Time, the chiefs of Bankers Trust, Bear Stearns, Chase Manhattan, Goldman Sachs, J.P. On account of a crisis at LTCM, McDonough had summoned- invited,' in the Fed's restrained idiom-the heads of every major Wall Street bank. Indeed, five years earlier, LTCM had not even existed.īut on the Wednesday afternoon of September 2-3, 1998, Long-Term did not seem small. Hundred investors, it employed not quite two hundred people, and surely not one American in a hundred had ever heard of it. In this case, the shot was Long-Term Capital Management, a private investment partnership with its headquarters in Greenwich, Connecticut a posh suburb some forty miles from Wall Street. But isn't it always that way? A load of tea is dumped into a harbor, an archduke is shot, and suddenly a tinderbox is lit, a crisis erupts, and the world is different. The source of the trouble seemed so small, so laughably remote, as to be insignificant. And in the first days of the autumn of 1998, McDonough did intervene-and For McDonough to intervene, even in a small way, would take a crisis, perhaps a war. Street, a cloistered agency amid the democratic chaos of markets. The Fed has always been a controversial regulator-a servant of the people that is elbow to elbow with Wall But McDonough tries to stay in the background.

That might upset markets or, in the extreme, the financial system. McDonough especially wants to hear about anything William McDonough, the beefy president of the New York Fed, talks to bankers and traders often. Governing board, in Washington, which is run by the oracular Alan Greenspan. Because of the New York Fed's proximity to Wall Street, it acts as the eyes and ears into markets for the bank's Federal Reserve System, America's central bank. The New York Fed is only a spoke, though the most important spoke, in the U.S. Its arched windows are encased in metal grille, and its main entrance, on Liberty Street, is guarded Project an open, accommodative air, but the Fed building, a Florentine Renaissance showpiece, is distinctly forbidding. A bit further, to the west, Merrill Lynch, the people's brokerage, gazes at the Hudson River, across which lie the rest of America and most of Merrill's customers. The Fed's immediate neighbors include a shoe repair stand and a teriyaki house, and also Chase Manhattan Bank J. Is dotted with discount stores and luncheonettes-and, almost everywhere, brokerage firms and banks. Though a city landmark building constructed in 1924, the bank is a muted, almost unseen presence among its lively, entrepreneurial neighbors. The Federal Reserve Bank of New York is perched in a gray, sandstone slab in the heart of Wall Street.

The Rise and Fall of Long-Term Capital Management

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