12/06/17

LTCM Is Back: One Hedge Fund Uses 25x Leverage To Beat The Market [feedly]



----
LTCM Is Back: One Hedge Fund Uses 25x Leverage To Beat The Market
// Zero Hedge

Before we start, a little history lesson...

At the beginning of 1998, Long-Term Capital Managementhad equity of $4.72 billion and had borrowed over $124.5 billion with assets of around $129 billion, for a debt-to-equity ratio of over 25 to 1.

 

It was run by finance veterans, PhDs, professors, and two Nobel Prize winners. Everyone on Wall Street wanted a piece of their profits.

 

But by 1998, that firm was primed to expose America's largest banks to more than $1 trillion in default risks. The demise of the firm, LTCM, was swift and sudden. In less than one year, LTCM had lost $4.4 billion of its $4.7 billion in capital.

 

The disaster had all the players - the Federal Reserve, which finally stepped in and organized a bailout, and all the major banks that did the heavy lifting: Bear Stearns, Salomon Smith Barney, Bankers Trust, J.P. Morgan, Lehman Brothers, Chase Manhattan, Merrill Lynch, Morgan Stanley, and Goldman Sachs.

 

In desperate need of a $4 billion bailout, the crumbling firm was at the mercy of the banks it had once snubbed and manipulated.

And so, given all that, we ...

Posta un commento