[PEN-L:1251] Clipping Hedges

[Dennis R Redmond <dredmond@xxxxxxxxxxxxxxxxxx>]

The November issue of Euromoney has a fairly scathing (for Euromoney)
review of the sordid LTCM bailout. One article describes the genesis of
the Fed intervention as follows: "Peter Fisher, executive vice-president
at the NY Fed, had heard enough in daily chats with bankers to know they
were all concerned about Long-Term Capital Management. He also sensed
there was too much rivalry between the main players for them to get round
a table and sort this out [LTCM's meltdown] by themselves. On Sunday
September 20 Fisher went to LTCM in Connecticut in Greenwich with
assistant treasury secretary Gary Gensler and two other NY Fed colleagues.
Having looked through LTCM's books, they were all staggered at the sheer
volume of trades." (pg 35) Bankers evidently must have amazing
conversational powers, to get a whole mission team from the Fed to
investigate the books *themselves*.

One question: at one point, columnist Michelle Celarier
quotes House Rep. James Leach, chair of the House Banking and
Finance Committee, to the effect that "a third of hedge funds are highly
leveraged." (pg 39). Does anyone know if this is true, and how high that
leverage might be? Do we have any idea how horrible a bubble bust could
get?

-- Dennis