Discuss the below:
Q1. In the context of Long Term Capital Management's portfolio and investment strategies, briefly describe the conditions and circumstances that led to LTCM's demise. More specifically, how did LTCM's strategies and management expose the firms, as well as the broader financial system, to unforeseen risks?
Q2. Why did the Federal Reserve Bank of New York believe it was necessary to intervene after it became aware of LTCM's problems?
Q3. Compare the LTCM collapse in 1998 with the collapse, a decade later, of Bear Stearns. In what ways are they similar? In what ways are the different?
Q4. Compare and contrast the Fed's response to the LTCM blowup vis-à-vis the Bear Stearns collapse. [Note that this is different from Question 3 above].
Q5. What is Section 13 (3) of the Federal Reserve Act and how does it pertain to the cases of LTCM, Bear Stearns and Lehman Brothers?
Q6. Unlike Bear Stearns and LTCM, Lehman was allowed to fail. Why do you think that Lehman was treated different than LTCM?
Q7. In your opinion, should Lehman have been bailed out? Why or Why not? [Note: as part of the answer to this question, you should explore Ben Bernanke's rationale for allowing Lehman to fail].
Q8. In your opinion, would any of the additional regulatory mechanisms provided by Dodd-Frank have prevented the LTCM debacle?