LTCM rescue `avoided serious disruption'
Friday 02 October 1998
The Chairman of the Federal Reserve was defending his decision to lead a rescue of the fund, which hit severe trouble last week. He spoke to the Senate Banking Committee in unusually frank terms, explaining his concerns which led to both the rescue and the Fed's decision to cut interest rates on Tuesday.
"Had the failure of LTCM triggered the seizing up of markets, substantial damage could have been inflicted on many market participants, including some not directly involved with the firm, and could have potentially impaired the economies of many nations, including our own," he said.
The New York Fed co-ordinated the rescue, bringing in 14 large commercial banks to prop up the fund and help unwind its positions. LTCM had failed to analyse the impact of a catastrophic collapse such as that which hit Russia and Asia, leaving it badly exposed. The rescue "avoided possible serious market dislocations," said Mr Greenspan. In a statement accompanying the interest rate cut, and in Congressional testimony last week, he underlined that - as well as concern about the impact of the global economy on the US - there were serious worries about the lack of liquidity for financial services companies in trouble. Cash has fled to quality investments, taking Wall Street down and raising bond prices to such an extent that US 30- year Treasury bond yields are at their lowest in decades.
The financial markets have continued to fear the collapse of another hedge fund, or serious problems at one of the banks exposed to their trading. But Mr Greenspan warned that the rescue of LTCM was "a rare occasion, warranted because of the potential for serious disruptions to markets".
- 1 Barbarians vs Samoa interrupted by sprinklers as fans criticise lack of Wi-Fi and poor seating at West Ham's Olympic Stadium
- 2 Watch the Supermoon live: How to see the brightest Moon of the year tonight
- 3 Hulk Hogan wants to be Donald Trump's running mate in the US Presidential election
- 4 Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
- 5 David De Gea to Real Madrid: Real finally get their man with £29m bid for Manchester United goalkeeper
Caitlyn Jenner car crash: Driver who died in collision sued by surviving passengers for $18.5m
Watch the Supermoon live: How to see the brightest Moon of the year tonight
Hulk Hogan wants to be Donald Trump's running mate in the US Presidential election
Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
Turkey duped the US, and Isis reaps rewards
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
'Women only' train carriages: Jeremy Corbyn unveils radical move to tackle public harassment
Black holes are a passage to another universe, says Stephen Hawking
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
Tony Blair attacks Jeremy Corbyn's 'Alice In Wonderland' politics
Theresa May says jobless migrants should be banned from entering the UK
iJobs Money & Business
£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...
£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...
£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...
£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...