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Comment by xkjkls | Hacker News Reader

When have hedge funders been bailed out?

Hedge funds are bailed out by banks frequently. Said banks have and continue to receive bailouts funded by the taxpayer. I argue it's basically the same thing, just a step removed.

I haven't heard of any hedge fund being given a bailout from the government directly, though.

Can you point to an example of a hedge fund being bailed out by a bank?

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.

So you can’t?

Can't what?

Presumably, can't provide an example. You provided an example, so you can't.

I honestly don’t follow.

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.

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.

Why not? Are they not bailed out indirectly?

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.

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.

It's indirect. So that doesn't make it a bailout anymore.

That's not what bailout means...

The direct or indirectness of the money flow is unrelated to whether or not something is a bailout.

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.

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.

> 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.

> 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".

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".

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.

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.

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.

When does "one institution investing in another become a bail out"? Also, why are "bail outs" bad at all?

bail outs are undermining the "invisible hand" . Bad decisions dont get penalized, so actors start evaluating decisions diferently.

The other institutions buying the stricken institution at a large discount is the invisible hand, exactly. That discount is a huge penalty.

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".

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.

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.

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.

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.

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.

There are reasons institutions are less willing to loan your average saver money in the same way as hedge funds.

Your average saver could buy futures, which allow for very high leverage.

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?

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.

Long Term Capital Management was bailed out.

https://en.wikipedia.org/wiki/Long-Term_Capital_Management

By other banks. Not the taxpayer.

Still, ain't like the banks are going to bail out regular people for making some stupid investment.

I'm not sure of the actual point of this whole thread, but regular people make bad investments and get bailed out all the time: it's called bankruptcy.

Bankruptcy hurts more because no limited liability. And when the other bailouts are more like "refinancing" as the other reply points out, the institutional bailouts hurt even less.

They do all the time. Every mortgage refinance is a bailout by the same conception that you are using.

There are refinances but there is also good ol' foreclosure. How many rich financiers have actually "lost everything"?

Coperate limited liability + allowed to leverage more + your friendly competitors bail you out is a suspicious combo, even if each of those in isolation is totally fine.

Under supervision of the Fed.

https://en.wikipedia.org/wiki/Long-Term_Capital_Management

How about this?

> “This bailout is for the honest, hard-working hedge fund people who should be assured of making money,” said Biden today.

> “We spent trillions of taxpayer’s money to bail out giant financial institutions who finally had their irresponsible business practices come back to bite them, and it’s only fair we do the same in this latest crisis.”

> “So, it’s only fair that these hedge funds, who once again were more irresponsible with money be helped out by the taxpayer without repercussion.”

> Biden revealed that the trillion-dollar package is set to be rolled out in the coming weeks with no demands for greater regulation or change to business practices.

https://www.betootaadvocate.com/world-news/democrats-announc...

That article is what we in the biz call “satire”.

It wasn’t really bailed out. Equity investors lost all their money. Banks bought the assets at depressed valuations and made enormous profits. Kind of the opposite of a bailout in many ways.

There was a great PBS Nova episode on that. Black-Scholes don't fail me know... until it did. No video but a link to the dvd purchase https://www.pbs.org/wgbh/nova/teachers/programs/2704_stockma...

the investors lost everything. it is like a margin account that goes from +$30k to -$30k. the bailout gets it to zero. investors still losse everything.

LTCM wasn't bailed out, all the investors in it got screwed. Banks took 90% control of all of their assets, and the 10% that was left to the original capital managers was still far less than many of the debts accrued.

I suppose this really calls into question, what bail out means to you. If we label every private company transaction for a struggling company as a bail out, rather than the traditional one where only ones where the government steps in, then it's almost impossible for anything to not get bailed out.

Happens all the time.

e.g. https://www.nytimes.com/2020/07/23/business/economy/hedge-fu...

Didn’t happen in that article. Fed providing liquidity wasn’t specific to hedge funds at all.

“ It remains unclear how big of a role hedge funds played in March’s meltdown — even how many and which funds were involved remains hazy. ”

Specific or not (yes many different types of institutions can access these markets), hedge funds are known for taking highly leveraged bets with this overnight cash. There is a huge market for sponsored repo trades.

Hedge funds were most certainly a part of this problem, and were bailed out.

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