- Paperback: 288 pages
- Publisher: HarperCollins Publishers (6 October 2001)
- Language: English
- ISBN-10: 9781841155043
- ISBN-13: 978-1841155043
- ASIN: 1841155047
- Product Dimensions: 13 x 1.8 x 19.7 cm
- Boxed-product Weight: 204 g
- Average Customer Review: 3 customer reviews
- Amazon Bestsellers Rank: 23,398 in Books (See Top 100 in Books)
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When Genius Failed: The Rise and Fall of Long Term Capital Management Paperback – 27 Feb 2002
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'A must-read thriller for anyone who works, or invests in markets. It is a story of how arrogance can drive greed and fear to extremes.' Scotsman
'Richly textured and lucid…A riveting account that reaches beyond the market landscape to say something universal about risk and triumph, about hubris and failure.' New York Times
'Lowenstein has written a squalid and fascinating tale of world-class greed and, above all, hubris.' Business Week
'This book is story-telling journalism at its best' The Economist
From the Back Cover
Founded by John Meriweather, a notoriously confident bond dealer, along with two Nobel prize winners and a floor of Wall Street’s brightest and best, Long-Term Captial Management was from the beginning hailed as a new gold standard in investing.
It was to be the hedge fund to end all other hedge funds: a discreet private investment club limited to those rich enough to pony up millions. It became the banks’ own favourite fund and from its inception achieved a run of dizzyingly spectacular returns. New investors barged each other aside to get their investment money into LTCM’s hands. But as competitors began to mimic Meriweather’s fund, he altered strategy to maintain the fund’s performance, leveraging capital with credit on a scale not fully understood and never seen before.
When the markets in Indonesia, South America and Russia crashed in 1998 LCTM’s investments crashed with them and mountainous debts accumulated. The fund was in melt-down, and threatening to bring down into its trillion-dollar black hole a host of financial institutions from New York to Switzerland. It’s a tale of vivid characters, overwheening ambition, and perilous drama told, in Roger Lowenstein’s hands, with brilliant style and panache.
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The gist of the story is that no amount of financial modelling can overcome a “black swan” event, even though the term “black swan” was not a known term at the time of these events.
Fast forward from 1998 to 2008 and the term “black swan” has become a key piece of “financial lexicon” when considering what unforseen uncertainty might do to the value of financial assets and liabilities.
With the benefit of hindsight, some of the geniuses at Long Term Capital Management might have considered financial modelling for a “black swan” event.
The story is also one for detailing the shortcoming and weakness of human character. For example:
• Hubris v humility;
• Arrogance v meekness
• Over confidence v modesty;
• Pride v humility;
• Condescension v respect;
• Disdain v respect;
• Contempt v admiration
and so it goes on.
A reader is somewhat reminded by the verse “as you shall sow, then so shall you reap”. Such an apt phrase seemingly applies throughout the book, but the one stand out is when management decides to fully redeem the capital of the outside investors, with a view to increasing management’s share of the pie, only to find that the geniuses at Long-Term Capital Management had failed to realise that by shafting these investors, they had (in the end) shafted themselves.
This is a chilling harbinger as the crisis that would impact Wall Street ten years later. Roger Lowenstein provides a complex read, well organized, story of finance gone are due to hubris. In this narrative he reviews and defines many investment terms for the novice. Items as hedge fund, derivatives, efficient market hypothesis, repo-financing, IO’s & PO’s, swap and much about probabilities using dice as an illustrative example are put forth.
Most striking is the view the reader obtains from a perch that Lowenstein provides into the New York Fed, Wall Street Banks and particularly the characters and relationships of Jon Corzine and Warren Buffet. This all happening and cloaked while the Clinton Lewinsky scandal was unraveling. The drama almost bought down the world markets.
Arrogance and hubris strikes again, shades of Enron
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