Lessons of the Fall: <I>TSC</I> Looks at LTCM's Fallout

Everyone thought the fund evidenced mind over matter. One year later, we examine the effects of the infamous brain trust.

Author:
Dan Colarusso
Publish date:
Sep 23, 1999 2:31 PM EDT

After a tumultuous late summer of 1998, the market cracked under the pressure from the failure of highly leveraged

Long Term Capital Management

. Prodded by the

New York Federal Reserve

and deep self-interest, 14 of Wall Street's major powers stepped in to bail out the fund to which they had lent so many billions and to wrest control of its operations.

Once hailed as the best collection of financial minds ever assembled, the firm now is synonymous with excess and mismanagement. Its supertraders such as

John Meriwether

and Nobel laureates like

Myron Scholes

had dug themselves a $3.5 billion hole by using unusually high amounts of borrowed money to establish their positions.

LTCM: Talk about it on

TSC

Message Boards.

Now, one year from the day the Fed stepped in to rescue the market -- or at least the 14 banks that extended credit to Long Term Capital --

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