> ...you're describing a bail-out. The LTCM lenders and Fed in the financial crisis made money on their books. They were still extending liquidity.

Sorry, but this is just not accurate.

LTCM was a coordinated recapitalization. The New York Fed brought together 14 institutions who put over $3.5 billion of their own capital into the fund in exchange for about 90% of the fund's equity, and then they wound the book down slowly over the following year.

Here, Citadel, without any regulator involvement, made an arm's-length purchase of Situational Awareness' assets at a discount in a competitive auction. It put no money into the fund.

Also, you need to look at what LTCM was versus what Situational Awareness is: LTCM was invested in fixed-income securities with highly-illiquid derivatives exceeding $1 trillion. Its leverage was 25x.

Situational Awareness was a long/short equity fund with 4x leverage in daily-marked, over-collateralized margin accounts, held against liquid large-cap semis, with three well-capitalized prime brokers who saw the failure coming and were prepared to manage the collateral.

> I'm not saying it's a certainty. But claiming there is limited financial risk from any $10+ billion leveraged meltdown is absurd.

You're failing to make a distinction between this fund melting down and the correlated risk. Situational Awareness made leveraged bets in highly crowded trades. While forced selling into an already-falling market can be problematic, it's a second order effect. A symptom, not the cause.

> Private markets move slowly. That gives time to mop up messes. Crises metastasize when they hit public instruments precisely because that's where the most volume, leverage and potential for panic live.

That's not how it works. Slow marks to market don't give you time to mop up messes. They are what allow institutions to keep lending against untested valuations.

And you have it backwards on volume. Volume isn't what makes crises metastasize. It's what lets them resolve. Bad public investments can be cleared in a block trade while private ones have no exit that doesn't set a mark for everyone still holding. This is why 2008 started in mortgage credit that was being carried at model prices. It didn't start in public equities.

If you look at the history of deleveragings, the ones that stay contained are the public ones.