Comments on: Long Term Capital Mismanagement

By: Thick Turbid Transparency

Thick Turbid Transparency — Mon, 24 Nov 2008 20:14:36 +0000

[...] late October, I wrote about Paulson’s statement, “The program right now is for banks and thrifts.” I was alarmed to see his qualifier “right now.” It indicated to me that he was [...]

By: Wallen's

Wallen's — Thu, 30 Oct 2008 07:57:12 +0000

Hi Allan, I fully agree with you: hedge fund are going to go bust and actually they are already going bust behind closed doors (terms renegotiated, etc) but it’s not yet on the front pages. There is already been more than USD 200 bn withdrawal from hedge funds (roughly 10% of AuM). And yes, the big ones will be bailed out.

Rand, I agree that it is moral hazard but is there really an alternative? Let’s not forget the consequences of having let Lehman fall. I think it’s the lesser evil. There is already progress. At least in Europe, when govt intervened in the past there was no upside for the governement and shareholders got minimal (if at all) dilution. If there is no suitable buyer, the govt needs to ensure that existing shareholders get massive dilution, CEO gets fired, and keep the upside for the taxpayer.

By: Jordan Gunderson

Jordan Gunderson — Mon, 27 Oct 2008 17:45:10 +0000

I’d never heard of that 1998 bailout. Thanks for the great info.

By: Rand

Rand — Mon, 27 Oct 2008 14:20:16 +0000

I think I have come up with the perfect business plan. Start a company and do anything with a high degree of risk that is very profitable in the short term. Make sure to get as many other players involved heavily. Then, when things turn south, get the government to bale us out.

The most important concern in all of this is the moral hazzard. You simply teach people that irresponsible behaviour is ok. When it works you keep the upside. When things do not work, the Feds will bale your out.

Of course, the people who actually pay are those who did not take unreasonable risks, accepted their more modest gains, and now have the money the government can appropriate to cover the loses.

The government will soon pass a law requiring all ants to share their stored food with the grasshoppers.