Fed to get offers for AIG mortgage bonds

The Federal Reserve Bank of New York seal

Jeremy Hobson: Well, today the government finds out whether toxic assets that no one wanted to buy during the financial crisis are now worthy of a bidding war. The Federal Reserve Bank of New York is auctioning off about $1.5 billion worth of mortgage bonds that it bought from the ailing insurance giant AIG back in 2008.

Marketplace's Stacey Vanek Smith reports.


Stacey Vanek Smith: In the depths of the financial crisis, the Fed bought nearly $16 billion worth of mortgage-backed securities from AIG. Most of those bonds were backed by subprime mortgages and they became known as toxic assets. But yesterday's toxic is today's hot deal. AIG offered to buy the mortgage bonds back from the Fed -- and the Fed turned them down. It thinks it can make more money selling them to the highest bidder.

Dan Nigro is the CEO of Warfield Consultants.

Dan Nigro: People fight over these and they have been crying for supply.

These are still risky investments, but Nigro says investors -- like hedge funds -- believe these bonds will pay high interest rates and rise in value as the housing market recovers.

Nigro: They have value, even as toxic securities, because there is a light at the end of the tunnel.

The sale is part of the government's efforts to unwind the extreme measures it took during the financial crisis. The Fed and the Treasury have hundreds of billions more in toxic assets to sell.

I'm Stacey Vanek-Smith for Marketplace.

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...