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INTC 37.89-0.1%3:59 PM EST
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To: GVTucker who wrote (178971)8/10/2004 1:00:18 PM
From: Robert O  Read Replies (1) of 186894
 
Next, LTCM didn't fail just because of illiquidity. It was the combination of illiquidity and imperfect hedges. They were not buying and shorting the same thing.

And the Hunts? They were just stupid.

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For those who want more detail, some time ago I read (and recommend) the following:

Beyond Greed The story of the Hunt brothers.
The gov't in changing the rules on the Hunts who basically had cornered the Silver market was not exactly 'fair play.'

When Genius Failed: The Rise and Fall of Long-Term Capital Management

Good read! One add'l way I'd like to describe the failure was these great minds missed seeing the possibility of the 'perfect storm' which wiped them out by mis-calculating the probabilities of what was required to wipe them out. Indeed, they figured that only one instance in the time span of many universes could leave them decimated! What they failed to model correctly was the idea of non interdependence. Thus, they assumed a number of events to be non-inderdependant and they could simply multiply their probabilities together like calculating craps table odds. Turns out that for a periods of time at least: 1) humans can take actions that are not 'rational' 2) one event will cause a wave of events that are not independent in the way they probabilistically figured and 3) people and gov'ts in the market who 'smell blood' will behave in ways that will crush the weakened prey and potentially garner them profits. There's more of course but hey buy the book folks ;-)

RO
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