Losses for U.S. taxpayers are expected to reduce a bit as the Federal Reserve on Friday raised the estimated value of the assets that were used to address Bear Stearns’ and American International Group’s (AIG) rescues during the height of the financial crisis last year.
Per the fair value concept, if sold in a systematic market on June 30, the assets would bring an incremental value. According to the Fed, a quarterly revaluation of the roughly $62 billion portfolio resulted in a net increase in fair value of $1.5 billion at the end of June. Additionally, those assets generated cash flow during the period.
The Fed said that approximately $2.6 billion in cash flow generated by the assets from AIG during the second quarter had been used to repay the loan from the Federal Reserve Bank of New York . The Fed was forced to take action during last September to prevent AIG from collapsing following the failure of investment bank Lehman Brothers.
Also in March 2008, the Fed injected $29 billion to guarantee JP Morgan Chase’s (JPM) rescue of Bear Stearns.
Now the Fed’s balance sheet contains assets that were pledged as collateral against the loans which are domiciled in three private companies, called Maiden Lane I for Bear Stearns’ assets, and Maiden Lane II and III for the AIG assets.
According to the Fed’s data, the latest fair value estimate of the asset coverage of the Fed loans stood at a loss of $3.40 billion for the Bear Stearns’ portfolio, a $2.37 billion loss for Maiden Lane II and a $129 million loss for Maiden Lane III.
However, any reduction in the amount of cash flow from the revenue of the bailout companies would be a loss to American taxpayers.
Recently, Democrats in Congress have asked the nation’s biggest health insurers to provide data on executive compensation and bonus, profit margins, corporate retreats and spending and premium charges as part of its investigation of the private health insurance industry. The inquiry is partly an effort to monitor spending of bailout firms.
Banks and Wall Street investment firms have also faced criticism over executive pay and bonuses and corporate spending in light of government bailouts. Even though some large financial firms have redeemed warrants issued under the Troubled Asset Relief Program, most of them still have short-term debt guaranteed by the government. Thus, Bank of America (BAC), Goldman Sachs (GS) and JP Morgan Chase & Co. (JPM) were targeted by various political and media groups.
Read the full analyst report on “AIG”
Read the full analyst report on “JPM”
Read the full analyst report on “BAC”
Read the full analyst report on “GS”
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