LTCM was in big trouble right after the crisis that occurred in Russia. Merriwether sent a letter to his investors to tell them about the losses that happened in the month of August and was relatively calm and optimistic for the month of September. The rest of Wall Street knew that Long-Term was in trouble and rival firms were starting to sell because to get themselves out of trouble. Long-Term was in desperate need of help and struck a deal with Goldman who offered $1 billion of their clients’ money and a promise to help Long-Term raise another billion dollars. Nobody wanted to invest in Long-Term including big names such Warren Buffet, Michael Dell, and Alwaleed bin Talal bin Abdulaziz al-Saud. The firm was losing millions of dollars quickly and couldn’t afford to wait to make any moves. As the firm lost more money, tensions between the partners also started to rise. Goldman continued in search of an investor, but they couldn’t find enough to cover the $1 billion that they promised to raise. The complicated partnership structure is what drew a lot of investors away from Long-Term. Eventually, Buffet decided to invest as long as Goldman handled the details.
Question: Long-Term had invested in risky bonds all over the world which is why they made so much money, but was also the reason why the firm failed. At the time, do you think the firm was right in their decision to continue to buy these bonds before the Russian crisis knowing that they could potentially lose everything or do you think they should have played it safer just in case something did go wrong?