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Scott Hoffman wrote:
> It's my thinking that the only way we (the taxpayers) would get involved
> with the LTCM mess is if LTCM's creditors lost federally insured customer
> deposits due to LTCM defaults.
Scott:
I don't think we're at the point where the Fed is stepping in because an
institution lost money. But we are at a point where a large fund is in
significant trouble [may be insolvent] and the reason the Fed is involved is
because other funds have similar positions/problems of some magnitude, banks
that have traditional hedged investment portfolios [like mortgage backs hedged
against US debt instruments and other hedge portfolios] are trying to unwind
their hedges and the Fed feels it is prudent to slow down the carnage if
possible before a stampede starts.
There are other funds out there with these same 'investments' and that are in
similar trouble. I get a few calls a day from friends that still manage large
funds and they all have a horror story to share or they have prudently taken
their loss and now they are trying to make some money back trading with the
flight to quality market. And then are all of those money center banks...Hedging
mortgage backs and asset backs and about six other similar asset classes against
a short US treasury strip has been bread and butter money for years. NOW these
institutions have their backs to the wall. These portfolios are usually watched
and managed not by trader types, but by slower and less proactive cousins.
Best,
Tim Morge
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