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).
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.