The chief risk to B is if A defaults in a situation in which the price of the bond has fallen, but B can mitigate this risk by imposing a "haircut," in other words lending less than the market price of the bond. In the markets within which Salomon and LTCM operated, haircuts of 2 percent were standard for long duration U. S. Treasury bonds: in other words, B would lend A only 98 percent of the bond's market price. Haircuts, however, vary with market conditions, with the type of and maturity date of the security, and with B's assessment of the likelihood of A defaulting.

Donald MacKenzie, An Engine, Not a Camera, loc. 1292