Also on the 18th, one of the firms that had been working with Long-Term to raise new capital asked the Long-Term Capital partners if the firm could share the information it had with us. The partners at Long-Term Capital responded that they would prefer to present the information themselves and called me to arrange such a presentation. After conferring with Chairman Greenspan and Secretary Rubin, we agreed that a visit to Long-Term Capital’s offices was needed. A team from the New York Fed, led by Peter Fisher, the head of our Markets Group, and joined by Treasury Assistant Secretary Gary Gensler, met with the Long-Term Capital partners at their offices on Sunday, September 20. During this meeting, we learned the broad outlines of Long-Term Capital’s major positions in credit and equity markets, the difficulties they were having in trying to reduce these positions in thin market conditions, their deteriorating funding positions and an estimate of their largest counterparty exposures. The team also came to understand the impact which Long-Term Capital’s positions were already having on markets around the world and that the size of these positions was much greater than market participants imagined. BIS Review 78/1998  -3-  The New York Fed’s Judgements Mr. Chairman, I would like now to turn to my second point, and focus explicitly on the question of our judgment that the abrupt and disorderly close-out of Long-Term Capital’s positions would pose unacceptable risks to the American economy.
Because of this, during the first two weeks of September, concern about LongTerm Capital was a widespread topic of conversation in financial markets. It is a traditional and essential role for the President and senior officers of the New York Fed to be talking to, and receiving calls from, market participants regarding significant developments and potential dislocations. In fact, the partners at Long-Term Capital called me early in September to notify me of their difficulties and their discussion with investment houses about plans to raise new capital. By Friday, September 18, with the efforts to raise new capital still unsuccessful and with an increasing number of people now aware of Long-Term’s plight because of the efforts to bring in new investors - events seemed to come to a head. With market conditions particularly unsettled that day, I made a series of calls to senior Wall Street officials to discuss overall market conditions. Let me take a moment to put those calls in context. One important objective of the Federal Reserve is to assure financial stability. Particularly in times of stress, it is essential that the Federal Reserve continue to take the pulse of the market. One way to do that is through candid and open communication with key market participants. Everyone I spoke to that day volunteered concern about the serious effect the deteriorating situation of Long-Term could have on world markets.