Maiden Lane I (Bear Stearns)
Maiden Lane I (Bear Stearns)
In March 2008, the Fed, as part of its effort to facilitate JPMorgan Chase’s purchase of Bear Stearns, created Maiden Lane I with a $28.8 billion loan (plus a $1.15 billion loan from JPMorgan Chase) and purchased $30 billion worth of assets – mostly GSE mortgage-backed securities – from Bear Stearns, taking these “toxic assets” off Bear Stearn’s balance sheets before JPMC bought the company. Maiden Lane I has yet to make any payments on the loan and its portfolio has lost $2.7 billion in value since it purchased it from Bear Stearns.
| MAIDEN LANE I (BEAR STEARNS) |
|---|
| Balance Sheet |
| Disbursed*: $28.8B [1] |
| Current outstanding: $21.6B (incl. accrued interest)[2] |
| Public Funds |
| Maximum at-risk: $28.8B[3] |
| Current at-risk: $28.8B[4] |
* See the methodology and glossary for definitions of "disbursed," etc.
Contents
Funding agency and aid type
The funding agency was the Federal Reserve Bank of NY.
Purchase of toxic assets.
Who benefits
JPMorgan Chase (now owns Bear Stearns)
Background
SIGTARP:[5]
“Maiden Lane LLC (Bear Stearns) — Total Potential Support: $29.8 Billion. In mid-March of 2008, Bear Stearns, a major investment bank and primary dealer, was in imminent danger of failure. According to the Federal Reserve Board’s February 2009 Monetary Report to Congress, “A bankruptcy filing would have forced the secured creditors and counterparties of Bear Stearns to liquidate underlying collateral, and given the illiquidity of markets, those creditors and counterparties might well have sustained substantial losses. If they had responded to losses or the unexpected illiquidity of their holdings by pulling back from providing secured financing to other firms and by dumping large volumes of illiquid assets on the market, a much broader financial crisis likely would have ensued. Thus, the Federal Reserve judged that a disorderly failure of Bear Stearns would have threatened overall financial stability and would most likely have had significant adverse implications for the U.S. economy.” To prevent a complete collapse of Bear Stearns, therefore, the Federal Reserve invoked its emergency authorities under Section 13(3) of the Federal Reserve Act to authorize a loan of $30 billion, secured by $30 billion in Bear Stearns’ assets, to be used by JPMorgan to purchase Bear Stearns and to assume the company’s financial obligations. A limited liability company, Maiden Lane LLC was formed to facilitate these arrangements, particularly to hold and manage certain assets. On June 26, 2008, JPMorgan completed the acquisition. Maiden Lane LLC purchased approximately $30 billion in Bear Stearns assets on that date with approximately $29 billion of funding from the Federal Reserve to Maiden Lane LLC and a subordinated loan of approximately $1 billion from JPMorgan. Today, the Federal Reserve is managing the disposition of Bear Stearns’ assets.”
FRBSTL:[6]
“On June 26, 2008, the Federal Reserve Bank of New York (FRBNY) extended credit to Maiden Lane LLC under the authority of section 13(3) of the Federal Reserve Act. This limited liability company was formed to acquire certain assets of Bear Stearns and to manage those assets through time to maximize repayment of the credit extended and to minimize disruption to financial markets.”
Prins:[7]
“The Fed provided $29.8 billion to Maiden Lane I to acquire Bear Stearns' assets and facilitate its merger with JPMorgan Chase.”
Notes
As of Sept. 30, 2009, Maiden Lane has repaid none of the FRBNY loan, and with capitalized interest, the outstanding amount has grown from the original amount of $28.8 billion to $29.196 billion. JPMorgan Chase also made a $1.15 billion subordinated loan to the LLC. The Fed claimed authority to make the loan under section 13(3) of the Federal Reserve Act of 1913. The loan has a stated term of ten years, though FRBNY can extend that at its discretion.[8] The portfolio is made up over half by agency mortgage-backed securities, and was valued at $30 billion when Maiden Lane I was formed,[9] has declined in value by almost 4 billion to $27.261 billion as of Mar. 10, 2010.[10]
Articles and resources
Related SourceWatch articles
References
- ↑ Federal Reserve Bank of New York, "Maiden Lane Transactions", as of July 6, 2011.
- ↑ Federal Reserve Bank of New York, "Maiden Lane Transactions", as of July 6, 2011.
- ↑ Federal Reserve Bank of New York, "Maiden Lane Transactions", as of July 6, 2011.
- ↑ Federal Reserve Bank of New York, "Maiden Lane Transactions", as of July 6, 2011.
- ↑ SIGTARP’s July 2009 report, p. 148.
- ↑ Via Nomi Prins’ analysis. St. Louis Fed, “Factors Affecting Reserve Balances,” Economic Data, www.research.stlouisfed.org/fred2/categories/32215/downloaddata , (accessed July 30, 2009); Maiden Lane LLC, n.d., http://www.maidenlanellc.com (accessed September 10, 2009).
- ↑ Prins’ Mother Jones analysis. Dec. 21, 2009. http://motherjones.com/politics/2009/12/behind-real-size-bailout
- ↑ Federal Reserve: http://www.newyorkfed.org/markets/maidenlane_090930.html#begin
- ↑ Federal Reserve: http://www.newyorkfed.org/markets/maidenlane_090930.html#begin
- ↑ Federal Reserve Bank of St. Louis, WMAIDEN1, Net Portfolio Holdings of Maiden Lane LLC”, accessed Mar. 12, 2010.
External resources
•Maiden Lane at FRBNY homepage
External articles
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