Fed Admits It Accepts Unworthy Collateral In TALF

Zero Hedge ^ | 1/6/10 | Tyler Durden

[FromLori]

Yesterday the Federal Reserve Board of New York made an announcement, indicating recent posturing that it would carefully pick collateral for the TALF program, has been a sham (not that we would expect anything out of Bernanke, Cheatem and Howe). One wonders what the utility of having so many new NRSROs recently hired by the Fed receive taxpayer money and to share their perspective on collateral quality, when the Fed openly overrides them and decides what legacy loans are TALF-worthy on its own.

Here is the Fed's mea culpa:

The New York Fed continuously reviews the stress value estimates and recently identified and corrected a methodological error. The New York Fed has determined that as a result of this error, one legacy CMBS — CUSIP 059497AX5 — was accepted as collateral that would not have been accepted using the current methodology. However, the New York Fed continues to expect no losses on the loans backed by this CMBS because the stress value is based on extremely unlikely economic circumstances, and because the market value of this CMBS is well above the TALF loan amounts.

We all know how good the Fed is at predicting, or, as some would say, creating, "unlikely economic circumstances." As for the market value, did it ever dawn on the idiot savants over at 33 Liberty that prices are merely a reflection of the Fed's own TALF/PPIP program. By including worthless crap such as this, which receives taxpayer-funded leverage, of course market value of CMBS classes will be above loan amounts.

In fact, the Fed apparently realized what a big mistake it has made by adding the following disclaimer:

[FromLori]

ping better understood and read at site also should read

http://www.zerohedge.com/article/order-make-ponzi-market-keep-going-ever-higher-barney-frank-tries-make-shorting-virtually-im

http://www.zerohedge.com/article/st-louis-fed-opens-inflationary-dragon-pandora-box

http://www.zerohedge.com/article/peter-costa-longer-term-i-still-think-we-are-heap-trouble