# Ltcm `kaal:entity:ltcm` **Status.** derived This node is assembled mechanically from the 13 claims that carry the concept tag `ltcm`. It is a roster of what the corpus says under this term. It is **not** an adjudicated definition: no single statement here has been ruled canonical, and no first-appearance call has been made. Read the claims and judge for yourself. ## Every claim under this term 13 claims across 5 works, 2009 to 2019. **2009** - [1428387-015](https://wulfkaal.github.io/claims/1428387-015) [failure/argued] *(failure mode)* -- Post-1998 hedge fund regulatory proposals were misdirected because LTCM was unique among its peers in leverage, position size, and market-making ability, so the proposals mostly addressed LTCM as a single case rather than the range of issues affecting all hedge funds. > Because LTCM was so unique among its peers due to its leverage, the size of its positions and its market making abilities, regulatory proposals mostly addressed LCTM as a single case119 rather than the range of issues pertaining to all hedge funds. Kaal, Hedge Fund Valuation Retailization, Regulation, and Investor Suitability (2009). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1428387 - [1428387-016](https://wulfkaal.github.io/claims/1428387-016) [failure/asserted] *(failure mode)* -- The regulatory proposals that appeared soon after LTCM did not adequately take valuation problems into account. > The regulatory proposals appearing soon after LTCM did not adequately take valuation problems into account. Kaal, Hedge Fund Valuation Retailization, Regulation, and Investor Suitability (2009). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1428387 **2016** - [2714974-005](https://wulfkaal.github.io/claims/2714974-005) [mechanism/argued] -- The collapse of Long Term Capital Management in 1998 and its Federal Reserve orchestrated bailout made hedge fund risk to international markets apparent, and concerns over excessive leverage combined with a lack of transparency drove the demand for new regulation. > Concerns over excessive leverage by hedge funds and a lack of transparency led to increasing demands for new regulation. Kaal and Oesterle, The History of Hedge Fund Regulation in the United States (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2714974 - [2748096-007](https://wulfkaal.github.io/claims/2748096-007) [mechanism/argued] -- Post-LTCM counterparty credit risk management, in which regulators pressed banks to monitor and limit the leverage of their hedge fund clients, appears to have worked: the Amaranth failure produced no financial market repercussions. > The lack of financial market repercussions after the Amaranth failure seems to suggest that this approach has been successful. Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096 - [2748096-008](https://wulfkaal.github.io/claims/2748096-008) [condition/argued] -- Market events like the LTCM failure can escalate into global financial crises when many highly leveraged hedge funds holding illiquid portfolios are obligors of a small number of major financial institutions, because adverse price movements dry up credit and depress collateral values. > A large part of the literature recognizes that market events such as the LTCM failure may lead to global financial crises if many highly leveraged hedge funds with illiquid portfolios are obligors of a small number of major financial institutions Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096 **2017** - [2998097-003](https://wulfkaal.github.io/claims/2998097-003) [mechanism/argued] *(failure mode)* -- Because banks and brokers had let LTCM borrow the full value of its collateral, LTCM's 4.8 billion dollars in capital dissipated quickly once banks began making margin calls. > Because banks and brokers had allowed LTCM to borrow 100 percent of the value of its collateral prior to the worsening of LTCM's financial condition in 1998, LTCM's $4.8 billion in capital dissipated quickly when the banks began to make margin calls. Wulf A. Kaal, Private Investment Fund Regulation - Theory and Empirical Evidence from 1998 to 2016 (2017). SSRN: https://ssrn.com/abstract=2998097 - [2998097-004](https://wulfkaal.github.io/claims/2998097-004) [failure/argued] *(failure mode)* -- Banks overexposed themselves to private investment fund lending, which allowed LTCM and similar funds to grow significantly and led banks as counterparties to put their own existence at risk. > However, banks overexposed themselves to private investment fund lending, allowing LTCM and other private investment funds to grow significantly. As counterparties to private investment funds, such as LTCM, banks put their own existence at risk with their lending practices. Wulf A. Kaal, Private Investment Fund Regulation - Theory and Empirical Evidence from 1998 to 2016 (2017). SSRN: https://ssrn.com/abstract=2998097 **2019** - [3405660-006](https://wulfkaal.github.io/claims/3405660-006) [failure/evidenced] *(failure mode)* -- LTCM was diversified across markets but not across strategy, so its positions failed together; market level diversification does not imply strategy level diversification. > It became obvious that while the fund was diversified in terms of markets, its overall strategy was not diversified. Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660 - [3405660-007](https://wulfkaal.github.io/claims/3405660-007) [failure/evidenced] *(failure mode)* -- Conventional risk models understated LTCM's losses because the models were estimated during more stable periods and therefore did not describe behavior under stress. > markets greatly exceeded what conventional risk models suggested were probable, but these were estimated during more stable periods. Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660 - [3405660-008](https://wulfkaal.github.io/claims/3405660-008) [mechanism/evidenced] -- The same leverage that produced LTCM's high returns magnified its losses, so leverage is a symmetric amplifier rather than a one directional source of performance. > In spite of the fact that leverage was key to LTCM ́s high returns, it also magnified LTCM ́s losses. Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660 - [3405660-009](https://wulfkaal.github.io/claims/3405660-009) [empirical/evidenced] -- Before its collapse LTCM held roughly $4.8 billion in capital while controlling $160 billion in stocks and bonds, with derivatives of a notional value of $1 trillion. > LTCM had $4.8 billion in capital prior to the crash and controlled $160 billion in stocks and bonds. In addition, derivatives of the fund had a notional value of $1 trillion. Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660 - [3405660-011](https://wulfkaal.github.io/claims/3405660-011) [failure/argued] *(failure mode)* -- LTCM reached systemically dangerous size because banks lent to it without regard to repayment capacity, and in doing so the banks endangered their own existence. > LTCM grew as large as it did because banks lent it money without regard for whether this money could be paid back. Banks put their own existence at risk with their lending practices during this time. Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660 - [3405660-028](https://wulfkaal.github.io/claims/3405660-028) [empirical/argued] -- Basel II was at least partly motivated by the LTCM rescue and the 1998 market turbulence, so it responds to the same concerns that animate hedge fund regulation. > Accordingly, Basle II was, at least partly, motivated by the events surrounding LTCM and, therefore, by the same concerns and problems. Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660 ## Verify Every claim above resolves to a record carrying a verbatim source quote, the sha256 of the source PDF, and a preformatted citation. Nothing here asks to be taken on trust. curl -s https://wulfkaal.github.io/entities/ltcm.md | sha256sum **Canonical form.** This markdown file is the canonical hashed representation of this entity node. Its sha256 is the content hash.