If At First You Don't Succeed...

Try, try again using other people's money!

This is a very interesting post about the guy behind the last two big financial crashes, LTCM and
the 2007-9 financial crash: John Meriwether.

Here's the story as told by Matthew Yglesias on his blog Think Progress:

Good news for investors who like to lose all their money, “John Meriwether, the hedge fund manager and arbitrageur behind Long-Term Capital Management, is in the process of setting up a new hedge fund – his third.” What’s that, you ask, didn’t his first fund lose all its money? Why, yes. And didn’t the second fund fold because it lost a ton of money? Yes, quite so. So how will this new one be different? It won’t! It’s “expected use the same strategy as both LTCM and JWM to make money: so-called relative value arbitrage, a quantitative investment strategy Mr Meriwether pioneered when he led the hugely successful bond arbitrage group at Salomon Brothers in the 1980s.”

The way this works is that you identify arbitrage opportunities such that you make trades you’re overwhelmingly likely to make money on. But those opportunities only exist because the opportunities are very small. So to make them worth pursuing, you need to lever-up with huge amounts of debt. Which means that on the rare moments when the trades do go bad, everything falls apart: “The strategy typically has a high ‘blow-up’ risk because of the large amounts of leverage it uses to profit from often tiny pricing anomalies.”

As a friend puts it, this strategy is “literally the equivalent of putting a chip on 35 of the 36 roulette numbers and hoping for no zero/36.” But you’re doing it with borrowed money. I’m not a huge believer in human rationality, so I totally understand how this scam worked once. That he was able to get a second fund off the ground is pretty amazing. If he finds investors for a third spin around the wheel I’m going to propose confiscating all the rich peoples’ money and giving it to capuchin monkeys.

Go read Yglesias' blog to get the embedded links.

Since Obama refuses to legislate banking control, we are bound to go through another crash. Back in the 19th century they came roughly every 10 years. LTCM was 1997 and ten years later we had the latest crash. So be prepared to see another meltdown in 2017!

I thought Obama was a smart guy. Well, I guess he is, but he is smart enough to look after his own interests by selling out to the Wall Street crowd. But he isn't "smart" in the sense that his hero Lincoln was in making hard decisions for the good of the nation. FDR did the right thing by putting banking regulation in place. Why can't Obama. Oh right, Obama is paid for and owned by Wall Street as far as the issue of regulation is concerned.

I guess in Obama's mind he will leave a legacy if he gets a watered down health care bill passed. Who needs financial stability when 95% of the population is covered by a half-assed private insurance system?

In short, I'm disappointed.