BBRG: We Forget That the Financial Crisis Had a Trial Run

We Forget That the Financial Crisis Had a Trial Run
The collapse of hedge fund Long-Term Capital Management had the same ingredients: lots of leverage, huge risk and a surplus of arrogance.
Bloomberg, October 10, 2018

 

 

 

What happens when too much risk and too much leverage meets too little humility?

That was the question I explored in today’s column.

Lost in reflexive spasm of retrospectives 10 years after GFC — the nationalization of Fannie Mae and Freddie Mac, the bankruptcy of Lehman Brothers, and the collapse of AIG — was the 20-year anniversary of the collapse of hedge fund Long Term Capital Management (LTCM) in September 1998.

The LTCM debacle was a precursor for the financial crisis a decade later.

While the company’s managers were very smart – Nobel Prize-winning big brains thinking about new ways to identify investment opportunities – they made some not very smart decisions.

Roger Lowenstein masterfully details this in his magnum opus, “When Genius Failed: The Rise and Fall of Long-Term Capital Management.  Read more about how LTCM set the table for the GFC here . . .

 

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I originally published this at Bloomberg, October 10, 2018. All of my Bloomberg columns can be found here and here

 

 

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