Excerpts from the depositions - Wall Street Journal
Excerpts from the depositions - Wall Street Journal
Excerpts from the depositions - Wall Street Journal
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Case 2:11-cv-10549-MRP-MAN Document 254-1 Filed 03/28/13 Page 21 of 35 Page ID<br />
#:16610<br />
• The loan to ML II was to be repaid by cash flows and asset sales—and nothing else.<br />
• “Q. The loan would be paid—would be repaid by virtue of cash flows <strong>from</strong> <strong>the</strong><br />
underlying mortgages within <strong>the</strong> residential mortgage-backed securities as one<br />
source, correct? A. Yes. Q. And <strong>the</strong> o<strong>the</strong>r source being <strong>the</strong> sale of those<br />
securities, correct? A. That’s right. Q. And that’s it, correct, as far as you<br />
understood it? A. I—yes. I don’t know how else Maiden Lane II would have<br />
gotten repaid.” 255:25–256:13.<br />
• The FRBNY and its advisors determined <strong>the</strong> price for AIG’s RMBS based on <strong>the</strong> value of<br />
<strong>the</strong> securities’ cash flows—and nothing else.<br />
• “A. [W]e had BlackRock run, using its own fair value process on <strong>the</strong> firm—<br />
on those same securities.” 60:16–19.<br />
• “Q. [T]he cash flows that you talked about coming out of <strong>the</strong> underlying loan<br />
pools, would be <strong>the</strong> cash flow that’s generated <strong>from</strong> [] <strong>the</strong> principal—principal<br />
payment of <strong>the</strong> mortgages, correct? A. Yes, They—it would be <strong>the</strong> underlying<br />
interest and principal payments that flow through <strong>the</strong> [underlying] mortgage<br />
pools as a result of just about any of <strong>the</strong> consumer behavior that generates<br />
cash flows out of mortgages.” 62:25–63:13.<br />
• “Q. So, to be clear, <strong>the</strong> price that was determined by <strong>the</strong> modelling to arrive at<br />
fair value was based upon modelling of <strong>the</strong> expected future cash flows generated<br />
by <strong>the</strong> underlying mortgages with some discount factor being applied back,<br />
correct, sir? A. That’s right. Q. And that’s what your understanding was in <strong>the</strong><br />
totality of how that market value pricing was arrived at, correct, sir? A. That’s<br />
right.” 67:10–20.<br />
• “Q. In your understanding, did <strong>the</strong> model that BlackRock used to determine fair<br />
value take into account any risk associated with possible fraud in <strong>the</strong> issuance of<br />
<strong>the</strong> securities? [Objection] A. I don’t believe it would have.” 225:22–226:6.<br />
• The FRBNY’s loan to ML II was fully secured by RMBS—and nothing else.<br />
• “Q. And in connection with <strong>the</strong> $85 billion credit facility that was extended to<br />
AIG on September 16 th , that credit facility, to your knowledge, was in compliance<br />
with 13.3; that is, <strong>the</strong> Fed believed that it was secured to its satisfaction? A. Yes,<br />
that’s correct.” 237:16–23.<br />
• “Q. And am I correct that <strong>the</strong> same 13.3 issues existed; that is, that <strong>the</strong> Fed had to<br />
be satisfied that <strong>the</strong> loan to Maiden Lane II was fully secured at least to <strong>the</strong> Fed’s<br />
satisfaction? [Objection] A. That’s right. Q. And in fact, once <strong>the</strong> loan was made,<br />
can we take that as <strong>the</strong> strongest indicia that <strong>the</strong> Fed was satisfied that it was fully<br />
secured to its satisfaction? [Objection] A. The—yes, we believed that we were<br />
secured to our satis—I believe we were secured to our satisfaction. Q. And<br />
that’s because you had a—‘you’ meaning <strong>the</strong> New York Fed, had a, as collateral,<br />
<strong>the</strong> assets of Maiden Lane II, correct? A. Yes. The RMBS that w[ere]<br />
purchased <strong>from</strong> AIG. Q. Okay. So, <strong>the</strong> residential mortgage-backed securities<br />
that had been sold into Maiden Lane II was <strong>the</strong> collateral that gave <strong>the</strong> New York<br />
EXHIBIT 3<br />
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