Larry,
*OT*
What really slaps me in the face is apparently the best and brightest graduates of top business schools employed by top firms in banking and brokerage have not the slightest idea of what was going on.
interactive.wsj.com
<<Now the world knows that Merrill Lynch & Co., J.P. Morgan & Co., Goldman, Sachs & Co. and Travelers Group Inc. -- the elite of America's financial powerhouses -- as well as a few dozen other global heavyweights, either didn't know about or were comfortable with the risks they were taking in their dealings with Long-Term Capital. But sophisticated models that were supposed to evaluate risk didn't work. Bankers overestimated the value of collateral amid market turmoil. And they were fixated on their own narrow risks without regard to, or perhaps knowledge of, Long-Term Capital's overall risk profile.>>
Basically, top financial and brokerage firms made the rookie mistake of investing in something they didn't understand. Rule 1 of Investing 101 violated by Wall Street's best and brightest. Disturbing.
Rubin jumped another notch on my admiration scale--
<<In a counterpart to Mr. Greenspan's congressional testimony, Mr. Rubin told the same hearing that while hedge funds are monitored by creditors, "that assumes the creditors are careful. And I think one of the problems you have is at a time like this, where you've had five, six, seven years of good results ... people who extend credit tend to get a little less careful. And I think that's one of the problems in our system>>
A fancy way of saying-- people, no matter how educated, are complacent and generally reluctant to look a gift horse in the mouth.
I guess you can tell I am less confident about the medium term health of the market than I was before this story came out.
Yogi |
