174 THE BiG DROP
the region that had their currency pegged to the dollar, with
some attractive investment opportunities but that looked un-
sustainable. Lo and behold, it was Indonesia.
Next thing you know, there was a run on the bank in
Indonesia. Everybody wanted to get his or her money out.
That led, of course, to unemployment, layoffs, busted projects,
bankruptcies, and riots in the streets of Indonesia. This was a
few months later but still, people were killed — there was lit-
erally blood in the streets. After that came South Korea.
This was happening over the course of June, July, August,
September and well into the fall. It was playing out country by
country — exactly like Ebola spreads.
In fact, the mathematics of financial contagion are exactly
like the mathematics of disease or virus contagion. That’s why
they call it contagion. One resembles the other in terms of how
it’s spread.
That’s when the International Monetary Fund, the IMF,
got involved. The IMF started working up bailout projects. By
December, it looked as if things had settled down. We at Long-
Term Capital in Greenwich, were sitting around in the early
part of 1998 making plans to expand our operations in Asia.
We said “hey, look at all this financial distress.” We were
looking at buying Asian Pulp and Paper, because we thought
there were good bargains to be had in Indonesia. Far from
thinking: “We’re the next in line”, we were thinking “With
our $4 billion in cash, what a great opportunity to maybe
pick up some deals in Asia.” Needless to say, we didn’t know
what was coming.
Then, of course, by the spring, the crisis hit Russia. To
this day, a lot of people say: “Oh, Long-Term Capital, I re-
member that story; those are the guys lost all their money in
Russian debt.”
That’s not true. We did lose about $100 million because of
Russia. But our total losses were $4 billion. Not to mention the