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Forbes notes leverage in gold stocks
Noon EDT Saturday, October 2, 1999
Dear Friend of GATA and Gold:
This item from Reuters foreshadows a funeral that we
won't be invited to. Enjoy.
CHRIS POWELL, Secretary
Gold Anti-Trust Action Committee Inc.
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LTCM may be out of business,
Fed's McDonough says
By Knut Engelmann
CHICAGO, Oct. 1 (Reuters) -- Long-Term Capital
Management, the huge U.S. investment fund that almost
single-handedly threatened to bring down the world
financial system last year, is about to fold, the U.S.
central banker who oversaw its hurried rescue said on
The near collapse of Long-Term Capital Management LP,
which specialized in highly risky investment bets, last
year prompted its main creditor banks to come up with a
$3.5 billion dollar salvage package. The deal was
arranged by New York Federal Reserve President William
McDonough amid fears that the firm's demise could
devastate the entire global finance system.
quot;I'm happy to tell you that LTCM is very close to being
out of business,quot; McDonough told a top-level economic
conference at the Chicago Federal Reserve Bank. quot;I can
assure you that is a result that pleases me considerably.quot;
LTCM had borrowed heavily from large investment firms
to make bets on risky financial instruments that
ultimately proved to be faulty. The repercussions were
wide as fears grew in world markets that major
investment houses could suffer huge losses if LTCM were
not able to repay its debts.
That brought lending to private companies to a virtual
halt for a few weeks. World markets recovered only
after the U.S. Federal Reserve applied shock therapy in
the form of three interest rate cuts in rapid-fire
succession last fall to keep the financial system from
seizing up completely.
McDonough said the fund, headed by former Wall Street
maven John Meriwether and based in Greenwich,
Connecticut, had repaid most of the bailout money.
People close to the situation have said Meriwether
already is talking to wealthy individuals and other
firms seeking fresh cash to start a new fund.
quot;The firms that recapitalized it now have most of their
money back,quot; McDonough said.
quot;The remaining management of LTCM cannot do anything
at all new until they have repaid 90 percent of the equity
that was being put into them and I think that if they
continue in business at all, it will be by another name
-- and they may not be in business at all, never mind
by another name,quot; he added.
The hedge fund, started by star bond traders at Wall
Street firm Salomon Brothers and including former Fed
officials and academics, was estimated to have had
about $100 billion in investments on a capital base of
Financial markets around the world dissolved in panic
after the LTCM debacle, which erupted just after Russia
devalued its currency and defaulted on large parts of
its debt. The crisis topped off months of turmoil in
Asia's former quot;tiger economies,quot; which had already sent
shivers around the global economy.
The LTCM case has spurred efforts by U.S. bank
regulators as well as international supervisory bodies
to improve the oversight of such funds. But officials
say tighter control is difficult since many of these
investment vehicles have their legal home base outside
of their main countries of operation.