Bailout How Washington Abandoned Main Street Good Reads

Past Pam Martens and Russ Martens: October 1, 2020 ~

John Williams, President of the New York Fed

The New York Fed, the unlimited money spigot in times of demand by Wall Street'southward trading houses, has been conducting meetings with hedge funds to go their input on the markets. More on that in a moment, merely offset some necessary background.

Millions of Americans have seen the movie The Large Short, based on the Michael Lewis bestselling book by the same name. A key character in the moving picture is Mark Baum, played by Steve Carell. The graphic symbol is based on Steve Eisman, who, during the fiscal crisis of 2008, was employed at FrontPoint Partners LLC, a hedge fund unit of Morgan Stanley. As widely acknowledged, FrontPoint was shorting subprime residential mortgages that were packaged into CDOs (Collateralized Debt Obligations). Shorting means to brand a bet that a financial instrument will lose value. FrontPoint was, in fact, hoping American homeowners would be foreclosed on and their subprime mortgages would become worthless.

But here's what else FrontPoint was shorting. Lewis writes in his volume that during the financial crisis Eisman, while at FrontPoint, "shorted Banking company of America, along with UBS, Citigroup, Lehman Brothers, and a few others." Lewis notes further that "They weren't immune to short Morgan Stanley because they were owned by Morgan Stanley, merely if they could accept, they would have."

The New York Fed was in charge of well-nigh all of the secret $29 trillion in bailouts during the 2007 to 2010 financial crisis. Congress never approved these loans or was even aware of where the money was going. Later the Fed lost a multi-twelvemonth court battle to keep its bailouts a dark underground from the American people, we learned that Morgan Stanley was ane of the largest recipients, receiving a cumulative total of $2.04 trillion co-ordinate to the audit conducted by the Authorities Accountability Office (GAO).

Cached deep in the GAO audit is this bombshell:

"Morgan Stanley funds include TALF borrowing by funds managed by FrontPoint LLC, which was owned past Morgan Stanley at the time TALF operated."

TALF was 1 of the Fed's bailout programs. Which means the Fed was subsidizing FrontPoint with super cheap funding every bit information technology was shorting the hell out of the very banks that the Fed was badly attempting to prop upwards with trillions of dollars in secret loans.

How viable was Morgan Stanley at the time the Fed was flooding it with emergency lending? According to the Fiscal Crisis Inquiry Commission report, both Lehman Brothers and Morgan Stanley had reached leverage ratios of 40:i past the end of 2007 – "significant for every $40 in avails, there was only $1 in uppercase to cover losses. Less than a 3% driblet in asset values could wipe out a firm."

Neil Barofsky, the former Special Inspector General of the Troubled Asset Relief Program wrote a volume almost the crunch titled: Bailout: An Within Business relationship of How Washington Abandoned Chief Street While Rescuing Wall Street. Barofsky writes in the volume that then Treasury Secretary Hank Paulson told him "that he believed Morgan Stanley was just days away from collapse, and Ben Bernanke, the chairman of the Federal Reserve, similarly confided that he believed that Goldman Sachs would accept been the side by side to go. After that, all bets on the country's financial organisation would have been off."

Which brings us to today. The New York Fed is back in accuse of a vast roster of emergency lending facilities. It won't provide information on to whom or how much information technology has loaned individually in 3 of those facilities: the Primary Dealer Credit Facility; the Commercial Newspaper Funding Facility; and the Coin Market Mutual Fund Liquidity Facility.

On superlative of those facilities, get-go on September 17, 2019 – months earlier the first case of COVID-19 was reported in the United states – the New York Fed embarked on a massive emergency repo loan performance, which had reached $6 trillion cumulatively in loans by Jan 6. (See Federal Reserve Admits Information technology Pumped More than $6 Trillion to Wall Street in Recent Six Week Period.) The Fed has provided data on the total amounts of the daily loans, but not the names of the recipients. All it will say is that the loans are going to its 24 primary dealers, which are the trading units of the big banks on Wall Street. The last time nosotros tallied its data in March, it had sluiced over $9 trillion cumulatively to these trading houses.

According to a research study released in December past the Banking company for International Settlements (BIS), 4 large banks and hedge funds were responsible for the repo blowup in September.

Which brings u.s. to the New York Fed's Investor Advisory Committee on Financial Markets (IACFM) which it initiated in the midst of the last fiscal crisis on July 24, 2009. Today, half of the Committee'due south participants are executives of giant hedge funds, including: William A. Ackman, Chief Executive Officer, Pershing Square Capital letter Management, 50.P.; Paul Tudor Jones, Co-Chairman & Chief Investment Officer, Tudor Investment Corp.; Ray Dalio, Chairman & Co-Chief Investment Officeholder, Bridgewater Associates, LP; Dawn Fitzpatrick, Primary Investment Officeholder, Soros Fund Management; Bob Jain, Co-Chief Investment Officer, Millennium Management; Scott Minerd, Global Chief Investment Officer and Managing Partner, Guggenheim Partners.

The group meets quarterly. The minutes are so scrubbed that they barely provide any idea of what was actually discussed. The October 9, 2019 meeting minutes, which followed the onset of the New York Fed's massive repo loan operations, contains this well-scrubbed assessment:

"They [the participants] likewise noted that the Fed repo operations had alleviated funding strains, though they remained focused on yr end pressures. Some of these attendees idea that over fourth dimension some investors may set up aside cash to deploy in the effect of a reoccurrence of funding pressures, which may also mitigate some of these pressures in the hereafter."

Since the Fed's inception in 1913, the statutory role of the Federal Reserve has been to serve as lender of last resort to commercial banks – and so that those commercial banks could help the overall economy by making sound business and consumer loans. The statutory function of the Fed has never been to be a lender of terminal resort to the trading houses on Wall Street or hedge funds. But start with the 2007 to 2010 fiscal crisis, the New York Fed has just arbitrarily decided to provide an unlimited money spigot to Wall Street'south trading houses whenever they are at risk of blowing themselves up as a result of their ain hubris.

To say that Congress has been negligent in reining in this abuse barely captures the reckless irresponsibility of what the New York Fed has been allowed to continue to practise with barely a whimper from Congress or mainstream media. For merely a sampling of its captured regulator status, see the related articles below.

Related Manufactures:

These Are the Banks that Own the New York Fed and Its Coin Push button

New York Fed's Repo Loans Are Foaming the Hedge Fund Runways

New York Fed Considering Becoming Saccharide Daddy to Hedge Funds as their Distress Grows

The New York Fed Is Exercising Powers Never Bestowed on It past whatsoever Law

Instead of Draining the Swamp, the Swamp Is Draining the U.Due south. Treasury via the New York Fed

New York Fed Has Allowed Dangerous Wall Street Banks to Take Lower Loan Loss Reserves than at time of 2008 Crash

The Man Who Advises the New York Fed Says It and Other Central Banks Are "Fueling a Ponzi Marketplace"

Here's Why the New York Fed Doesn't Desire You to See a Photo of Its Wall Street-Esque Trading Floor

Forex Guilty Pleas and the New York Fed'due south Blinders

As Citigroup Spun Toward Insolvency in '07- '08, Its Regulator Was Dining and Schmoozing With Citi Execs

New Documents Prove How Power Moved to Wall Street, Via the New York Fed

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Source: https://wallstreetonparade.com/2020/10/the-new-york-fed-pumping-out-more-than-9-trillion-in-bailouts-since-september-gets-market-advice-from-giant-hedge-funds/

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