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Retirement Planning > Social Security > Social Security Funding

The Fed Unloads More AIG Maiden Lane III Bonds

By Arthur D. Postal

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The Federal Reserve Bank of New York was successful again Thursday in selling to the market more of American International Group’s (AIG) most speculative assets.

The Fed announced that Citigroup had purchased $1.67 billion in residential mortgage-backed securities (MBS) that the U.S. acquired from AIG in 2008 in return for cash.

The securities were held in the so-called Maiden Lane III facility established by the Fed to help fund the operations of AIG’s controversial Financial Products subsidiary. The securities were part of the Duke Funding High Grade I Ltd. collateralized debt obligation (CDO).

They were originally packaged and sold in 2005 by Wachovia, a North Carolina-based megabank that later got into trouble and eventually was merged with Wells Fargo by federal regulators. 

The auction had been postponed from May 17 because technical documentation issues were found.

Earlier this month the Fed sold the last of the securities held in the AIG Maiden Lane II portfolio. This portfolio involved residential mortgage-backed securities of various quality that had been collateralized by AIG’s life insurance subsidiaries.

The Maiden Lane III portfolio was more speculative. The mortgage backed securities (MBS) in that portfolio were held in so-called CDO’s.

Citi acquired the securities through an auction. Six other broker-dealers, Deutsche Bank, Goldman Sachs, Guggenheim Securities, Merrill Lynch, Morgan Stanley and RBS, also submitted bids.

The reason for the strong demand is that even U.S. speculative MBS are considered safer than other assets with similar yields because of market concerns about the Eurozone, especially pertaining to Greece.

Maiden Lane III was created Oct. 31, 2008 to provide $29.3 billion in cash to AIG. The facility was populated by CDOs with a face value of $62.1 billion.

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