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Strategies & Market Trends : Currencies and the Global Capital Markets
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To: Robert Douglas who wrote (890)10/14/1998 10:32:00 AM
From: Henry Volquardsen  Read Replies (1) of 3536
 
Robert,

My reading of that was not so much that McDonough was duped as the Meriwether et al were playing at brinksmanship. At that stage it was still in Meriwether's hands to decide what to do, emphasis on that stage. In the morning when they have the Buffet/AIG/Goldman offer on the table that would leave them with 5% they don't have a firm offer of any sort from the banks. So they still have a risk that the banks just force liquidation in which LTCM winds up with nothing. So their alternative to the 5% offer would lead to either nothing or could they work out a better deal with the banks. Now Meriwether and company recognizing the banks for the craven lot they were decides to risk losing everything in exchange for getting a better deal from the banks. At that point Buffet/AIG/Goldman withdraw their offer. Then Meriwether and Co try to get a better deal out of the banks. In retrospect it appears that they made the right choice. They probably recognized the banks were even more worried than they were. There is an old saying in banking 'If you a bank a million dollars and can't pay you have a problem, if you owe them a billion dollars and can't pay they have a problem'. The folks at LTCM knew better than anyone that the banks had a very big problem and played it for all it was worth, imo.

Henry
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