For the uninitiated, the stunning flameout of LTCM was a key spark that led to the market implosion of the late 1990s continuing through 2008 with the demise of Lehman. Deregulation and bailout protocols developed during this period foreshadowing the government’s approach to the recent meltdowns.
A number of my patients have worked for hedge funds based in Stamford and Greenwich. The operational style of hedge funds developed in these affluent areas set the tone and mentality of the market free-fall that precipitated the Great Recession of 2009.
LTCM was a U.S. hedge fund that utilized trading strategies such as fixed income arbitrage, statistical arbitrage, and pairs trading, combined with enormously high leverage. LTCM was founded in 1994 by John Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. The Board of Directors included Myron Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences. These guys were clearly hot shots by any measure.