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> FTX Chief Executive Sam Bankman-Fried told an investor this week that Alameda owes FTX about $10 billion, the person said. FTX extended loans to Alameda using

> FTX Chief Executive Sam Bankman-Fried told an investor this week that Alameda owes FTX about $10 billion, the person said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call, according to the person. This raises the question of who else Alameda owes. It's a sign of the times that $10 billion doesn't seem like a lot today, but it's way more than the Long Term Capital Management debacle: > LTCM was initially successful, with annualized returns (after fees) of around 21% in its first year, 43% in its second year and 41% in its third year. However, in 1998 it lost $4.6 billion in less than four months due to a combination of high leverage and exposure to the 1997 Asian financial crisis and 1998 Russian financial crisis.[4] The master hedge fund, Long-Term Capital Portfolio L.P., collapsed soon thereafter, leading to an agreement on September 23, 1998, among 14 financial institutions for a $3.65 billion recapitalization under the supervision of the Federal Reserve.[1] The fund was liquidated and dissolved in early 2000. https://en.wikipedia.org/wiki/Long-Term_Capital_Management https://en.wikipedia.org/wiki/Long-Term_Capital_Management When it comes to things like this, the connectivity of the money seems at least as important as the quantity.

wbl 4y ago
LTCM was a problem because everyone lent to them since they had lots of government bonds to hock as collateral. So that 4.6 billion loss due to impairment of the value of the Russian loans was a huge problem. By contrast no bank would have touched Alameda with a ten foot pole. Loan to a crypto fund?
- SevenNation 4y ago
  > By contrast no bank would have touched Alameda with a ten foot pole. Would you believe... a pension fund is involved with FTX? https://fortune.com/2022/11/10/canadian-teachers-could-have-95-million-hole-pensions-ftx-crypto-implosion/ https://fortune.com/2022/11/10/canadian-teachers-could-have-... I doubt the full extent of the connections to Alameda (or FTX) have been disclosed.
  - qeternity 4y ago
    Would you believe...that pension funds, particularly Canadian ones, invest in lots of risky assets? Also, they invested in the equity, specifically because they're not allowed to hold crypto. In theory, it's also the better risk/reward in the long run i.e. casino house vs gambler (provided the exchange isn't effectively also a hedge fund that blows up).
eigenvalue 4y ago
Cumulative inflation since 1998 is about ~83%, so that's part of it. There are other parallels to LTCM, too. Once the Alameda balance sheet leaked, people could see exactly what coins they had and where they were vulnerable. And most of the risk came from their FTT token, where their holdings would have taken years to sell at the average daily value traded. Thus other traders could start shorting FTT to catalyze the fall, just like what happened to LTCM's illiquid "off the run" bond positions: (Source: https://www.wsj.com/articles/SB968629287803799708 https://www.wsj.com/articles/SB968629287803799708 ) ____________ Badly in need of a lift, Meriwether called an old friend, Vinny Mattone, who had been the fund's first contact at Bear Stearns, LTCM's clearing broker. Mattone, who had retired, was everything that J.M.'s elegant professors were not. He wore a gold chain and a pinkie ring, and he showed up at Long-Term in a black silk shirt, open at the chest. He looked as if he weighed 300 pounds. Unlike J.M.'s strangely wooden partners, Mattone saw markets as exquisitely human institutions -- inherently volatile, ever-fallible. "Where are you?" Mattone asked bluntly. "We're down by half," Meriwether said. "You're finished," Mattone replied, as if this conclusion needed no explanation. For the first time, Meriwether sounded worried. "What are you talking about? We still have two billion. We have half -- we have Soros." Mattone smiled sadly. "When you're down by half, people figure you can go down all the way. They're going to push the market against you. They're not going to roll [refinance] your trades. You're finished."

wbl 4y ago

LTCM was a problem because everyone lent to them since they had lots of government bonds to hock as collateral. So that 4.6 billion loss due to impairment of the value of the Russian loans was a huge problem. By contrast no bank would have touched Alameda with a ten foot pole. Loan to a crypto fund?

SevenNation 4y ago
> By contrast no bank would have touched Alameda with a ten foot pole. Would you believe... a pension fund is involved with FTX? https://fortune.com/2022/11/10/canadian-teachers-could-have-95-million-hole-pensions-ftx-crypto-implosion/ https://fortune.com/2022/11/10/canadian-teachers-could-have-... I doubt the full extent of the connections to Alameda (or FTX) have been disclosed.
- qeternity 4y ago
  Would you believe...that pension funds, particularly Canadian ones, invest in lots of risky assets? Also, they invested in the equity, specifically because they're not allowed to hold crypto. In theory, it's also the better risk/reward in the long run i.e. casino house vs gambler (provided the exchange isn't effectively also a hedge fund that blows up).

eigenvalue 4y ago

Cumulative inflation since 1998 is about ~83%, so that's part of it. There are other parallels to LTCM, too. Once the Alameda balance sheet leaked, people could see exactly what coins they had and where they were vulnerable. And most of the risk came from their FTT token, where their holdings would have taken years to sell at the average daily value traded. Thus other traders could start shorting FTT to catalyze the fall, just like what happened to LTCM's illiquid "off the run" bond positions: (Source: https://www.wsj.com/articles/SB968629287803799708 https://www.wsj.com/articles/SB968629287803799708 ) ____________ Badly in need of a lift, Meriwether called an old friend, Vinny Mattone, who had been the fund's first contact at Bear Stearns, LTCM's clearing broker. Mattone, who had retired, was everything that J.M.'s elegant professors were not. He wore a gold chain and a pinkie ring, and he showed up at Long-Term in a black silk shirt, open at the chest. He looked as if he weighed 300 pounds. Unlike J.M.'s strangely wooden partners, Mattone saw markets as exquisitely human institutions -- inherently volatile, ever-fallible. "Where are you?" Mattone asked bluntly. "We're down by half," Meriwether said. "You're finished," Mattone replied, as if this conclusion needed no explanation. For the first time, Meriwether sounded worried. "What are you talking about? We still have two billion. We have half -- we have Soros." Mattone smiled sadly. "When you're down by half, people figure you can go down all the way. They're going to push the market against you. They're not going to roll [refinance] your trades. You're finished."