Falling on the Grenade, Maiden Lane Edition

As word got out yesterday the New York Fed was releasing information on just what exactly was in the Maiden Lane SPEs used to backstop JPMC’s purchase of Bear Stearns as well as the collateral they took in the whole AIG mess, I only had one question: What would be today’s mark on this stuff?

Needless to say (hat tip: FT Alphaville), much lower. This is the ratings history of a TruPS (trust preferred security) CDO sitting in Maiden Lane I, which is the SPE used to backstop the JPMC purchase of Bear Stearns. Note the ratings migration (work from the bottom up):

Funny. No more than 6 months after Maiden Lane acquired these things (most likely close to par), they were below investment grade and are now teetering on the verge of default.

This is what I figured was happening back in March of ’08. The Fed was rushing in where investors feared to tread. I’d never say angels in this case. Because that would imply angels and investors commiserate, which they do not.

So please, forget about the touchy feel-good story of the year known as TARP. $16bn in profit on equity injections while we sit on this much stuff?

That $16bn TARP profit would get wiped out if these assets took a 50% haircut, which is not unreasonable given the deterioration in the ratings…


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Filed under finance, government, risk management, Timmay, You're kidding

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