When Genius Failed

The Rise and Fall of Long-Term Capital Management

By: Roger Lowenstein

Narrated by: Roger Lowenstein

Length: 9 hrs and 12 mins

Publisher's summary

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.

©2000 Roger Lowenstein (P)2001 Random House, Inc.

Critic reviews

"This book is story-telling journalism at its best." (The Economist)

"Lowenstein [is] one of the best financial journalists there is." (New York Times Book Review)

Excellent finance/economics piece

This is an excellent journalistic economics/finance piece that anyone with an interest in finance or economics would find to be a "must-read," and even those ordinarily intimidated by such subjects would find to be a rivetting human story. It is also a little-known financial failure ... even for me, deeply ensconced in the subject of banking, I was distracted at the very same time by President Clinton's dominance of the airwaves with the Lewinsky scandal. LTCM did receive its share of business page headlines, but was overwhelmed by this other event in the popular mind. The book moves along & is very well read too.

Fascinating look behind the curtain

I couldn't stop listening. As an individual trader, it is worth noting that financial genius can be just as wrong as I often am

A real-life Icarus story.

Would you recommend this audiobook to a friend? If so, why?

There are a few histories of Wall Street that really stand out. The others are mostly written by Michael Lewis. So that puts this book in rarified company.

What did you like best about this story?

The humanization of the two protagonists, John Meriwether and Larry Hillebrand.

Was there a moment in the book that particularly moved you?

The final defeat of Hillebrand, when he's forced to finally open his books for the world to see, was moving. He's not a likable character, but you really feel sympathy for him in that moment.

A Crucial Tool in the Arsenal against Folly

When Genius Failed is an incredibly well researched piece, deserving of being a "must read".

The Ten Year Heads Up

What to make of the fact that the dress rehearsal for the sub-prime bailout occurred in September 1998? What did we know then that we did not learn from? How can we prevent this from recurring or are we simply doomed to continue this? So many questions ...

Roger Lowenstein narrates his own book. I'm from the midwest and so, to me, he sounds distinctly northeastern. It takes a bit of getting used to, but after a couple of chapters, I was fine.

The story was a bit overwrought, especially in the middle. But I was very engaged in the early beginnings of the creation of something so spectacularly successful as Long Term Capital Management, the incredibly quick demise, and whether we learned anything from the whole thing.

Lowenstein does a fine job describing some fairly complex concepts such as bond arbitrage, volatility, and leverage. It helped me grasp many of the underpinnings. The characters were incredibly interesting to me - each genius and mad in their own individual way. They seemed to simultaneously bring out the best and the worst in each other.

This book is especially interesting in light of the subprime and global financial crises of 2008-2010. I can't help feeling as though we failed to heed a lesson.

An excellent tale, well written and well read.

Any additional comments?

The author does an excellent job of bringing the characters and the hedge fund business to life. When I finished it I started from the beginning again.

Business Nonfiction at Its Best

This is a short, clear, and very entertaining history of the rise and fall of Long-Term Capital Management, which was dramatic. This is among the best business books I have read, up there with Liar's Poker.

Great Book, Great Delivery

Not only is this a good book, but the narration os very well done as well.

Great story about the failure of LTCM

Wow how many bad decisions. How much wealth built. The book was thorough and kept me engaged. It is a great story of a lot of growth and a big failure. This was entirely their own fault lots of nuggets here about business and investing.

Could do with better audio

The recording could be a little crisper with better audio quality. Otherwise the book was good. The reporting was very thorough.