Trending Content - Hedge Fund Forum
Career Resources
WSO Free Modeling Series - Now Open Through
June 30, 2026
9 Free Financial Modeling Lessons
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
+Bonus: Get 27 financial modeling templates in swipe file
+Bonus: Get 27 financial modeling templates in swipe file
High Finance Applications
Guaranteed
Get at least one offer GUARANTEED
- 1:1 support
- 92% success rate
- 2,000+ mentor network
- Unlimited Live bootcamps
- AI for resume + LinkedIn
- Networking automation tools
- HireVue simulation tool
- Full course library
- Private Slack community
- 20hrs of mocks
- + much more...
Didn’t Archegos do this too? Literally took down Credit Suisse.
I was under the impression Archegos had somewhat cloaked how levered they were. LTCM is interesting because they basically got lenders to agree to skip the biggest part of DD.
"Show me your books"
"nah"
"ok here's a couple billi"
I think it was kinda the same. No individual bank thought Archegos / LTCM was levered to the tits with most of the banks?
Banks and other counterparties were willing to work with them because they seemed very smart professionals launching a fund (remember many of them had PhDs) combined with they had a really good start with double-digit returns. The math behind their trades was so complicated that even when their lenders asked to see the model no one could comprehend what was going on. It was similar to FTX in that lenders would receive pushback if they tried to audit their positions. Plus, leverage was normal in the financial system during that time, this was before the GFC regulations came in. Banks themselves were running on crazy high leverage, although LTCM took it too far from the 90s standard too.
Also lenders wanted to be involved in LTCM since it would boost their own reputation. You'd be surprised how much rationality gets thrown out the window when grown adults try to look cool.
Yep this is it. In addition to smart, I'd say they carried some moral/ethical currency too because they had academic backgrounds as opposed to Wall St backgrounds. Always gonna trust the disheveled professor more than the slick guy in the $5,000 suit.
Your last point is huge. I see something similar in startup/early stage investing where a lot of the motivation to write a check comes from the investor wanting to brag to his friends about the latest round he "was able to get in" because he knew someone.
That happens when target people hire only target people to lend to target people that hangs at the same target country club.
Dont think they went to targets, they were probably just popping at the time
How did all those parents let their kids go play with Michael Jackson? It’s not complicated. People ignore common sense when you show them fame and prestige.
It never makes sense from a top down perspective. Invert. It makes total sense from a “bottoms up” perspective. Start with the dude or gal making the loan.
He’s being paid to deploy capital and make money. If he doesn’t deploy capital - he won’t have his job for too long. Especially if everyone else who is smart / etc is doing the trade. So all of a sudden if you’re the odd duck out you look like an absolute idiot at best and at worst your bank literally thinks you are in a way losing them potential income.
okay so then what? Think through incentives. If that guy or gal piles in the trade - along with everyone else. Best case - it all goes swimmingly and everyone makes money. Worst case - everyone was wrong and hey…. They fooled everyone.
long story short there’s a lot of asymmetric upside in all risk taking careers. This applies to VC, HF, PE, and everything else. Principal / agent problem, herd mentality, social proofing, confirmation bias, FOMO. It’s all there.
Great explanation. Reminds me of the football coach who punts when he should go for it, because he has a chance to keep his job if he loses by the book.
Well said, Enron was the exact same issue.
Isn't this basically the same thing with the current MM HFs?
Nisi hic quidem voluptate. Fugiat sed sint reprehenderit velit. Quis quidem ullam aliquid in. Vitae iure enim rerum in quae alias aut doloribus.
Ut a tenetur eos corrupti eum. Et molestiae reprehenderit ut nulla ad dolores excepturi. Sit vel soluta occaecati aspernatur hic laborum. Rerum ratione aut sed accusantium praesentium consequuntur.
Ad officiis quod est sit eos. Eos veritatis saepe consectetur explicabo quis odit expedita occaecati. Maxime dolor cum laborum illo. Totam eos molestias culpa ab omnis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...