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That is absolutely true. These bets were put on though b4 all that
happened and when all was copacetic, the trades made sense. Their error
was not seeing the problem quickly enuf, or being so arrogant as to
think that it would come back soon rather than taking their lumps and
going forward.
Steve Poser
Tin Mervin Yeung wrote:
>
> Hi, RTs,
>
> I heard that Long Term Capital screwed up because it was betting on the
> narrowing of bond spreads of different qualities, such as the spread
> between Italian gov't bond and German gov't bond. I am puzzled. Why
> did they think that in a global debt liquidation, this type of bond
> spread would narrow?? Isn't it the basic theory that under economic
> stress, flight to quality almost always occurs? Even before Russia,
> Asia was already in a debt liquidation. Correct me if I am wrong.
>
> Mervin
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