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Did The Fed Also Bail Out A Hedge Fund In The Crisis?

Tyler Durden's picture




 

The short answer: if it did, the Chairman is unaware of it. Or is he? [Laughter]

From the December 16 2008 meeting transcript:

MR. LOCKHART. Regarding financial markets, I would just comment that the pressures on the hedge fund sector have clearly not abated and may be intensifying. Over the weekend we picked up rumors of a Fed intervention that has not been discussed here, so I presume that it was just a rumor. Nonetheless, rumors were circulating that a major hedge fund group was about to collapse and that our people were “in,” so to speak, over the weekend. As Bill mentioned yesterday, the Madoff scandal certainly has not helped the picture regarding hedge funds.

 

Regarding risks, it is not my baseline scenario, but the risk of deflation obviously cannot be ignored, and the apparent speed of disinflation is quite a concern. The Atlanta staff prepared several forecast scenarios, and there were some plausible downside scenarios that really were quite ugly.

 

So to preview later comments, I think the balance of risks at this point is decidedly to the downside and justifies a trauma-management approach—or, in more normal terms, a risk-management approach—of acting aggressively at this meeting. Thank you, Mr. Chairman.

 

CHAIRMAN BERNANKE. Thank you, and if there has been any intervention in hedge funds, the Chairman is unaware of it. [Laughter.]

 

MR. LOCKHART. I am relieved to hear that.

 

MR. FISHER. He just wanted you to know about it, Mr. Chairman.

 

MR. LACKER. You said “has been”? [Laughter]

Funny?

 

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Fri, 02/21/2014 - 13:34 | 4462345 Cdad
Cdad's picture

Maybe....maybe it wasn't a good idea to release these transcripts?   

 

Fri, 02/21/2014 - 13:36 | 4462355 StacksOnStacks
StacksOnStacks's picture

They don't give a fuck!  Sometimes I think it's an inside joke on how bad they can fuck the people over before something actually happens.

Fri, 02/21/2014 - 13:42 | 4462369 BaBaBouy
BaBaBouy's picture

TODAYs TOP NEWS...

Bundesbank Admits GOLD = Money: We also could and should ask ourselves whether Thiele’s statement “I saw myself how our money is stored there in the vault” was a Freudian slip? Or whether somebody at BuBa –after decades of denying– finally has come to the goldbugs´ ultimate conclusion “gold = money“?!

 

AND ...

Implicit Admission By Germans That FED CANNOT Cough Up The Said 700Tonnes Of GOLD (WAIT 7 YEARS???) :

 “We now consider ourselves bound to the new gold storage plan [from 2013 – repatriation of 700 tons by end 2020].”

Fri, 02/21/2014 - 13:45 | 4462389 Mr. Chairwoman
Mr. Chairwoman's picture

Unusual accomodation has saved the middle class! [Laughter]

Fri, 02/21/2014 - 14:49 | 4462644 Divided States ...
Divided States of America's picture

Man I would dream to be in a dark alley with that mother fucker Benny boy one day....just that Zionist fuck and me.

Fri, 02/21/2014 - 15:33 | 4462794 Soul Glow
Soul Glow's picture

Section 2 Paragraph (b) -

The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.

President's Working Group on Financial Markets:

http://www.archives.gov/federal-register/codification/executive-order/12...

Fri, 02/21/2014 - 18:46 | 4463469 thorgodofthunder
thorgodofthunder's picture

What does the man's religious beliefs have to do with anything you racist fool?

Fri, 02/21/2014 - 19:36 | 4463620 stu11
stu11's picture

I'm with you Thor.  How do fools like this link Jewry and corrupt, moneychanging thievery?  Go figure.

Fri, 02/21/2014 - 22:14 | 4464007 ptolemy_newit
ptolemy_newit's picture

dear stu,

I am not sure how they link that banking and corruption thing?

but as the world turns this "Link" thinking has become pandemic? how is that possible even wiith the ,edia and hollywood controlled?

just saying.

Mon, 02/24/2014 - 01:04 | 4469856 PhilofOz
PhilofOz's picture

So when did Zionism become a religion? If I call someone out as a marxist or a Communist does that now make me a racist? Idiot!!!

Fri, 02/21/2014 - 15:24 | 4462768 LMAOLORI
LMAOLORI's picture

 

 

Did we bail out a hedge fund (manialcal laughter not just one)

 

AIG Still Hedge Funds’ Most Beloved Stock

 

I suppose we will get hammered again because too many of you are living too long

 

AIG Has $832 Million Cost on Death Bets as Hedge Funds Gain 
Fri, 02/21/2014 - 14:06 | 4462485 RafterManFMJ
RafterManFMJ's picture

Boy, they sure to laugh a lot at the FED, don't they? One big series of giggles.  Laughing while the country burns.

Fri, 02/21/2014 - 14:21 | 4462545 kchrisc
kchrisc's picture

Beijing is storing it for them under a "come and get it" covenant.

 

"You got tungsten on my gold. You got gold on my tungsten..."

Fri, 02/21/2014 - 16:56 | 4463049 Cacete de Ouro
Cacete de Ouro's picture

What was the name of that hedge fund that the Fed bailed out in 1998 when it was short about 400 tonnes of gold, by absorbing its gold short position?

 

Myron Scholes: "eh.....eh..... dunno"

Robert Merton: "eh. what?......Beats me"

 

O, I remember now...it was Long Term....what do you call it?..... Capital Management - LTCM

Fri, 02/21/2014 - 13:52 | 4462417 mvsjcl
mvsjcl's picture

These are the scrubbed transcripts. Just imagine what the raw transcripts reveal.

Fri, 02/21/2014 - 14:23 | 4462554 kchrisc
kchrisc's picture

"Scrubbed" like a clean pig with lipstick on.

Fri, 02/21/2014 - 14:43 | 4462625 WillyGroper
WillyGroper's picture

Protocols Stack, protocols.

Fri, 02/21/2014 - 15:39 | 4462813 caShOnlY
caShOnlY's picture

The real joke are the assholes who vote thinking they can change things.  They are the same assholes that believe that america is a free market.....lolololol.

Fri, 02/21/2014 - 16:44 | 4463017 Againstthelie
Againstthelie's picture

The real idiots are those who believe that the masses could ever make useful decisions after the advances of psychological mass control in the last 30 years.

The whole thesis that the masses would know what is right or wrong, the whole democratic thesis that is built on it, seems to be nothing but a very clever scam. Just like the legacy hunter is adulating how intelligent his victim was, or the marriage swindler telling her, how beautiful she was.

Fri, 02/21/2014 - 13:36 | 4462356 seek
seek's picture

I suspect not releasing them, after having established a pattern of releasing them, would attract way more attention. Streisand effect and all that.

Fri, 02/21/2014 - 13:40 | 4462371 VD
VD's picture

they laugh because they break the law; it'd b funny if they were all jailed for BREAKING THE LAW AND THE MARKETZ!

Fri, 02/21/2014 - 14:27 | 4462567 kchrisc
kchrisc's picture

"Jailed?!" Who said anything about being "jailed?!"

 

"I saw a guillotine the other day in good condition with low cuts. Only used by a little old-lady on Sunday."

Fri, 02/21/2014 - 15:05 | 4462649 Ham-bone
Ham-bone's picture

Who will buy all those Treaury's now the Fed is tapering??? Those Treasury's that allow US to run these deficits and service debt so cheaply???

Given that the pendulum of "foreign" / Fed vs. domestic (US non-Fed) purchases of Treasury debt has become so skewed and so dependent upon these "foreigners" to maintain their purchasing in the wake of the Fed's taper(s), seems a good time to determine who will buy the new issuance and who will rollover all that existing debt.  And why.

Background
US has $17.3 T in Treasury debt. 

$5 T is in intra-government debt (SS and the like).  This portion is barely increasing as SS surpluses have ceased but the government will continue to roll this over without any issues.

That leaves $12 T in public outstanding debt.

Nearly $2 T is in ultra short duration Bills that can be viewed almost as a cash substitute.  These are held by institutions and the like and although yielding nothing to next to nothing (and very vulnerable in an interest rate shock) are likely to continue to find a home as a cash substitute. 

That leaves $10 T in Notes / Bonds (plus TIPS) comprising all the medium to long term (over 1yr to 30yr) Treasury debt.  This debt was primarily held by domestic buyers up to '00 (pensions, insurers, etc.) but since that time to now, this has radically changed.

Reliant on the good will of "Foreigners"

While the public outstanding debt has increased from $3 T in '00 to $12 T+ now, the total amount owned by domestic sources has remained relatively unchanged.  So, if $9 T in debt was added and relatively no more was purchased by American sources, who bought it?  "Foreigners" and the Fed combined to purchase approximately 80%-90% of the increase of Notes / Bonds.  "Foreigners" now hold $5.6 T and the Fed $2.25 T in Notes / Bonds...or in other words, they hold $7.85 T of the $10 T medium/long term US debt. 

The Fed's motivation is clear but why "foreigners" have bought and continue to buy and hold ever greater amounts of ever lower yielding US debt that is sure to be paid back in devalued US currency is a vexing question?

Some may do it to weaken their currency or park large dollar trade surplus'.  However, Luxemboug, Belgium, Ireland, Singapore, etc. etc. are truly mysterious gigantic holders of Treasury debt.

Now that the Fed has begun it's taper and for sake of argument will continue to fully taper to zero monthly purchases and ultimately will stop rolling over the $2.25 T in Treasury's it currently holds (consider this a theoretical exercise...but maybe not).  Who will buy these $10 T and still growing US Treasury Notes/ Bonds?  Domestic buyers have shunned these Treasury's due to their extremely low yields and purchased relatively more attractive options.  Absent yields moving up significantly above inflation, domestic buyers will maintain their boycott.

This leaves "foreigners" to rollover their $5.6 T and buy nearly all new issuance ($500 B + annually @ the minimum) and subsequent to the Fed's taper, begin buying up the $2.25 T of notes/bonds the Fed will not continue rolling over.  What is being suggested is that "foreigners" will grow from the current 50%+ and become 80% to 90% owners of all medium/long term US debt.  And the suggestion is they will continue to buy despite yields remaining low and despite the $ becoming an ever lower % of global trade as Euro and Yuan based trade continues increasing. 

Who are these benevolent "foreigners"?  According to the Treasury's TIC report, ”foreigners” is simply the term TIC applies to Treasury’s purchased / held in “overseas custody accts", the data is provided by US based “custodians”, data “may not be attributed to actual owners”, and ”data may not provide “precise” accounting”… (see TIC FAQ #7 at: http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/ticf…).

In essence, the TIC report explains how many Treasuries are purchased and when and where they were purchased (Belgium, HK, China, Canada, etc.) but does not claim knowledge of "who" (or that who's nationality) purchased the Treasury's.  To wit, a German or Japanese or American can purchase Treasury's in Canada or Luxembourg or the UK and these purchases are attributed to the country where the purchase occurred, not the nation of the purchaser. 

So What???

The “red flag” in this was the Fed tapering. The Fed in it’s recent QE3 were buying nearly all medium term Notes / Bonds issued (up to their 70% limit) plus significant % of rollovers.  But on their stated exit from QE, “Foreigners” who double the Fed’s total holdings, should have seen rates would be rising and prices falling absent this buyer…typical “investors” would have been selling to front run the Fed’s exit. The Fed would have known this taper would cause a rate shock. But no selling…no yields to the moon. Rather “foreign” holdings have hit a new record high as of December.  Seems these “foreigners” are not typical “investors” and upon the exit from the “market” of a buyer of 70% of issuance, they are unconcerned. Typical “investors” would be concerned w/ the likelihood of losses. 

I have a sneaking suspicion that debt ravaged Ireland did not buy $106 B in Treasuries since ’08. And Norway did not add $77 B, nor did Belgium add $244 B since ’08…and on and on. I don’t doubt the Treasury’s were purchased nor that the purchase occurred in these locations…I simply question where the money came from and who actually owns these?

I believe there is a good likelihood of a shadow QE at least as large as the on the books QE and maybe this shadow QE is double the size of “QE”. Whether this is via currency swaps, ESF, Fed authorized agents, or whatever manner…there are likely many more dollars than acknowledged to maintain a “market” for ever more US treasury debt @ ever lower yields. This would also seem consistent w/ collapsing velocity of money since new money isn’t loaned or multiplied…just conjured and retired. 

Tell me why this is crazy, impossible, unlikely, or whatever.  Just don't tell me you agree with me.  Let's try to deconstruct this notion.  Thanks.

Fri, 02/21/2014 - 15:10 | 4462715 Ham-bone
Ham-bone's picture

Cheatsheet to "foreign" Treasury ownership / trends

Global

              $1 T  --->  $1.6 T ---> $5.6 T

 

 

ASIA

China $60 B  --->  $400 B ---> $1.27 T

Japan $315 B --->  $600 B ---> $1.18 T

Taiwan $35 B --->  $38 B  ---> $182 B

HK       $39 B --->  $52 B  ---> $159 B

Singapore $30 B->  $30 B  ---> $86 B

India      <$5 B -->  $15 B  ---> $69 B

Thailand $13 B ->  $16 B  ---> $52 B

TOTAL   $497                         $3 T (600% increase, '00-'13)

 

 

AMERICAS

Brazil <$5 B  --->  $54 B  ---> $245 B

Canada $15 B  ---> $28 B  ---> $56 B

"Carribean banking centers"

        $      35 B ---> $68 B  ---> $291 B

TOTAL  $55 B                    $592 B  (1100% increase)

 

 

MENA

"oil exporters" 

        $45 B ---> $112 B ---> $238 B  (500% increase)

 

 

EUROPE

Russia <$5 B --->  $9 B   ---> $139 B

Norway  <$5 B ---> $20 B  ---> $97 B

UK    $50 B  --->  $100 B ---> $164 B

Switzerland $18 B> $34 B  ---> $175 B

Turkey <$5 B  ---> $25 B  ---> $52 B

TOTAL    $83 B                       $627 B  (750% increase)

 

 

BANKING EURO

Ireland $5 B --->  $19 B  ---> $125 B

Belgium $28 B -->  $13 B  ---> $257 B

Luxemburg <$5 B-> $60 B --> $134 B

TOTAL    $38 B                         $516 B  (1350% increase)

 

 

CORE EURO

Germany $54 B ---> $50 B ---> $67 B

Italy      $20 B   ---> $14 B ---> $30 B

Netherland $13 B-> $15 B ---> $37 B

France   $27 B  ---> $10 B ---> $54 B

Spain    $20 B   ---> $<5 B ---> $23 B

TOTAL   $134 B                   $211 B  (57% increase)


BANKING CENTERS

"Carribean banking centers"

        $      35 B ---> $68 B  ---> $291 B

Switzerland $18 B> $34 B  ---> $175 B

HK       $39 B --->  $52 B  ---> $159 B

Singapore $30 B->  $30 B  ---> $86 B

Ireland $5 B --->  $19 B  ---> $125 B

Belgium $28 B -->  $13 B  ---> $257 B

Luxemburg <$5 B-> $60 B --> $134 B

TOTAL    $160 B                    $1227 (767% increase)

Fri, 02/21/2014 - 15:59 | 4462876 LMAOLORI
LMAOLORI's picture

 

 

Some foreigners can't seem to get enough of the love

 

FOREIGN HOLDINGS OF US TREASURY DEBT HIT RECORD

 

snip

 Feb. 18, 2014 

The Treasury Department says total foreign holdings rose 1.4 percent in December to $5.79 trillion, surpassing the old record set in March of $5.73 trillion. 

Sat, 02/22/2014 - 00:56 | 4464381 kchrisc
kchrisc's picture

Great analysis. Probably some kind of shadow/backdoor QE.

 

Fri, 02/21/2014 - 13:37 | 4462361 alphamentalist
alphamentalist's picture

We are receiving unconfirmed reports of a bearded Keynesian perched on the edge of the JPM tower. [laughter]

Fri, 02/21/2014 - 13:38 | 4462363 fonzannoon
fonzannoon's picture

why not just make up a fake transcript? they had 5 years. i could have written one up for them in 15 minutes. 

Fri, 02/21/2014 - 13:42 | 4462376 pods
pods's picture

"The reason there is no transcript for the day in question is that the stenographer was not available due to 2 for 1 genny cream ales and all you can eat Hot Pockets the night before at her dart league."

:)

pods

Fri, 02/21/2014 - 13:45 | 4462388 BandGap
BandGap's picture

Fucking Little Kings 7 oz. two for $0.50 almost did me in after softball league one night. I could give her a pass on this one.

Fri, 02/21/2014 - 14:31 | 4462578 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

Fucking Little Kings 7 oz. two for $0.50 

That works out to like -- two bucks per gulp!  <sarc />  

I actual miss Schoenling's a little bit from time to time.  It never really took off on the West Coast.

Fri, 02/21/2014 - 13:53 | 4462415 Urban Redneck
Urban Redneck's picture

Why bother?

What does the average American care?

Are the average person even capable of comprehending the implications if he or she bothered to read the transcript?

What are the chances that an individual's preferred flavor of Ministry of Truth KoolAid will make him a danger to the status quo?

Fri, 02/21/2014 - 14:01 | 4462455 the question
the question's picture

Why even suggest the idea? Is lying the most natural thing in the world in everyone's minds now?

Fri, 02/21/2014 - 13:38 | 4462364 TeamDepends
TeamDepends's picture

What a chuckle-fest!  Your tax dollars at work.

Fri, 02/21/2014 - 14:15 | 4462520 BeepBeepImAJeep
BeepBeepImAJeep's picture

It's ALL your dollars at work.

Fri, 02/21/2014 - 13:41 | 4462375 Johnny Cocknballs
Johnny Cocknballs's picture

@ Schwab?

Fri, 02/21/2014 - 13:43 | 4462380 BandGap
BandGap's picture

And in some cases we didn't require lubrication! [laughter]

Fri, 02/21/2014 - 13:45 | 4462391 alfred b.
alfred b.'s picture

 

     I'm waiting for that news to come up on cnbs!

 

Fri, 02/21/2014 - 13:46 | 4462401 adr
adr's picture

SO what I took from all of this shit was that anything getting cheaper was the biggest problem the Fed saw.

Inflation was to be ramped up at all cost. Deflation was God incarnate, (because we all know the Fed heads worship the Devil).

SO the printers were turned on to keep the Global Ponzi going, because deflation would have destroyed fractional reserve banking.

Fri, 02/21/2014 - 13:48 | 4462404 Payne
Payne's picture

What is interesting is that the rumors get out and are possibly corroborated years later.

Fri, 02/21/2014 - 13:51 | 4462410 adr
adr's picture

Me in courtroom: If there has been any heads chopped off Bankster bodies, I am unaware of it.

Jury: We are relieved to hear that. [laughter]

Fri, 02/21/2014 - 13:50 | 4462411 ArkansasAngie
ArkansasAngie's picture

Yup lying to the American public is funny stuff

Fri, 02/21/2014 - 13:51 | 4462412 Soul Glow
Soul Glow's picture

Plausible deniability [laughter].

Fri, 02/21/2014 - 17:05 | 4463105 Cacete de Ouro
Cacete de Ouro's picture

The Germans think their gold is stored down in the vault and that the compartment is full all the way back. That little gold wall is just for the tourists [laughter]

Fri, 02/21/2014 - 13:52 | 4462418 NRGIsFree
NRGIsFree's picture

Post 2008 crisis.. after hours of private meetings. The "Fed" emerged and Ben stated, "We have developed the tools we need to manage interests rates, to tighten monetary policy." I think a tool is two things. One, the ability to through unlimited amounts of dollars at anything without oversite. Two, anyone who believes a word of what they say.

Fri, 02/21/2014 - 14:00 | 4462440 nmewn
nmewn's picture

..."and that our people were “in,” so to speak, over the weekend."

Sooo, ummm, does the chairman acknowledge "his people" were in over the weekend to stave off a major hedge fund collapse...or not? They are "his people", yes?

Ahhh but of course, huge bureaucracy and all that, the chairman can't possibly know every small, minute detail of every day...like a major hedge fund on the verge of collapse and whether "his people" were running around inside the Eccles Building with their hair on fire or not...on a weekend.

Clearly this calls for tighter security at the ole front desk or at least reviewing a few cell phone records...lol.

 

 

Fri, 02/21/2014 - 14:01 | 4462456 Soul Glow
Soul Glow's picture

Even if the rumor wasn't true, now we know they have people and that thoes people go in, as in the markets.

Fri, 02/21/2014 - 14:03 | 4462466 yogibear
yogibear's picture

The only thing that will crush the Fed will be a loss of the reserve currency status. And that's well on it's way.
Countries are moving away from the petro-dollar. Fewer countries accepting the US dollar. 

Fri, 02/21/2014 - 16:16 | 4462929 optimator
optimator's picture

Can't even imagine what a full audit would disclose.

Fri, 02/21/2014 - 14:05 | 4462481 Glass Seagull
Glass Seagull's picture

 

 

WHAT THE FUCK IS WITH ALL THE LAUGHING?!?!?

Fri, 02/21/2014 - 14:08 | 4462493 Bangin7GramRocks
Bangin7GramRocks's picture

Could it have been SAC? It would make sense considering the firm that he runs and founded, that is named after him was found guilty of 2 decades of insider trading and he escaped unscathed. Maybe his Fed insider information was the ultimate get out of jail free card.

Fri, 02/21/2014 - 14:09 | 4462495 economists_do_i...
economists_do_it_with_models's picture

I would like them to clarify who "our people" are.

The Fed represents the banks, right?  And they were getting bailed out anyway.  So any losses would be covered -- outside hedge fund investment losses or otherwise.

Therefore, "our people" must mean someone else...

Fri, 02/21/2014 - 14:15 | 4462515 MarsInScorpio
MarsInScorpio's picture

The author of Hebrews observed of the prophets and fathers of the Tanakh: "They were just human, like us."

 

Too bad our culture fails to acknowledge that the criminals running the FED and its genre cousins, are just humans as well.

-30-

Fri, 02/21/2014 - 14:15 | 4462522 Bear
Bear's picture

A better question would be ... "Who did they not bail out". I don't know of one major Wall Street firm that was not bailed out ... along with every other whore loving money grubbing sell side elitist.

Fri, 02/21/2014 - 14:22 | 4462547 hangemhigh77
hangemhigh77's picture

Are these guys from Sicily?

Fri, 02/21/2014 - 14:42 | 4462623 Toolshed
Toolshed's picture

Your question is an affront to all Sicilians everywhere.

Fri, 02/21/2014 - 15:04 | 4462695 CitizenPete
CitizenPete's picture

Tel Aviv

Fri, 02/21/2014 - 14:23 | 4462556 hangemhigh77
hangemhigh77's picture

I would bet they bailed out the whole fucking world. I bet they bailed out ALL the retailers. I mean come on these fucking stores are EMPTY and they have been for years.

Fri, 02/21/2014 - 14:37 | 4462606 farmboy
farmboy's picture

Must be Hedgefund manager Warren Buffy

Fri, 02/21/2014 - 14:45 | 4462628 ejmoosa
ejmoosa's picture

WTF would I even believe these are the actual transcripts?

Fri, 02/21/2014 - 15:01 | 4462682 villainvomit
villainvomit's picture

They sure are some arrogant fuckers, aren't they ?

Fri, 02/21/2014 - 15:08 | 4462684 CitizenPete
CitizenPete's picture

Why don't you cut these guys a freakin break? They're behind closed doors, amoungst co-workers, not directly in the public eye (or ear). It's not like they control the credit and prosperity of the entire free world or the livelyhood of millions of sheeple. "no weapons of mass destruction here.." (laughter)

Fri, 02/21/2014 - 15:09 | 4462710 Dr. Venkman
Dr. Venkman's picture

This is obviously staged knowing that these transcripts are published. Bernanke is not curious about this? No follow up required? nope, just get it on record that he doesn't know about it.

It is just like the transcripts discussing giving the major bank CEO's inside info regarding all of its manuevers. "Chairman, I heard that the NY Fed had already promised Dimon and Blankfein that we would take steps x, y, z. . .know anything about that? No? ok nevermind."

Fri, 02/21/2014 - 16:14 | 4462923 optimator
optimator's picture

With everything else they do would you be suprised if the edited the transcripts?

Fri, 02/21/2014 - 17:37 | 4463283 Dimons jock
Dimons jock's picture

a major hedge fund group was about to collapse and that our people were “in,” so to speak, over the weekend

aka = Lloyd

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