Mark Tran in New York
John Meriwether, the head of stricken hedge fund Long Term Capital Management, recently accused big Wall Street firms of preying on his company when it lost millions last year, in the hope of buying up his firm on the cheap.
He was speaking in public for the first time since Long Term nearly collapsed last year. It lost more than $4-billion in a six-week panic, leading the New York Federal Reserve to orchestrate a bailout of the hedge fund amid fears that its failure would precipitate chaos across the world’s financial system. The near collapse of Long Term crushed the reputation of Meriwether and the high-powered team of Nobel laureates he put together at the company.
Instead of the millions Meriwether and his colleagues formerly made each year, they are now paid salaries of $250 000 – the starting wage of a bond trader without a bonus – by the consortium of securities houses and banks that now owns Long Term.
Speaking about the chain of events that almost destroyed his once high-flying firm, Meriwether told the New York Times Magazine that Wall Street firms contributed to Long Term’s crisis. He sees the collapse as a two-stage affair. First came the market panic by big Wall Street firms which had mimicked Long Term’s financial bets. Then, as word of the hedge fund’s weakness spread, Meriwether argues, Wall Street rivals moved in for the kill.
“The few things we had on that the market didn’t know about came back quickly,” Meriwether says in his tortured market phrasing. “It was the trades that the market knew we had on that caused us trouble.”
Richard Leahy, a Long Term partner said: “It ceased to feel like people were liquidating positions similar to ours. All of a sudden they were liquidating our positions.”
By the end of August, Long Term needed a capital injection of $1,5-billion. Meriwether believes that if the firm had been allowed to ride out the panic, it would have made more money than ever. “We dreamed of the day when we’d have opportunities like this,” said Eric Rosenfeld, one of Long Term’s executives.
But when Meriwether called people for help, he got little sympathy. Instead, Wall Street firms began to take market positions that undermined Long Term’s already shaky status.