The Fed’s Bear Stearns Assets: "No Prospect for a Profit"

Your humble blogger, and the vast majority of readers have been pretty skeptical of the notion that the Fed could absorb $29 billion of risk on $30 billion of dodgy Bear Stearns assets and come out whole (JP Morgan takes the loss on the first billion and change).

Despite reports from the Fed showing no losses, some analysts beg to differ (and we voiced doubts back in July). From Bloomberg (hat tip reader Steve L):

U.S. taxpayers may be stuck with losses on $30 billion of Bear Stearns Cos. assets owned by the Federal Reserve even though the central bank has said otherwise, according to Robert A. Eisenbeis, Cumberland Associates Inc.’s chief monetary economist.

“There is no prospect for a profit on the assets,….Losses are mounting.”….

Last week’s total was $4.22 billion… JPMorgan Chase & Co. is responsible for the first $1.15 billion…The Fed picks up the rest.

“The transaction was not structured with adequate over- collateralization to protect the taxpayers from losses,” based on the risks associated with housing-related assets at the time, Eisenbeis wrote.

The central bank’s Board of Governors wrote in a Dec. 29 report to Congress that it didn’t expect “any net loss to the Federal Reserve or taxpayers” from the Bear Stearns holdings.

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  1. Anonymous

    Treasury Secretary Timothy Geithner needs to detail his intentions for the more than $200 billion of government stakes in U.S. banks to quell confusion in financial markets, according to a new oversight report.

    “Treasury needs to begin developing a framework for its overall investment strategy,” Neil Barofsky, special inspector general of the Troubled Asset Relief Program, said today in his first review of the fund. “How long these securities should be held — and when and under what circumstances they should be sold into the market — are vitally important questions.”

    The report underscores concern at a lack of clarity over the government’s exit strategy; shares of the banks that have received taxpayer funds fell more than four times the Standard & Poor’s 500 Stock Index in the past three months. The issue is set to grow as the Obama administration plans another round of capital injections into major financial companies.

  2. CB

    i’m beginning to think that rather than doing QE, the reason for the Fed’s large balance sheet expansion is to mask/waterdown the losses from the bear stearns assets (and other earlier programs)

  3. fresno dan

    All the economists (well, the usual idiot ones who must believe that NO is the time to buy a house) that the economy will REbound in th elatter half of 2009.
    Happy days are here again…

  4. Anonymous

    “The report underscores concern at a lack of clarity over the government’s exit strategy”

    The exit strategy is simple. The govvies want to inflate the prices if worthless mbs enough that the banks can sell them to the public, foreigners, little banks, etc. And then the govvies will sell off its holdings shifting the losses to anyone stupid enough to bought from the banks.

  5. Stephen Lins

    This is a preview of what we can expect from the new Obama/Geithner crap assets purchase/guarantee program. Stay tuned for more taxpayer losses, only this time it will be at least an order of magnitude (10x) larger.

  6. DownSouth

    It is absolutely necessary for the engineers of consent to perpetuate the fiction that the trash the government is buying from banks is actually worth something.

    If this lie, carefully being husbanded by our government, ever sees the light of day, the true cost of the trillions of dollars of the government’s purchase and guarantee of these near-worthless instruments will be made evident to the public.

    This cannot happen. If the looting of the public in favor of the finance industry is to continue, the lie must live on.

  7. whistlewhat

    What is the difference between Bernanke, Paulson and Geithner; and Bernie? BPG all testified to congress it was possible to profit on the Fed’s new Bear assets in Maiden Lane, yet everyone on the planet with a calculator, new this was not possible. Just another form of a legal Ponzi Scheme but the fact remains, they are all liars (Bernie, allegedly). Is the government just chalk full of liars and where do they get all these liars from? The bankrupt state of California which is confiscating taxpayer’s income has a tax fraudster whistle blower confiscating taxpayers income in its midst, Mike Hamersley. Based on Hamersley’s testimony to the Senate on what tax fraud is, he is a tax fraudster himself yet he gets to help the State confiscate honest taxpayer’s income. Liars and thieves, all of them.

  8. Anonymous

    Is the government just chalk full of liars and where do they get all these liars from?

    Yes. They come from the general public. But only the BEST liars are tapped for holy orde-, er I mean government jobs.

  9. Anonymous

    Is the government just chalk full of liars and where do they get all these liars from?

    Goldman Sachs

  10. Anonymous

    I don’t understand the audacity of folks that think that all government workers are bad when we are and have been seeing gross criminal and antisocial behavior by the greedy fascist side for 50 years now.

    Deception is the biggest political weapon that exists and is propogated by the fascist media

  11. Murph

    The government’s January report on the value of TARP assets shown a similar result.

    The first $247 Billion ‘invested’ from October on had a market value of $183 Billion as of December 31:

    Bear Stearns sits on the Federal Reserve’s balance sheet as “Maiden Lane I”. At the time, that $29 Billion represented a substantial sum above and beyond the usual level of non-Treasury non-Agency holdings at the Fed (rarely did these exceed $40 Billion or 5% of total Fed assets).

    Today $29 Billion is chump-change. The Federal Reserve holds $1.5 Trillion in non-Treasury, non-Agency assets, more than 70% of its bloated $1.9 Trillion balance sheet.

    Given its massive level of leverage, at the end of the day the Federal Reserve can only “pay for” the losses on Maiden Lane and similar assets and collateral by printing money.

  12. Jim T

    Why in the F—K did Hank & Ben cut such a shit deal for the tax payer? Why in the F—K is the Tax Payer holding the $29 Billion Dollar Bag for JP Morgan?

    It was in JP Morgan's best interest to buy Bear Stearns because if they DIDN'T JP Morgan would have been the next Bear Stearns! Bankrupt with a weeks time! THE ONLY REASON JP Morgan bought Bear was to cover up WHY BEAR went under in the first place! Their Derivitive Exposure! Which was NOTHING COMPARED TO JP MORGAN'S $90 TRILLION WORTH OF EXPOSURE!

    When our government finally exhausts its ability to not let anything fail and some big companies start failing. JP Morgan will follow those failures in VERY SHORT ORDER! Jamie Dimon and JP Morgan are the biggest BANKSTERS OF THEM ALL. If you are looking for someone to "hang" after this entire thing blows up it should be Jamie Dimon and the JP Morgan Board of Directors first!

  13. dailybail

    yves a snip of just published. i did a squirrel on aig. 2 of your stories are in the squirrel from late 2008.

    “It’s been 18 weeks since taxpayers rescued AIG to save Goldman Sachs, a few large hedge funds and several European banks, who all utilized the unhedged luddites of AIG to protect their own weakening portfolios. It’s simple. In late 2007 and early 2008 the brainiacs at Goldman hedged their porfolio of shit assets with a shit insurer, because well, they’re Goldman Sachs, Lord of Idiots. Turns out Euro banks had been hedging their exposure to the mortgage pile on their books for years as a means to skirt regulations on capital ratios. Rule Bending Banking Bastards 101.

    The problem was AIG didn’t hedge their own exposure. They couldn’t. They were the ‘safe’ place to buy protection. And the shitkeepers in control of AIG allowed their exposure to other people’s shitpiles to grow so large that there was no one left to de-odorize. Please take a moment to consider just how stupid you have to be to lose $150 billion selling insurance on other people’s shit. Thank you for that collective moment.”

    you should see the aig photo. it’s been doctored.

    click my name. it will take you to the story.

  14. joebhed

    Come on, let’s not lose our perspective on all this.
    At the time, the FED said they might make a few bucks and could only lose $29 Billion.
    So, they were only off by a few bucks off on the upside, and ONE Lousy Billion on the down side.
    So, the question becomes how come the private Federal Reserve Banking Corporation can affix a humongous liability to the taxpayers of this country and then keep walking down that road.
    I realize this is a couple of $TRILLION later, but, legally, how come?
    Dennis Kucinich is calling for the FED to come under Treasury, and for the money-creating powers of the FED bankers to come under Treasury as well.
    Ummm, what’s the downside of that transaction?

  15. sandi rubinspan

    “The transaction was not structured with adequate over- collateralization to protect the taxpayers from losses,” based on the risks associated with housing-related assets at the time, Eisenbeis wrote.”

    The US appears to be under attack from within. The moneyed class has destroyed capitalism as we once knew it. what to do … what to do…

    Continue to starve the Republican beast. Invest only in short term government guaranteed products.

    At least when it devolves into the collapse of the Berlin Wall scenario, we will have the satisfaction of claiming we were on the right side.

    Has anyone else begun to realize that the US is under attack by a bonefide terrorist group ?

  16. sandi rubinspan

    Where is Richard Kline ? The best mind of the whole debacle.

    Come on, buddy boy. step up and speak. Your absence is a national tragedy.

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