2008 Bailout

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CSPAN Rep Paul Kanjorski
Reviews the Bailout Situation

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Who here remembers an earlier bailout, that of the hedge fund Long-Term Capital Management? This mammoth fund was led by respected academics and relied on seemingly sophisticated algorithms but was caught short by the financial turmoil following the collapse of the Iron Curtain. Many big names stood to lose their fortunes but were rescued by a bail-out co-ordinated but not funded by the US Federal Reserve Bank. Not only were their original capital investments in the fund recouped under the bailout, but also their profits on paper at the time of the collapse, which amounted to a profit to them of about 300%. We read:

Long-Term Capital Management (LTCM) was a hedge fund founded in 1994 by John Meriwether (the former vice-chairman and head of bond trading at Salomon Brothers). On its board of directors were Myron Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economics[1]. Initially enormously successful with annualized returns of over 40% in its first years, in 1998 it lost $4.6 billion in less than four months and became the most prominent example of the risk potential in the hedge fund industry. The fund folded in early 2000.