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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: TH who wrote (100858)	1/27/2009 8:21:31 PM
From: Broken_Clock	Read Replies (1) \| Respond to of 110194

I'm still trying to understand why a bank would lend knowing that they could get their loan reduced in amount and interest in the future. Does Obama have a magic wand?

To: TH who wrote (100858)	1/29/2009 10:43:50 PM
From: TH	Respond to of 110194

Ha! The taxpayers got a 2.4% official on all that good <cream> from Bear and exactly what was expected from the double toxic waste that was AIG. bloomberg.com Fed Cuts Value of Bear Stearns, AIG Portfolios 2.4% (Update2) Email \| Print \| A A A By Scott Lanman Jan. 29 (Bloomberg) -- The Federal Reserve marked down the value of investment portfolios acquired in the rescues of Bear Stearns Cos. and American International Group Inc. by 2.4 percent to $72.2 billion, adding to potential taxpayer losses from its bailouts. The net holdings of the three corporations set up by the Fed to hold mortgage-backed securities and other assets declined by $1.77 billion from last week, the central bank said in its weekly balance-sheet report today. The value of the former Bear Stearns assets dropped $1.41 billion, or 5.2 percent, to $25.8 billion. The drop from the original $30 billion estimated value in March indicates that the Fed’s share of losses totals about $3 billion so far on Bear Stearns. JPMorgan Chase & Co., which acquired the company, is absorbing the first $1.1 billion of any losses. The declines may reflect defaults on mortgages held in the asset pools, said Julian Mann of First Pacific Advisors LLC. “This likely reflects reported defaults” rather than “re-marking,” said Mann, who helps manage about $4 billion in bonds as a vice president at Los Angeles-based First Pacific. The Fed revalued the underlying assets of the former Bear Stearns and AIG portfolios as of Dec. 31, in accordance with policy to assign a new “fair value” each quarter. Weekly calculations of the net portfolio values are updated to reflect accrued earnings and expenses. Modified Home Loans A Fed official said this month some home loans in the former Bear Stearns portfolio went bad and were modified to avert foreclosure. The central bank also adopted a policy to ease terms for delinquent borrowers in the three portfolios. Short-term debt held by the Fed in its Commercial Paper Funding Facility declined in value by $102.7 billion, or 29 percent, to $247.6 billion. The report reflects the maturing of the first batch of 90-day commercial paper sold to the Fed under the program, which began Oct. 27. A separate Fed report today showed the commercial paper market shrank by $98.9 billion, or a record 5.9 percent, to a seasonally adjusted $1.59 trillion during the week ended Jan. 28. Currency Swaps The Fed added a new line in today’s report to break out its foreign-currency swaps with other central banks, which were previously included as “other assets” on the Fed’s balance sheet. The swaps rose by $2.88 billion to $465.7 billion over the past week. The Fed has set up currency-swap lines with central banks in Europe, the U.K. and other countries to lend dollar funds to banks in those areas. The total value of assets on the Federal Reserve’s consolidated balance sheet fell by $110 billion to $1.93 trillion over the past week. Discount-window lending to commercial banks rose to $68.3 billion as of yesterday from $62.9 billion a week earlier, the central bank said in a release in Washington. Wall Street bond dealers pared their borrowings from the Fed to $32.2 billion yesterday from $33.3 billion Jan. 21. The Fed’s Board of Governors said in a Dec. 29 report to Congress that “despite the decline in the current fair value of the collateral, the Board does not anticipate the Maiden Lane loan will result in any net loss to the Federal Reserve or taxpayers.” Maiden Lane Loan The Fed made a $28.8 billion loan to Maiden Lane, whose portfolio in March included debt backed by mortgages and other items JPMorgan deemed too risky when taking over the firm. BlackRock Inc. is managing and selling assets in the portfolio. The loan has a 10-year term, which gives BlackRock “an opportunity to dispose of the assets in an orderly manner over time,” the Fed said in December. The AIG holdings, acquired as part of an expanded $150 billion bailout in November, previously reflected valuations as of Nov. 25 and Dec. 12 and are also being revalued quarterly. Holdings of federal agency and mortgage-backed securities rose as the central bank conducted outright purchases of debt to support housing markets. The Fed reported mortgage-backed securities holdings of $7.38 billion as of Jan. 28, and a $4.21 billion increase in federal agency securities to $28.4 billion. Fed Chairman Ben S. Bernanke and fellow policy makers indicated yesterday they’re ready to build on the $1 trillion increase in the central bank’s total assets over the past year to revive the economy and stem the risk of deflation. Last month, the Fed switched the focus of monetary policy to the balance sheet and away from interest rates. In a separate statement, the Fed proposed letting banks open “limited purpose accounts” to hold excess cash reserves so they don’t have to open separate accounts with a regional Fed bank. The public comment period for the new rules ends March 2. Money Supply The Fed said the M2 money supply rose by $36.6 billion in the week ended Jan. 19. That left M2 growing at an annual rate of 9.1 percent for the past 52 weeks, above the target of 5 percent the Fed once set for maximum growth. The Fed no longer has a formal target. The Fed reports two measures of the money supply each week. M1 includes all currency held by consumers and companies for spending, money held in checking accounts and travelers checks. M2, the more widely followed, adds savings and private holdings in money market mutual funds. During the latest reporting week, M1 fell by $51.5 billion. Over the past 52 weeks, M1 rose 14.1 percent. The Fed no longer publishes figures for M3. To contact the reporter on this story: Scott Lanman in Washington at