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

By Pam Martens and Russ Martens of Wall Street on Parade.

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

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