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"Just Joshing, I Hope?"
From Josh Marshall on TPM:
The Fed has set up something called the TALF, the Term Asset-backed Securities Loan Facility, which will offer "low-cost three-year funding to any US company investing in securitized consumer loans" including hedge funds.
Says the Financial Times (reg.req.), "Since the credit crisis erupted, hedge funds have complained that they cannot get the leverage they need to arbitrage away excessive spreads and meet high hurdle rates of return."
This sounds more like a Saturday Night Live skit than a real news story. Unbelievable!
Not much different than getting mugged by a thug who then has the audacity to ask you for a ride home. Have these jackasses no shame at all?
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In theory it's a good idea. Right now the securitization markets are frozen. Not just toxic sub-prime mortgage related securitization but very plain vanilla loans backed by credit card receivables, car loans and student loans.
Right now banks (like Citi, BofA, JPM, etc) would lend to companies that want to buy these securitized products. So there are effectively no buyers in the securitization market.
The Fed is bypassing the banks and going to lend money directly to the buyers. Hopefully this unfreezes the ABS markets.
As long as the Fed can track that their loans to hedge funds or any other institution are actually being used to buy ABS products, then this seems to me to be a good idea. And the tracking of funds flows should be easy. It's not hard for the Fed to keep track of how much money it lends to a particular fund and it's easy for the fund to report back to the Fed which ABS products it has purchased.
The hedge funds aren't the "thugs" you refer to. They are not the ones who caused the housing mess we're in right now. They've survived this crisis much better (relatively) than the investment banks and commercial banks that are all teetering or being rescued.
December 21, 2008 12:03 PM | Reply | Permalink
You think it is good for the Fed to assist speculative arbitrage gambling?
December 21, 2008 9:06 PM | Reply | Permalink
Eds - what do you mean by speculative arbitrage gambling? Like I tried to say in my earlier post, these are plain vanilla securitizations (credit cards, auto loans, student loans) and there are currently no buyers in the marketplace. If you want to try to help consumers continue to have access to such loans, then it's important that the ABS market get back to normal.
This is not giving money to hedge funds to "prop them up". This is giving money to ANY financial institution (including hedge funds) that will use it to buy ABS paper.
These hedge funds did not "create" these securitized loans as someone has inferred.
And it's very easy for the Treasury to police how the hedge funds are spending their loan proceeds.
This has nothing to do with AIG.
There are lots of hedge funds that will go out of business this year. They were overleveraged and mismanaged. So it's good that the industry is downsizing. But the healthy institutions should get access to the loans IF the money is spent to buy ABS paper.
Happy to discuss but wanted to share my views
December 21, 2008 9:29 PM | Reply | Permalink
Everything becomes so complicated when experts discuss hedge funds. The NYT reports:
Internal documents from Fairfield show that the firm has taken more than $500 million in fees since 2003 alone from the money it placed with Mr. Madoff. Nearly all those fees went to a handful of Fairfield executives, including Walter M. Noel, Fairfield’s founder, who used the money to build a glamorous life, splitting his time between homes in New York, Connecticut, Florida and the Caribbean.
(ALEX BERENSON and ERIC KONIGSBERG
Published: December 21, 2008)
Those were some more money earned by capitalist bastards who have got to be made to pay that money back with interest.
December 22, 2008 1:33 AM | Reply | Permalink
Dickday - I agree that Madoff should be punished (and it sounds like he is). But neither Madoff nor Fairfield Greenwich are hedge funds so not sure what your post has to do with hedge funds being able to get loans from the government to buy TALF assets
December 22, 2008 8:40 PM | Reply | Permalink
you know i am getting sick and tired of this check your sources:
NYT 12/21/08 Since Bernard L. Madoff was arrested 11 days ago in connection with a $50 billion Ponzi scheme, the Fairfield Greenwich Group has portrayed itself as an unwitting victim of the fraud, the biggest of Mr. Madoff’s many losers.
Skip to next paragraph
Related
In Madoff’s Wake, Scrutiny of Accounting Firms (December 22, 2008)
Times Topics: Bernard L. Madoff | Ponzi Schemes
Clients of Fairfield, a secretive hedge fund advisory company based in Connecticut, lost $7.3 billion to Mr. Madoff’s fund. But for Fairfield, working with Mr. Madoff was hugely profitable.
Internal documents from Fairfield show that the firm has taken more than $500 million in fees since 2003 alone from the money it placed with Mr. Madoff. Nearly all those fees went to a handful of Fairfield executives, including Walter M. Noel, Fairfield’s founder, who used the money to build a glamorous life, splitting his time between homes in New York, Connecticut, Florida and the Caribbean.
As it raised money all over the world, Fairfield also made detailed pledges about how it would monitor and track Mr. Madoff’s investments, the documents show. Now, investors and regulators are sure to ask whether Fairfield made good on those promises — or whether it was a facilitator of the Madoff scandal as well as a victim.
Similar questions may arise for the dozens of banks and hedge funds around the world that reaped extraordinary fees for steering investments to Mr. Madoff over the last decade. None of them, however, earned more from their Madoff business than Fairfield did during the firms’ 20-year relationship.
Fairfield promised its investors that money could not be moved from its accounts with Bernard L. Madoff Investment Securities without two signatures. It said that it would independently calculate the value of the funds it invested at Mr. Madoff’s firm at least once a week. It promised to reconcile statements from individual trades with Mr. Madoff’s custodial records.
It is not clear what Fairfield did to make good on those pledges.
A spokesman for Fairfield, Thomas Mulligan, offered only a statement characterizing the firm as a victim of Mr. Madoff.
“Fairfield Greenwich Group is in the process of gathering and reviewing all of the factual information relevant to its having been defrauded by Bernard Madoff,” Mr. Mulligan said in a written statement. “It made efforts to verify the information it received from Madoff. Following its review, Fairfield Greenwich expects to be in a position to provide more specifics.”
Mr. Mulligan also said that Fairfield Greenwich, and its partners, had about $60 million invested with Mr. Madoff.
That sum, while significant, is less than 1 percent of the overall amount that the firm placed with Mr. Madoff, and barely 10 percent of the fees that Fairfield reaped since 2003 from its client investments with Mr. Madoff.
Fairfield raised money for Mr. Madoff mainly through a fund called Fairfield Sentry, which supposedly had $7 billion in assets by 2007. As it sought new investors for Fairfield Sentry, Fairfield highlighted its close control over the fund and the protections it would provide investors.
CLIENTS OF FAIRFIELD A SECRETIVE HEDGE FUND
DO NOT DARE TO CORRECT ME UNLESS YOU HAVE THE GOODS
December 22, 2008 9:02 PM | Reply | Permalink
see below
December 23, 2008 9:35 AM | Reply | Permalink
.
Uhhhh . . .
Mr. Bill. Go away.
The TPM Café does not need individuals such as you who post comments such as this.
~OGD~
December 21, 2008 1:00 PM | Reply | Permalink
These hedge fund guys are simply going to have to learn to generate returns with less leverage. Nothing else will help them. As far as their high watermarks go... they can either try to make up their losses before they get incentive fees again or they can close up shop and try to start over fropm the ground up. The government can't help with that.
December 21, 2008 1:22 PM | Reply | Permalink
Exactly, but that won't stop Paulson from trying. He has already thrown billions at the financial sector apparently without a clue as to who it might help other than the CEO's and shareholders of the Wall Street Investment Banks.
To now suggest that we pour billions more into propping up these hedge funds is perhaps the most prime example I can imagine of private profit and public risk. I recall that the King of these Masters of the Universe received $2.3 billion in compensation for his management of a hedge fund last year. Many of us questioned at the time how anyone could possibly justify that kind of exhorbitant reward for ANY human endeavor. "Hey! That's the free market at work!" we were told. "That's the upside to successfully managing all that risk."
Well, that "upside" infers that there is a downside, as well, and these bastards can choke on their billions for all I care as that lesson is driven home deep to us all.
At the very least, I do not have any faith at all that pouring money into these parasitic entities to relieve them of their exposure to the consequences of having created these "securitized consumer loans" will result in a trickle down to the homeowner who now faces foreclosure. As thay have done in the past, these unconscionable bastards will simply take the money and run, leaving homeowners to fend for themselves in this "free market" as so defined by Wall Street.
December 21, 2008 2:48 PM | Reply | Permalink
Propping up hedge funds. This is an SNL skit.
The government should just take over the goddamn things.
I should be more specific, but AIG I think it was them, received ten billion dollars in the bailout and awarded ten billion dollars in bonuses.
I want these monies confiscated right now and I want people put in prison.
THIS IS NUTS.
DO YOU KNOW HOW MUCH MONEY THESE HEDGEFUND MANAGERS MAKE?
RESTITUTION NOW!!!
INVESTIGATIONS NOW!!!
December 21, 2008 3:35 PM | Reply | Permalink
Is this a feeling produced from others leverage
and we being a fool's crumb?
An operation that pays returns to investors out of the money paid by subsequent investors rather than from profit. -A Ponzi scheme, From Wikipedia.
An operation that pays returns to investors out of the taxes paid by Citizens rather than from profit. –TALF, From Citizen Questions.
December 21, 2008 8:42 PM | Reply | Permalink
Eds - what do you mean by speculative arbitrage gambling? Like I tried to say in my earlier post, these are plain vanilla securitizations (credit cards, auto loans, student loans) and there are currently no buyers in the marketplace. If you want to try to help consumers continue to have access to such loans, then it's important that the ABS market get back to normal.
This is not giving money to hedge funds to "prop them up". This is giving money to ANY financial institution (including hedge funds) that will use it to buy ABS paper.
These hedge funds did not "create" these securitized loans as someone has inferred.
And it's very easy for the Treasury to police how the hedge funds are spending their loan proceeds.
This has nothing to do with AIG.
There are lots of hedge funds that will go out of business this year. They were overleveraged and mismanaged. So it's good that the industry is downsizing. But the healthy institutions should get access to the loans IF the money is spent to buy ABS paper.
Happy to discuss but wanted to share my views
I guess what it really boils down to is - do people here care if the securitization market gets back to normal so students can get loans and people can get car loans? If so, what's the best way for buyers to re-emerge in the market?
December 21, 2008 9:59 PM | Reply | Permalink
At the risk of getting slammed... The hedge funds played a useful role in the investment industry by allowing investors to offset risks they were taking with their more mainstream investments, and thereby reducing the risk of the shareholders of the multitude of funds backing them. Where we/they went astray was in 1. deregulating the industry to the point where the investment these funds represented was non-transparent, (opaque, actually), and 2. so complex, due to the mathematical algorithms those wunderkind devised to structure their products that half, (or more), of the fools who peddled them didn't really understand what they were hawking. The upshot was that these funds got burnt by their bad investments as much as anyone else. Now, that may not justify giving them public money in this current fed scheme, particularly since the regulatory apparatus we so obviously need to monitor their activities are not in place at this time. On the other hand, while I hope to never underestimate the greed of certain human beans, I think these guys are not foolish enough to reinstitute their 'greed is good' mantra from the good old days of pre-Sept 2008 by gaming the system, mostly because no one trusts the system any more than you and I do and they'll just get burnt again. The only reason most of these guys cashed in a la $2.3 Bn, was that no one really knew just how bad it was in the lead up to the current denouement of laissez faire capitalism, and those that knew or suspected were marginalized by those cashing in on the then current paradigm. That said, I appreciate the sentiment of your post SIJ, just don't know if restricting funds from this sector of the financial market, makes as much sense given the current shit hole we're all in.
December 22, 2008 12:33 AM | Reply | Permalink
I think the hedge fund part of that story is actually a red herring. The TALF announcement said TALF loans would be made to any holders of eligible collateral (asset-backed securities), including pesons, businesses, and banks. Hedge funds are really just part of 'everybody'.
December 22, 2008 2:46 AM | Reply | Permalink
Dickday - you forgot one very important word - "advisory". Fairfield Greenwich (FG) is a hedge fund advisory company or what's also commonly called a "fund of funds". FG takes in money and allocates it to hedge funds. But FG itself is not a hedge fund. They're not stock/bond pickers and don't do any trading. They just allocate your money to various 3rd party hedge funds. Some people in the press mistakenly call Fairfield Greenwich a hedge fund but they're really just an allocator.
Madoff also isn't a hedge fund (at least the NYTimes got that correct)
The point of the original post was about hedge funds getting access to the TALF loans. You were off topic to raise Madoff and Fairfield Greenwich.
Please read the linked article below which hopefully explains this more clearly than I did.
http://blogs.ft.com/gapperblog/2008/12/bernie-madoff-was-not-a-hedge-fund-manager/
December 22, 2008 9:28 PM | Reply | Permalink