Brady Bonds represented a loan workout of foreign sovereigns collateralized by U.S. Government securities, whereas our current crisis seeks to rescue domestic public companies. The epilogue: Two major changes occurred at many of the Latin American nations which were part of this IMF and U.S. Treasury-led workout. First, over the next two decades these economies pulled themselves out of debt and grew into substantial and stable economies. Brazil, Argentina and Mexico are now significant players in global economics, representing a more significant percentage of global GDP thanks to their rich natural resources, economic stability and free trade agreements. Second, many of these nations, such as Argentina, which were run by military juntas eventually morphed into democracies.
Bear Stearns opted not to participate in this workout, as the company claimed that, as LTCM's clearing broker, the company already had enough risk exposure to the hedge fund. That did not sit well with then Merrill Lynch CEO David Komansky, who led the effort to work out LTCM. Komansky knew that Bear Stearns was the only broker-dealer holding collateral and felt that Bear Stearns was as much at risk as the other banks and brokers. (In the current financial sector shakeout, Merrill Lynch was recently acquired by Bank of America ( BAC - Get Report).) The epilogue: The global financial markets did not sustain a systemic breakdown. LTCMs positions were stabilized and liquidated within two years. The consortium's capital was returned along with some modest profits. A few years later Meriwether started another hedge fund, JWM Partners, where assets swelled to over $3 billion by the beginning of 2003. However, that fund lost 24% by the end of March 2008, as a result of the current debt crisis. The LTCM rescue would come back to haunt Bear Stearns. This year, when Bear Stearns faced serious liquidity issues , no bank or broker-dealer would come to the institution's rescue, as they all remembered Bear Stearns' unwillingness to participate in the LTCM workout. Bear Stearns was widely seen as injured and many of its competitors were happy to see it fail. The Federal Reserve had no choice. Either it had to let Bear Stearns fail or engineer a sale - as it did via JP Morgan Chase though loan guarantees. I refer to as "the revenge of David Komansky."
The creation of the Resolution Trust Company which took over many savings and loans after a real estate induced financial crisis in the 1980s. The Scandinavian bank rescues of the 1990s, when Sweden and other Nordic nations nationalized their banking system. The nationalization of the United States' rail system into Amtrak, in the wake of the bankruptcy of Penn Central.