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)

Captivating Story

I could not stop listening to this book. It was an amazing story. I'm not sure that someone who is not in the financial business would fully appreciate this book, but it is a must read (listen) for anyone who works on Wall Street. One can see the reason that, in 1998, we were "starring into the abyss".

Intricate Illuminating page turner

An intricate, Illuminating page turner that kept me glued to my seat at long intervals. I am not sophisticated in financial trading or tactics, but kept reading, listening to the audible narration simultaneously. This method for me increases my comprehension and apprehension of works like this. To understand a subject like finance and trading, I devote considerable time reading dozens of books on the subject. I gained considerable understanding of LTCM and the market from reading this book. The writing could have been clearer, relying less on the passive voice. Also, although the author’s narration was clear, his voice was irritating. I find that authors don’t perform their books well. It is best to get a professional to narrate. That is what I would recommend here.

Well Read

Quite the complicated subject, narrated well by the author. Enlightening and engrossing, an interesting concoction of history and storytelling.

Quantitative models can be wrong.

I enjoyed this audiobook due to the interesting subject behind it, I must admit that learning how Long Term Capital Management came to be was interesting and their returns was fascinating.

The author also does a good job explaining the downfall of LCTM and shows the problems it created within the financial industry.

However, I had some difficulty going through the entire book and was forced to take several breaks

Great!

As good as the big short, fascinating look at bond and merger arbitrage. Book also fills in details around the liars poker story and salomon brothers, how they made so much money. This would make a great movie if done right.

Good for the context it provides.

I think the readers voice was the hardest part for me. Overall the content was a informative and relevant to the topic. I think it was not overly detailed, and still covered enough detail to keep me engaged.

Deep-dive into a key piece of financial history

Great book about LTCM. A must for finance geeks or people seeking to understand WTF went wrong with this fund back in the late 90s. Odd performance (read by author) by author but quirky voice lent a bit of charm to it.

Hubris

An amazing tale about greed and boldness turned to tragedy in modern day America. Definitely worth getting.

Informative and Accessible

4 of 5 stars.

I’ve never worked in Finance, but I naturally gravitate to stories about financial disasters and the punishment of hubris. Lowenstein gives a compelling account of the rise and fall of Long Term Capital Management which delves into the process of their financial engineering while keeping the details conceptual and not going into the complexity or the math. This is an interesting case study of arrogance and denial, and the outsized impact that modern finance can have on broader markets.

Lowenstein does a serviceable job narrating his material.

Informative and interesting, full of suspense

I read this book with the aim of increasing my knowledge about the stock market and various terminologies etc. I did'nt want to read some dull boring book. My way of getting the hang of things when I am *very* new in a field is to listen (or read) on topics related to that field. Knowingly or unknowingly, you start to pick up terms that you had never heard of.

This Book was a very interesting reading all by itself. Many people are drawn towards the stock markets (or success in general) without understanding that success now can be followed by failure. That is the entire essence about being careful and playing safe. Risk management in short.

This book teaches how to be not blinded by present success blah blah blah. its a very interesting book. Informative and full of suspense. It surely teaches somethings. Besides risk management it teaches the value of experience and the concept of rising back from your fall. Many people just accept one defeat as their entire life. There is a lot that can be learnt from this book. Very interesting.