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No one thinks the wizards at Long Term Capital Management were rookie traders. They were the very best at what they did. And their derivative positions were deemed such a threat to the international monetary system that Greenspan got all the big brokerages and bullion banks to coordinate who would bail them out for how much.

Of course this increases moral hazard. Of course this only exacerbates the culture of "too big to fail". Of course it is technically illegal (talk about a violation of anti-trust!). Of course we are in uncharted waters--and anyone who thinks they understand all the risks and ramifications is like a trans-Atlantic sailboat in 1502 without any knowledge of when hurricane season is. The world has simply never been wired together like this before under an umbrella of such complex financial instruments.

As to Freedom Farmer's $30,000 an ounce gold, LOL. GATA thinks the free market price should be $500-600/ounce. The 1980 peak price adjusted for inflation would be around $2,000. I certainly don't see gold hitting that under any circumstances in the near-term.

As those great commercials that have been running during the U.S. Open this year keep saying, "One can't know the future. One can prepare."

Long Term Capital didn't hedge their postions, they were position traders, which is completely different.A hedge should be nothing but an arbitrage, but these guys, like Leeson before them, had open exposure and made one way bets with no exit strategy.Heroes if it works, but if not??

. GATA thinks the free market price should be $500-600/ounce.

Not to mention those holding out for the return of $50 silver. It's
been at $4.50 the last five years and shows no sign of going
anywhere. For comparison it was also $4.50 in the mid-1970s.
Such an investment.

re 16: LTCM's errors were sophomoric, as opposed to rookie-ish.

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.