>Quite evidently not, until the Fed banged their heads together. Then,
>suddenly, the $300 million apiece that the Street's leading lights
>tossed into the Long-Term Capital kitty looked like chump change
>compared to equity hits that could have ranged in the billions, had they
>been forced to write off the loans and other forms of credit they'd
>extended to the hedge fund. Which they'd have been forced to do, had it
>sought protection from creditors. Not to mention the $1 trillion or so
>in collateral damage that the urgent unwinding of the hedge fund's
>positions might have done to the banks' and brokers' own immense
>derivatives positions.
>
>One gauge of just how awful was that abyss, says
>our shrewd trader friend, is that Wall Street's notoriously competitive
>movers and shakers came together on the bailout even though Long-Term
>Capital's clearing broker, Bear Stearns, and a major trading partner,
>Lehman Brothers, refused to kick "full shares" into the rescue pool.
>Better to cover the exposure of improvident rivals than to be marked to
>market.
>
>On that score, it's sobering to note that $125 billion of the
>total of $365 billion of commercial loans made in this country last year
>were extended to finance securities dealings. The banks lent that vast
>sum either to themselves -- to buy non-Treasury securities for their own
>books -- or to securities dealers. Would it be any wonder, now that all
>manner of securities markets have so graphically demonstrated that they
>can move rapidly in directions other than up, if lending officers were
>to suddenly get religion?