Posted on 09/07/2001 6:14:27 PM PDT by SongathuSouth
As outlined in the book When Genius Failed, their models were based on too brief a data set, their positions were highly correlated instead of offsetting, their size was too big to unwind in choppy markets, and they mistakenly assumed a "normal" distribution of market outcomes, ignoring the well-known propensity toward "fat tails" in chaotic time series.
There is NO evidence ANYWHERE that the Fed "bailed out" LTCM or its banks.
The Fed DID force the banks to sit together in one room and come up with their own solution to the mess they had gotten themselves into with their sloppy lending practices. The cost of the bailout, which bailed-out the banks far more than the folks at LTCM, was borne by the banks themselves.
John Cornzine's role as an insider/double-dealer is worth the price of the book.
Anti-trust? Yes, as far as unwinding this one position. Moral hazard? I think the so-called "Greenspan Put" on stocks is real, but over-rated.
Are we in uncharted waters? Hell yes.
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