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)

Cautionary Tale, Well Told

LTCM was a high-flying hedge fund that notionally crashed in 1998. While the principle human components (hubris and greed) have been told before, the leveraged arbitrage trade was a rather new twist.

Interesting

I listened to this book as I drove from DC to LA. It only got me to Alabama. LOL!!! It was a really good book though. It's telling about the greed of the financial industry. It reminds us that Wall Street is a smarter man's Vegas with better odds. For all the laissez faire capitalist out there, this book is a wake-up call. There are too many lives tied into the money on Wall Street for it to go loosely regulated.

Top notch financial history

You don't need to know the Black Scholes options pricing model to enjoy this book: The author makes very complex financial history clear and understandable -- no small accomplishment.

Well Done!

This is a fantastic book that touches on every aspect of this intricate event. It presents the technical details at an appropriate level and offers insight into the personal motivations of the key players. To top it off, Lowenstein, through his tone in narrating the book, enlivens the story by subtly interjecting his own perspective.

Details of a story of Wall Street Hubris

An excellent book that details the origins, rise and the fall of Long Term Capital Management. Recommend this for those interested in an interesting financial history.

Great Story

What an excellent story of how complicated financial models can steer even the brightest people toward financial doom. Such an interesting story of genius, success, and ultimately failure. A must listen for those in finance.

awesome book

kinda like a prologue to the big short, LTCMs style that brought about their downfall was not that different from the 2008 crisis

Accessible and Well Thought Out

Good handling of a complex topic. Curious about the afterward, as there may need to be an update. Also, JW's third and latest fund has raised all of $28M as of this review's writing, and based on the same criterion.

Detailed account to empower learning from others’ mistakes

This is an excellent and detailed account of the situation around LTCM to provide some context as well as the actual intricacies of the fund. This story contains lessons that are still relevant and valuable from which to learn today.

Great book poorly read

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

It is a clear exposition of the catastrophic failure of Long Term Capital and the hubris of its most important partners. It's a telling story of why those who wreak havoc on the financial system in pursuit of ridiculous wealth can go unpunished.

What other book might you compare When Genius Failed to and why?

The brightest men in the room and The Big Short

How did the narrator detract from the book?

It was read in a sing song voice which varied little in rhythm or pitch.

Was this a book you wanted to listen to all in one sitting?

no