Fed Is Halting Auctions Of Its Mortgage Bonds
The Federal Reserve Bank of New York suspended plans to auction off a large portfolio of mortgage bonds following weeks of turmoil in the credit markets, even as it rebuffed a fresh overture from American International Group Inc. to buy all the battered bonds.</br></br>Prices of bonds backed by subprime mortgages have plunged as much as 25% since the New York Fed and investment manager BlackRock Solutions began in April selling off assets in a vehicle known as Maiden Lane II.</br></br>In a conference call with Wall Street dealers and in a statement Thursday, the New York Fed said that, in light of "prevailing market conditions," it doesn't expect more sales until it believes it can fetch good value. It said there wouldn't be a fixed time frame for selling the rest of the portfolio.</br></br>The New York Fed had moved to sell the crisis-era portfolio piecemeal after rejecting a $15.7 billion offer from AIG in March to buy all the assets. At the time, Maiden Lane II held securities with a face value of about $30 billion. The assets were moved onto the Fed's balance sheet during the financial crisis as part of its bailout of AIG. AIG is 77% owned by U.S. taxpayers.</br></br>From April to June, the Fed sold $10 billion of bonds to Wall Street banks and investors in a series of auctions that went well initially, but by June saw lackluster demand.