Solved by a verified expert :MBA672N700 – Spring 2016
When Genius Failed
Assignment

In
a seven to ten page essay (at least 7 pages but no more than 10 pages excluding
transmittal page, title page, references, notes, bibliography), and beginning
with the standard Transmittal page on page two of this this assignment, describe
the journey of Long Term Capital Management (LTCM) from its inception to the
ultimate end, the lessons that should be learned from this and apply those
lessons to current day finance. Use the
outline/questions/statements below to guide you. The form of the essay should not be “question
and answer” format, but a prose report on what happened at LTCM, why it
happened and its effects, or lack of effect, on the financial markets then and
now and your opinion on these events. I
will be looking for you to address the information from the guidance below, but
you may include additional points. The
report should be submitted as a Word document, double spaced, 12 point, Arial
font with one inch margins. All footnotes, references and bibliography shall be
on separate pages at the end of the report.
You must use at least one source outside of this course – remember
Wikipedia is NOT considered a valid source at Marist. Be sure to reference pages from “When Genius
Failed” or the textbook, if used. Proofread the papers – do not rely on
autocorrect.
Grading
will be based upon how well you present and support your discussion in a clear
and concise manner. I expect to see a
solid, intelligent essay with smooth transitions from one point to the next.
Include
information on the following:
Describe
in detail what LTCM’s initial investment strategy was and how they expected to
profit from it. Be specific.
Describe
financial leverage and give a concrete example of how leverage was used to
magnify profits at LTCM. You do not need
to use derivative examples, but may make up your own numbers using simple
example(s). Be specific. Show calculation of return rates, etc. Explain why LTCM was so heavily
leveraged.
Was
the initial investment strategy followed toward the end? If not, why did LTCM change?
Why
did LTCM fail? The trades that lost
money were only the immediate cause. There
were a number of possible structural reasons.
List as many as you can think of, describe each one in detail and
explain how that factor could have contributed to LTCM’s downfall in layman’s
terms.
What
are the lessons to be learned from this failure and have they been learned? Compare and contrast the risk profile
of LTCM and the recent mortgage securities crisis. How are they similar and/or different?
Why
did the Federal Reserve encourage the bailout of LTCM? Does his activity by the Federal Reserve fall
under their six monetary policy basic goals?
If so, which one(s)?
In
general, do you think the government should “bail out” private industry? (LTCM
was a private fund). Include in your discussion the concept of “moral
hazard”. Discuss whether or not LTCM,
specifically, should have been bailed out.

Should
the LTCM partners have been sanctioned from any governmental body (lose their
professional licenses, prohibitions on working in the investment industry,
etc.)? Why or why not.
Discuss,
in light of LTCM, whether you think more regulation is needed for hedge
funds. What are the points for and
against increased regulation and then discuss your opinion.
What changes did Meriwether propose for his
new fund JWM Partners? What ultimately
happened to JWM partners?