>So yeah, the welfare system in the US is alive and well, it just underwent
>*gentrification* lately.
E.g., Long-Term Capital Management, bailed out last fall by its Wall Street colleagues & the New York Fed, is up 20% and trying to raise fresh money.
Doug
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Financial Times - April 20 1999
Corzine and Meriwether to explore LTCM buy-out By William Lewis in New York
Jon Corzine, current co-chairman of Goldman Sachs, has linked up with John Meriwether and other original partners of Long-Term Capital Management to explore ways of buying out the financial services consortium controlling the hedge fund.
In recent weeks Mr Corzine, Mr Meriwether and the partners have been approaching potential backers about raising funds for a buy-out of LTCM, whose near bankruptcy brought turmoil to the world's equity and bond markets last year.
The fund raising moves are said to be at an early stage but follow a strong improvement in LTCM's investment performance since the $3.625bn bail-out organised by a Wall Street consortium last October. Mr Corzine, who played a key role in organising the bail-out, is due to leave Goldman once it has become a publicly quoted company this year.
Mr Corzine declined to comment, as did a spokesman for LTCM's original partners. No spokesman for the consortium could be reached for comment.
Mr Corzine and the LTCM partners are thought to be considering setting up a new organisation to raise the money to buy out the consortium. "They are quietly going around asking a few people their reaction to it," said one individual approached.
The new organisation would be run jointly by Mr Meriwether and Mr Corzine. LTCM specialises in so-called convergence investing, and the new organisation is likely to continue with that style of investing. Before he became the senior partner of Goldman Mr Corzine ran the firm's fixed income business.
Members of the consortium are said to have been told about the fund raising efforts through a letter from Goldman making clear that Mr Corzine is acting in a personal capacity.
Mr Corzine is also known to be considering running for the US Senate and has been approached by Democratic leaders in New Jersey, where he lives. They want him to replace Sen Frank Lautenberg, who is due to retire.
Mr Corzine lost out in a power struggle at Goldman this year, moving aside to enable Hank Paulson to become the bank's sole chairman. Last month LTCM disclosed that it had halved its risk and balance sheet exposure and boosted returns since being rescued. At the time the consortium declined to give specific details about the fund's total continuing exposure or what types of trades they had carried out to reduce its risk and balance sheet positions. It also declined to give the current net asset value.
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Wall Street Journal - April 20, 1999
Goldman Sachs's Corzine Explores Role In Raising Funds for Long-Term Capital
By RANDALL SMITH, MITCHELL PACELLE and GREGORY ZUCKERMAN Staff Reporters of THE WALL STREET JOURNAL
Jon Corzine, co-chairman and senior partner of Goldman, Sachs & Co., is exploring a role in raising funds to invest in Long-Term Capital Management, the hedge fund that nearly collapsed last fall, according to people familiar with the situation.
Mr. Corzine, these people said, has been working with Long-Term Capital founder John Meriwether for a few weeks about raising funds to buy out a consortium of Wall Street securities firms that rescued the fund in September with a $3.625 billion equity infusion.
Mr. Corzine has yet to make a formal proposal to the consortium, though he has initiated informal discussions with some members of the group, according to one person familiar with the talks. Mr. Corzine, who built his career at Goldman as a savvy bond trader, is trying to organize a group that would include Mr. Meriwether to make the investment.
Messrs. Corzine and Meriwether would jointly be co-heads of the company that would assume control of the hedge fund, according to one person familiar with their plans, which remain at a preliminary stage. The 52-year-old Mr. Corzine, whose stake in Goldman could have a value of more than $200 million, may also be considering a race for a U.S. Senate seat up for grabs in his home state of New Jersey.
The irony of Mr. Corzine's possible involvement is that his strong backing of the Long-Term Capital rescue cost him politically at Goldman, where he was ousted as co-chief executive officer in January. He was criticized internally when Goldman suffered steep losses last fall in the same market turmoil that hurt Long-Term Capital. He was also criticized for taking a leading role in the rescue, after a separate, unsuccessful effort to buy the fund's portfolio by a group including Berkshire Hathaway Inc., American International Group Inc., and Goldman.
The bond-market losses stung Goldman all the more because they helped derail an effort for the firm to go public that Mr. Corzine had personally championed. After Mr. Corzine was replaced, Goldman revived its going-public move in March, and the firm hopes to complete that offering of roughly $3 billion in early May. Mr. Corzine is scheduled to relinquish his active role at the firm once the initial public offering is completed. Goldman has written a letter attempting to make clear that Mr. Corzine wouldn't be acting for the firm in his possible role with Long-Term Capital.
Before any new money is raised by Mr. Meriwether, the 14 financial institutions involved in the rescue of the Greenwich, Conn., hedge fund will likely insist on repayment of at least some of their investment, according to people close to the group. A payout of more than $1 billion may be required by the group before it gives the green light on any new investments.
"There have been requests from partners to be allowed to start to market" the fund, a person familiar with the group's planning said. "We've discouraged that." Between the September bailout and the end of February, the fund returned slightly more than 20%, compared with 18% for the Standard & Poor's 500 stock index, as prices of risky bonds improved dramatically.
Long-Term Capital ran into trouble in the aftermath of August's Russian debt default, when markets for bonds with risk attached froze up, crippling leveraged bond portfolios like those of Long-Term Capital and requiring the consortium of securities firms to step in and engineer a bailout.
The bailout took place under the auspices of the Federal Reserve. While these markets have recovered a great deal of their losses, they haven't yet returned to their prior stability, making the securities firms wary of holding their investment in Long-Term Capital's portfolio, despite efforts in recent months to reduce the hedge fund's risk exposure.