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)

great listen

the author takes a story of comex finance and brings out the greed and arrogance that shook the world markets reaply well and digestably

Timeless observations about Wall Street

At this point in time with more than a decade past since the failure of Long Term Capital Managment, this book reads more like a historical account of what happened. There are also a great many timeless observations that can also be noted. Sadly many of these have been repeated since.

Recommended for anyone in or attracted to Wall Street to help them avoid the same pitfalls.

Terrific

I wondered if a 9 hour listen could hold my interest, but it sure did. Absolutely terrific.

Timely book for current times...

Good book. Crazy to think this was going on while I was asleep. I won't be caught off guard this time as Central Banks have made the entire world LTCM...

If you are interested in finance, this is a great

Read. You will want to know the downfalls and comebacks of some of the greatest financial companies.

Fabuous writing

Just a great job, from start to finish.

Lessons Learned!

Amazing book! LTCM run taught me a few things. Nothing Last Forever. You have to take a step back to look at the Bigger Picture. When your up you should be on defense not offense. Greed will overcome you if you don't count your blessings when you have them. Stay in the present moment. After all that they raised $250 million then went back at it. NEVER stop trying. Great listen. Recommend this book to everyone who invest.

Recommend

Book is great. The narrator us unprofessional to Say the least. His Reading was So bad and unclear, he shouldn't be Reading at all.

longer than needed

while this is an interesting read, it could have been a shorter book without compromising the message. The first part was ok, the middle dragged on too much and the ending was very strong. Perhaps the problem was too much detail.
At any rate, the book is very well documented and is able to put you in the situation quite easily.
I would recommend this to anyone who wants to see first hand how being smart is not always a garantee to success, but rather business sense

chapters

chapters are misconfigured somehow in the application, causing me to lose track of which chapter I actually was in the book. narrator was perfect though. great story.