Re: LTCM and Low-Probability Events

From: John Conover <>
Subject: Re: LTCM and Low-Probability Events
Date: 22 Jan 1999 02:55:00 -0000 writes:
> conover wrote:
> > Its really not clear at this time whether LTCM made any
> > mistakes-their fate could have been just the draw of the lottery.
> Hi to you, John, good posting, thanks.
> Re: above quote, I doubt it was a mistake by LCTM. There were many currency
> traders that took a bad loss. Boy, those Nobel prize winners are sure keeping
> quite, huh? I hear LTCM is back in the black, already.
> I have a picture in my file, I kept. It shows the currency trading room of a
> major US bank- about 50 young people at computers (2 computers per trader,
> major graphics) - trading international curencies - a major source of income
> for that bastion bank. Scary? Why would any econ student go into any other line
> of work?

Yea, about 70% of the profits in US banks come from about 20% of the
bank's operations, which is the international currencies divisions.

I would suspect, although I really don't know, that the reason Europe
and North America were not hit harder by the Asian Contagion, (which
spread to about half the world's economies last year,) is that the
derivatives and hedging folks did a reasonable job-and had some good
financial engineers spinning their numbers. Large scale hedging and
derivatives tend to be a western industrialized tradition at this
point in the history of economics.

Of course when something like the Contagion happens, there will be,
like you say, casualties-like LTCM. But most hedge funds did modestly
well, and a few did very well.



John Conover,,

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