Minyan Mailbag - About LTCM
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column with that very intent.
I managed to scan the book, When Genius Failed: Rise and Fall of LTCM. I do not know if anyone would have done differently than Greenspan at that time.
After that Greenspan had a wonderful opportunity to regulate derivatives trading and control the risks of any such event happening in future. Now I understand in different light about why Warren Buffet calls derivatives "the financial wapons of mass destruction."
I hear all kinds of rumors about American Int'l Group (AIG) these days. So far they are just rumors, but who knows how deep the problems are. I am not sure how long they can keep this monster in check when we already have let it out of the bottle...
Sorry just a rant, but could not help but write to you when I am reading this LTCM book. I think I also now understand you when you say "you do not trade your gold."
I have written the AG at the time had to do what he did to stabilize the stock market because the whole system was ready to collapse. I only fault him for not tightening margin requirements afterward and then his subsequent lapse into "monetary lunacy." I firmly believe that monetary expansion should only accommodate the financing of productive assets, not the prices of financial ones.
AIG I know to be one of the largest derivative dealers in the world, closely behind JP Morgan (JPM). There could definitely be trouble there in a cascading situation.
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