dChan - Q Origins Project Archive

The New York Fed, Pumping Out More than $9 Trillion in Bailouts Since September, Gets Market Advice from Giant Hedge Funds

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. As widely acknowledged, FrontPoint was shorting subprime residential mortgages that were packaged into CDOs (Collateralized Debt Obligations). 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 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. 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.

How viable was Morgan Stanley at the time the Fed was flooding it with emergency lending? According to the Financial Crisis Inquiry Commission report, both Lehman Brothers and Morgan Stanley had reached leverage ratios of 40:1 by the end of 2007 – “meaning for every $40 in assets, there was only $1 in capital to cover losses. Less than a 3% drop in asset values could wipe out a firm.” Neil Barofsky, the former Special Inspector General of the Troubled Asset Relief Program wrote a book about the crisis titled: Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street. Barofsky writes in the book 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 have been the next to go. After that, all bets on the country’s financial system would have been off.”

moar

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/

Morgan Stanley was in WAYYYY worse shape in 2008 and duped the arabs into buyng in as equity holders. The best part was that they did not want to commit to a price per share knowing that MS was about to drop a huge bomb (loss) on Wall Street so they made the deal that kicked in after that announcement was made-it still did not stop the market makers from jamming the equity up further in spite of the huge loss it had announced. This made it even moar expensive for the deal that was made.

Morgan Stanley’s 2008 Crisis: How the Bank Lost $37 Billion

https://www.shortform.com/blog/morgan-stanley-2008/