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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Ian@SI who wrote (49117)	7/12/2001 3:11:30 PM
From: Jacob Snyder	Read Replies (1) \| Respond to of 70976

re: "Their model worked very well for the first couple years or so".....and then...."any semblance of control vanished".....and then....."near-disaster": That is exactly the outcome that should be expected, in a highly leveraged model, run by very smart people who seriously overestimated their ability to predict the future. That progression, and that model, describes what happened to LTCM...and what happened to a lot of tech companies in 1995-2001......and what is happening to the NAS.......and the global economy.

To: Ian@SI who wrote (49117)	7/12/2001 6:19:43 PM
From: Raymond Duray	Read Replies (1) \| Respond to of 70976

OT OT: LTCM redux Hi Ian, Re: LTCM folk - They, and especially Merriwether, seem to have an uncanny knack for landing on their feet. I'm curious about your take on the imitators among LTCM's counterparties being the proximate cause of LTCM's demise. I've read Dunbar's "Inventing Money" and between that analysis and other material I've read, I would conclude that the fatal flaw of LTCM's "money machines" was the assumption that markets always return to the norm. In the months leading up to the end for LTCM as a self-administered entitiy, the premium for less-than-investment grade bonds continued to expand, confounding any historical pattern and the Russian default was an unprecedented event that no quant's algorithm could have accurately predicted. From my understanding, it was these dislocations, rather than counterparty imitation that was the proximate cause of the demise of the company. If you can point me to literature on the nature of the counterparty trades I'd be most appreciative. Cordially, Ray :)

To: Ian@SI who wrote (49117)	7/12/2001 10:01:49 PM
From: Katherine Derbyshire	Respond to of 70976

>>And the model might have continued to work for a very long time if the institutions that were handling LTCM's trades hadn't decided this was too lucrative to pass up. So they, in turn, began copying LTCM's practices. It was at that point that any semblance of control vanished; and a global financial system collapse was barely averted.<< Which is part of the problem with hard and fast rules. Any strategy that works will be copied, which will usually cause it to stop working. Katherine