by Martin Armstrong
The Long-Term Capital Management (LTCM) collapse in 1998 has been often referred to as When Genius Failed. The collapse of LTCM was instigated by the collapse of Russia. Everyone and their 5th ex-wife was long Russian bonds as bribes were paid to people in the IMF to ensure the loans would keep flowing to Russia so they could earn huge guaranteed interest payments on Russian debt.
The collapse of LTCM illustrated the problem that I have been warning about – everything is connected. The collapse came within weeks of the turning point on the ECM – July 20th, 1998. The US share market peaked precisely that day. The crisis in LTCM was in fact that they were at least traders. They had positions in everything, Once Russia collapsed, they needed cash and this they start to sell other positions that had nothing to do with Russia just to get liquidity. This is why you cannot forecast ANYTHING in isolation or look at a simple one-dimensional cause and effect. It is far more complicated than that.