The Federal Reserve-engineered bailout of the Long-Term Capital Management hedge fund last month leaves questions that will haunt the markets long past Halloween. The answers could be even scarier. For example:
– How can the United States lecture Asia about so-called “crony capitalism”–the close ties between government officials, bankers and favored companies–while stepping in to help Wall Street take care of its own? Next, President Clinton will be lecturing on the virtues of marital fidelity.
– If the bailout was aimed at boosting market confidence, why didn’t the Fed push a rescue plan initially proposed by mega-investor Warren Buffett? Surely Buffett’s group had more credibility and fewer conflicts of interest than the banks and brokerages that gave the fund a slightly more lucrative deal.
– Did the Commodity Futures Trading Commission have the right idea earlier this year about regulating over-the-counter markets? Hard to believe, but the heavy-hitting Fed and Treasury Department look foolish for opposing the pipsqueak CFTC so aggressively on the grounds that business would be forced offshore.
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– And if highly leveraged hedge funds are so sensitive to any U.S. effort to regulate them, do they belong within U.S. borders at all? No doubt Long-Term Capital’s headquarters in snooty Greenwich, Conn., gave it an undeserved advantage over competing funds based in Cayman Islands-style havens.
– Does anyone believe the Bank of Italy’s claim about not knowing until last week that its foreign-exchange office had jumped into bed with Long-Term Capital? The central bank’s office had a $100 million direct investment and made a $150 million loan to the fund–enough lira at risk to sink a gondola.
– Are traders in the Chicago Board of Trade’s Treasury bond pit making a killing as Long-Term Capital unwinds its ill-fated market positions? Come and get it– that pot of bailout cash may yet run dry.
CBOT tumult: A key aspect of the Board of Trade’s alliance with the Frankfurt-based Eurex is drawing fire.
Members who question the cost and quality of Eurex trading technology are requesting a vote, delivering a petition with 180 signatures. A member meeting on the topic is slated for next Tuesday.
As it stands, the Eurex deal involves paying a “huge premium” for a dated system, said Burt Gutterman, a Board of Trade veteran and a leader of the petition drive.
Other alternatives could be more cost-effective, he said. For instance, the exchange may be able to upgrade its own Project A trading platform, and interface it with the Eurex network, Gutterman said.
As of Monday, the exchange had no plans for a membership vote on Eurex, according to a spokesman.
New delays: The Chicago Mercantile Exchange has postponed the reintroduction of its buggy Globex 2 electronic trading system for a week, until Sunday.
The need to proceed with other technology projects accounted for the additional delay, a Merc spokeswoman said. Technicians have made all needed corrections to the new system, she said.
Globex 2 had to be shut down for repairs just days after its launch last month.
No hitch: The recent Chicago Board Options Exchange decision to begin trading MCI WorldCom–a direct challenge to the Pacific Stock Exchange–hasn’t scuttled the CBOE-Pacific merger deal.
Although one CBOE member said the new listing was akin to “throwing a pre-nup in somebody’s face the day before the wedding,” P-Coast negotiators in Chicago last week apparently took it in stride. The deal is “moving along,” a CBOE spokeswoman said. The memberships of both exchanges will be asked to vote on the merger once terms become final.