LTCM actually was doing a lot of the risk management people later said they should do. Their problem was the trades they were doing were more crowded than the realized and they couldn't unwind them cheaply because everyone else was doing the same thing. Plus once people realized they were struggling other market participants started betting against them. There have been other similar situations since then. In August 2007 most of the big quant funds lost double digit percentages in a few days when someone had to unwind a portfolio and statarb strategies stopped working.
That's the point. Their models showed their strategies to be safe, while in reality, their strategy was risky enough to bankrupt the fund, and scare the entire financial system.
> In August 2007 most of the big quant funds lost double digit percentages in a few days when someone had to unwind a portfolio and statarb strategies stopped working.
If your strategy works for years and then a single event erases all the historical profits and puts you in the red, your strategy always sucked because it ignored tail events.
legends say they could have been saved by Warren Buffet, who was interested to buy them at a certain price, but the deal never went on bcs he was in vacation where satellite phone wasnt working.
wikipedia says he turned it down due to risks involved
