Posted on 01/22/2010 4:29:14 AM PST by TigerLikesRooster
Federal Reserve makes huge paper profits in wake of AIG credit insurance rescue
By Henny Sender in New York
Published: January 20 2010 02:00 | Last updated: January 20 2010 02:00
The Federal Reserve is sitting on billions of dollars in paper profits from its controversial effort to unwind credit insurance contracts that AIG provided to banks such as Goldman Sachs, people familiar with the matter said.
The Fed rescue has generated criticism because the banks received 100 cents on the dollar for credit insurance they bought from AIG on collateralised debt obligations - financial instruments that promise the buyer cash flows from pools of bonds or loans. This had led to claims that AIG's rescue was a "backdoor bail-out" of big banks.
However, the central bank is in a position to reap profits from this part of the rescue, which involved the purchase of the underlying CDOs by a New York Fed-financed vehicle, called Maiden Lane III, so that the insurance contracts written on them could be terminated.
At the time of their purchase, the CDOs had a face value of $62.1bn and a market value of $29.6bn. Now, the estimated market value of the CDOs is at least $45bn (£27.5bn), according to several people with direct knowledge of the portfolio.
(Excerpt) Read more at ft.com ...
Markets panic, taxpayers win. You have to admit that’s an unusual turn of events on AIG.
The USA don’t need no stinking oil, the USA don’t need no stinking revenue, Kali don’t need no stinking oil, Kali don’t need no stinking revenue, Ohio don’t need no stinking oil or revenue,,,welcome to la-la land.
Of course you can show a profit when you own the printing press! You put a rabbit in the hat and pull a rabbit’s foot back out. No magic there. The real question is where is the rest of the bloody rabbit, and whose rabbit was it in the first place.
It’s very typical actually for the Government to do really well with these stakes. The treasury made a 50% IRR on Mexican debt it ended up buying in a panic in the 90’s. Buying during panics is usually a good time to buy.
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