Thursday, January 21, 2010
You will hear much more about this topic (AIG and Fed secrecy) here on Friday, but Bloomberg reports the lengths to which the Fed has gone to try to keep the details of Maiden Lane III, the entity created to buy drecky CDOs from AIG counterparties who received 100% credit default swap payouts. Get a load of this, the Fed was arguing that info IN THE PUBLIC DOMAIN should be treated as confidential! The Ministry of Truth in action:
This whole affair puts the Fed in a bad light indeed. The article details how the AIG, pushed by the Fed, made four efforts with the SEC to get information regarding the AIG payouts and Maiden Lane III purchases redacted. AIG seems reluctant, and the SEC, to its credit, did not roll over (although one can argue it in the end conceded too much ground). And the arguments made by the Fed are rubbish:
Yves here. So lets be clear, the Fed lied to Congress. If there was the potential for this disclosure to damage AIG, theyd be the first to be keen for any excuse to preserve confidentiality. So then this becomes Iraq, new excuses being offered for a dubious course of action:
Yves here. This is illiquid, bespoke paper. If Maiden Lane were to try to sell it, any buyer is going to make an assessment of its fundamental value. And the reports I have gotten is that there is no appetite for CDOs, and for reasons that are unlikely to change. They are too costly to evaluate relative to the potential bargains that might be available. You can do rough pricing using proxies for the various types of collateral, but if you are wrong, you can wind up with an instrument that really is worthless. Why bother taking the risk, particularly given how illiquid the paper is? In the end, the Fed sought over 1000 redactions and got in excess of 400. So we have the specter of one regulator pushing a
public company to operate in a way it clearly is not
comfortable with, to get another regulator to bend the
rules. If this isnt further proof the Fed needs to
be leashed and collared, I dont know what is.
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