I NEVER said they were not. I said it was not just a function of leverage. It was a function of liquidity or lack there of. My God.
KING OF BAIN....Oh My Gawd!
- Thread starter RCG Trader
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I NEVER said they were not. I said it was not just a function of leverage. It was a function of liquidity or lack there of. My God.
The nurse gets it right, so take note. The illiquidity of the instruments resulted in LTCM not being able to exit well. However, it was the excessive leverage that caused the need to exit in the first place. They were so leveraged that price moves they might have otherwise withstood with less leverage became unmanageable. The leverage sparked the need to sell, and the illiquidity resulted in the cascade at least in part because the other side smelled blood. They would not have sold if they didn't have to. They had to sell because of their leverage.
Rant?
I called you a chickenhawk, and you certainly are.
Well, I think that is a perception issue.
It has already been established that their initial focus was venture capital. They moved into LBO later when Romney saw opportunities to restructure companies "the Bain Way" to create a stronger organization and more value. The Bain & Co strategy and culture was evidently to break away from the typical hands-off financier role, and fully immerse the firm into each businesses operations, helping to run things rather than just give advice, until there had been tangible change for the better.
But let's look at examples of Romney's turn-around abilities. Ironically, in 1990 Bain Capital's original parent company Bain & Co. was failing and was about to collapse financially. They asked Romney to come back and he did.
He took over in 1991 and completely restructured the firm. This included enhanced employee stock ownership plans, decentralizing the governing control, and increased fiscal transparency. He rallied the thousands of employees and returned the firm to profitability within one year. At the end of the second year he returned the company to the owners and went back to Bain Capital. During this time he took a salary of $1 a year.
LTCM blew out holding illiquid Russian government debt! --Mav
But they really blew because of overleverage, which led to a liquidity issue. You say you know so very much, but....really?
Go back upstairs Mav, you are clearly frustrated.
He brought up rant, so I responded, but thank you for reminding me. I will be quiet now.
Well, it's pretty hard to blow out without leverage. And exit well? Dude, the FED had to arrange for a group of hedge funds to buy out the debt. They never got out!!!!! Someone bought their book. There was no "not exiting well". LOL.
LTCM's marquee trade was the on the run/off the run basis trade. It meant they were long stuff nobody wanted (off the run treasuries and emerging market debt) and short on the run treasuries (which everyone did want). They had both sides going against them. Buying their treasury short back was not a problem other then the massive hit they took. But the only way to sell their exotic debt was to offload it at pennies on the dollar to various hedge funds.