This one obscure arbitrage fund had amassed an amazing $100 billion in assets, virtually all of it borrowed—borrowed, that is, from the bankers at McDonough’s table. As monstrous as this indebtedness was, it was by no means the worst of Long-Term’s problems. The fund had entered into thousands of derivative contracts, which had endlessly intertwined it with every bank on Wall Street. These contracts, essentially side bets on market prices, covered an astronomical sum—more than $1 trillion worth of exposure.
