The poker game whose outcome could break the $2,400bn bond insurance industry and saddle Wall Street with billions of dollars in losses began in a drab, windowless room in downtown New York at 11 am on January 23.
LTCM bail-out leaves bitter taste
Wall Street is often accused of having a short memory but few bankers have forgotten the evening of September 23, 1998, write Francesco Guerrera and Aline Van Duyn.
On that day, senior executives from 16 commercial and investment banks convened in a wood-panelled room at the New York Federal Reserve and agreed to put up more than $3.5bn to rescue Long Term Capital Management, failing hedge fund Long-Term Capital Management.
That extraordinary meeting – was called by the then president of the New York Fed William McDonough William McDonough, then president of the New York Fed, amid rising concerns that an LTCM collapse would endanger the entire financial system - is.
The meeting is still etched on Wall Street’s collective imagination.
Since then, bankers look at emergency gatherings in times of crisis with suspicion, fearing that being herded in a room with regulators may result in the pain, and expense, of an LTCM-style bail-out.
That is why, when Eric Dinallo, New York’s insurance regulator, called in Wall Street banks
to discuss the mounting problems of monoline insurers last month, many of the participants looked at the move as both momentous and troubling.
Mr Dinallo says he did not call for a bail-out of the insurers.
But to the executives sitting around the table, the parallels with that pivotal meeting a decade ago were all too apparent.
Even the mooted white knight for the monolines – Warren Buffett – was the same as during the LTCM crisis.
Wall Street has been so scarred by those events that other regulators have been careful not to arrange collective gatherings of bankers.
In August, when the Fed wanted to encourage banks to borrow from a newly expanded “liquidity window” aimed at easing the credit crunch, it deliberately set up a conference call to avoid any comparisons with that fateful September evening.
Gathered around the large brown wooden table, under the watchful gaze of past insurance watchdogs, whose austere pictures hang in a neat row along each of its the walls, were representatives of some of the world’s largest banks.
