The Pros And Cons Of Long-Term Capital Management

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In 1993, Salomon Brothers bond trader John Meriwether founded the fund Long –Term Capital Management alongside with shareholders Myron Scholes a noble prize-winning economist and Robert Merton. It was the largest hedge fund in Greenwich, Connecticut with over 100 billion of assists. Within March 1994 to 1997, it had tripled its money from the investments of wealthy investors. LTCM and among other companies had to be bail out during the great recession such as Citigroup, AIG, Bank of America, and General Motors. The definition of a bailout is an act of giving financial assistance to a failing business or economy to save it from becoming insolvent. The purpose of a bailout is to avoid the businesses from having other greater impact and affects. Wealthy investor and larger companies may want to take advantage of a struggling company that has low stock prices. In addition, some countries are choosing to provide bailouts to companies that have virtual industries like agriculture and transportation. It is to secure the economy from a ripple effect that can be caused by economic damage to the country and ensure the industries function. In August 1998, The Long-Term Capital Management (LTCM) had went bankrupted and “its portfolio's value fell 44%, giving it a year-to-date decline of 52%.”(Coy, Peter) In…show more content…
The problem is trying to find where the money came from to buy these toxic loans. If the government was involved with buying them it would mean that it came from the taxpayers. Making the economy deficit much larger and resulting of the value of the U.S dollar dropping. In addition, virtual industries affected by bailouts such as when the government had offered loans to the damaged airlines businesses because September 11, 2001, became threaten with bankruptcy. Lastly, People are losing their jobs due to companies or industries collapsing and having

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