To: gpowell who wrote (1575 ) 3/14/2001 7:27:17 PM From: ahhaha Read Replies (1) | Respond to I note from that testimony from Greenspan:It was the judgment of officials at the Federal Reserve Bank of New York, who were monitoring the situation on an ongoing basis, that the act of unwinding LTCM's portfolio in a forced liqudiation would not only have a significant distorting impact on market prices but also in the process could produce large losses, or worse, for a number of creditors and counterparties, and for other market participants who were not directly involved with LTCM. In that environment, it was the FRBNY's judgment that it was to the advantage of all parties--including the creditors and other market participants--to engender if at all possible an orderly resolution rather than let the firm go into disorderly fire-sale liquidation following a set of cascading cross defaults. The troubles of LTCM were not a complete surprise to its counterparties. After all, LTCM's earlier statements regarding its August losses were well known, and sophisticated counterparties understood the difficulties in closing out large losing positions. In addition, the commercial banks among its creditors had already begun taking normal precautionary measures associated with exposure to counterparties whose condition is deteriorating. Still, creditors as a whole most likely underestimated the size and scope of the market bets that LTCM was undertaking, an issue that is currently under review.
