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Pam and Russ Martens: NY Fed, pumping out trillions in bailouts, gets advice from hedge funds
By Pam and Russ Martens
Wall Street on Parade
Thursday, October 1, 2020
The New York Fed, the unlimited money spigot in times of need by Wall Street's trading houses, has been conducting meetings with hedge funds to get their input on the markets. More on that in a moment, but first some necessary background.
Millions of Americans have seen the movie "The Big Short," based on the Michael Lewis bestselling book by the same name. A key character in the movie is Mark Baum, played by Steve Carell. The character is based on Steve Eisman, who, during the financial crisis of 2008, was employed at FrontPoint Partners LLC, a hedge fund unit of Morgan Stanley.
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As widely acknowledged, FrontPoint was shorting subprime residential mortgages that were packaged into collateralized debt obligations (CDOs). Shorting means to make 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 book that during the financial crisis Eisman, while at FrontPoint, "shorted Bank of America, along with UBS, Citigroup, Lehman Brothers, and a few others." Lewis notes further that "they weren't allowed to short Morgan Stanley because they were owned by Morgan Stanley, but if they could have, they would have."
The New York Fed was in charge of almost all 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. After the Fed lost a multi-year court battle to keep its bailouts a dark secret from the American people, we learned that Morgan Stanley was one of the largest recipients, receiving a cumulative total of $2.04 trillion according to the audit conducted by the Government Accountability Office (GAO).
Buried deep in the GAO audit is this bombshell:
"Morgan Stanley funds include TALF borrowing by funds managed by FrontPoint LLC, which was owned by Morgan Stanley at the time TALF operated"”
TALF was one of the Fed's bailout programs. Which means the Fed was subsidizing FrontPoint with super-cheap funding as it was shorting the hell out of the very banks that the Fed was desperately attempting to prop up with trillions of dollars in secret loans. ...
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