Bob -

I liked to add a few refinements to your comments regarding how some avoidable financial mistakes has caused some serious pain in your lifetime.

Milkin didn't do derivatives, he & his cohorts at Drexel helped establish what we now term the "High Yield" market. (Back in the day, such bonds were termed "Junk Bonds".) Overall, the world is far better off with such a market. That said, the HY bond market is not for the faint of heart. Then again, neither are equity markets... Milkin got in trouble for using "inside" information to trade in & out of these bonds.

The LTCM mess was far, far more serious than most realize. The problem was the massive leverage on the part of LTCM, not the implied leverage in the derivative securities they held. The forced liquidiation of LTCM's large positions would have likely caused markets to "sieze up". For once, Greenspan did something right by organizing an orderly sell off of LTCM's book. (Yes, I made a a few bucks from taking positions off of LTCM. Ah, the good ol' days ...)

The current subprime mess was largely created by the Greenspan FED. The FED knew that a real estate 'bubble' was likely to occur as a result of their decision to lower rates to fight the 'Phantom Menance' of deflation. Moreover, the FED also knowingly chose to NOT act (i.e., regulate) lenders when the no-doc and Alt-A volumes started to explode. The FED could have easily nipped the current subprime mess in the bud. Greenspan "rolled the dice" and now we're all suffering for it.

The big losses on The Street recently have been in "stat-arb" books. It appears that many, many of these books were using VERY similar models. (I did stat-arb for a while in my younger days by the way) The last few days, these books have been "reducing risk" i.e., dumping their positions. A typical stat-arb book uses roughly 4-1 leverage these days and just look at all the volatility unwinding these books is causing. Just imagine what dumping the (up to) 100-1 levered LTCM book might have caused ...

I don't view the FED doing it's job as a violation of any free market principles. Don't apologize.

Not every hedge fund trader/portfolio manager is a "cowboy", though I do a know a few. We PhD guys in the financial markets are a highly varied lot: some of the absolute smartest people I have ever known have PhDs and manage money, but some of the absolute dumbest people I've ever known also have PhDs and also have been allowed to manage money ...