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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Bill Shepherd who wrote (1216)	9/27/1998 6:36:00 PM
From: JF Quinnelly	Respond to of 15132

You can find the information BB cited regarding LTCF and hedge funds in two articles in the latest Barron's. Hedge funds are unregulated, and LTCF managed to gain control of $100 billion using only $4.5 billion in their own capital. Apparently they managed to get a number of banks to give them loans against the same basket of assets. Their bet was that global interest rates would converge, and they shorted US Treasuries while going long on the likes of Danish mortgage bonds. When their position blew up it left the lending banks exposed to huge losses. If the remaining assets of LTCF all hit the market at the same time it would drive down the price on all similar assets, threatening other banks and funds. The potential size of the derivative market that hedge funds and banks are playing with is 10 to 15 times the size of LTCF's $100 billion. If the derivative market were to melt down, we would all notice.