Confirmed: Fed Bailed Out Hedge Funds Facing Basis Trade Disaster

That is the title to an article on ZH that explains in depth and specifics what I've been saying about the root cause of the financial quandry we are in. The virus merely set in motion a flight to safety and a drop in treasury yields and this drop started margin calls for hedge funds leveraging to massive levels banking on rates not moving.

This is actually worse than 2008 because the entire reason is based on fixed markets and idiotic greed thinking that the trade would never fail and when it does these slimeballs lean on the FED to get bailed out and in the end the bailout is paid by the consumer because the Treasury department is on the hook and this has caused a huge drop in rates which means less for savers and a big drop in stock market prices for retirement plans and insurance companies.

Nothing can or will be done because our politicians are in bed with the FED and I've never seen the FED questioned or stopped because this same FED is also bailing out the government through interest cost savings and the ability to float more and more debt due to lower rates.

I am surprised no one has commented here.

My two cents is that there is a looming disaster if and when the Central Clearing Houses develop issues within the Central Counter party Clearing. What happens when a winning hedge bet can't be paid because the counter party goes has gone belly up?

The Central Clearing Houses have long been in the business of collecting the "vig" much in the same way a bookie takes $5000 action on one side of a bet (team A) and $5000 action on team B. The bookie theoretically walks away with the risk-free money....the vig in the middle. Central Clearing Houses work in the same way with the Counter Party Clearing Houses right? We all have known a bookie that has gone "belly up" because gamblers on the losing side can't or won't pay.

So what happens when the counter party has gone belly up? Wall....I surmise that you are in 100% belief that it will not be allowed to happen because the Fed will 100% provide the liquidity. 

This is the deep end of the pool of our financial institutions. Trouble is looming.

Correct...

I think the FED wont allow that to happen because if it did the whole thing shuts down meaning if one domino falls then others will in response to that fall. The whole thing would collapse and the FED and UST would never ever allow this. The article implies that some hedge funds would have failed if this didnt take place and if funds failed it might have caused a Lehman type stampede to exit the market and then liquidity seizes up like 2009 and then someone big gets kicked in the nuts and then we go back to NAZ 1000 and SPX 700 again..which we should do IMO but wont.

A great article today on ZH and a worthy read. It is interesting how this is EXACTLY how I thought and I spoke on this forum about this in great depth. Trump is fully responsible for the very problems we are facing, it is 100% on him. When he allowed the tax freebies for corps AND cut the corporate tax rate all this did was invite corps to enrich themselves...and his non-stop incessant whining about interest rates to drop them lower, all that did was grease the wheel for corps to issue historically high debt at historically low rates to buy back stock, give dividends and enrich themselves. It pumped the market and made money for his elitist pals and did nothing for the little guy.

There is absolutely no rationale for Trump and his corporatist presidency and no excuse...he rewarded and applauded the stock market and greed because that is the kind of person he is. We need a leader and someone who is interested in building the country, not the bank accounts of hedge funds and execs. What did he think would happen when we lay the ground work for excessive debt and greed? The same thing that happened to his companies, they go under and deserve to go under.

There is NO way we should allow bailouts for corps here, they cheated themselves and their balance sheets by gambling on debt and buybacks and if they go under then thats how it goes. The GOP and their candidate are fully responsible for this scenario...and watch when NOTHING happens to penalize these cheating disgusting companies. If NOTHING else, any bailout should be after all buybacks are reversed that any corp who is holding their cup out goes and sells the buybacks at market and takes those funds to keep operating...that or go under.

The article is Trump Rages Against Buybacks But it was his policies that unleashed the buyback Tsunami...

Wall, good topic...  When I posted earlier in the other thread about the harm vol bets have done to our markets, I thought afterwards that the Corona virus was merely the instrument this time around that would expose these shortfalls.   You could point the finger at the virus,  but it could have been any event that put pressure on vol markets to expose the weakness in our markets.  To your comment,  the virus just merely set in motion a flight to safety.... it could have been any triggering event..  this time, it just so happen to be a pandemic the likes of no one alive today  has ever seen ..

I look at it this way.. what have we learned in the 12 years since the financial crisis.   Our banks  are better capitalized,  and for years they couldn't engage in any buybacks while they were heavily scrutinized by the Fed .  Of course this behavior loosened,  but not the stringent controls on their capital requirements.   So, our corporate world ( those outside banking ) has engaged in buybacks as if it was the only instrument available to create value..  Wrong !   The best use of capital is to invest people,  factories,  and other methods that increase output productivity.   This is the Mother's Milk to innovation and increases shareholder value over the long term,... not share buybacks..

Maybe the retail community was on to something.   After all, This market noted as the most hated bull market ever !   It's because  buybacks were a huge component of that.  

IMHO ,  buybacks and bets on Vol have severely impacted the market.  This is consequential , because we have a Fed that is geared toward saving the system at any cost.   Would this cost be so high if we didn't have such irresponsible behavior in our markets  ? 

Unfortunately,  the buck stops w the American Taxpayer, and this is why each and every one of us should give a Damn when the system relies on us as a financial backstop!!

Wall, if you've listened to Trump's recent comments , he is not for buybacks..  when you initiate a corporate tax cut as he did a few years ago, you don't tell companies how that money should be used.. perhaps it's time we should,  and limit buybacks.. I've  come full circle on this topic.   This Wuhan Virus has laid bare the irresponsibility of the corporate sector over the years, with no responsibility on the the consumer as I posted in the other thread.. I don't blame this on Trump.   I blame it on the corporate world not making the long term investments necessary to create long term benefits for both shareholder and worker.  Investments increase worker productivity,  which increases wages.  This is the Mother's Milk I spoke about earlier 

I listened to his comments, it was pathetic. He did not pound the table and demand that buybacks get reversed or that there would not be a bailout for any company who used debt to buy stock or that did a buyback in the last five years...he was hounded on the topic and his reply was as it is with everything...very passive as if forced to agree with the point because it would make him look guilty if he didnt agree.

Trump an his presidency has been only and all about the stock market and zero interest rates...its all you hear from him. He does not believe that buybacks are immoral or improper or why the crap did he pave the road for his entire presidency? Prior to this have you heard a SINGLE WORD about this topic from his mouth? No but you heard plenty about what a great stock market HIS market is and him blabbering about it over and over. Trump lost his companies in the market due to leverage and bad business practices....the exact same thing is happening right now, the exact same thing. The only difference is Trump's debt was CCC rated, his companies were so poorly rated he had to float 10-12-15 percent, and I know it because I had clients who bought some of it back then.

The deck is stacked against you - we're not insiders like congress - we're little people - stay with betting sports