The Federal Reserve for the first time released details of individual securities acquired in the rescue of Bear Stearns Cos., part of the information that Bloomberg News sued the central bank for in 2008.
The Fed, through its New York regional bank, also identified securities acquired in the 2008 bailout of American International Group Inc. The central bank had agreed to take on the Bear Stearns assets, including mortgage-backed securities and commercial real estate loans, to ease the investment bank’s sale to JPMorgan Chase & Co.
The bailouts exposed taxpayers to potential losses on the $64.8 billion of assets, prompting Congress to propose stripping the Fed of some of its regulatory and bailout powers. As recently as March 17, New York Fed President William Dudley rebuffed a lawmaker’s request for the details, saying it would harm the central bank’s ability to maximize value to taxpayers.
“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 New York Fed said in today’s statement.
The New York Fed posted the securities’ identification numbers and principal balances as of Jan. 29 on its Web site today, totaling 161 pages of documents. Previously the Fed provided values and credit ratings of groups of assets in each of the three portfolios, known as Maiden Lane LLC, Maiden Lane II LLC and Maiden Lane III LLC, named for a Manhattan street bordering the New York Fed.
Legal Battle
In a case launched against the central bank in 2008 by Bloomberg LP, the parent of Bloomberg News, the U.S. Court of Appeals in Manhattan decided this month that the Fed must release documents identifying financial firms that borrowed from four Fed lending programs that became part of the largest U.S. government bailout ever. The ruling upheld a decision of a lower-court judge, who in August ordered that the information be released.
The Fed said it reached agreement on “issues of confidentiality” for the assets with JPMorgan, which bought Bear Stearns in 2008, and AIG. JPMorgan and AIG would incur the first losses on the portfolios.
Joe Evangelisti, a spokesman for JPMorgan, and Mark Herr, a spokesman for AIG, declined to comment.
WaMu’s Failure
The Bear Stearns portfolio includes the types of home loans that helped bring down Seattle-based Washington Mutual Inc., which had been the largest U.S. savings and loan.
The AIG assets include $247.7 million of bonds sold in March 2007 and backed by adjustable-rate mortgages written by American Home Mortgage Investment Corp. The Melville, New York-based lender filed for bankruptcy in August 2007.
That debt is now rated B+, four notches below investment grade, with almost 36 percent of the underlying loans at least 60 days late and already realized losses of about 9 percent, according to data compiled by Bloomberg. About 84 percent were given to borrowers required to produce limited documentation.
“No one should have been surprised that it looks like the Bear and AIG portfolios are junk,” said Robert Eisenbeis, a former Atlanta Fed research director who is now chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey.
Lehman’s Assets
“If these were assets that were investment grade, as the Fed has claimed, then what must Lehman’s assets have been like for the Fed and Treasury to claim they couldn’t lend to Lehman?” asked Eisenbeis, referring to the Fed and Treasury Department’s decision not to rescue Lehman Brothers Holdings Inc. in September 2008.
In the documents, the Fed excluded data on individual residential mortgages, saying disclosure would violate borrowers’ privacy. Those comprise $1.49 billion of the Bear Stearns portfolio, which was valued at $27.3 billion as of March 24.
Representative Darrell Issa of California said in a statement that today’s disclosure may “signal a new willingness to cooperate with Congress as we investigate how these bailout deals were structured and what the decision making process entailed.”
Earlier this year, Issa helped lead a congressional probe that led to the release of e-mails showing the New York Fed asked AIG to withhold information about payments to banks.
‘Honest Broker’
“Up until the time of this crisis, the Fed had earned the view of the public that it was an honest broker,” said former Cleveland Fed President Lee Hoskins. “When the Fed did these opaque deals, the public began to question what was going on. The Fed not only lost credibility with the public, but also lost credibility with respect to monetary policy because it’s been functioning as an arm of the Treasury.”
The New York Fed has still denied or ignored other requests for information, said Issa, the senior Republican on the House Oversight Committee. Deborah Kilroe, a spokeswoman for the New York Fed, declined to comment beyond the statement.
Some of the information provided by the Fed today was released by Issa earlier this year, including a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.
In April 2008, Bloomberg News requested records under the federal Freedom of Information Act from the Fed’s Board of Governors related to JPMorgan’s acquisition of Bear Stearns. The central bank responded that records retained by the New York Fed “were proprietary records of the Reserve Bank, and not Board records subject” to the request, court records show.
Filed Suit
Bloomberg filed suit in November 2008 in U.S. District Court in New York, challenging the Fed’s denial, as well as the denial of a separate request made in May 2008, seeking records of four other emergency lending programs.
The district court held that the Fed should release documents related to those four programs, and should search documents held by the New York regional bank to determine whether any of them should be considered records of the board of governors.
The U.S. Court of Appeals on March 19 upheld the district court’s ruling on the lending programs.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
Bloomberg, By Scott Lanman
Fed Releases Details on Bear Stearns, AIG Portfolios You On Here » Fed Releases Details on Bear Stearns, AIG Portfolios
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