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” Will someone transklate this for us (ahem) normal people. “

I think that what the author might be trying to say (or carefully *not say*) is something like -

Regardless of the publicly stated rationale, the real-world effect of the QE programs has been to provide artificial demand to prop up bond prices, and with the end of QE2, that artificial prop disappears, and bond values will catastrophically return to their ‘natural’ level....

Or, in layman’s terms that I can readily understand — “We’re soooooo SKROOOOD!!!”

“Maiden Lane 1” and “Maiden Lane 2” are cesspools, err, repositories of toxic loan tranches and horrifically losing options positions (think of a huge bundle of insurance claims an insurance company might have to pay out after hurricane Andrew passes through and thousands of houses are crunched) which were purchased by the Fed, generally during the 2007-2008-2009 period. They were purchased from the major banks by the Fed at *face value*, even though they were (and apparently are) worth many many tens of billions LESS than their face values. It was this mechanism that permitted the major banks to continue to operate as going concerns. Had the Fed not purchased these diseased assets, the banks would have all detonated.

The idea was to remove these smashed assets from the market, let some amount of time go by and allow the market to heal; both in terms of the implied underlying real estate values and the trust implied in arms-length transactions within the bond and debt markets.

Well, some time has gone by, but the market is having a hard time absorbing these assets, because 1: RE prices have not rebounded as expected, and 2: the trust that was supposed to return to the market HAS returned, to some extent, making the Maiden Lane assets phenomenally undesirable things for anyone to own.

So the scheme has “worked” to a single digit percentage, but the Maiden Lane tranches are simply massively bigger than the market can absorb. So, the Fed cannot offer them for sale in the size they would like to get rid of without driving down the pricing, which makes them even less attractive from the Fed side because of the losses implied. And they are not especially desirable even from the buyers’ sides, because there is no mystery as to what they are.

Basically, the idea was to bundle up a whole pile of dog turds with the expectation that after some number of years, they wouldn’t smell so bad and perhaps the dog-turd market would regenerate itself.

It worked, about as well as most other things the government undertakes.

Well, what I (as a working stiff) believe - that all of the talk about the assets that the feds bought up and were gonna make a net profit with regarding the bailouts - well, that was based on the feds own valuation of those assets. And once the feds attempted to put those assets back on the market, well, market valuations promptly came back into play (surprise). And what a shock, the gov valuations were proven to be complete bullcrap. Hence the shutdown of that process.

Back in the fall of 2008 when Paulson was pumping sunshine up our collective rectum we were told to pony up 781 billion dollars to get our banking in order. In those several purchases of the FED was AIG. The FED was initally paid $85 billion dollars. Later they purchased almost 80% of AIG, not knowing what the real value was because the 'derivitive' problem was about to begin its nuclear chain reaction. They bought the 80% worth about $150 billion at that time, all the while telling the taxpayers that moneyu would be recouped. Now today they tried to sell over $3 billion of AIG bonds and the sale did not happen....they only sold 1.89 billion or about 1%,....they could not 'unwind' their position,(sell their position) to recoup the taxpayers money. Now the FED has about $150 billion minus $1.89 billion worth of AIG bonds which they cannot sell.....because those derivitives were worth NOTHING and today they are worth NOTHING.

This will do wonders for sticking to their crappy game plan of stopping QE2,,,,,,,can QE 3 be far behind. Now they have spent 180 billion of AIG Bonds which will never be marketable. It is a nice statement of how well the ben bernank understands the problem and how efficacious his offered solutions are. We are in for the dollar printing to infinity. Sorry folks, but in the infamous words of Gecko in Wall Street Two, 'You guys are all,......pretty much......f.....d." (sorry for the implied expetive, but is seemed most appropo to this particular discussion.