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The Fed Rides to the Rescue of JPMorgan and Citi Again – This Time It’s Their Commercial Real Estate Mortgages

Courtesy of Pam Martens

Federal Reserve Chair Jerome Powell

Federal Reserve Chairman Jerome Powell

Quietly, on July 13, the New York Fed published a list of asset-backed loans that it had approved for eligibility in one of its emergency lending  programs, the Term Asset-Backed Securities Loan Facility, otherwise known as TALF.

The New York Fed stuck a smattering of small business loans and one student loan product on the list. Everything else was securitized pools of mortgages on commercial real estate, much of it issued by JPMorgan and Citigroup. TALF was supposed to help the consumer by keeping interest rates down on consumer loans. It’s pretty tough to find a connection between the consumer and commercial real estate mortgages on hotels, shopping malls and office buildings.

One thing notable about the New York Fed’s approved list is that the securitizations of these commercial mortgages by JPMorgan had occurred as far back as 2013 and in the case of Citigroup, as far back as 2015. Is it really the job of the Fed to bail out the banks from old deals that are now souring?

You may be wondering if the commercial real estate mortgages had already been securitized and sold off to investors, how does this constitute a bailout of the banks by the Fed. It’s because the market value of those deals had been dramatically sagging until the Fed set up its bailout program, thus boosting the market value of those deals as well as similar mortgages still on the books of the banks.

The purpose of TALF, according to the Fed, is to “help meet the credit needs of consumers and businesses by facilitating the issuance of asset-backed securities.” Note the word “issuance” in this sentence. Bailing out old deals that have already been issued does nothing to help new issuance, unless one considers the Fed distorting the market to be a help.


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