Fed Under Pressure: Maiden Lane Details Revealed... Sorta

Pic credit: Elaine Meinel Supkis
(p.s. read the whole damn thing)

(h/t JM - thanks for the tip!)

Who here ISN'T shocked that the NY Fed's newly-released Maiden Lane details show Goldman Sachs underwrote the largest number of Maiden Lane III (AIG) CDOs? Show of hands? That's what I thought.

Pulling back the curtain, we discover what we pretty much already knew: the Fed is loaded up on crap assets that are weighing down their inappropriate balance sheet. Wonder what we'd find if we peeled back that curtain just a tiny bit more?

Business Week

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.”


In January, [California Representative Darrell] Issa released details about the holdings of Maiden Lane III. He disputed the Fed's argument that revealing details would upset financial markets and drive down the values of the investments.

Issa sent letters to the New York Fed and JPMorgan on March 3 requesting more information about the Bear Stearns bailout. He was reacting to reports that the assets held by Maiden Lane LLC had lost nearly 10 percent of their value.

JPMorgan is cooperating with the congressional probe, a bank spokeswoman said.

Issa called Wednesday's disclosures "a step in the right direction" but said they didn't go far enough.

"The ultimate goal is full transparency and accountability," Issa said in a statement. "There are still a number of outstanding requests for information that the (New York Fed) has either refused or ignored."

Asked about the New York Fed's about-face, a bank spokeswoman referred to a statement that says in part: "The Federal Reserve recognizes the importance of transparency to its financial stability efforts and will continue to review disclosure practices with the goal of making additional information publicly available when possible."

The disclosures were only possible after the New York Fed struck deals with JPMorgan and AIG about how much information it would reveal.

The disclosures omit all whole residential mortgages held by the Maiden Lane companies because describing them would violate borrowers' privacy.

The AIG garbage on Maiden Lane III is worth 39 cents on the dollar.

While the Fed will likely trumpet its new found commitment to transparency, we don't stop here. A full, comprehensive review of Fed activities (including a thorough, forensic analysis of its balance sheet) is the only way to reveal what really has gone down on the Fed's watch, namely the Board of Governors working with its most diabolical tentacle, the NY Fed.


Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Anonymous said...

As I understand them, these investments are going to perform in unison with the underlying mortgages. Personally, I think they would have been good investments had they been properly priced but that’s just my two cents. Down in the trenches, delinquency has slowed in many areas but not by much. It depends upon who you ask as to whether or not they will continue to climb, level off and then descend, pause and then shoot up again, etc. I will tell you this – the majority of the people that I turn down for a new loan or that I cut off from their previously existing credit card or line of credit is because they have dug themselves a hole that only has one way out and that’s bankruptcy. I hate all the shitloads of paperwork that goes into processing bankruptcies even for the most simple of claims :>) – ounce of prevention worth a pound of cure, right? That’s in the Rust Belt, for crying out loud so I’d imagine that the coasts and the Sun Belt are going through holy hell with their delinquency. If you get a call from the Hen House restaurant in Bourbon, MO telling you that you’ve won a free breakfast, play nice, ok? Please tell me you’re not putting Smoky in the same room with a cat.