how leveraged was LTCM? Wasn't it something like 100:1? To be honest, most of the hedges i know are of the 130/30 or even 120/80 ilk? They are so not levered it's funny. anyone know personally of a highly levered fund?

Well, to use Nicholas Taleb's terminology, LTCM is the 'black swan' in the hedge fund world that we all best remember. The LTCM meltdown 'never should have happened' according to all of their extremely sophisticated financial models, right?

Taleb's concepts are pretty useful these days. I mean, we all knew that the real estate market would slow down at some point, and common sense says that when it did, the subprime market would take the first and biggest hit. So why is a top bank such as Bear Sterns so exposed? Perhaps because the people betting on the subprime market made money year after year (until the past few months, when they lost it all plus more), while those betting against it (despite being ultimately correct) made less or no money and thus were demoted, fired, whatever.

Don't get me wrong, I'm not arguing in favor of more regulation or any such thing. But it's not the worst thing for people to hear a bit more about the limits of our ability to truly predict the future in any way.

Adding to Stephen's point, doesn't your conclusion in this post -- that LTCM is not a good example -- conflict at least in part with what you said in some of your past posts?

For example, in

http://paul.kedrosky.com/archives/2006/06/13/uncorrelated_co.html

you said that "hedge funds are considerably more correlated than their promoters have pitched."

In

http://paul.kedrosky.com/archives/2006/08/28/the_price_of_co.html

you cited an article about "investors' inability to properly price geopolitical risk."

Both of those posts would seem to invite a comparison with LTCM and current hedge funds, do they not?