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NY Fed taps buoyant credit market to offload AIG assets

Markit ABX.06-2 Index
July 2008 to April 2011

Source: Markit 

The sale by the NY Fed of a $1.5 billion tranche of non-agency US residential mortgage-backed securities in New York on April 6 shows how strongly the securitization market has rallied in that country. The assets on the block were part of the Maiden Lane II portfolio that the Fed bought from stricken insurer AIG in October 2008. That the Fed has now chosen to auction what were called ‘toxic’ securities illustrates the credit market buoyancy that $2 trillion of quantitative easing can buy. The assets that went under the hammer are part of the Fed’s November 2008 bail out of AIG. In Maiden Lane II, it acquired sub-prime RMBS assets with a face value of around $40 billion for around 50c on the dollar.

The original $28 billion Maiden Lane loan in March 2008 had facilitated the bail out of Bear Stearns. The NY Fed subsequently pumped a further $24.3 billion into AIG to buy a portfolio of CDOs, Maiden Lane III.

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