Courtesy of Pam Martens.
Carl Icahn Blames Janet Yellen and BlackRock for Junk Bond Problems in This Cartoon In His Video
Last week we saw shades of 2007 with both a hedge fund and junk bond mutual fund halting the ability of investors to withdraw funds. An additional credit hedge fund announced it is shutting down. The problem this time around is a dearth of liquidity (read buyers’ strike) for junk bonds. In 2007 the problem was subprime mortgage backed securities and related derivatives.
On June 7, 2007, long before anyone recognized that they were in the first inning of what would become the epic financial crash of 2008, Bear Stearns quietly sent a letter to investors in its High-Grade Structured Credit Strategies Enhanced Leverage Fund, telling them it was suspending the ability of investors to withdrawal their money from the hedge fund because the “investment manager believes the company will not have sufficient liquid assets to pay investors.”
The following month, Bear Stearns wrote to investors in that fund as well as a sister fund, telling them there was “effectively no value left” in the first fund and “very little value left” in the second fund. Both funds had loaded up on bonds and/or derivatives related to the subprime mortgage market.
By August of 2007, there were further growing signs that the subprime market had no bids for its toxic waste. BNP Paribas, the large French bank, announced it was halting the ability of investors to withdraw their money from three of its investment funds because it couldn’t value their holdings. The funds had declined 20 percent in less than two weeks.
By September of 2007, there was a run on a UK bank, Northern Rock, which had subprime mortgage exposure, and by October, Wall Street mega banks Citigroup, JPMorgan Chase and Bank of America were announcing plans to create a “Super SIV” rescue fund to provide market liquidity. That plan eventually fell through. By September of the following year, century-old iconic names were blowing up across Wall Street and the only rescue fund big enough to bail out everybody in line with their hand out was the taxpayer-backstopped U.S. government and Federal Reserve.
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