Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Amy J who wrote (12592)	8/18/2003 10:50:37 PM
From: Wyätt Gwyön	Respond to of 306849

hi Amy, Long-Term Capital was around how much? Was it around $300B? The system was able to absorb LTC's $300B as i recall LTCM had around $4 billion in equity leveraged 100 times. "the system" didn't exactly "absorb" it--the Fed orchestrated a takeover of LTCM assets by numerous commercial banks and others. this wasn't absorption so much as behind-the-doors force-feeding. described in detail in Lowenstein's book "When Genius Failed". plus the Fed then lowered the Funds Rate to support the equity market in the wake of LTCM. this gave rise to a widespread perception of the Greesnpan Put on the market, and set off the most wildly speculative 18 months in market history. a bubble which has since resulted in many trillions in stock market losses, not to mention countless bankruptcies, overcapacity, etc. thus it is very hard to gauge the total cost of the LTCM bailout when one considers the ancillary effects arising from Fed actions taken specifically in response to LTCM. but there is little doubt that the systemic cost has vastly exceeded the notional value of LTCM's portfolio, probably by a factor of ten or more. the derivatives market today, which is largely composed of interest-rate derivatives, amounts to, as i recall, in excess of $100 trillion on a global basis (with about half that in the US). a meltdown of just a fraction of this market would make the LTCM debacle look like a Sunday picnic.