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At 01:07 PM 9/29/98 -0700, you wrote:
>Robert,
>
>What's to prevent the LTCM principles themselves from taking advantage
>of LTCM's situation? Given that Hedge Funds do not have to register
>with the SEC, I'm having a difficult time seeing where Controls of *any*
>kind come into play in situations such as this where the last one left
>holding the Bag ends up the Big Looser.
>
>Are we in for a Feeding Frenzy of the Second Kind...sharks eating
>sharks?
>
>Dave
Dave,
If the LTCM principles could get access to millions of dollars into a
personal account, then they would need to get approval from the merchant
banks that make markets in these bonds to permit him to deal with them.
This is actually harder than you think. It is a piece of cake to open up a
share trading account or futures account, but in the physical bond markets,
you usually need to get approval from middle-upper management before any of
the princiapals could get approval to deal. Perhaps the old boys club may
let them... who knows..
Usually in the hedge fund industry, the principals have alot of their
personal wealth as part of the funds under management. This means that if
the investor suufers then the principal suffers also. Persoanlly, if I
wished to invest in a hedge fund and the principal has NO personal wealth
in the funds under management, THEN I would forget about them.
The principal losers in a feeding frenzy are the LTCM principals and the
lenders. Unfortunately, the lenders are the banks in NY, Zurich, Tokyo &
Frankfurt. If this occurred 19 months ago, I think that the Fed would have
let them go belly up, but the environment today forces the Fed to ensure
that there is stability in the financial system.
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