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NY Fed: Toxic assets from AIG gaining value

Toxic assets the government bought during the bailouts of American International Group Inc. and Bear Stearns are finally gaining value, the Federal Reserve Bank of New York said Thursday.
/ Source: The Associated Press

Toxic assets the government bought during the bailouts of American International Group Inc. and Bear Stearns are finally gaining value, the Federal Reserve Bank of New York said Thursday.

The assets are now worth $69.1 billion — about $2 billion more than they were during the previous quarter.

The government bought the mortgage-related investments while rescuing AIG and Bear Stearns. The investments lost value so quickly that no one knew how much they were worth. Losses on them threatened to topple both companies. The uncertainty eventually spread through global credit markets, sparking the financial crisis.

Buying the assets was a measure to restore confidence among banks that had business relationships with Bear and AIG.

The investments' recovery shows that private demand for them has increased despite the shaky economic recovery. The government is still expected to lose billions on AIG's $182 billion bailout.

The Bear Stearns investments are held by a company owned jointly by the New York Fed and J.P. MorganChase & Co. The New York Fed created the company to share losses with J.P. Morgan. It wanted J.P. Morgan to buy Bear Stearns. J.P. Morgan insisted that the government share the pain.

Those investments are now worth $29.4 billion, up from $28.6 billion.

The AIG investments are in two separate companies. The first holds mortgage investments that were owned by AIG's subsidiaries. The second holds investments that AIG agreed to insure against losses. The billions spent buying them went to megabanks such as Goldman Sachs Group Inc. In exchange, Goldman and others canceled AIG's obligations to them.

The two companies are worth $16.2 billion, up from $15.6 billion; and $23.5 billion, up from $23.0 billion. The New York Fed said it made the revision to the companies' estimated value during a quarterly update performed at the end of last month.