Have we been through this before...?

Discussion in 'Economics' started by BeatingtheSP500, Sep 11, 2008.

  1. Been reading a great, relevant book

    Richard Bookstaber's "A Demon of Our Own Design"

    An abstract I pulled from the "LTCM Rides the Leverage Cycle to Hell" chapter:

    "For a period of three days in early October 1998, Merrill Lynch had a net capital deficiency ranging between $1 billion and $3 billion...Lehman Brothers, whose stock plunged two-thirds over the course of the crisis, skirted bankruptcy. Salomon prepared to pull its trading lines with Lehman, and relented only out of fear that doing so would initiate a cascade from other firms that would turn a potential for default into a certainty...
    Why is it that leverage crises occur frequently in financial markets, but not in the broader business world? The reason is that the very ability to liquidate - clearly a desirable attribute of an investment portfolio - is, ironically the root of the liquidity crisis cycle"