Bear, AIG Dumped $74 Billion in Subprime, CDOs on Fed

Fed lost billions propping up banks in undisclosed financial maneuvers never approved by Congress

April 24 (Bloomberg) -- The Federal Reserve took on more than $74 billion in subprime mortgages, depreciating commercial leases and other assets after Bear Stearns Cos. and American International Group Inc. collapsed.

In its biggest disclosure of the securities accepted to stabilize capital markets, the Fed said yesterday it had unrealized losses of $9.6 billion on the assets as of Dec. 31. The bonds, swaps and notes were taken in from Bear Stearns, once the fifth-biggest Wall Street firm by capitalization, and AIG, which had been the world's largest insurer.

The losses on securities backed by assets such as home loans in Florida and California signal that U.S. taxpayers may be forced to reimburse the central bank through the Troubled Asset Relief Program, according to Christopher Whalen, managing director of Torrance, California-based Institutional Risk Analytics.

"The numbers basically confirm that Treasury is going to have to take some TARP money and reimburse the Fed," said Whalen, whose financial-services research company analyzes banks for investors. "It is essentially up to the Treasury to get the Fed out of this."

The central bank lent $2 trillion to financial institutions and hasn't disclosed information about most of the collateral backing those loans.

Treasury spokesman Andrew Williams declined to comment.

Pressure to Disclose

The Fed report follows requests from lawmakers to identify the collateral and a lawsuit by Bloomberg News. Fed Chairman Ben S. Bernanke pledged to expand disclosure, assigning Vice Chairman Donald Kohn to lead the effort.

The central bank has refused to name the borrowers, the amounts of loans or the assets banks put up as collateral under most of its programs, arguing that doing so might set off a run by depositors and unsettle shareholders. That would be less of a concern for New York-based AIG, now 80 percent owned by the federal government, and Bear Stearns, taken over by New York- based JPMorgan Chase & Co. a year ago.

Bloomberg, the New York-based company majority-owned by New York Mayor Michael Bloomberg, sued Nov. 7 under the Freedom of Information Act on behalf of its Bloomberg News unit. The public is an "involuntary investor" in the nation's banks, according to an April 15 court filing by Bloomberg.