Investors Were Being Blocked from Fund Withdrawals Months Before the Pandemic

via wallstreetonparade

Wall Street On Parade has previously written that a financial crisis was already well under way before the first case of COVID-19 was reported anywhere in the world. This should matter greatly to Americans because the Federal Reserve is attempting to blame the financial crisis on the virus to avoid Congressional investigations of its second epic failure in a dozen years at regulating the behemoth Wall Street banks.

America needs a comprehensive investigation of what really triggered this financial crisis in order to restructure the U.S. financial system away from a casino culture into one that doesn’t regularly need massive Federal Reserve and government bailouts. These bailouts are piling more and more debt on the shoulders of taxpayers and becoming a crushing drag on the U.S. economy, notwithstanding Fed Chairman Jerome Powell’s dismissive remark to Congress that we’ll worry about the debt later.

Today we’re expanding our financial crisis timeline to include pre-COVID-19 announcements of big job cuts at global banks; mutual funds and hedge funds taking the desperate measure of locking out investors from access to their money; and the massive sums investors were pulling from mutual funds and hedge funds throughout 2019 — all prior to the first case of COVID-19 anywhere in the world.

According to the timeline at the World Health Organization, on December 31, 2019, China first reported a cluster of cases of pneumonia which were identified in early January to be the coronavirus now known as COVID-19. This is the timeline of events suggesting that a financial crisis was in the works months before December 31, 2019.

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June 3, 2019: The highly-touted $4.7 billion Woodford Equity Income Fund in the U.K. froze withdrawals by investors. It had too many illiquid securities.

July 7, 2019: Deutsche Bank, the large German bank that is heavily intertwined via derivatives with the behemoth Wall Street banks, confirms it is slashing 18,000 jobs.

July 29, 2019: Bloomberg News runs this headline: “Citi to Cut Hundreds of Trading Jobs in Bad Wall Street Omen.”

August 8, 2019: Reuters reported that the amount of foreign sovereign debt carrying negative yields had “increased to an all-time peak of $13.2 trillion.” This was an increase of 13.4 percent from just a month earlier. Large, rapid inflows into government bonds, which drives down the yield, signals a flight to safety from a financial storm.

August 14, 2019: The Wall Street Journal reported that “Investors continued their run on bank stocks, sending shares of some of America’s biggest financial institutions sharply lower following the latest sign of trouble ahead for the U.S. economy.” On this day, the Dow Jones Industrial Average plunges 800.49 points, or 3.05 percent but the shares of two of the biggest Wall Street banks, JPMorgan and Citigroup, significantly outpaced those losses. JPMorgan Chase lost 4.15 percent on the day while Citigroup gave up 5.27 percent. Also on this day, for the first time since the onset of the financial crisis in 2007, the U.S. saw an inversion of the yield curve, with the 2-year Treasury note yielding more than the 10-year note. An inverted yield curve is viewed by market veterans as a harbinger of an economic downturn. Also on this date, the Financial Times reported that Germany’s economy, the economic engine of Europe, had contracted in the second quarter and its annualized growth was now the slowest in six years.

August 30, 2019: Buenos Aires Times reports that more than a dozen “Argentine mutual funds block redemptions as locals rush for exit.”

September 17, 2019: The New York Fed announces it is intervening in the repo loan market for the first time since the financial crisis of 2007-2010. The Fed says it will provide a maximum of $75 billion per day to 24 Wall Street trading houses (primary dealers) with a cap of $40 billion going to any one firm. (This large cap suggests the New York Fed knows that one or more specific firms are in trouble.) There had been no news reports of coronavirus COVID-19 anywhere in the world at this point.

September 20, 2019: Three days after launching its daily $75 billion of overnight repo loans, the New York Fed announces that these will continue but it is also adding $30 billion in 14-day terms loans that will be offered three times during the week of September 23. This is a clear indication that banks have backed away from lending to other financial institutions, just as happened in the financial crisis of 2007 to 2010.

October 1, 2019:  Reuters’ David Henry reported the following: “Publicly-filed data shows JPMorgan reduced the cash it has on deposit at the Federal Reserve, from which it might have lent, by $158 billion in the year through June, a 57% decline.” Why did JPMorgan need that massive amount of money from its reserves at the Fed?

October 4, 2019: the Fed announces that it will be offering an additional $310 billion in repo term loans to the trading houses on Wall Street as well as offering at least $75 billion daily in overnight loans.

October 11, 2019: The New York Fed announces that on top of its overnight and term repo operations, it will begin buying up $60 billion of U.S. Treasury bills monthly (to add further liquidity to dampen the Wall Street crisis).

October 14, 2019: Lime Asset Management, a top Korean hedge fund, freezes $710 million as investors try to make withdrawals.

October 23, 2019: The New York Fed announces that effective October 24, it will increase its daily overnight repo loans from $75 billion to $120 billion – an increase of 60 percent – while 14-day term repos will also continue. Clearly, there is a cash crunch on Wall Street that is getting worse, not better.

November 12, 2019: Wall Street On Parade files a Freedom of Information Act (FOIA) request with the Federal Reserve seeking emails and correspondence related to why JPMorgan Chase needed to reduce its cash reserves at the Fed by $158 billion. Wall Street On Parade does not receive a response to its FOIA request until March 11, 2020. The response, under the law, should have come within 20 business days. Instead, it came four months later with no explanation for the delay. The Fed conceded that it had 223 pages of relevant documents but it was not going to be sharing them with Wall Street On Parade.

December 4, 2019: The £2.5 billion ($3.3 billion) U.K. commercial real estate fund, M&G Property Portfolio gates (lock outs) investors from withdrawing their money. Prudential’s property funds act quickly to do the same. At the time of the gating, M&G Property Portfolio had seen outflows of 25 percent through the third quarter.

December 5, 2019: Bloomberg News reports that “U.K. real estate funds have suffered 14 successive months of outflows.”

December 9, 2019: CNN reports that Morgan Stanley is cutting 1500 jobs.

December 12, 2019: The Guardian reports that other property funds in the U.K. have seen a wave of redemptions and “the core of the problem with property funds is their exposure to beleaguered assets in the retail sector, such as shopping centres and malls, where shops are going bankrupt and rents are falling.”

December 12, 2019: The New York Fed announces that it will add an extra $185 billion of liquidity over the turn of the year on top of the ongoing repo loans.

December 23, 2019: The Wall Street Journal reports that “Hedge-fund firms York Capital Management and Southpaw Asset Management are barring clients from getting back all of the money they have requested for year-end, a sign of the pressure that investors in distressed assets are facing.”

December 31, 2019: According to eVestment, there were massive outflows from hedge funds and mutual funds in 2019. Traditional asset managers reported outflows in 2019 of a negative $210.7 billion while hedge funds saw outflows of a negative $102.25 billion in 2019.

January 27, 2020: Wall Street On Parade, using the New York Fed’s own Excel spreadsheet data on its repo loans, publishes the finding that the New York Fed has pumped out a cumulative $6.6 trillion in super cheap loans to the trading houses of Wall Street with no explanation as to whether Wall Street banks are experiencing a funding, liquidity or insolvency crisis.

February 29, 2020CNN reports first coronavirus COVID-19 death in the United States occurred one day earlier.