| When Genius Failed: The Rise and Fall of Long-Term Capital Management | 
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Avg. Customer Rating:   (based on 213 reviews)
Sales Rank: 1075
Category: Book
Author: Roger Lowenstein
Publisher: Random House Trade Paperbacks
Studio: Random House Trade Paperbacks
Manufacturer: Random House Trade Paperbacks
Label: Random House Trade Paperbacks
Languages: English (Original Language), English (Unknown), English (Published)
Media: Paperback
Number Of Items: 1
Pages: 288
Shipping Weight (lbs): 0.4
Dimensions (in): 8 x 5.6 x 0.6
ISBN: 0375758259
Dewey Decimal Number: 332
EAN: 9780375758256
ASIN: 0375758259
Publication Date: October 9, 2001
Release Date: October 9, 2001
Availability: Usually ships in 1-2 business days
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Product Description
John Meriwether, a famously successful Wall Street trader, spent the 1980s as a partner at Salomon Brothers, establishing the best--and the brainiest--bond arbitrage group in the world. A mysterious and shy midwesterner, he knitted together a group of Ph.D.-certified arbitrageurs who rewarded him with filial devotion and fabulous profits. Then, in 1991, in the wake of a scandal involving one of his traders, Meriwether abruptly resigned. For two years, his fiercely loyal team--convinced that the chief had been unfairly victimized--plotted their boss's return. Then, in 1993, Meriwether made a historic offer. He gathered together his former disciples and a handful of supereconomists from academia and proposed that they become partners in a new hedge fund different from any Wall Street had ever seen. And so Long-Term Capital Management was born.
In a decade that had seen the longest and most rewarding bull market in history, hedge funds were the ne plus ultra of investments: discreet, private clubs limited to those rich enough to pony up millions. They promised that the investors' money would be placed in a variety of trades simultaneously--a "hedging" strategy designed to minimize the possibility of loss. At Long-Term, Meriwether & Co. truly believed that their finely tuned computer models had tamed the genie of risk, and would allow them to bet on the future with near mathematical certainty. And thanks to their cast--which included a pair of future Nobel Prize winners--investors believed them.
From the moment Long-Term opened their offices in posh Greenwich, Connecticut, miles from the pandemonium of Wall Street, it was clear that this would be a hedge fund apart from all others. Though they viewed the big Wall Street investment banks with disdain, so great was Long-Term's aura that these very banks lined up to provide the firm with financing, and on the very sweetest of terms. So self-certain were Long-Term's traders that they borrowed with little concern about the leverage. At first, Long-Term's models stayed on script, and this new gold standard in hedge funds boasted such incredible returns that private investors and even central banks clamored to invest more money. It seemed the geniuses in Greenwich couldn't lose.
Four years later, when a default in Russia set off a global storm that Long-Term's models hadn't anticipated, its supposedly safe portfolios imploded. In five weeks, the professors went from mega-rich geniuses to discredited failures. With the firm about to go under, its staggering $100 billion balance sheet threatened to drag down markets around the world. At the eleventh hour, fearing that the financial system of the world was in peril, the Federal Reserve Bank hastily summoned Wall Street's leading banks to underwrite a bailout.
Roger Lowenstein, the bestselling author of Buffett, captures Long-Term's roller-coaster ride in gripping detail. Drawing on confidential internal memos and interviews with dozens of key players, Lowenstein crafts a story that reads like a first-rate thriller from beginning to end. He explains not just how the fund made and lost its money, but what it was about the personalities of Long-Term's partners, the arrogance of their mathematical certainties, and the late-nineties culture of Wall Street that made it all possible.
When Genius Failed is the cautionary financial tale of our time, the gripping saga of what happened when an elite group of investors believed they could actually deconstruct risk and use virtually limitless leverage to create limitless wealth. In Roger Lowenstein's hands, it is a brilliant tale peppered with fast money, vivid characters, and high drama.
Amazon.com Review
On September 23, 1998, the boardroom of the New York Fed was a tense place. Around the table sat the heads of every major Wall Street bank, the chairman of the New York Stock Exchange, and representatives from numerous European banks, each of whom had been summoned to discuss a highly unusual prospect: rescuing what had, until then, been the envy of them all, the extraordinarily successful bond-trading firm of Long-Term Capital Management. Roger Lowenstein's When Genius Failed is the gripping story of the Fed's unprecedented move, the incredible heights reached by LTCM, and the firm's eventual dramatic demise. Lowenstein, a financial journalist and author of Buffett: The Making of an American Capitalist, examines the personalities, academic experts, and professional relationships at LTCM and uncovers the layers of numbers behind its roller-coaster ride with the precision of a skilled surgeon. The fund's enigmatic founder, John Meriwether, spent almost 20 years at Salomon Brothers, where he formed its renowned Arbitrage Group by hiring academia's top financial economists. Though Meriwether left Salomon under a cloud of the SEC's wrath, he leapt into his next venture with ease and enticed most of his former Salomon hires--and eventually even David Mullins, the former vice chairman of the U.S. Federal Reserve--to join him in starting a hedge fund that would beat all hedge funds. LTCM began trading in 1994, after completing a road show that, despite the Ph.D.-touting partners' lack of social skills and their disdainful condescension of potential investors who couldn't rise to their intellectual level, netted a whopping $1.25 billion. The fund would seek to earn a tiny spread on thousands of trades, "as if it were vacuuming nickels that others couldn't see," in the words of one of its Nobel laureate partners, Myron Scholes. And nickels it found. In its first two years, LTCM earned $1.6 billion, profits that exceeded 40 percent even after the partners' hefty cuts. By the spring of 1996, it was holding $140 billion in assets. But the end was soon in sight, and Lowenstein's detailed account of each successively worse month of 1998, culminating in a disastrous August and the partners' subsequent panicked moves, is riveting. The arbitrageur's world is a complicated one, and it might have served Lowenstein well to slow down and explain in greater detail the complex terms of the more exotic species of investment flora that cram the book's pages. However, much of the intrigue of the Long-Term story lies in its dizzying pace (not to mention the dizzying amounts of money won and lost in the fund's short lifespan). Lowenstein's smooth, conversational but equally urgent tone carries it along well. The book is a compelling read for those who've always wondered what lay behind the Fed's controversial involvement with the LTCM hedge-fund debacle. --S. Ketchum
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| Customer Reviews: Read 208 more reviews...
 The danger of ignoring the human element in investing! January 3, 2009
Roger Lowenstein's book is a captivating look at what happens when even brilliant people rely on models and ignore the human element in investing. Their models did not take into consideration that when people are motivated by fear and greed, they are capable of extreme behavior. And as John Maynard Keynes is quoted as saying in the book, "Markets can remain irrational longer than you can remain solvent." LTCM discovered the truth of that statement too late.
LTCM earned great returns in the early years through the use of leverage, derivatives and easy credit terms from its banks. But when the market failed to behave as LTCM's models predicted they would, LTCM's leverage and large, illiquid trades caused them to quickly spiral downward. Even if they had ultimately been proven correct, they could not remain solvent long enough to benefit from their risky trades.
The story of LTCM, as told by Lowenstein, is fascinating. But the thing that intrigued me the most is that it does not appear that the Wall Street banks learned a lasting lesson from the debacle. In order to avoid systemic losses throughout the financial system, there were 14 banks that ultimately bailed out the LTCM fund, including firms like Lehman Brothers, Merrill Lynch, Chase, Goldman Sachs, Salomon Smith Barney, UBS, etc. These financial institutions saw firsthand the devastating losses that could occur due to overleveraging, excessive use of derivatives and providing easy credit terms to borrowers, and yet many of these same firms suffered severe losses in 2008 due to these very same factors. It does make you wonder if this cycle of greed and fear is bound to repeat itself, or if a new paradigm will emerge among financial institutions and regulators to prevent these meltdowns in the future.
This is a riveting book, which I would highly recommend.
Deja Vu December 3, 2008
Scary. Although LTCM rose and fell some time ago, it could be TODAY. Goes into high level of detail on the more obscure things in the capital markets. While not a quick read, an interesting one.
Great Read, Well Written December 3, 2008
This book was a great read, well written, and hard to put down. Highly recommend.
Arrogance and greed November 25, 2008
This story about Long-Term Capital Management seems like a precursor to today's subprime mortgage fiasco that has come so close to collapsing the world financial markets. While much smaller in scope to the problems we are facing today, the LTC story demonstrates one sad truth : the big Wall Street players take on inordinate amount of risks and if they risk collapse, it is ultimately the taxpayer who has to bail them out.
 Fun for everyone... October 7, 2008
This is a fascinating book about the collapse of one of the largest and most sophisticated hedge funds of all time. The book gives great insight to the hedge fund world, as run by Nobel prize winners and other mathematical geniuses, without being technical. Anyone with a passing interest in the world of finance is likely to enjoy this book.
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