Lehman Brothers
Failure of Long Term Capital Management, Amaranth Advisors and Lehman Brothers
Jose de Jesus Del Rio Sanchez
Briana Sanchez
Alex Santos
Caitlin Yagow
Wenhao Zhao
Table of Contents
Introduction
Throughout the twentieth and into the twenty-first century companies withinthroughout the financial industry have done their best to make as much profitsas they possibly could. They put forth every effort to expand their businesses and make them as successful as possible. In this effort, they often created new mechanisms for earning larger profits, while simultaneously increasing their exposure to risk.It madeit much more difficult to realize an ever increasing profit, without taking on this additional and innovative risk. However, some of these companies took on too much uncollateralized risk, which ultimately left them too exposed to the volatility of the markets and would eventually lead to their downfall.Companies like Long Term Capital Management, Amaranth Advisors, and Lehman Brothers were companies during the end of the twentieth century and into the twenty-first century that took on excessive overleveraged risk tryingto increase their profits. Each one of these companies’ risk behaviors wereall different from one another, and had different means of market execution, but in the end, they all had very similar results. This excessive risk eventually led to their collapse. Not only did these firms drive themselves into failure, but they also had an impact on others companies and on the financial market as a whole. The rest of this paper will discuss the history and failure of each of these three firms, what they had in common and what was unique to them, and finally the impact of their failures.
Long Term Capital Management
History
In 1994, a very large pooled investment vehicle,or hedge,fund was created in Greenwich, Connecticut, USA1 calledLong Term Capital Management L.P, abbreviated by its acronym LTCM. LTCMwas
Jose de Jesus Del Rio Sanchez
Briana Sanchez
Alex Santos
Caitlin Yagow
Wenhao Zhao
Table of Contents
Introduction
Throughout the twentieth and into the twenty-first century companies withinthroughout the financial industry have done their best to make as much profitsas they possibly could. They put forth every effort to expand their businesses and make them as successful as possible. In this effort, they often created new mechanisms for earning larger profits, while simultaneously increasing their exposure to risk.It madeit much more difficult to realize an ever increasing profit, without taking on this additional and innovative risk. However, some of these companies took on too much uncollateralized risk, which ultimately left them too exposed to the volatility of the markets and would eventually lead to their downfall.Companies like Long Term Capital Management, Amaranth Advisors, and Lehman Brothers were companies during the end of the twentieth century and into the twenty-first century that took on excessive overleveraged risk tryingto increase their profits. Each one of these companies’ risk behaviors wereall different from one another, and had different means of market execution, but in the end, they all had very similar results. This excessive risk eventually led to their collapse. Not only did these firms drive themselves into failure, but they also had an impact on others companies and on the financial market as a whole. The rest of this paper will discuss the history and failure of each of these three firms, what they had in common and what was unique to them, and finally the impact of their failures.
Long Term Capital Management
History
In 1994, a very large pooled investment vehicle,or hedge,fund was created in Greenwich, Connecticut, USA1 calledLong Term Capital Management L.P, abbreviated by its acronym LTCM. LTCMwas