Around March of last year, the Federal Reserve Bank of New York began selling off a portfolio of toxic mortgage bonds that it had acquired in its rescue of insurance giant American International Group in 2008. AIG had offered to buy back the portfolio, called Maiden Lane II, for $17.5 billion, but the Fed rejected the offer in hopes of selling the securities piecemeal to interested buyers.
||(Illustration by Luke Ramsey) |
As it happened, no one in the market wanted anything to do with the very kinds of securities that had fueled the subprime meltdown. Selling risky assets into a market already rattled by the European debt crisis, rising unemployment and general uncertainty proved to be a bust. Worse, the flood of these securities caused the already struggling residential mortgage-backed securities markets to fall even further, with the prices of these securities plunging to some...