Yeah, they made a couple of billion dollars by the time they liquidated that one.
These securities are not insulated against price fluctuations due to interest rate changes,
Who said anything about insulated? You claimed they were crap loans.
and are highly leveraged.
Can you explain this claim?
They will at some point be under water
Guaranteed bonds will be under water? What does that mean?
If you own a bond, and interest rates rise, which they certainly will over the next 20 years, it’s value drops. The Fed has sidestepped this issue by stating that they will hold to maturity, but ant private entity would book the losses.
Also, contrary to what you said about the Bear Stearns portfolio, I read that the 75 billion dollar face value Maiden Lane portfolio is valued at something like 28 billion now.
As to debt quality, a lot of the problem was caused by very complex debt instruments, such as CDOs, which are not Federally guarateed.
Finally, a US Treasury guarantee of crappy loans is a taxpayer guaranree. Fannie and Freddie weren’t officially supposed to be guaranteed. That guarantee was in itself a bailout.
Opinions may vary, of course, but thats how I see it.
Here’s a link that might interest you:
http://money.cnn.com/news/storysupplement/economy/bailouttracker/
It wasn’t just a matter of supplying temporary liquidity to the industry. AIG, for example was a great company with one unbelievably screwed up division—the one that wrote credit default swaps and put the whole company at risk.
Anyway, the best book I’ve read on the whole 2008-9 mess is “The Sellout” by Charles Gasparino. It shows how the credit boom evolved over roughly 20 years, describes all the players in detail, and reads like a novel. Maybe you’d like to check it out.