Deserted shopping mall bleak symbol of Fed bailout

By Alister Bull

OKLAHOMA CITY (Reuters) - A $29 billion trail from the Federal Reserve's bailout of Wall Street investment bank Bear Stearns ends in a partially deserted shopping center on a bleak spot on the south side of Oklahoma City.

The Fed now owns the Crossroads Mall, a sprawling shopping complex at the junction of Interstate highways 244 and 35, complete with an oil well pumping crude in the parking lot -- except the Fed does not own the mineral rights.

The Fed finds itself in the unusual situation of being an Oklahoma City landlord after it lent JPMorgan Chase $29 billion to buy Bear Stearns last year.

That money was secured by a portfolio of Bear assets. Crossroads Mall is the only bricks and mortar acquired through bailout. The remaining billions are tied up in invisible securities spread across hundreds, if not thousands, of properties.

It is hard to be precise because the Fed has not published specifics on what it now owns. The only reason that Crossroads Mall has surfaced is that it went into foreclosure in April.

Noah Diggs, who had just successfully concluded a search for work here as a shop assistant, was surprised and somewhat alarmed to learn the U.S. central bank now owned the property.

"That is a bad thing, right?" he said, surveying the empty parking lot on a rainy morning in early October.

Public anger over the bailout of rich Wall Street bankers has evolved into wider opposition toward government intrusion into the private sector, complicating President Barack Obama's efforts to reform financial regulation and healthcare.

The controversial action to save Bear Stearns in March 2008 was defended as less damaging for the U.S. economy than letting it fail. The merit of this argument was underscored in September 2008 when rival investment bank Lehman Brothers foundered, sparking a global financial panic.

But paper losses to the Fed on the Bear Stearns rescue stood somewhat above $3 billion at the last quarterly valuation in June, contributing to the disquiet that has hardened political opposition toward granting the Fed any more power.

This was a central part of Obama's proposed financial reform rules that he says would prevent in the future the kind of systemic failure that sent financial markets and the economy into a tailspin last year.

Part of the public concern stems from the sheer scale and complexity of the bailouts and what they will eventually cost taxpayers, with the assets shrouded in oddly named limited liability companies held by the New York Federal Reserve Bank, one of the 12 regional Fed banks in the U.S. central banking system.

On top of Bear Stearns, the Fed lent $60 billion to prop up insurance giant American International Group a few days after Lehman went under, and is also standing behind over $400 billion of assets owned by Citigroup Inc and Bank of America Corp.

In fairness, the Bear Stearns losses so far are relatively small compared to the size of the overall portfolio, or indeed the Fed's current overall balance sheet of $2.1 trillion.

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