Part Three: The Rise of Long-Term Capital Management and the Superportfolio
This is an extremely compressed version of the story of Long-Term Capital Management, perhaps the most written about corporate failure besides Enron of the last two decades. If you wish to learn more, I highly recommend Lowenstein’s book When Genius Failed, linked below.
John Meriwether launched the limited partnership of Long-Term Capital Management in 1994. Limited partnerships are the actual name of the entities commonly known as “hedge funds”. The name hedge fund is in fact a misnomer; they originally developed that name because the funds were designed to “hedge” against losses by being more conservative than mutual funds, but have developed into the opposite. The appeal of such funds is that limitations on the number of partners and the overall wealth of those allowed to join (no more than 99 people or entities of a total value of over $1 million, or 500 people or entities worth over $5 million – with those worth less entirely excluded) are coupled with a nearly total lack of government regulation. Mutual funds are forced to disclose their portfolios and to maintain certain levels of diversification and leverage; limited partnerships are not.
Joining Meriwether as the partners of LTCM were former Salomon arbitrage group members Larry Hilibrand, Eric Rosenfeld, Victor Haghani, Greg Hawkins, and three very notable additions: economists Robert Merton and Myron Scholes, and David Mullins, who was the number-two at the Federal Reserve under Alan Greenspan and had previously been considered his heir apparent. With such a roster, LTCM launched with capital of $1.4 billion, the largest such launch in financial history. It had such disparate investors as the national bank of Italy and the President of Merril Lynch, and had an elegant and innovative structure, with the company that employed the partners and traders being a Delaware-registered management services company employed by a Cayman Islands partnership (the fund itself) financed by six international dummy corporations from whom investors in different nations would buy their shares.
Walking through Barnes & Noble today, one of the things that most struck me was how so many non-fiction books are published to confirm the sentiments of the people who buy them. Obviously, people buying Ann Coulter or Frank Rich’s books are already aware that they will pretty much agree with the author before they read word one. Other books, such as “What’s The Matter With California” are obviously aimed at confirming the views of the only people who would pick up such a tome in the first place.
Which leads me to wonder about what blogs we honestly read, on a weekly basis. Not the ones we admire and will check on sometimes, but the ones we open almost every day, and read nearly every post from. My list is below the fold.
As the helicopters swooped past above him, his heart pulled him forward through the jungle. His body did all it could to keep up, running faster then he had ever run in his short life. He knew who they were and he knew what they wanted. The village he had grown up in was not a hunting village or a farm village or a fishing village….it was a village whose only industry was information. Black Market information.
So we’ve all been doing our shopping, both political and Christmas, and it’s time for something nice and relaxing. So, I ran over to YouTube and thought some of the vids I like might be a good starting place!
Today I read a lot about the Astor Place Riot of 1849. It’s not exactly holiday reading. But it is a story worth telling here.
The Astor Place Riot occurred May 10, 1849 at the Astor Place Opera House. When it was over 22 people were dead and another 38 were injured. It was a deadly confrontation between the poor and the rich, who controlled the police and militia. The riot was triggered by rival performances of The Scottish Play by Shakespeare.
There comes a time where the echoes of history begin to take on a most alarming toll, like the sounding of a gong announcing the approach of an ominous new enemy just like a previously-defeated old foe.
This is that time. Put on your tinfoil hat for a trip down memory lane, and follow me…
Crossposted from ePluribus Media 2.0, because one can never have enough foil and recycling is good for you. Also available in orange.
The day after Christmas, I’m heading back to the Gulf Coast for a week
with the volunteers. If The Muse doesn’t run out on me, this will be the first in a series of short and easy reads on what it all means. Or doesn’t.
This trip came about because we had some money left over from the last one.
After three trips with no skills other than strong backs, it was becoming pretty clear that unless we could kick it up a notch, there wouldn’t be much use in returning.
There comes a time where the echoes of history begin to take on a most alarming toll, like the sounding of a gong announcing the approach of an ominous new enemy just like a previously-defeated old foe.
This is that time. Put on your tinfoil hat for a trip down memory lane, and follow me…
Crossposted from ePluribus Media 2.0, because one can never have enough foil and recycling is good for you. Also available in organge.
How selfish of me to be trying to drag the reader from some lovely spiked eggnog to the nitty gritty of the struggles of others.
My only rationalization is that Christmas is approaching. The whole damned story was about Mary and Joseph not being able to get a room when she was about to have her baby. I believe at the time they were traveling back to Joseph’s hometown for some registration or other. (What’s that cool French phrase that means, “the more things change …”? Cestdelamemchanceorsomethinglikethat.)
So with that admittedly self-serving rationalization, I continue with a story that has grown more and more interesting to me, the public housing issue in New Orleans.
From the indefatigable oyster at Your Right Hand Thief, a pertinent question of what the nature of this public housing will be:
Quoting the Times-Picayune:
Unbowed by days of caustic protests, the New Orleans City Council on Thursday unanimously approved the demolition of four sprawling public housing developments, launching a new era in the troubled history of a social safety net launched in the World War II era.
…
The unanimous decision, which put to rest some predictions of a racially split vote, handed a major victory to President Bush’s housing aides, who have pushed for mixed-income developments as a way to restore an original goal of public housing: to provide transitional housing to help people elevate themselves from poverty.
(emphasis mine)
Oyster goes on to question this new meme being introduced by our politicians and our media, “transitional housing,” and questions if that was the original reason for why our country helped folks with their homes.
You can read the entire post and there are some comments which do some research (including a link from Yours Truly).
So let me see here.
Folks were evicted from their public housing after the federal flood, even though their homes were not all damaged. They were sent to far flung places in and out of the Gulf Coast region. They received some assistance from the feds and from the state, but some of that assistance is running out, some folks are being evicted from their FEMA trailers, there’s a big question about housing — heck, there’s also illegal demolitions going on of middle-class housing that have resulted in law suits, serious ones.
So there’s a big mix here, it would seem to me. Whether it’s public housing or illegal demolitions of private housing, a lot of tearing down and building up (and the attendant big money contracts for same) is going on. And it will affect the entire city, the rich and the poor, imo.
We’ve heard many promises from politicians, trumpeted in the traditional media both locally and nationally, that those poor folks, those wretched poverty stricken folks will be treated with great compassion and housed well all due to the bounty of our federal government and its great agencies HUD and FEMA! They are regular Santa Clauses! Yay!
But of course this housing is only transitional. And what does transitional mean, I wonder? ‘Course just having a home is not exactly a ticket to high class status here in the good old U S of A. I dunno, jobs might help, daycare centers, hospitals, schools, libraries, all the kinds of community services so many of us take for granted, that might also help with this so-called “transition.”
How long is a transition, I wonder? Well in this instance I guess a transition depends on the money — oh not the money someone on public assistance makes, oh no! It depends on the money the government is willing to spend for this noble goal of helping to transition folks out of that nasty awful poverty they’ve got themselves in.
So it could be that next year some of these noble heroes from HUD or FEMA or maybe even some local developer with a lot of power and a lot of greed, could decide that a miracle has taken place! Each and every one of those folks, even the ones in the diaspora who have not yet come home, well can you believe it! They have all successfully transitioned from poverty and we no longer even NEED public housing! Hosanna in the highest!
Transitional my ass.
Here’s what I would like to know. Who is getting the demolition contracts? How much will they be paid? Will the citizens of New Orleans get the information they are entitled to get from the City Council on exactly who is doing what in this large project? And I am not just talking about public housing here, but city planning generally. Will the citizens whose lives are going to be affected by these decisions be given the information they need to judge how well this job is being done, so that they can feel comfortable with the results?
That’s what I’m interested in when it comes to New Orleans. I’ll stick the “transitional” meme in my meme box with all the others, like “what part of illegal don’t you understand?” or “you are only allowed to have a television if you earn over $50,000 a year,” and “impeachment is impossible, we don’t have the votes.”
I believe the story of Mary and Joseph and the birth of Jesus is about far more than housing. But it cannot be denied that they were in very “transitional” housing indeed on that night a birth took place in a manger. With wise men and extremely groovy gifts. A night of contrasts, I guess.
I thought I would add two others to my Canadian music you might not have heard of who I happen to like.
The first is a band called Blue Rodeo, they have a bit of a country edge and get occasionally play in the US on CMT. They aren’t quite as big as the Tragically Hip but they aren’t starving artists, they make a good living selling a lot of CDs mainly in Canada.
The next is a wonderful jazz/pop singer named Molly Johnson. For some reason I thought NKP might like her based on what I have heard from her lovely audioblog offerings.
You will realize that the third one is actually a commercial promoting tourism in Ontario, the province I am from. It is kinda sweet and it made me homesick.
