The Fed, Wall Street Prepare to Unleash Crisis 2.0 (Update 1)
NEW YORK ( TheStreet Ratings ) -- The Securities and Exchange Commission and AIG(AIG) accuse its manager of fraud, while Bank of America (BAC) and Bank of New York Mellon (BK) are fighting it in a multibillion lawsuit.
Now Federal Reserve Bank of New York is looking to send it back to Wall Street, where it will likely be broken up and sold to eager investors in spite of its notorious past.
That is the strange, bizarre world of the Triaxx.
While it may sound like a character from The Transformers , Triaxx is actually a collection "subprime" mortgages packaged into a vehicle called a collateralized debt obligation (CDO).
Vehicles like Triaxx are coming back in style as large, institutional investors look to juice fixed-income returns while corporate and U.S. debt yields hover near record lows. That's why the New York Fed said last week that it had received "several strong reverse inquiries for holdings" from Wall Street banks looking to sell the the high-yielding Triaxx assets and it plans to auction it off later this month.
Nine of the largest Wall Street banks -- including Citigroup(C) , Goldman Sachs (GS) and Morgan Stanley (MS) -- expressed interest in the Triaxx, the Fed statement said, and those banks will "invited" to bid on the assets.
Bank of America's Merrill Lynch unit was the winner of the auction, the Fed announced on Thursday.
"The winning bids, which were materially higher than the original prices
The sale of Triaxx is not a first for the Fed. The assets are being sold off as part of its plans to unload billions in toxic assets called "Maiden Lane." Maiden Lane was purchased from AIG during the height of the financial crisis and the sale is part of a bigger government auction of AIG debt taken on by the Fed. Last month the government successfully sold off the MAX CDO assets it a move that was applauded by industry watchers.
But unlike the other Maiden Lane assets already sold by the Fed, the Triaxx CDO is more of a notorious villain of the 2008 financial crisis and may present more of a challenge for banks looking to break it up and sell it off in pieces.
Triaxx hit the market in 2006 as an AAA-rated security that was reportedly sold to investors as having little subprime exposure. Three years later the CDOs were cut to junk status after the subprime market collapsed and it was discovered the vehicle was filled with bad and allegedly misplaced home loans.