Ramsey,
"I am not suggesting LTC was involved, just some xxx hedge fund(s) are. What if they are losing to HKMA and is about to go down? The Fed comes to the rescue a la LTCM. Then would the Fed be responsible for possibly destroying another economy?"
I think you are reaching here. The Fed did NOt "come to the rescue" of LTCM. They helped to arranged for added financing so that the positions would not have to be liquidated immediately at firesale prices, and the excess leverage that LTCM used wouldn't create a larger crisis. The partners and investors of LTCM were wiped out. This seems to be an important point that you and the general press miss. All the Fed did was point out to the banks the chain reaction that might happen if LTCM had to liquidate immediately, and it was in the banks' interest that this not happen.
If a similar situation occurred with a hedge fund "attacking" HK--that is, if a fund became so bloated from leverage gone sour that it would go over--the Fed wouldn't necessarily step, IMO. They would make a determination about whether a wider crisis might ensue if the positions had to be liquidated quickly. But if they did step in and help arrange for financing, the partners in that fund would also be wiped out, and the fund itself would no longer be "attacking" HK. The positions would be unwound in a way that made a little sense (one hopes, anyway). In fact, HK might even benefit from such a scenario. |
