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Rule the World: The U.S. Federal Reserve unveils its toxic assets

Here is an article of the world that I regard as very interesting and shows the unhealthy side of asset management by the Fed:

The U.S. Federal Reserve unveils its toxic assets

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The U.S. central bank has

(Fed) unveiled last weekend in the nature assets it inherited in 2008 during the rescue of two major financial institutions: the insurer AIG and investment bank Bear Stearns , bought by JP Morgan Chase . These revelations are the result of the insistence of several lawyers, members of Congress and the news agency Bloomberg, who had petitioned the courts in 2008 to obtain these lists, application accepted by the judges at first instance and then confirmed appeal.

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, a branch of the Fed, these assets would be even more toxic than expected. Placed by the Fed in three-vehicle ad hoc financial entities managed by BlackRock, total assets amounted to approximately $ 80 billion (60 billion euros), according to the Wall Street Journal . compound derivatives such as CDOs ("collateralized debt obligations, complex debt securities), MBA (" mortgage-backed securities "asset-backed mortgages), hedging instruments (the famous" credit default swap "), mixed with bonds and cash, the contents of these portfolios would be located according to analysts (see in this connection the Note
of Alphaville, the blog Financial Times ) very far below "investment grade" threshold rating agencies advise against any investment.
OPACITY
analysts questioned the choice of the Fed agreeing to take over all assets "rotten" to save AIG and Bear Stearns, when she just refused to do the same for Lehman Brothers
, causing its collapse in September 2008. Poor products held by the Fed New York explain why their content was not disclosed earlier, which would have diminished their chances of being sold on the market at competitive prices. Backed loans, these assets have in fact lost much of their value over time as the debt Americans have stopped repaying their loans. Marvin Goodfriend, an economist at Carnegie Mellon University
Pittsburgh (USA), said in the pages of Business Week that the Fed's decision to absorb toxic assets from institutions as bad as Bear Stearns "marked a turning point in financial crisis" since engage with the taxpayer U.S. bankruptcy of the bank. In doing so, the Fed has crept into the tax policy, reserved the Congress and the Treasury. The confusion around the borders of the Fed and Congress would have fed the "panic" that shook Wall Street in fall 2008. More than the default risk faced by the Fed, which has plenty of time to recoup his losses by selling its assets at the most opportune time, it is especially the opacity of the rescue operation that shocked the commentators. The
Christian Science Monitor denounces an agreement "in camera" , "without any oversight from Congress" . Besides the harm to the democratic functioning of American institutions, this approach could encourage the Fed to other banks to take unnecessary risks, certain of being rescued by the government.

Audrey Fournier