Why did MF Global buy Spanish and Italian bonds? Because: “Europe wouldn’t let those countries go down.”
Head guy, Jon Corzine wagered that the European portion of the post-bubble contraction could be fixed. He was betting upon both the theory and practice of interventionist economics.
The reason why LTCM defaulted so dramatically in 1998 was because the huge hedge fund was convinced that as the European Community came together credit spreads would narrow. The head guy was John Meriwether.
Spreads were, indeed, narrowing on a cyclical celebration of risk and then on the seasonal reversal in that fateful May – reversed. The crash was outstanding as Mr. Margin and Mother Nature overwhelmed the very best of theories and their proponents.