OT: LTCM in 1998

[cawacko]

So I just finished reading When Genius Fails: The Rise and Fall of Long Term Capital Management. I remember hearing about it at the time but didn't pay much attention.

For those that remember did the Fed stepping in at that time an ushering the banks to do a deal to bail out LTCM receive anywhere near the coverage of the '08 bailouts? I would suspect it wouldn't because the overall economy was in such different shape during the two time periods. But was there a lot of concern at the time about too much risk being taken in the market and the Fed's involvement?

 

[Topspin]

So I just finished reading When Genius Fails: The Rise and Fall of Long Term Capital Management. I remember hearing about it at the time but didn't pay much attention.

For those that remember did the Fed stepping in at that time an ushering the banks to do a deal to bail out LTCM receive anywhere near the coverage of the '08 bailouts? I would suspect it wouldn't because the overall economy was in such different shape during the two time periods. But was there a lot of concern at the time about too much risk being taken in the market and the Fed's involvement?

Damn young pups rubbing it in our faces

It recieved about 10% ish of the pub mostly on CNBC which prob had a fraction of todays viewer. Remember that's pre real estate wealth, pre tech bubble wealth and pre Clinton boom. The number of serious or even modest investors was also fractional.

 

[Cancel 2016.2]

So I just finished reading When Genius Fails: The Rise and Fall of Long Term Capital Management. I remember hearing about it at the time but didn't pay much attention.

For those that remember did the Fed stepping in at that time an ushering the banks to do a deal to bail out LTCM receive anywhere near the coverage of the '08 bailouts? I would suspect it wouldn't because the overall economy was in such different shape during the two time periods. But was there a lot of concern at the time about too much risk being taken in the market and the Fed's involvement?

It most received a LOT of attention on the 24 hour business channels such as Bloomberg and CNBC. The Fed essentially talked the big wire houses into stepping in given their long positions in Russia would have collapsed in a domino fashion if they let LTCM go under. The devaluation set off a chain reaction within LTCM... forcing them to liquidate positions at inopportune times. LTCM should have taken Buffets deal, but they refused and then ended up with less in the Fed's plan.

Meriweather then started up another hedge fund... which subsequently went out of business during this latest credit crisis.

If I recall, it was ties to LTCM that gave NJ Corzine as their governor... because he never would have run had he not been forced out of Goldman.

Bottom line... this was yet another example of the Fed stepping in to bail out Goldman and other major banks. But no, there was not as much concern by the mainstream media. After all... a Dem was in the White House.

 

[cawacko]

It most received a LOT of attention on the 24 hour business channels such as Bloomberg and CNBC. The Fed essentially talked the big wire houses into stepping in given their long positions in Russia would have collapsed in a domino fashion if they let LTCM go under. The devaluation set off a chain reaction within LTCM... forcing them to liquidate positions at inopportune times. LTCM should have taken Buffets deal, but they refused and then ended up with less in the Fed's plan.

Meriweather then started up another hedge fund... which subsequently went out of business during this latest credit crisis.

If I recall, it was ties to LTCM that gave NJ Corzine as their governor... because he never would have run had he not been forced out of Goldman.

Bottom line... this was yet another example of the Fed stepping in to bail out Goldman and other major banks. But no, there was not as much concern by the mainstream media. After all... a Dem was in the White House.

wasn't the tech boom going on simultaneously with LTCM's collapse?

Wait so Meriweather's new fund after LTCM collapsed as well??? Wow. Did it do well for awhile at least?

 

[Cancel 2016.2]

wasn't the tech boom going on simultaneously with LTCM's collapse?

Wait so Meriweather's new fund after LTCM collapsed as well??? Wow. Did it do well for awhile at least?

The largest part of the tech boom... October 1998-March 10, 2000 occurred directly AFTER LTCM was resolved

Once that bubble bursting was avoided, the big investment banks began their run on the new bubble.

Not sure what his returns were for the new fund.... I just know he went down when the credit market imploded.... just like they did at LTCM.

I guarantee... even after this second complete collapse... idiots will still give that idiot more money to invest for them.

 

[cawacko]

The largest part of the tech boom... October 1998-March 10, 2000 occurred directly AFTER LTCM was resolved

Once that bubble bursting was avoided, the big investment banks began their run on the new bubble.

Not sure what his returns were for the new fund.... I just know he went down when the credit market imploded.... just like they did at LTCM.

I guarantee... even after this second complete collapse... idiots will still give that idiot more money to invest for them.

When did derivatives really start playing a big role on Wall St? Where they around in the '80's and then got big in the '90's? Are derivatives what help tie (sp?) so many firms together through trades that make it hard to let a shop die?

 

[Cancel 2016.2]

When did derivatives really start playing a big role on Wall St? Where they around in the '80's and then got big in the '90's? Are derivatives what help tie (sp?) so many firms together through trades that make it hard to let a shop die?

derivatives have been around almost as long as the market. The problem is the idiots on Wall Street became more creative in how to establish them.... and that translates to using more leverage and creating securities that even they did not understand.

The fact that they all started trading the same derivatives and blending them together and trading off the markets is what screwed the pooch. So much of it is due to the removal of Glass Steagall.

 

[cawacko]

derivatives have been around almost as long as the market. The problem is the idiots on Wall Street became more creative in how to establish them.... and that translates to using more leverage and creating securities that even they did not understand.

The fact that they all started trading the same derivatives and blending them together and trading off the markets is what screwed the pooch. So much of it is due to the removal of Glass Steagall.

But wasn't LTCM highly into derivatives? And that was pre the removal of Glass Steagall. LTCM used crazy leverage too.

 

[Cancel 2016.2]

But wasn't LTCM highly into derivatives? And that was pre the removal of Glass Steagall. LTCM used crazy leverage too.

Yes, they were insanely levered (which is typically done with derivatives). Which is what Meriweather did yet again with his new firm. LTCM had a huge bet on the Russian economy expanding. They took this position primarily through the use of futures contracts on the Russian market and currency. When the Russians devalued, LTCM was forced to sell other positions to cover the leverage they used on the Russian bet. Given the amount of leverage they had on other positions as well... it essentially started a chain reaction... each sell forcing another sell... etc... unwinding the positions threatened the positions at firms like Goldman... Buffet tried to step in with a deal to stop the bleeding and was rejected by LTCM. Then the Fed stepped in and essentially forced a deal with Goldman, JP Morgan and others stepping up to take over LTCM's assets, provide the capital to cover calls and thus stop the chain reaction.

As for Glass Steagall, I was referring more to what happened with the use of derivatives this time around by the investment bank/retail bank combos. Prior to GS being removed, the banks had tighter regulations on how much risk they could take (especially those banks that held retail deposits).