re: "the long term capital crappola is the same kind of crony capitalist bullshit we've been bashing the SEA's for"
You're right, what Long Term Capital (wins the Most Mis-Named prize) was doing was the same thing that the South Korean Chaebols were doing: trying to get rich quick using massive leverage. However, there are two crucial differences:
First, LTC is an extreme example. Most americans have most of their wealth in the houses they live in, not stocks or complicated arbitrage schemes. Most stocks are not in hedge funds, and are not bought with borrowed money. And most hedge funds are far less leveraged. So, LTC is the outlying data point, at the far edge of the bell-shaped curve. On the other hand, the Chaebols, with debt-to-equity of 300-500%, are the core of the Korean economy. If Gillette and Intel and Coke and 3M had those debt-to-equity ratios, I'd be worried.
Second, the government response has been totally different. The Fed stepped in, and swiftly arranged for the private banks (that had foolishly lent the money) to take a 90% ownership of the bankrupt hedge fund. Those banks will now have to accept the market discipline, take their losses, and it all will quickly end up on their balance sheets. No taxpayers money will be used. Contrast this with how the Koreans or Japanese have allowed bad loans to stay on the books forever, noone takes responsibility, no one admits the size of the debt load, no one ever has a margin call, and in the end the taxpayer will be responsible for all the debts. |
