Risky Securities Are Fashionable Again

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Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc., speaks at the CARE conference in Washington, D.C., U.S., on Wednesday, March 9, 2011. Blankfein agreed to be a prosecution witness in Galleon Group LLC co-founder Raj Rajaratnam's insider trading trial this week, said a person briefed on the matter. Photographer: Andrew Harrer/Bloomberg via Getty Images
Photo: Bloomberg/2011 Bloomberg

This headline is not from 2007: "Wall Street Places Big Bets on Troubled Securities." It is from today. As DealBook reports, Goldman Sachs won a hot Fed auction for $6.2 billion worth of AIG securities. There is "renewed interest in mortgage-related investments and other risky securities at the center of the financial crisis." And Goldman seems to be driving that interest.

In January, Goldman approached the New York Fed, offering to buy a chunk of assets from Maiden Lane II that had a face value of $7 billion. The Fed subsequently held an auction for the bonds, with Credit Suisse emerging as the top bidder.

Credit Suisse quickly sold off the securities to clients, including hedge funds and other banks. Given the strong demand, the Swiss financial firm submitted an unsolicited bid to the New York Fed for another portion of A.I.G. assets, prompting the latest auction.

The auction attracted Barclays Capital, Morgan Stanley and the Royal Bank of Scotland, according to the Fed’s statement. Ultimately, Goldman won out with a bid of an unspecified sum.

Does this terrify you a little bit? It doesn't seem to terrify the New York Fed's president, William C. Dudley, who said in a statement "I am pleased with the continued interest in these assets." Nor does it terrify Evan Lorenz, an analyst whom DealBook quotes dispensing Wall Street folk wisdom,"There’s a saying: there are no bad bonds, there are just bad prices."  Ummmm.