans were larger than government-sponsored mortgage buyers such as Fannie Mae could finance -- $417,000 at the time.
“The Fed absorbed that risk on its balance sheet and is now seen to be holding problematic, legacy assets,” said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington who was the central bank’s monetary- affairs director from 2001 to 2007. “There is both an impairment to its balance sheet and its reputation.”
The Bear Stearns deal marked a turning point in the financial crisis for the Fed. By putting taxpayers at risk in financing the rescue, the central bank was engaging in fiscal policy, normally the domain of Congress and the U.S. Treasury, said Marvin Goodfriend, a former Richmond Fed policy adviser who is now an economist at Carnegie Mellon University in Pittsburgh.
“Letting somebody fail early would have been a better choice,” Kotok said. “You would have ratcheted moral hazard lower and Lehman wouldn’t have been so severe.”
The Bear Stearns assets include bets against the credit of bond insurers such as MBIA Inc., Financial Security Assurance Holdings Ltd. and a unit of Ambac Financial Group, putting the Fed in the position of wagering companies will stop paying their debts.
The Fed disclosed that some of Maiden Lane’s assets were portions of commercial loans for hotels, including Short Hills Hilton LLC in New Jersey, Hilton Hawaiian Village LLC in Hawaii, and Hilton of Malaysia LLC, in addition to securities backed by residential mortgages.
More than a year after Washington Mutual, the largest U.S. savings and loan, was purchased by JPMorgan Chase in a distressed sale arranged by the Federal Deposit Insurance Corp., the home loans that helped bring down the Seattle-based thrift live on in the Maiden Lane portfolio.
For example, 94 percent of the mortgages in one security, called WAMU 06-A13 2XPPP, required limited documentation from borrowers, meaning the lender often didn’t ask customers for proof of their incomes. Almost 10 percent of the borrowers whose mortgages make up the security have been foreclosed on, and almost a quarter are more than two months late with payments, according to data compiled by Bloomberg.
The portfolio also includes $618.9 million of securities backed by Countrywide, mortgages now rated CCC, eight levels below investment grade. All the underlying loans are adjustable- rate mortgages, with about 88 percent requiring only limited borrower documentation, according to Bloomberg data. About 33.6 percent of the borrowers are at least 60 days late. Countrywide is now part of Charlotte, North Carolina-based Bank of America Corp.
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Continue reading at Bloomberg >>
Apr 2, 2010 at 12:32 PM
Reader Comments (26)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZA_RWY3IJ2I&pos=4
The Fed has finally come clean. It now admits it bailed out Bear Stearns -- taking on tens of billions of dollars of the bank's bad loans -- in order to smooth Bear Stearns' takeover by JP Morgan Chase. The secret Fed bailout came months before Congress authorized the government to spend up to $700 billion of taxpayer dollars bailing out the banks, even months before Lehman Brothers collapsed. The Fed also took on billions of dollars worth of AIG securities, also before the official government-sanctioned bailout.
http://www.huffingtonpost.com/robert-reich/the-fed-in-hot-water_b_522059.html
and yes 40 cents refers to current value if you believe the appraisal...which i don't...i would assume they're worth about 1/3 to 1/2 LESS than the Fed is currently valuing them..so more like 25 cents...but that's just me...
Maiden Lane III, which has $56 billion of assets at face value, is worth $22.1 billion, or 39 cents on the dollar, according to the Fed’s weekly balance sheet. A similar calculation for the Bear Stearns portfolio couldn’t be made because of outstanding derivatives trades.
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From the bloomberg article...
WASHINGTON — After two years of secrecy, the Federal Reserve Bank of New York is disclosing key details about billions of dollars of risky investments it bought while rescuing insurance giant American International Group Inc. and supporting the sale of failed investment bank Bear Stearns.
The New York Fed on Wednesday said what investments are held by three companies it created to buy them from Bear Stearns, AIG and AIG's business partners. The New York Fed also revealed their current values.
Maiden Lane III assets were purchased for c 25B, but are now worth 22B. Total loss: 3B
Maiden Lane I assets...WTF???? Have any of you looked at this crap? http://www.newyorkfed.org/markets/ML_Holdings.pdf
They own all manner of CRE loans (LOANS, not CDO's, not MBS), plus 1.5B in residential whole loans. And there are several pages devoted to all of the CDS owned by Maiden Lane I. I guess when they say that the Fed is a giant hedge fund, they aren't kidding.
and yes good point...the fed has 400 traders...they are the largest hedge fund in the world based on assets under management...
Because the assets are still carried too high? (I'm guessing things like "Hilton LLC Logan" are probably current, but won't be in a year or two -- is that the sort of stuff you're getting at?)
When my dad was in basic training, one of the marching songs they songs they sang went, "Hitler... had only one big ball. Himmler... had two but they were small..." For some reason, that always comes to mind when people talk about Obama's birth certificate. ( I know, way OT)
The war against fascism was the LAST JUSTIFIABLE war the U.S. ever fought.
PS: In case he WAS actually in Nam; send him my most heartfelt ...BABY KILLER !!!
:-)
Sorry I brought it up ;-).
:-)
Because the assets are still carried too high? (I'm guessing things like "Hilton LLC Logan" are probably current, but won't be in a year or two -- is that the sort of stuff you're getting at?)
i was just pulling the numbers from teh bloomberg story which i have re-posted below...
unrelated, i did read somewhere that not all the assets were disclosed...
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Assets in Maiden Lane II totaled $34.8 billion, according to the Fed, which set their current market value in its weekly balance sheet at $15.3 billion. That means Maiden Lane II assets are worth 44 cents on the dollar, or 44 percent of their face value, according to the Fed.
Maiden Lane III, which has $56 billion of assets at face value, is worth $22.1 billion, or 39 cents on the dollar, according to the Fed’s weekly balance sheet. A similar calculation for the Bear Stearns portfolio couldn’t be made because of outstanding derivatives trades.
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excellent point...pension funds piled into private equity stakes at the top 2006-07 (just 1 example) and then scrambled to sell for 50-75% losses within 18 months...we could go on and on about idiotic pension fund managers...
some funny shite that was...
RESPECT!