Public Intelligence

The Federal Reserve has lifted its veil of secrecy regarding special lending programs during the financial crisis, responding to a mandate from Congress by revealing the specifics of transactions with firms like Goldman Sachs and Citigroup. Critics of the Federal Reserve are poring over the data, seeking red flags regarding potential improprieties. And Congress has asked its Government Accountability Office to sift through the numbers and offer its own analysis. At the same time, it’s possible that the release of details will end up largely vindicating the Fed for the massive financial support that it gave the economy at a time of severe stress. The emergency loans, in the view of many finance experts, helped to avert a much deeper economic slump. And those loans have now been largely paid back without losses to the central bank. The numbers are staggering, encompassing more than a dozen emergency programs set up starting in 2007 or 2008. In one program alone the Fed doled out nearly $9 trillion in funds to borrowers such as Morgan Stanley and Merrill Lynch, largely at interest rates below 1 percent. (This program involved overnight loans, so the amount of Fed credit outstanding at any single point in time was much smaller.) Other programs, with longer-term loans also measured in the trillions of dollars.

This presentation outlines a structure (“Maiden Lane III”) to resolve the liquidity drain at AIG from the multi-sector CDO book (primarily U.S. subprime mortgage exposure)

BlackRock was originally the Financial Management portion of Peter G. Peterson and Stephen A. Schwarzman’s Blackstone Group. The Blackstone Group and BlackRock Financial Management both derive their name from their co-founders’ surnames; schwarz means “black” in German and Peter is derived from the Greek word πετρος meaning “stone”. Laurence Fink, who ran the Financial Management division of the Blackstone Group, was heavily involved with the initial creation of mortgage-backed securities, the same type of financial products that would later lead to the Global Financial Crisis of 2008-2009.

Previously Confidential BlackRock Solutions Maiden Lane III Counterparty Brief from November 5, 2008.

The Federal Reserve Bank of New York lifted a veil of secrecy on the troubled mortgage assets it purchased as part of the 2008 rescues of Bear Stearns Cos. and American International Group Inc. The disclosures listed scores of subprime residential mortgage securities and pieces of commercial loans made to dozens of properties across the country, such as the Crossroads Mall in Oklahoma City—featuring the city’s only indoor full-size carousel—and the Hilton Garden Inn in Panama City, Fla.

During that long summer between the collapse of Bear Stearns and the collapse of Lehman Brothers, Hank Paulson held a secret meeting with the board of Goldman Sachs in Moscow.

Maiden Lane LLC is a limited liability company established by the Federal Reserve Bank of New York following the collapse of Bear Stearns. The company was incorporated on April 29, 2008 in the state of Delaware under the authority of section 13(3) of the Federal Reserve Act. A 2009 report from the Federal Reserve Bank of New York describes the company as a “special purpose vehicle” which was created for the purpose of facilitating “the merger of the Bear Stearns Companies, Inc. and JPMorgan Chase & Co.”

We have audited the accompanying consolidated statement of financial condition of Maiden Lane LLC (a Special Purpose Vehicle consolidated by the Federal Reserve Bank of New York) and subsidiaries (the “LLC”) as of December 31, 2008, and the related consolidated statements of income and cash flows for the period from March 14, 2008 to December 31, 2008. These financial statements are the responsibility of the LLC’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

This agreement, made as of the 25th day of November, 2008, by and among the Federal Reserve Bank of New York (“FRB-NY”), BlackRock Financial Management, Inc. (the “Manager”) and Maiden Lane III LLC (the “Borrower”), sets forth the terms under which the Manager shall provide investment management services to FRB-NY (the “Agreement”).