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A Financial Failure

September 28, 2011 by  

Do you think we’ve seen some financial turmoil this year? Let me tell you what happened 13 years ago this week, when one of the most highly touted investment vehicles ever created failed.

On Sept. 22, 1998, Long-Term Capital Management shocked the financial markets when it revealed that it was at risk of imploding and destroying billions of investors’ dollars when it did.

LTCM was founded and backed by some really smart and really wealthy people. But in 1998, disaster struck. When a series of interest-rate bets went bad, the company lost $4.6 billion in a matter of months.

“At the beginning of 1998, LTCM had equity of $4.72 billion, with borrowed capital of more than $124.5 billion and assets of about $129 billion,” wrote Adnan Siddiqi and Peter Hrubi in Islamic Investments Funds Versus Hedge Funds. “From the beginning of 1998 until September 1998, LTCM’s equity fell from $4.72 billion to $600 million… Total losses were found to be $4.6 billion.”

Faced with a potential financial catastrophe, the Federal Reserve organized a bailout of $3.625 billion from 15 investment banks. “On September 29, 1998 the control of the LTCM was passed on to Oversight Partner 1 LLC,” wrote Siddiqi and Hrubi.

There was an extraordinary amount of weeping, wailing and gnashing of teeth over the LTCM bailout back in 1998. It seems hard to believe all the fuss was over a “mere” $3.6 billion, doesn’t it? Especially since Uncle Sucker … I mean Uncle Sam … has spent more than $1 trillion since then, in a futile effort to revive our flagging economy.

The more it changes, the more it all stays the same — except the price tag keeps getting higher.

–Chip Wood







Chip Wood

is the geopolitical editor of He is the founder of Soundview Publications, in Atlanta, where he was also the host of an award-winning radio talk show for many years. He was the publisher of several bestselling books, including Crisis Investing by Doug Casey, None Dare Call It Conspiracy by Gary Allen and Larry Abraham and The War on Gold by Anthony Sutton. Chip is well known on the investment conference circuit where he has served as Master of Ceremonies for FreedomFest, The New Orleans Investment Conference, Sovereign Society, and The Atlanta Investment Conference.

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  • DanB

    So what will the next price tag be? $10 trillion? $100 trillion? At what point does someone come along with the ultimate price tag and we cheerfully accept it, our freedom? To become willing slaves.

    Note: some of us believe we have been selling our freedoms all along.

    • DonnieB

      AT this point, it is just another big number. We don’t have the 1 trillion let alone 10 or a 100 times that amount. Maybe those aliens that Axelrod spoke of will just drop that 100 trillion on the US Treasury.

      I am reminded of someone I knew ( definitely not a financial genus, you know the type; sort of like Tim Geitner ) who said when buying their first house and kept looking at ever increasingly more expensive homes, “I might as well buy the most expensive they’ll let me have because I’ll never finish paying for it anyway. On this last point, she was correct: she never finished paying for it.

      Over your head in debt seems to be the way that many Americans and their government have subscribed to.

  • s c

    Thanks much, for mentioning little Timmy G, Chip. Timmy is such a good example of someone who’s been picked on and singled out for being seen as less than a god. Anybody remember G’s experience at the New York Fed?
    Isn’t it curious how someone can work at the Fed [didn't he RUN it?] and not know jack squat about money matters? It’s enough to make me think that Bernanke is no financial genius, if G is an example of rubbing shoulders with a Fed ‘God.’
    In fact, G is much more like Axelrod, who’s just another part-time communist and part-time progressive utopian (Alinsky-style). Between G and Axelrod, Obummer sure knows how to pick ‘em. That is, criminals associate with other criminals. It’s part of the “contract.” If this isn’t America’s “criminals R Us” administration, it IS one ____ of an imitation, folks.


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