Bloomberg: Bernanke and Geithner hid crappy assets in Maiden Lane

[Winehole23]

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.

The so-called assets included collateralized debt obligations and mortgage-backed bonds with names like HG-Coll Ltd. 2007-1A that were so distressed, more than $40 million already had been reduced to less than investment-grade by the time the central bankers testified. The government also became the owner of $16 billion of credit-default swaps, and taxpayers wound up guaranteeing high-yield, high-risk junk bonds.

By using its balance sheet to protect an investment bank against failure, the Fed took on the most credit risk in its 96- year history and increased the chance that Americans would be on the hook for billions of dollars as the central bank began insuring Wall Street firms against collapse.

Read more:

http://www.bloomberg.com/news/2010-0...s-knowing.html

[EVAY]

Interesting article, WH, and thanks for posting it.

The "investment grade" of the assets that the Fed bought on behalf of the taxpayers of America in order to facilitate the sale of Bear Stearns was, apparently, based on the rating agencies' assessment at the time.

Moody's and Standard and Poor's have lowered the rating on the same assets almost 8 levels in the intervening 22 months, but really, only after the debacle of October and November of '08.

To me, the whole thing comes back to noone really knowing what those CDS things involved, and the genuinely impossible conflict of interest that the rating agencies are in when they rely on the folks whose assets they rate in order to pay their salaries.

And the issue between the rating agencies and their 'clients/bosses' remains as incestuous today as it was then. I don't believe that the finance reform bill changed any of that, did it?

[EVAY]

Of course, it is easy for the rating agencies to blast away at the assets now...they are not paid by the taxpayer, and everybody and their brother now knows that the assets were worthless then and are worthless now.

But you and I are going to pay for them.

[Winehole23]

Of course, it is easy for the rating agencies to blast away at the assets now...they are not paid by the taxpayer, and everybody and their brother now knows that the assets were worthless then and are worthless now.

I know about zilch, but this seemed clear to me at the time. Nothing else could explain the panic and fear of late 2008. You could see it in people's eyes. You could almost smell it.

But you and I are going to pay for them.

Darn tootin.

[Winehole23]

And the issue between the rating agencies and their 'clients/bosses' remains as incestuous today as it was then.

Indeed, why not?

Bernanke and Geithner made the best of the ambiguities and the emergency rules to put the US taxpayer on the hook for a bunch of stuff they probably already knew was crapola. I salute their animal guile and political brazenness, I guess. I hope the patient survives.

[LnGrrrR]

I'm flabbergasted that these supposed financial wizards thought they could manage away risk. As if throwing fancy numbers around somehow reduced risk magically.

[Winehole23]

We're the backstop, so there's very little to prevent this from happening all over again.

(Maybe we'll have a badass resolution authority next time. , we still need one for this fiasco.)

[EVAY]

We're the backstop, so there's very little to prevent this from happening all over again.

(Maybe we'll have a badass resolution authority next time. , we still need one for this fiasco.)

And some folks are wondering why the american public is not very overly confident these days...

[boutons_deux]

Wall St and the Wall Streeters in govt are laughing their asses off at the theft and fraud they got away with, and are getting away with now.

Wall St investors know it, is why Wall St/bank stocks jumped the day the details of the financial reform bill were published.

High speed trading is outright pump-and-dump fraud, and wasn't touched by the reform.

[Winehole23]

High speed trading is outright pump-and-dump fraud, and wasn't touched by the reform.

Yep. To choke off that particular moneymaker right now might be considered bad timing, but you have to do it if you're serious about cleaning house. Oh, what to do?

[Winehole23]

[Winehole23]

[boutons_deux]

For all of you assholes, and you instinctively know who you are, who said the 2008 oil price e was due to demand/supply and not commodity traders, and that even the current price of oil is (happily only) $75 instead of half of that, I heard a little tidbit that absolutely proves the price of oil is driven by traders:

About 30B barrels consumed daily, while about 150B barrels are traded daily.

iow, 120B barrels bought/sold but not for delivery, simply to make money.

This also means that the (US) IM-balance of payments due to shipment $Bs oversease for oil could be cut in half if it weren't for the traders.

iow, the price of oil is probably 50% due to vampire squid traders rather the cost of production+delivery+profit.

Could the govt's of the world ever get their together to remove Black Gold from the commodities markets? Hardly, when many of those same govts are privatizing another commodity, Blue Gold.

And of course the oil producing countries run their own trading desks.

[Winehole23]

And some folks are wondering why the american public is not very overly confident these days...

Amen, brother.

[Winehole23]

We need to start managing the ing risk. Tout suite.

[boutons_deux]

you can't manage derivatives risk when the other side you've bet against can make $Bs by you losing your bet, AND the other side can influence the price of the item bet on. iow, it's a casino, and the casino is rigged.

[Winehole23]

You can at least in try. We haven't audited yet.

[boutons_deux]

TBTF

also means

TCTA

too complicated to audit

estimates on derivatives are up to 1000 $T, a quadrillion. (USA GDP is about $13T)

Governments don't have the guts or desire to stand up to business, because the politicians need corps money to run and to win.

The finance sector and corporations are in full control of the planet now. Trans-national, supra-national behemoths. And they will everybody else up while enriching themselves, as always has been the case.