According to many pundits such as Jim Rogers the bailout of LTCM is the direct cause of the crisis the financial world finds itself in today. If they hadnt bailed them out the crazy leverage would have never happened and we would find ourselves in a much better state today. And if we continue the bailouts of today we will find ourselves in a much worse state some years ahead is the thinking behind telling those in charge to let the markets work today. What happened back then and how could one hedgefund have such an enormous impact on the global financial system years later? Thanks.
Out of that link: The total losses were found to be $4.6 billion. The losses in the major investment categories were $1.6 bn in swaps $1.3 bn in equity volatility $430 mn in Russia and other emerging markets $371 mn in directional trades in developed countries $215 mn in yield curve arbitrage $203 mn in S&P 500 stocks $100 mn in junk bond arbitrage Only 4.6 billion? How does that apply to the 8 trillion bailout of today? Or is it about moral hazard? It was a sign of go ahead you will be saved anyway.
Wilipedia about covers it. Notice it said bailout was "supervised" by the federal reserve, aka, Green spam. Was going to "bring down the financial system" if they didn't do it. What a crock of horseshit.
Rogers is a CLOWN. Do yourself a favor and look up the "Commodity Futures Modernization Act of 2000". That's where the seeds of Enron and $35 TRILLION dollars worth of credit default swaps came from, not too mention the ability to trade West Texas Intermediate on electronic exchanges based in Dubai and London without any CFTC oversight or regulation whatsoever.
A very good update of what happened at LTCM by an insider 10 years later. http://financeprofessorblog.blogspot.com/2009/04/long-term-capital-management-look-back.html Good Trading.