At the Fed Summary and Analysis

In 1913 the Federal Reserve System was created as a private institution that was managed in the public interest. It was supposed to promote stability in the banking and monetary system. One of its functions is the adjustment of short-term interest rates. A group from the Fed traveled to the Greenwich headquarters of Long-Term. During the meeting, Hilibrand showed them the risk aggregator that summarized the fund's exposure in each market. The Fed representatives were shocked by the numbers that they saw indicating the extent of Long-Term's exposure.

The way the trades were orchestrated, the counterparties were supposed to be protected by their collateral. A failure of the fund meant that the counterparties would have to sell, which would further depress the market. The Fed team concluded that if Long-Term fell, many investment banking companies and banks would...