BlackRock's Madoff-like Valuations Push Maiden Lane to New Highs on Her 2nd Anniversary

On June 30, 2010, Maiden Lane celebrated her second anniversary, though her composition was mark-to-markedly different than the $30 billion toxic brew of Bear Stearns assets with which she was originally stuffed. We first revealed the curious trading performed by BlackRock Financial Management on June 1, 2010, which demonstrated a significant portfolio churn in Agency mortgage backed securities (MBS) over just a two month window based on detailed holdings released by the New York Fed. Today, it has released the June 30, 2010 portfolio details, and while a follow up forensic analysis will be forthcoming, readers can be assured that the record low volatility ascent in valuation has continued, whereby she's only $1.297 billion short of a 100% payout of principal and interest to JP Morgan and the NY Fed (sic taxpayer).

Click image to enlarge.

Incidentally, the current shortfall is very close to the principal and interest owed to JP Morgan of $1.280 billion. Why not liquidate the portfolio immediately, now that the taxpayer's contribution can be recovered (that is, unless the valuations are suspect)?

In the earlier post, we pointed out a loophole that would have allowed JP Morgan to collect early ahead of the taxpayer's $28+ billion. While we congratulate the Fed on avoiding the temptation to indulge Obama's favorite banker (Jamie Dimon) on this particular front, we must continue to point out that the fair Maiden was sold to the public as a wind down facility. Yet, since March 31, 2010, BlackRock has stuffed it with brand new 5, 10 and 30 Year interest rate futures for September 2010 expiration.

9,179 short contracts is nothing to sneeze at (not to mention the $3.374 billion in outstanding swaps), which also begs the question raised by ZeroHedge in months prior: why would the Fed bother to hedge interest rate risk in a measly $30 billion portfolio while the Fed's $1.1 trillion in MBS holdings remain completely unhedged? As we have recently been told by the FOMC, it is content to let the New York Fed replace all its MBS securities with Treasurys, as the former are gradually paid down. So, we'll probably never know the hit the Fed took to support the entire MBS market in 2009. However, at some future date to great fanfare, it can point to its poster child, Maiden Lane, as an example of how it recovered 100 cents on the dollar for us.