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The implicit hand under the market in fact better than a bailout, there's no embarrassment. Hedge funds get to borrow money, which they use to get long the market that is implicitly supported, which accrues more capital to the funds, which they can use to borrow more money. Your average saver cannot just do this, being limited to 2x as per other comments. | |
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There are reasons institutions are less willing to loan your average saver money in the same way as hedge funds. | |
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Your average saver could buy futures, which allow for very high leverage. | |
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Can you point to an example of a hedge fund being bailed out by a bank? | |
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Off the top, Bear Stearns bailed out its main hedge fund after it had to liquidate in what ended up being a precursor to the financial crisis. It happens fairly often. | |
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Bear Stearns made investors partially whole... definitely not a bailout because are you point out they owned the GP. It’s actually a horrible example. | |
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no, it isnt. you asked for when a hedge fund was bailed out by a bank. i gave you one. there's many more. that's just the most famous example. | |
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The most recent example I can think of is Melvin Capital (a few months ago). They were bailed out by Citadel. Citadel was bailed out by US tax payers in 2009 via AIG. Unfortunately things are very opaque because of the said interconnectedness this article discusses. | |
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Seriously? > The most recent example I can think of is Melvin Capital (a few months ago). They were bailed out by Citadel. Citadel buying a controlling interest in a fund that was historically very profitable and hit a huge a landmine, allowing them to buy at a huge discount, isn't really a "bailout" in the same way you're suggesting. Citadel didn't slide them a couple billion dollars under the table and say "don't worry about it, you get me next time". > Citadel was bailed out by US tax payers in 2009 via AIG This was, quite literally 12 years ago. These events are in no way related. Almost every bank was subsidized in 2008/2009. This isn't some unscrupulous "tax payer to hedge fund" hidden money pipeline. | |
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> Citadel buying a controlling interest in a fund that was historically very profitable and hit a huge a landmine, allowing them to buy at a huge discount, isn't really a "bailout" in the same way you're suggesting. Citadel didn't slide them a couple billion dollars under the table and say "don't worry about it, you get me next time". Sure, but the context is that they were doing very poorly and needed liquidity to survive. They received it. That is being bailed out, no? The entire point I’m making is that they receive incredible assistance when very poor decisions are made. > This was, quite literally 12 years ago. These events are in no way related. Almost every bank was subsidized in 2008/2009. This isn't some unscrupulous "tax payer to hedge fund" hidden money pipeline. Yes, that is my point exactly. Many of these banks wouldn’t exist if it weren’t for the tax payer. | |
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> Sure, but the context is that they were doing very poorly and needed liquidity to survive. They received it. That is being bailed out, no? No, it is not. If they were given free money, or a loan with basically no interest, or some other sweetheart deal, that would be a bailout. Someone taking advantage of your misfortunate in order to buy you at a discount as not a "bail out". | |
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I see, we're using different definitions. I'm using the Oxford definition of bailout: - an act of giving financial assistance to a failing business or economy to save it from collapse. I personally wouldn't consider a zero-interest loan to be a bailout. If I buy a car and receive a no interest loan I wouldn't consider myself to be "bailed out", per your definition; nor would I consider receiving a dollar from a friend for a pack of gum to be a "bailout". | |
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Under that definition, bail outs are a fundamentally great part of capitalism. "Bail outs" in general parlance almost always correspond with government propping up businesses that would otherwise go bankrupt. | |
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indeed - however the different between bailing out your local barber and a bank is that when you bailout a bank the upside is contained, but the downside is spread, whereas with the barber, since barbers don't fundamentally engage in activities that allow for exponential gain the bailout is more directly given to citizens in the form of services, not captured by rich people. | |
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When does "one institution investing in another become a bail out"? Also, why are "bail outs" bad at all? | |
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bail outs are undermining the "invisible hand" . Bad decisions dont get penalized, so actors start evaluating decisions diferently. | |
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The bail outs being described are the invisible hand though. Government actions aren't being described, private companies engaging in private investments are. "Bail out" seems to be a catch all term for "struggling company I dislike received financing". | |
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The other institutions buying the stricken institution at a large discount is the invisible hand, exactly. That discount is a huge penalty. | |
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Taxpayers didn't pay for any of the 2009 bailouts, which were actually loans, the repayment of which actually benefitted taxpayers. The bailouts, if paid by taxpayers, would have required paying about triple taxes that year, which didn't happen. The Fed, not taxpayers, made loans. By law, the profits the Fed made on those loans, went to Treasury, which actually does cover taxpayer expenses. Read up on this before making claims that are completely opposite of the facts. | |
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That logic has a few holes in it. Being bailed out by an entity that was bailed out by the government does not make you bailed out by the government. | |
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Why not? Are they not bailed out indirectly? | |
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No. That's not taxpayer money anymore. If you buy a car at a dealership and they take that money and donate it to ISIS, did you just support terrorism? No, the dealer did. You only bought a car. | |
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We'll have to agree to disagree on this one. Personally, if I give you a dollar and you give that dollar to someone else, I'd say that I had indirectly given the final person a dollar. | |
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It's indirect. So that doesn't make it a bailout anymore. | |
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That's not what bailout means... The direct or indirectness of the money flow is unrelated to whether or not something is a bailout. | |
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A bailout is a discrete event. It happened, it's over. Citadel still exists as a company thanks to the AG bailout. That does not mean everything citadel ever buys is now a government bailout. That's just silly. | |
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The most recent example I can think of is Melvin Capital (a few months ago). They were bailed out by Citadel. Citadel was bailed out by US tax payers in 2009 via AIG. Wait a second. Citadel is a fund manager. AIG is an insurance company. Neither are banks. | |
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Presumably, can't provide an example. You provided an example, so you can't. | |
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Oh, they were criticising your example! Okay, that makes more sense. When somebody asks for an example of A, and you provide an example of B, they might assume you can't provide an example of A. | |
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Banks take equity positions in struggling hedge funds as they do for everything they loan money too. Is a homeowner who instead of defaulting on their mortgage refinanced with less equity being bailed out? | |
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Long Term Capital Management was bailed out by the government. Or, the Fed organized it. They ended up leveraged 100 to 1 and had trillions in bonds. | |
