The New York Federal Reserve Bank released new details late yesterday about its Maiden Lane entities, which were created to remove the toxic assets from the balance sheets of Bear Sterns and AIG. The information was requested (.pdf) by Rep. Darrell Issa (R-CA), ranking member on the House Committee on Oversight and Government Reform. It reveals more about the assets that take up a lot of space on the Fed's balance sheet. As a result, many outlets are reporting how ugly the Maiden Lane assets look. Of course, that's not a surprise -- they're toxic assets. But I'm not yet convinced they'll create extraordinary losses for the Fed.
As you might expect, some in the media jumped on the par values listed in the newly released detail for each facility -- they're far more than the market value shown on the Fed's balance sheet. In fact, their market values range from 36 to 44 cents on the dollar. Here's how Bloomberg reports it:
Assets in Maiden Lane II totaled $34.8 billion, according to the Fed, which set their current market value in its weekly balance sheet at $15.3 billion. That means Maiden Lane II assets are worth 44 cents on the dollar, or 44 percent of their face value, according to the Fed.
If this approach is generalized for all three facilities, the naïve response is: "Oh my! The Fed is going to lose more than 50% on these assets with a par value of over $165 billion!"