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When Genius Failed: The Rise and Fall of Long-Term Capital Management Paperback – Oct 9 2001


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Product Details

  • Paperback: 304 pages
  • Publisher: Random House Trade Paperbacks; Reprint edition (Oct. 9 2001)
  • Language: English
  • ISBN-10: 0375758259
  • ISBN-13: 978-0375758256
  • Product Dimensions: 20.3 x 13.1 x 1.5 cm
  • Shipping Weight: 181 g
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (113 customer reviews)
  • Amazon Bestsellers Rank: #10,535 in Books (See Top 100 in Books)


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First Sentence
IF THERE WAS one article of faith that John Meriwether discovered at Salomon Brothers, it was to ride your losses until they turned into gains. Read the first page
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Front Cover | Copyright | Table of Contents | Excerpt | Index
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My title said it best - the topic of the book is very interesting, but the writing style does not make you want to finish it in one reading.
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2 of 3 people found the following review helpful By A Customer on June 26 2004
Format: Paperback
The author of this book is a journalist - not a trader or banker - and it's helpful to remember that as you read through this moralistic account of LTCM's rise and fall.
Lowenstein has the audacity to write of Merton, a Nobel Laureate, that he held a "naive belief in perfect markets." Perfect markets may be mythical, but the author is not qualified to call this view naive. The output of the model is as important as the tenability of its' assumptions.
In the end, the fund was too big and successful, not hubristic, to remain in its' sphere of expertise (bond arbitrage) and was forced to become the 800-pound gorilla in other markets like merger arbitrage. Yes, the top two traders were arrogant (a requirement for traders) but the markets broke the fund, not Hilibrand and Haghani.
More details on the transactions would have been interesting but these may have burdened the flow of the book.
There are copious footnotes and the author does a nice job of outlining the players and their stakes in the fund.
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Format: Paperback
1997, 30 year Treasury Bonds Fell to 5.58; traders were selling short to hedge against riskier bonds, treasuries rallied and spreads increased between bonds; Japanese bonds dropped opposite of the bet by LTCM.
Blame the Asian flu, IMF unresponsiveness, and Salomon Barney Smith abandonment of its arbitrage positions as causes for the evaporation of 4 billion dollars LTCM within months. LTCM was too big, possessing $128 billion in assets and $3.6 billion in the bank and 2/5 of money belonging to the owners. Notation derivates reaching leverage 100 to 1 preventing rapid sell off and bankruptcy out of question, for bankruptcy would have caused a world cascade economic crash and loses reaching above $1 trillion. Bankruptcy was not an option; LTCM was too big to fail and the Fed knew it. LTCM only chance was too secure money from warranties, loans, or a buy out; none of which in the end would save them. In the end, the Feds 16 banks would invest $250 million each with a total accumulation of $4 billion dollars rescuing LTCM and the partners would leave with relatively nothing in their pockets. How did smartest guys on Wall Street fail? How did the impossible happen?
1997, Indonesia, Rupiah dropped 85 percent as currency traders forced devaluation revealing a corrupt banking practices and overextension of bad credit; volatility rose to 27 percent.
1998 LTCM bet that no future recession would occur and believed the Bond margins would narrow. Instead, the world economy were experience new global forces as communism was breaking down, China's GNP was heating up, and East Germany was experiencing new economic freedoms. A U.S - 56 point margin increase on the swap, England - 45 point margin, and German - 20 point margin and LTCM was losing money on all of its markets.
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Format: Paperback
Lowenstein is one of the finest financial journalists around, and his work in this book is no exception. More than anything, Long-Term Capital's collapse is the story of hubris and arrogance. The men who ran LTCM were brilliant financial minds and legendary traders, and their investment strategies would worked (or at least not failed on such a massive scale) if they had stayed within their realm of competence (fixed-income arbitrage). But Lowenstein chronicles their ill-fated forays into merger arbitrage, emerging markets and other areas that the gurus of LTCM didn't really understand as well as they thought they did.
The ultimate irony of the story is thatmany involved still don't think they were wrong in their investment strategy, viewing Russia's default (the exogenous event that directly led to the firm's liquidation) as a one-time, unforeseeable event.
With the meticulousness of a great journalist, Lowenstein brilliantly renders a story of arrogance run amok. As a derivatives trader, I think this book is must-reading for any trader or investment professional, since it teaches us all a couple crucial trading lessons: (1) The market is bigger than any one participant, and (2) Check your ego at the door.
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Format: Paperback
This book is a great inside look into the world of finance and greed and hedge funds. Although LTCM was not your typical hedge fund, it did bring some of the brightest minds in finance together for an amazingly successful investment enterpirse, only to watch it fail miserably as ego and pride took over.
Lowenstein does an amazing job of taking complex financial transactions and stories and making them read like pure enjoyable fiction. The book starts out with a background of the main partners in LTCM who started the venture. Geniuses in the private and academic world who wanted to use their knowledge to create an sure fire investment fund guaranteed to make huge profits.
Each character is almost like a fictional figure but they ar emost certainly real and Lowenstein brings them to life through descriptions and anecdotes. Then the investments begin and wether or not you have a strong background in finance, the authoer explains complex interest rate arbitrage strategies in a way anyone can udnerstand them.
The story of how the fund grew to over $100 billion in assets and produced some amazing returns early on is amazing. You see how much money these guys made and how they became richer larger than life figures. Then, they become victoms of their own success. They deterimined that the likelihood of failure was so infintesiimally small that they were basically risk-free. But as Murphy's Law taught us, the unexpected can happen when you think you are better than everyone else and better than the market.
The story provides great details in the characters involved, the transactions, and how the bankers picked apart LTCM to cover all their losses. The writing is excellent and keeps the story moving at a fast pace.
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