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Robert,
I'm confused. I *assume* that the banks dealing with unwinding LTCM's
positions are some of the very banks which had supplied funds in one
form or another to LTCM in the first place.
Take, for example, UBS AG, parent to the newly merged Swiss Bank Corp.
and the former Union Bank of Switzerland which has taken a $685.9
million loss so far (according to the WSJ). If I were UBS, I'd be
demanding that I take part in unwinding LTCM's positions, and (Chinese
Firewall or not) I'd be doing just what you said below, placing huge
opposite positions in order to recoup my money...or, at least
surreptitiously instructing some other entity to which I had strong (but
secret) financial ties to be doing the same.
Given that we're talking about a Hedge Fund (which is not required to
even *register* with the SEC) and an bank operating under infamous Swiss
banking laws...what prevents such a scenario from taking place?
Are there laws, for example, which would prevent LTCM from giving such
business to UBS??? If so, then my assumption above is, of course,
invalid. That would give me the kind of Warm Fuzzy feeling I'm looking
for.
I find that hard to believe, however, given the state of Un-regulated
Freedom these Hedge Funds currently enjoy plus the fact that all of the
above would likely take place off-shore, out of reach of American
banking laws and regulators.
So call me cynical, but personally, I can't help but feel the American
Taxpayer is going to end up eating this un-ordered desert sometime
before the table is cleared. It happened in the past with the S&L's
and, unless someone can show me differently, I'm having a difficult time
seeing how we shouldn't expect to end up in essentially the same
situation this time around the Mulberry Bush.
Anyone know exactly *who* is unwinding LTCM's positions??? Any way of
finding out???
Dave
Robert wrote:
> Hi Jim,
> The individuals in the banks delaing with the LTCM fiasco would be the
> "credit limit" or "liquidatuion" boys/girls. These people are totally
> different from the bond traders in each of these banks. All the relevant
> banks would have "Chinese walls" between the individuals dealing with the
> LTCM fiasco and the bond traders in their respective organisations.
> Therefore, the dealers who trade bonds in each respective bank would not be
> able to get access to this information.
>
> If these banks DID know the position, then they would all put the opposite
> spread trade on, all of these banks would push the spread out further and
> LTCM would just fold and all the banks would lose nearly all of their
> money. Each of the banks would have to place a HUGE opposite position each
> in order to get their money back. Risk limits in each organisation would
> prevent them from placing such a large spread trade.
>
> If you see LTCM go belly up in the next 2 weeks then rest assured the bond
> traders in the banks DID FIND OUT the spread position and each bank
> probably placed opposite spread trades. If LTCM continues to trade in the
> next few months, then the traders in the banks DID NOT know the position.
>
> Only time will tell........
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