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When Genius Failed: The Rise and Fall of Long-Term Capital Management Kindle Edition
NAMED ONE OF THE BEST BOOKS OF THE YEAR BY BUSINESSWEEK
In this business classic—now with a new Afterword in which the author draws parallels to the recent financial crisis—Roger Lowenstein captures the gripping roller-coaster ride of Long-Term Capital Management. Drawing on confidential internal memos and interviews with dozens of key players, Lowenstein explains not just how the fund made and lost its money but also how the personalities of Long-Term’s partners, the arrogance of their mathematical certainties, and the culture of Wall Street itself contributed to both their rise and their fall.
When it was founded in 1993, Long-Term was hailed as the most impressive hedge fund in history. But after four years in which the firm dazzled Wall Street as a $100 billion moneymaking juggernaut, it suddenly suffered catastrophic losses that jeopardized not only the biggest banks on Wall Street but the stability of the financial system itself. The dramatic story of Long-Term’s fall is now a chilling harbinger of the crisis that would strike all of Wall Street, from Lehman Brothers to AIG, a decade later. In his new Afterword, Lowenstein shows that LTCM’s implosion should be seen not as a one-off drama but as a template for market meltdowns in an age of instability—and as a wake-up call that Wall Street and government alike tragically ignored.
Praise for When Genius Failed
“[Roger] Lowenstein has written a squalid and fascinating tale of world-class greed and, above all, hubris.”—BusinessWeek
“Compelling . . . The fund was long cloaked in secrecy, making the story of its rise . . . and its ultimate destruction that much more fascinating.”—The Washington Post
“Story-telling journalism at its best.”—The Economist
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--This text refers to an alternate kindle_edition edition.
From Publishers Weekly
Copyright 2000 Reed Business Information, Inc. --This text refers to an alternate kindle_edition edition.
- ASIN : B000FC1KZC
- Publisher : Random House; 1st edition (Jan. 18 2001)
- Language : English
- File size : 1041 KB
- Text-to-Speech : Enabled
- Screen Reader : Supported
- Enhanced typesetting : Enabled
- X-Ray : Enabled
- Word Wise : Enabled
- Sticky notes : On Kindle Scribe
- Print length : 288 pages
- Best Sellers Rank: #54,361 in Kindle Store (See Top 100 in Kindle Store)
- Customer Reviews:
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Top reviews from Canada
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This book was referred to in several others I've read about '08 crisis so I had to buy it and I'm glad I did. Definitely going to re-read.
I went back to my prof and told him that real-world people don't use Black-Scholes (or BS for short). We got into a heated argument - Theory vs. Practice. I would highly recommend this book for anyone serious about investing. One of my favorites!
Top reviews from other countries
The book starts off, first, talking about how the fund started and then the addition of the few 'head' traders/speculators. They made a huge number of bids in a boat load of financial instruments betting that price 'differences' will eventually converge to equilibrium. Their basis was the efficient market hypothesis, which postulates that markets will eventually converge to a steady state. With their money and self worth on the line, they borrowed an obscene amount of money to bet on the very small oppurtunities that exist (picking up pennies on the road behind a bulldozer). They made a lot of money in return and the banks never failed to lend them more getting a few pennies of their own.
The fall came when an event that is fairly common in global markets happen, crisises. In this case, the default of the Russian debt and hyper inflation. Since LTCM was so levered, and they bet markets would converge, when their bets diverged, they got destroyed. No one wanted to take on any risk and they were there to take all the beating.
A lovely read all the way and bit of foresight on what would happen to the new LTCM once the 2008 financial crash happened.