Timmeh gets the last laugh on the clueless “hippies” again
Coupled with a $2.8 billion gain from the wind-down of Maiden Lane II – another portfolio of mortgage-related assets taken in from AIG – and the termination of a credit line to AIG in January 2011 that produced $8.2 billion worth of interest and fees, the New York Fed says Thursday’s sale brings the total net profit to taxpayers from the AIG rescue to $17.7 billion [Forbes].
Thursday, July 01, 2010But Fed charity is only for the banksters.Federal Reserve Chairman Ben S. Bernanke and then-New York Fed President Timothy Geithner told senators on April 3, 2008, that the tens of billions of dollars in “assets” the government agreed to purchase in the rescue of Bear Stearns Cos. were “investment-grade.” They didn’t share everything the Fed knew about the money.
“Either the Fed did not understand the distressed state of some of the assets that it was purchasing from banks and is only now discovering their true value, or it understood that it was buying weak assets and attempted to obscure that fact,” Senator Sherrod Brown, an Ohio Democrat and member of the Senate Banking Committee, said in an e-mail when informed about the credit quality of holdings in the Maiden Lane LLC portfolio. The committee held the April 3 hearing.
In very simple terms, what the Fed did was say, “What? You say you lost all your money gambling? Well, let us replace it for you. Go have some more fun at the craps table!”
Yves here. This is illiquid, bespoke paper. If Maiden Lane were to try to sell it, any buyer is going to make an assessment of its fundamental value. And the reports I have gotten is that there is no appetite for CDOs, and for reasons that are unlikely to change. They are too costly to evaluate relative to the potential bargains that might be available. You can do rough pricing using proxies for the various types of collateral, but if you are wrong, you can wind up with an instrument that really is worthless. Why bother taking the risk, particularly given how illiquid the paper is?
Bailed out the banksters at par.
Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.
The New York Fed’s decision to pay the banks in full cost AIG — and thus American taxpayers — at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III.