Dividend Stocks - The Dividend Daily » Blog Archive » The Bailout Precedent was Set in 1998, but That’s Not the Point: "The “smartest” money (the best and brightest money managers on Wall Street) surely remember the federal bailout of failed hedge fund Long-Term Capital Management back in 1998. LTCM was initially extremely successful in its fixed income arbitrage plays, but required huge amounts of borrowing leverage to profit from their complex system (sound familiar?). LTCM’s strategy was based on bond price convergence, and as bond prices diverged due to changing overseas market conditions, assumed gains turned into gigantic losses.
Eventually, in order to prevent a perceived catastrophe, the Federal Reserve Bank of New York (FRBNY) stepped in. The FRBNY encouraged a number of investment banks to work together at that time to reach a bailout plan for LTCM, because the size and scope of its positions were “too big,” and the firm’s imminent failure threatened to have a huge impact on markets worldwide.
Does this sound like deja vu to anyone else?"
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