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)

Magnificent!

Well read, very interesting, very entertaining. You will like this book even if you have very little knowledge of finance as long as you have an interest in the human condition. Get it.

Great Primer on Risk

I was definitely educated on the terrible harm overconfidence and a coincidentally favorable market can wreak on a portfolio. Excellent story, kept me listening the whole time.

Good, but not great

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

I would only recommend this too people who are interested in the details of what happens on Wall Street. The reading of this book was well done, and the story was fine, but it was too narrowly focused for me to enjoy as much as I have other books about Wall Street.

What did you like best about this story?

Learning about arbitrage, leverage, and credit during market turmoil.

Which scene was your favorite?

When LTCM had made obscene returns and started investing in areas they had no business touching.

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

No, I had to make myself finish it.

Intriguing story

Fascinating insight into the collapse of LTCM at the end of the last century. The amount of leverage and risk that LTCM partners took,greed and arrogance displayed is mind blowing.And they had the nerve to raise a new fund the year thereafter as if nothing has happened.

Worth the show start

It felt slow to me at the start, and I almost stopped listening. Keep going. It's worth it. Good companion to More Money than God.

Not a Snoozer

This book is utterly fascinating and fast moving. I couldn't turn it off! The writer makes complex issues easy to understand and describes the personalities involved weaving an interesting tale.

Excellent book with valuable lessons

The story of long-term capital management's rise and fall is full of extremely valuable lessons. The author does a great job without saying as much of outlining LTCM's arrogance, failure to recognize their own mistakes and failure to adapt after having experienced the catastrophic results of their investing models. Fast read and very informative.

A must listen for anyone serious about finance

Aside from being genuinely entertaining, it was quite educational. As someone with a career in investment management, specifically in bonds, I found it to be very useful. I highly recommend it.

It was alright, not bad.

It was alright, not bad. Kinda geared toward the banker and capital markets segment. Lot of industry-specific vernacular.

falling off a cliff

Listening to this book provides a great insight into how invincible a small group of people thought they were. Just when you think you have mastered the universe, it begins to unravel right in front of your eyes. Beyond that, you are a witness to how the US government will step in to "protect" the markets when things begin to melt down.