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

4.2 out of 5 stars 119 customer reviews

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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: 13.2 x 1.5 x 20.3 cm
  • Shipping Weight: 181 g
  • Average Customer Review: 4.2 out of 5 stars 119 customer reviews
  • Amazon Bestsellers Rank: #46,999 in Books (See Top 100 in Books)
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Product Description

From Amazon

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 --This text refers to an out of print or unavailable edition of this title.

From Publishers Weekly

In late September 1998, the New York Federal Reserve Bank invited a number of major Wall Street investment banks to enter a consortium to fund the multibillion-dollar bailout of a troubled hedge fund. No sooner was the $3.6-billion plan announced than questions arose about why usually independent banks would band together to save a single privately held fund. The short answer is that the banks feared that the fund's collapse could destabilize the entire stock market. The long answer, which Lowenstein (Buffett) provides in undigested detail, may panic those who shudder at the thought of bouncing a $200 check. Long-Term Capital Management opened for business in February 1994 with $1.25 billion in funds. Armed with the cachet of its founders' stellar credentials (Robert Merton and Myron Scholes, 1997 Nobel Prize laureates in economics, were among the partners), it quickly parlayed expertise at reading computer models of financial markets and seemingly limitless access to financing into stunning results. By the end of 1995, it had tripled its equity capital and total assets had grown to $102 billion. Lowenstein argues that this kind of success served to enhance the fund's golden legend and sent the partners' self-confidence off the charts. As he itemizes the complex mix of investments and heavy borrowing that made 1994-1997 profitable years, Lowenstein also charts the subtle drift toward riskier (and ultimately disastrous) ventures as the fund's traditional profit centers dried up. What should have been a gripping story, however, has been poorly handled by Lowenstein, who obscures his narrative with masses of data and overwritten prose. Agent, Melanie Jackson. Author tour. (Sept.)
Copyright 2000 Reed Business Information, Inc. --This text refers to an out of print or unavailable edition of this title.

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Customer Reviews

Top Customer Reviews

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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Format: 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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Format: 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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