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Got a call from Zia Ahmed, a PR guy from Citadel, complaining about this tweet. We weren't bailed out! he said. So here's a reminder of this thing called the financial crisis of 2008. Spoiler: Yes, the $10billionaire Ken Griffin was absolutely bailed out by the govt.
Citadel is and was a giant hedge fund. It didn't just go long and short stocks. It was mainly in credit instruments. And we had a global credit crisis in the fall of 2008.
And Citadel, like many hedge funds, was highly opaque. Even its limited partners had no idea what it was in. Certainly its counterparties had little idea. Those were the most vulnerable institutions,. Citadel was a source of systemic risk back then (and still is today).
In September 08, it lost 16% of its value, according to the WSJ at the time. It was down almost 40% for the year. Investors were redeeming (Griffin said at the time it would only be a few percentage points). Oh and banks were making collateral calls: wsj.com/articles/SB122…
The WSJ said Citadel was levered 4 to 1 then (down from 7/1 a year earlier). I doubt Citadel's leverage was that low. I invite them to prove that today. But it doesn't really matter. Every opaque, highly levered financial firm was going to fail in Sept 08, and 4/1 was plenty.
Citadel said at the time there was nothing to worry about because it had $8 billion in credit lines. Hahahaha. Who did it have those from? Goldman and Deutsche said Citadel was a valued client. Could it be those lines were from failing banks that were bailed out by the Fed?
In bailing out the largest banks, the Fed bailed out the US economy. So we can all say we were saved by the federal govt. Unlike many bankers, I recognize that and am grateful.
But some were saved more than others. All highly levered, loss-making, systemically important hedge funds with panicked investors were especially saved, even if they didn't literally get direct injections from the TARP.
As Griffin looks over Central Park while sipping his evening armagnac from his $238 million apartment, I hope he has a moment of reflection about that.
