link here to article
This article (via Manan Shukla) is based on information that the Fed was forced to provide by the banking reform law. It describes some of the most egregious abuses of the TALF program which was designed to enable investors to purchase illiquid assets held by financial institutions. I remember discussing this program with a colleague who managed a derivatives group for a large bank. He could not believe it. The hedge funds, and other groups who purchased the assets, were in line to get any gains from the purchase. The Fed loaned them the money to make the purchases and agreed to absorb most of any loses that were absorbed. He was almost ready to start up a hedge fund to get into that business. Of course, in order to evade taxes on the gains he would have located his fund in the Cayman Islands as many of the investors in this article did.
Rolling Stone published this article, and it does tend to sensationalize issues, but I have not seen any mention of these abuses elsewhere in the media.
You may recall that Goldman and Morgan Stanley told everyone that they did not need government help because they had hedged their bets on mortgage backed securities. They borrowed tens of billions of dollars from the Fed which indicates that they would have failed without the bailout.
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