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2 of 3 people found the following review helpful
4.0 out of 5 stars "...in crisis, correlations go to 1"
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...
Published on June 26 2004

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3.0 out of 5 stars Interesting, but fells like a journal
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.
Published 15 months ago by boyan


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3.0 out of 5 stars Interesting, but fells like a journal, April 14 2013
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This review is from: When Genius Failed: The Rise and Fall of Long-Term Capital Management (Paperback)
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
4.0 out of 5 stars "...in crisis, correlations go to 1", June 26 2004
By A Customer
This review is from: When Genius Failed: The Rise and Fall of Long-Term Capital Management (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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5.0 out of 5 stars Not enough Cream on the Coffee, July 12 2004
By 
Golden Lion "Reader" (North Ogden, Ut United States) - See all my reviews
This review is from: When Genius Failed: The Rise and Fall of Long-Term Capital Management (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. LTCM had previously negotiated a warrant by UBS and UBS was being seriously exposed while LTCM was claiming "Future expected returns are good" although Equity Volume was in trouble, Swap margins were increasing, and Treasuries were falling as investors fled to safer securities and as Treasuries were being bought up their rates dropping to 5.56.
With Indonesia falling - all eyes were turned to Russia. There was no rescue by the IMF for the Russian ruble. Shares in Europe and Turkey were weak and Venezuelans were buying dollars all the while swaps margins increased. Aug 21, the Dow fell 280 points and investors continued to prefer the safest bonds, the 30 year treasures, US swaps increased to 76 points, 20 points in one day, Britain swaps increased to 62 points and mortgage spreads spread to 121 points, high yield climbed to 276, and treasurers were at 13. LTCM lost $558 million in a single day, 15 percent of their capital. LTCM was certain the markets would correct rationally and the spreads converge. Losses accumulated faster because leverages increased. Additional $200 million in funding was requested from Merrill Lynch. Hedge funds were not considered a bank and so credit extension regulation was constrained. The drop in LTCM performance caused banks to tighten their credit lines to hedge funds. In fact, the hedge funds poor performance screamed default and banks demanded their entitlement to repayment. LTCM was very close to insolvency. Mattone told Meriwether, "when you're down by half, people figure you can go down all the way" and "your out". Aug 31, the DOW crashed 512 points, Hong Kong Authority stopped supporting local markets by buying local shares. For the month of Aug, LTCM had lost $1.9 billion, 45 percent of its equity capital, and still had $125 billion in derivative assets. Death was imminent, the leveraging could not be stopped, LTCM was immobilized by its size, and Bear was threatening to suspend trading. After reviewing LTCM books, Bear allowed LTCM trades and gave a harsh warning, if they dropped below $500 million all trades would halt.
Sep 10, LTCM experiences a sum lose of $500 million dollar for five days of trading. LTCM still has 7,000 derivative contracts totaling $1.4 trillion dollars.
In 1987, Alan Greenspan was appointed as chairman of the Federal Reserves. Greenspan did not totally understand hedge funds, they were fairly private, and the Fed had no authority over them. Greenspan was nervous about the credit lines extended too these funds. Some call the funds, banks. What were the hedge funds? What is a bank?
The New York Fed keeps in touch with its branches and they talk with private industry, so supposedly the Fed keeps a pulse on the private sector. The Fed has a trading desk and trades $450 billions in treasuries, buying and selling to affect the amount of available money supply. If the Fed buys treasures, this act increase money supply and gives banks more money for banks to loan, and interest rates decrease. If the Fed buys back treasures, this act decrease money supply and makes less available loanable money and interest rates rise.
The volatility of LTCM was rising because it was so vulnerable. LTCM was being pressured by Goldman as they continued buying down increasing spreads. Goldman exasperated the European bond market cutting apart LTCM.
Warren Buffet was a seemly friend but of no help to LTCM. Berkshire Hathaway made an offer: 250 million for $3.57 billion to stabilize the fund and all partners fired. Legal confusion forfeited the deal. The last thing the economy wanted was an economic meltdown, so the Fed offered a deal and the LTCM partners were out in the cold with tears in their eyes, a perfect model (Merton, Black, Scholes) and not enough liquid money to save them against the impossible.
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4.0 out of 5 stars A Fascinating Account of Hubris, June 16 2004
By 
J. Fidler "fid6494" (New York, NY USA) - See all my reviews
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This review is from: When Genius Failed: The Rise and Fall of Long-Term Capital Management (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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5.0 out of 5 stars Excellent engrossing story of finance, greed and ego., June 3 2004
By 
Confused "optiontradingcoach" (Arlington, VA United States) - See all my reviews
This review is from: When Genius Failed: The Rise and Fall of Long-Term Capital Management (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. You almost forget you are reading a true story and instead feel like you are reading a fictional story of greed wealth and international finance.
Great insight into complex trading strategies, hedge fund positions, how investment banks work, derivatives, outright greed and the taking down of a legends in the finance world. I read the book in about a week or so because I could not put it down and plan to read it again.
If you enjoyed the great classic Liar's Poker, then you will find the same great writing style and pure enjoyment.
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5.0 out of 5 stars Is it true? Mindblowing, March 25 2004
By 
Matthew North (New York, NY, United States) - See all my reviews
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This review is from: When Genius Failed: The Rise and Fall of Long-Term Capital Management (Paperback)
Great story. Appears to be very well researched. My only criticism would be that I felt the author was striving for a conclusion or something we could learn from the story. Whilst it certainly kept me turning the pages with intrigue (and I, like some of the other reviewers I notice, wanted to find the right conclusion too), there was no answer and I don't think there is an answer. No doubt we will be persuaded and tempted by fantastic academics with ideas for awesome returns again and no doubt we'll be burnt again too.
The story appears to describe a key episode in history which has influenced how the financial world has developed into what it is today. These few brilliant academics may have brought the largest banks in the world to the brink of collapse and perhaps we should frown upon them for it but they can also, arguably, be credited with shaking up the industry.
The book still, a year on, philosophically entertains me. Is an efficient market a good thing? What kind of greed motivated these people? Can we ever fully compensate for risk?
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4.0 out of 5 stars Not A Work of Fiction - Just Reads Like One, Feb. 7 2004
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This review is from: When Genius Failed: The Rise and Fall of Long-Term Capital Management (Paperback)
Any fool knows that playing the futures game is a risk. But here we have a situation where John Meriwether, having left Salomon Brothers under a cloud, is trusted with lots of investment money to start an arbitrage group - which in hindsight was a half step away from financial insanity. This "arbitrage group" is a fancy way of saying a group of people that gambled on futures using derivatives. Not hog futures but large international financial instruments.
The financial swings and risks were enormous. You might have trouble at the bank getting a car loan but these guys got billions from banks and investors to essentially play the futures markets. The group included academics, market veterans, and financial analysts. The academics were so sure of themselves that they did not even blink at the thought of betting billions. They played for high stakes and won at first. But eventually they lost their stake like some giant crap shoot. Again where were the regulators? Where were the regulators when junk bonds were king and where were the regulators when Enron had their fake trading floor? They did not arrive until the building was on fire and burned down.
The losses were so great that only the Federal Reserve could fix the situation by applying pressure to "encourage" the New York banks to bail out the arbitrage group.
A very interesting read. One has to remind oneself that it is not fiction, but that it all actually happened.
Four stars.
Jack in Toronto
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4.0 out of 5 stars A Four Star Cautionary Tale of Financial Arrogance, Jan. 7 2004
By 
James Sadler (Plano, TX United States) - See all my reviews
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This review is from: When Genius Failed: The Rise and Fall of Long-Term Capital Management (Paperback)
The geniuses who ran Long-Term Capital Management thought they could do no wrong. They believed they had developed a can't fail system of playing small margins in bond and equity spreads. They even projected that only a unique set of circumstances could ever fall into place and spoil the niche they thought they had found in the market. And the odds of that happening were determined to be so infinitesimal that they never were concerned about it.
Naturally, that unique set of circumstances fell into place and brought them down at the same time very nearly ignited a financial crisis that required the intervention of the Federal Reserve to prevent a potential meltdown of the markets. It reads like fiction by the likes of Michael Crichton, but it is all the more frightening that it is true.
This is a true cautionary tale, one that will probably go unheeded by future "geniuses" on the Street. It is well researched and well-told. This book is must reading for anyone interested in the stock and bond markets. It should be required reading for all of the self-proclaimed financial geniuses who keep appearing on Wall Street and who all seem to manage to flame out when they learn that the markets are unpredictable and answer to no one.
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1.0 out of 5 stars really bad, Dec 29 2003
This review is from: When Genius Failed: The Rise and Fall of Long-Term Capital Management (Paperback)
This book was poorly written, poorly edited, and abounds in bad and misleading metaphors and badly presented explanations of the industry and its technical concepts. Even a few grammar and vocabulary slip-ups. Stuff I can't believe got past his editors. This book deals with a fascinating topic in such a slipshod way that it is maddening to read, and impossible to respect as a piece of journalism. I want my money back.
So lousy I was moved to write my first amazon review!
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5.0 out of 5 stars naked display of trader arrogance --, Nov. 4 2003
By 
Bruce R Tizes "galtcapital.com" (St. Thomas, USVI) - See all my reviews
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This review is from: When Genius Failed: The Rise and Fall of Long-Term Capital Management (Paperback)
lowenstein tells the story of a bunch of very very very smart guys who could do three things: trade, raise money, borrow money. unfortunately, it turns out that they really could only do two things, raise money and borrow money. as for trading, they committed the ultimate sin of arrogance -- they BELIEVED they had hedged away all the RISK. anyway, this is not a literary work, but is a very good read.
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When Genius Failed: The Rise and Fall of Long-Term Capital Management
When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein (Paperback - Oct. 9 2001)
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