With tax payers on the hook for just about every corporate failure in this nation I guess I should not be surprised by this one bit.

One of the biggest losers in the Extended Stay bankruptcy filing may be the Federal Reserve or, more generally, U.S. taxpayers.

The Federal Reserve holds $744 million of various junior classes of debt and $153 million in the senior debt that the central bank assumed after the collapse of Bear Stearns, which held a sizable amount of the hotel chain’s debt.

The losses are mounting for the Fed on those Bear Stearns assets, which continue to sour. Extended Stay loans were held on the Fed’s balance sheet via a company called Maiden Lane that the central bank lent $29 billion in June 2008 to purchase $30 billion of Bears’ assets. J.P. Morgan invested $1 billion in Maiden Lane.

Maiden Lane’s value had fallen to about $26 billion as of March 31 and is likely to fall further because the assets include securities backed by shaky Alt-A residential mortgages and commercial real-estate loans tied to companies in industries hit by the recession, such as a $4 billion of debt in Blackstone Group’s $26 billion buyout of Hilton Hotels in 2007.

The losses so far also mean that J.P. Morgan would likely lose its $1 billion investment if Maiden Lane’s assets were sold today. (The assets are held to reflect the current market value. A senior Fed official said the central bank has been advised that if it were to hold its Maiden Lane assets to maturity, it might not book any losses.)

As the assets inherited from Bear continue to wither in value, the question naturally arises, will the federal government step in to preserve its investment. It did with Chrysler. The Treasury Department loaned it $4 billion and then proceeded to orchestrate the auto maker’s bankruptcy proceedings?[...] Source: Deal Journal

Extended Stay Bankruptcy – Tax Payers Lose is a post from: Rebel Traders - Stock Market and Economic Analysis