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Strategies & Market Trends : Classic TA Workplace
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To: Shack who started this subject8/19/2002 3:08:22 AM
From: Teri Garner   of 209892
 
The Collapse of the Inverse Pyramids

August 16, 2002

Since its demise four years ago, Long Term Capital Management has become a lightening rod for debate over the use of derivatives and the general stability of the U.S. financial system. This discussion has been focused almost entirely on the use of leveraged trading instruments, liquidity and the implications of counter-party risk. It is understandable that most of the debate has been centered on financial system issues, given the scope of what occurred. However, the big picture has been almost entirely missed. LTCM’s capital structure and corporate strategy have been treated as unique and a fascinating anomaly. Nothing could be farther from the truth. LTCM was merely an advanced model of the newly designed U.S. corporation. This design is the byproduct of a long revolution in academic theory and business practice that treasures belief in the supremacy of debt-financing and efficient market theory. LTCM, Enron and Worldcom have to this point been treated as industry-specific or corruption-related stories. This analysis misses the most important point: all these companies shared the same capital structure and finance philosophy; and this approach that is now dominant throughout corporate America is doomed to fail massively.

prudentbear.com
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