LTCM had thought its portfolio was safe because relationships in credit markets were generally stable; now they were stormy. LTCM had thought its portfolio was safe because the correlation between its different strategies was low; with panic driving every market the same way, its positions fell in lockstep. LTCM had thought its portfolio was safe because its value-at-risk estimates suggested it could lose no more than $116 million in a trading day. But now its estimate was off by more than $400 million. Most fundamentally, LTCM had believed in the corrective power of arbitrage. Markets could
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