3 ms·
In the long term we are all dead. Or, to quote Keynes again, markets can remain irrational longer than you can remain solvent. It's not just a question of wheth
by mattobrien 18y ago
In the long term we are all dead. Or, to quote Keynes again, markets can remain irrational longer than you can remain solvent. It's not just a question of whether these real assets will rebound in value within the next few months/years - it's also a matter of how much margin the HMC might need to put up for realized losses. Deleveraging forces you to sell at firesale prices into illiquid markets.
The Wall Street firms that bailed out LTCM in 1998 actually made a profit off of LTCM's assets within the next 1-2 years, once the markets returned to rationality. Unfortunately for them, LTCM didn't have the capital to weather that storm. Depending on what else HMC holds, they too might be forced to liquidate what seem like economically sound positions at a loss.
- shimon 18y agoYes. The article gives the California Public Employees' Retirement System as an example of extreme losses due to over-leveraging. I didn't see anything in the article to suggest that HMC itself was dangerously leveraged, though. Considering the long-term outlook and vast wealth of Harvard, one wouldn't expect it to gamble anywhere near as much as a hot-shot hedge fund, or even as much as a pension fund with an implicit government guarantee. That's just speculation, though; real data would be welcome.