hi Rem, I assume youve read up on LTCM as much as I have. LTCM were unable to trade out of it, because they couldnt convince their banks to extend more credit. When each bank (ML, UBS, ABNA, SSB, etc) found out how deep each other bank was involved, they hit the roof and raised margin requirements. Up until the bailout, LTCM had refused to tell anybody who the other clients were, or what % each held. While the profits were so high, the veil of secrecy remained intact. Only when the losses started, did the banks get together and call the fed.
I respect Buffet, but I dont think its as bad as he says. So theres a derivatives meltdown oneday, and high risk takers lose heaps. Nobody touched derivatives for a few years and then they surface again. Gamblers come, gamblers go. Someone gets wiped put, someone new comes in.The market is always shifting the goalposts.
