AIG Toxic Debt Coming to a Money Fund Near You: Street Whispers

NEW YORK (TheStreet) -- Before congratulating the New York Federal Reserve on turning a profit on the bailout of insurer American International Group(AIG) and unloading billions of subprime debt back onto Wall Street bankers, think again.

You are likely going to own that once toxic paper in your sleepy money market fund in the near future.

New data from Fitch Ratings signals that the subprime securities removed from AIG's balance sheet via Maiden Lane II and Maiden Lane III as part of the 2008 bailout are being prepared by money managers for a return to the financial system, with big risks that touch main street investors and savers.

Both the U.S. government and AIG have been crowing over the success of Maiden Lane as part of the insurers' financial redemption, arguing the assets unloaded by AIG during the financial crisis and hoisted onto the New York Fed's balance sheet are a major triumph.

AIG will likely pitch the recent repayment of the Fed's bailout loans to investors as a success in its second quarter earnings due after the market close on Thursday. The Fed is also keen to note that it has already a realized net gain of nearly $4.5 billion on the sale of Maiden Lane loans to some of the biggest Wall Street banks like Goldman Sachs(GS) , Credit Suisse(CS) , Barclays(BCS) , Citigroup(C) , Bank of America Merrill Lynch(BAC) and Royal Bank of Scotland(RBS) .

But banks didn't hold onto those assets, which are made up of subprime residential mortgage backed securities RMBS and collateralized debt obligations CDO's. Instead, they broke them up, stripped them down and quickly sold them off.

And in the ever present ironic Wall Street circle of life, those assets are now moving into prime money market funds, who are accepting them as collateral for short term loans as they begin to add riskier and higher yielding securities to portfolios, according to Fitch Ratings.