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The people who lent too much money to LTCM did what all lenders should do at
the horrible instant that they realize that they have no collateral for
their loans: protect themselves. If they created a forced fire sale
liquidation their slim chance of recovering any of their money would vanish.
Adding injury to injury, they would have probably caused other customer
defaults in the wake of a blow out of positions.
Instead, by putting up additional capital they know have direct control of
the portfolio and the cooperation of the management team that is in the best
position to unwind the trades. Don't forget that management had a lot of
money at risk for themselves which will probably vanish with the customer
equity.
No tears for management, the customers or the lenders. They all took large
business risks and lost. On the flip side, when all things went well they
were tickled pink with themselves.
No citizen money in the bailout. I don't think that any of this was criminal
or immoral. It was high stakes poker on Wall St. with very experienced
players getting a bloody nose.
Jim
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