LTCM General Counsel: "The U.S. Stared Near-Catastrophe In The Eye, With LTCM, And Decided To Double Down."
Must read interview by Kathryn Welling with James Rickards, former General Counsel of Long-Term Capital Management. His observation that the financial system is now as risky as it was back then is something that modern bankers will hear and thoroughly forget immediately, only to be reminded once everything collapses once again: "What strikes me now, looking back, is how nothing was changed: no lessons were applied. Even though the lessons were obvious, in 1998. LTCM used fatally flawed VaR risk models. LTCM used too much leverage. LTCM transacted in unregulated over-the-counter derivatives instead of exchange traded derivatives. So risk models needed to be changed, or abandoned. Leverage had to be slashed. Derivatives had to be traded on exchanges or cleared through clearinghouses. Regulatory oversight needed to be ramped up... The government did just the opposite. Glass-Steagall was repealed in 1999, so that banks could become hedge funds. The U.S., in effect stared near-catastrophe in the eye, with LTCM, and decided to double down."
All this and much more in the attached interview.