MICHELE NORRIS, Host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.
MELISSA BLOCK, Host:
Now, the mystery of Maiden Lane. That's the name the Federal Reserve gave to $75 billion of troubled financial products. It bought those products from Bear Stearns and AIG to save the companies from collapse. But in the nearly two years it's owned the package, the central bank has refused to say what exactly is in it - until last week, when the Fed opened its Maiden Lane books. Chana Joffe-Walt, with our Planet Money team, took a look inside.
CHANA JOFFE: David Zervos(ph) is one of those guys who writes a report every time the central bank coughs. He's an equity strategist with Jefferies and Company. And usually his reports are pretty technical. Not the report on the Maiden Lane assets. It announced: To say this portfolio is a pile of junk is being unkind to junk.
D: It was just unbelievable. However, Wall Street decided to cut up and dice up and slice up all the risk on all these different loans. It's all there. It's disturbing.
JOFFE: Now, that's a strange position for the Fed to be in.
NORRIS: And you know what's even stranger? What would happen if one of those entities actually failed, that it stopped making payments? The Federal Reserve could wind up owning a hotel in - an airport or a hotel out, you know, overlooking a golf course.
JOFFE: As Reinhart says this, I point out that on page 24, it does look like there's one asset that has already failed: Crossroads Mall.
NORRIS: Yeah, it owns it. REO means real estate owned.
JOFFE: So the Fed owns that mall?
U: Thank you for calling the Crossroads Mall shopping line. If you know the name of the store you are interested in...
JOFFE: Deeper into the pages of Maiden Lane, there are credit-default swaps. Credit- default swaps are basically a bet on the success of an investment. And the Fed has swaps on the state of California, Nevada. In one case, the Fed is in the unlikely position of betting against a Florida school district - meaning, if the district can't make good on its debt, the Fed makes money.
NORRIS: It's mind-bending, isn't it?
JOFFE: It is a little mind-bending.
NORRIS: So actually, you should have the image of Chairman Ben Bernanke flying to a speaking engagement. And he can look out the window and look down and say: Boy, I own a piece of that, I own a piece of that, I own a piece of that. And that's the way the Fed's balance sheet is right now.
NORRIS: Well, we're not happy about it. You know, these were special circumstances.
JOFFE: This is not Ben Bernanke, but close - William Dudley. He's president of the New York Federal Reserve Bank. We talked to him yesterday. And imagine you're him. You came into your job thinking: OK, central bank president, invest in one boring thing, U.S. treasuries, not the wildest creations Wall Street ever dreamed up.
NORRIS: I did not expect, as president of the New York Federal Reserve, that I'd be having to worry about a mall in Oklahoma City.
(SOUNDBITE OF LAUGHTER)
JOFFE: I'm Chana Joffe-Walt, NPR News.
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