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Thursday, March 28, 2024

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

Courtesy of Pam Martens

John Williams, President of the Federal Reserve Bank of New York

John Williams, President of the Federal Reserve Bank of New York

It’s apparently not enough of a billionaire subsidy for the U.S. Treasury’s Internal Revenue Service to give a monster tax break to hedge fund titans by allowing them to pay Federal taxes on the basis of “carried interest,” meaning that they have a special loophole to pay a lower tax rate than many school teachers, nurses and plumbers. Now, according to an article in the Wall Street Journal, the Federal Reserve is actually considering opening its super-cheap repo loan money spigot to hedge funds. It doesn’t get any crazier than this.

Morphing from a central bank mandated to set monetary policy on the basis of maximum employment and stable prices, to the lender-of-last-resort to the criminally-charged trading houses on Wall Street and now, potentially, to the insider-trading/Big Short hedge funds, the New York Fed has totally lost its way if not its mind. (Unless, as many suspect, the New York Fed is simply the poorly-disguised money puppet of the one percent.)

The talk of a hedge fund bailout comes at a time when multiple hedge funds and illiquid mutual funds have locked their gates, preventing investors from getting back their money. It also comes after a year of giant net withdrawals from hedge funds. Equally noteworthy, in the past two years over 1200 hedge funds have shut down according to Hedge Fund Research.

According to a report at eVestment which tracks hedge fund flows, investors pulled $29.37 billion from hedge funds in the third quarter of last year, bringing the total net outflows through the third quarter to an eyebrow-raising $76.86 billion. eVestment subsequently reported that another $6.20 billion was pulled in October, bringing the year-to-date total to $83.06 billion.

Those outflows come on the heels of multiple hedge funds suspending withdrawals by investors. In the month of December 2019, York Capital Management and Southpaw Asset Management set up gates that prevent clients from getting all of the money they have requested to withdraw. The Wall Street Journal’s Juliet Chung reported as follows two days before Christmas:

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