Remember These Guys?
After a Treasury-bond trading scandal rocked Salomon Brothers in 1991, bond czar John W. Meriwether left the firm and set about launching a hedge fund, Long-Term Capital Management. Meriwether raised what then was viewed as a startling sum from investors: $1.25 billion. He bought $10 million worth of computers. And he assembled a dream team of partners including two winners of the 1997 Nobel Memorial Prize in Economic Science, Myron S. Scholes and Robert C. Merton, and former Federal Reserve Vice-Chairman David W. Mullins Jr. The fund initially delivered double-digit returns, turning its principals into Wall Street superstars. But in 1998 the markets moved against some of the fund's highly leveraged bets on Russian bonds and other financial assets, and LTCM collapsed. The failure might have taken down the financial system were it not for a $3.6 billion bailout organized by the Federal Reserve Bank of New York. Now, Meriwether runs another fund, called JWM Partners. Scholes is chairman of the private equity firm Oak Hill Platinum Partners. Merton is founder and chief science officer of Integrated Finance Ltd., a corporate strategy adviser that uses his Nobel-winning options theory. And Mullins is chief economist at the hedge fund Vega Asset Management USA.