***Off Topic***Yogi, as far as the hedge fund being rescued rather than letting it just go belly up: What it boils down to is that the rules are different for different people.
As an individual, you or I are required to have to a minimum of around 35% equity for stock positions, 10% for US Treasury bonds. For short option positions, it's around 25% of the underlying stock value.
When it hits that minimum, you will get a margin call, and, unless you come up with extra cash/securities immediately, you will be sold out. Those are the legal rules, and those are the rules the Fed Reserve sets up.
The idea is to protect the brokerage against risk of loss. Your money (equity) is supposed to be in the account, available to cover any reasonable or potential losses in the account.
And, legally, you are personally liable (to the brokerage) for any losses that your equity position doesn't cover.
But the margin requirements for a hedge fund/brokerage/bank are different. They are much, much lower, only a tiny fraction of the margin requirements for an individual investor.
That's where the Too Big To Fail theory comes in. If I go bankrupt, that's my problem. But if Citicorp or BankAmerica or this hedge fund goes bust, that's a national problem. Everyone could get hurt. So that justifies using taxpayer money (or placing taxpayer money at risk) to help these Too Big To Fail players.
That's the system. And it's legal.
Regards,
Larry
PS: In spite of the system being unfair, in my opinion, I'm very happy the Long-Term Capital hedge fund is getting bailed out. I'm more than happy, because I am invested in the stock market, and I've got no idea how much damage these hedge funds could do to the stock market. And on a practical level, I don't ever want to know. Because the only way you will ever find out is to have it really happen, and unless you're massively short, you could easily lose most of your stock market money.
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